Vertex Pharmaceuticals is an uncommon opportunity in rare diseases

Vertex Pharmaceuticals (Nasdaq: VRTX) specialises in treatments for rare diseases. It has eight approved medicines on the market. Seven of these are medicines for various types of cystic fibrosis (CF), a disease for which Vertex is the only drug company with approvals from America’s Food and Drug Administration (FDA).

It has been developing new CF drugs for 20 years and aims to offer treatments for every possible CF variant. It was the first company to receive FDA approval, in December 2023, for Casgevy – a genome-edited cell therapy for sickle-cell disease and another blood disorder, beta thalassaemia. These are serious illnesses requiring continuing treatment.

CF is a life-shortening, genetic disease causing thick mucus to build up in the lungs, pancreas and digestive system. There are 94,000 CF patients in the US, Europe, Australia and Canada. Symptoms include a chronic cough, shortness of breath, frequent lung infections (pneumonia, bronchitis), constipation and sinus pain.

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For children it causes slow growth, clubbed fingers and delayed puberty. Sickle-cell disease causes extended painful episodes (sickle-cell crises); increased risk of infections; anaemia (leading to tiredness and shortness of breath); serious joint complications; swelling of hands and feet; and delayed growth and development in children.

Vertex Pharmaceuticals has a well-stocked pipeline

Vertex’s pipeline is well-stocked, with four new drugs in Phase III-clinical trials (the final phase before regulatory approval) for type-1 diabetes, diabetic peripheral neuropathy, and two kidney diseases.

There are also Phase I/II clinical trials for CF, type-1 diabetes, polycystic kidney disease and myotonic dystrophy type 1 (serious muscular dystrophy).

In addition, there are eight research programmes covering all the disease areas mentioned above. They should enter clinical trials soon. Finally, Vertex has outlicensed a portfolio of programmes (two in clinical trials) to Merck Germany that are first-in-class treatments for multiple types of cancer. Merck should be a useful partner for these, since it already has three oncology drugs on the market and eight in clinical trials in its pipeline.

Journavx, Vertex’s nonopioid pain-signal inhibitor for moderate-to-severe acute pain, was approved by the FDA in January 2025. It is the first new-class pain medicine approved for 20 years and has a potentially large market, since 80 million Americans are prescribed a medicine for this type of pain.

Meanwhile, a recent clinical trial of VX-880, a stem cell-derived treatment for type-1 diabetes, has shown encouraging results after six months – nine of 12 participants no longer needed insulin, and two others displayed significant reductions in the amount of insulin required. Vertex received FDA approval for another new medicine in December 2024 – Alyftrek, a triple-combination treatment for CF.

Investment on the rise

Vertex’s results for the 2023 financial year show revenue of $9.9 billion, an increase of 11% from 2022 driven by Trikafta/Kaftrio for CF, which was up 16.4% to $8.9 billion. The US accounted for $6 billion with $3.8 billion from other countries.

Investment in research and development (R&D) in 2023 was $3.2 billion plus $0.53 billion of acquired R&D, giving a total of $3.7 billion compared with $2.7 billion in 2022, an increase of 39% to advance the pipeline. The $3.69 billion represents an R&D intensity (R&D as % sales) of 37.4%, compared with a typical pharmaceutical company’s intensity of 15%- 20% (the figure for Pfizer, for instance, is 18.3%).

At the 2023 results announcement, the group projected that 2024 revenues would reach between $10.6 billion and $10.8 billion, but the 2024 results reported revenue of $11.02 billion, which gives growth of 12%. With Casgevy’s buildup, two new drugs launching in 2025 and three others likely to complete Phase-III trials in 2026, further growth is likely over the next few years.

A steady rise in profitable growth

Vertex has a market value of $122 billion with a recent share price of $476. The average estimate of earnings per share (EPS) for 2025 is $18.50, up from $14.05 in 2023. The share price is well below fair value, calculated by discounted cash flow of $708, probably because full-year 2024 EPS were a negative $2.08.

The reason for the loss in 2024 is that Vertex agreed to acquire Alpine Immune Sciences in April to gain its expertise in protein engineering and immunotherapy.

In addition, Alpine brings povetacicept, a pipeline drug for IgA nephropathy (a serious kidney disease) which entered its Phase-III clinical trial in late 2024 and has the potential to benefit patients with other serious autoimmune kidney diseases.

The acquired R&D from Alpine was $4.5 billion and this tipped Vertex into a loss of EPS $13.9 per share for the second quarter of 2024. Even though the third and fourth quarters showed a profit, the overall result for 2024 was still a loss of $2.08. EPS are expected to reach $17.90 in 2025, rising to $20.40 in 2026 and $23.40 in 2027.

Thanks to the growing revenue from CF, Casgevy’s build-out and further launches of new products in 2025 and 2026, Vertex now seems set for steady profitable growth. There is no dividend. At the recent share price of $476, the forward price/ earnings (p/e) ratio is 26.6 for 2025, falling to 23.3 for 2026.

The share price ranged from $448 to $517 in the second half of 2024, so the current price of $476 offers a reasonable entry point for a growing and profitable specialist in rare diseases.

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