The share has increased by 10,000% in 33 years
Vertex Pharmaceuticals has significantly outperformed the market over the past decades. The company owes its performance to a well-defined strategy and its innovative capacity.
Investing in stock markets is a reliable, wealth-growing strategy. Over the past 33 years, the average annual return of the S&P 500 has been around 10.6%. It’s hard to find a much better return than anywhere else.
However, some individual stocks have performed even better. Take Vertex Pharmaceuticals, a leading biotech company whose average annual return since its 1991 initial public offering (IPO) is 15.1%. The pharmaceutical manufacturer has grown by 10 310%.
That’s an impressive achievement, but Vertex still has plenty of growth ahead of it, and the stock looks like a solid buy-and-hold forever pick. Here’s why.
The secret of Vertex’s success
Around 7 000 rare diseases affect between 25 and 30 million Americans. Many do not have approved therapies that target their underlying causes. So it is not difficult for a biotech company to pick a target in this universe of unmet medical needs that could prove very lucrative. The challenge is to develop effective medicines. This is Vertex’s main (but not only) focus. The company aims to target the underlying causes of diseases for which there are few, if any, therapies.
Its work on cystic fibrosis (CF) over the past decades is an amazing success story. CF is a disease that affects around 92 000 patients in North America, Europe and Australia. It causes damage to internal organs. And until Vertex’s breakthrough – its first CF product was formally approved in the US in 2012 – there were no drugs that treated the disease at the genetic level. Vertex has been rewarded handsomely for its progress in this area. Revenues and profits have grown rapidly.
But that is in the past. Can Vertex Pharmaceuticals still perform well going forward?
Don’t change a winning formula
Success in business does not happen by chance. Yes, there is often an element of luck. However, companies that perform consistently well over a long period of time must have the vision and ability to implement a winning strategy. The Vertex vision remains the same. Drugs for rare (and not so rare) diseases are still being developed. In the past, biotechnology has proven that it can be done. Many of its peers tried to develop competing CF therapies. All have failed so far.
Vertex is now showing itself outside its core area. It recently received approval for Casgevy, a gene-editing treatment for a couple of rare blood-related diseases. It advances key programs through its pipeline. Inaxaplin, a potential treatment for APOL1-mediated kidney disease, is now in the phase 3 part of a phase 2/3 study.
Suzetrigine, an investigational medicine for acute and neuropathic pain, performed well in a late-stage clinical trial, the results of which were announced earlier this year. Painkillers are widely available, but they often have burdensome side effects, so there is still a need here.
Even Vertex’s early programs look promising. The company aims to ‘cure’ type 1 diabetes with VX-880. In an ongoing phase 1/2 study, three patients with at least one year of follow-up have achieved insulin independence. All people with type 1 diabetes (as opposed to the type 2 variant) usually need insulin. These results are impressive even if it is too early to celebrate. There is more happening with Vertex Pharmaceuticals.
But the important point is this: don’t invest in biotechnology because of specific clinical programs. VX-880 may prove ineffective and so may inaxaplin. Despite positive phase 3 results, suzetrigine may face unforeseen regulatory roadblocks. After all, Vertex has faced such clinical or regulatory headwinds before.
For example, in October 2020, the biotech halted a phase 2 trial for an otherwise promising candidate partly due to safety concerns. The company’s shares fell like off a cliff in one day as a result.
The lesson? Vertex’s future prospects do not depend on any single program. The company’s strength is its clear vision and strategy and its culture of innovation, which allows it to achieve that vision. This is what makes Vertex Pharmaceuticals stock worth keeping forever.
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