Vertex Pharmaceuticals Stock Is Approaching a Huge Catalyst, But Is It a Buy?

Vertex Pharmaceuticals (VRTX -0.01%) shareholders know just how good it can be to ride a biopharma stock upward as it notches positive milestones year after year. With its shares up by 99% in the last three years alone, one would be forgiven for expecting that this company is going to be slowing down for a while.

But, as it turns out, another massive catalyst is probably right around the corner, and it could make the other recent accomplishments look trivial in terms of the financial effect. Here’s what you need to know about what’s going on and how it’ll affect your decision about whether to invest in the stock.

This key program might not live up to expectations

On Jan. 30, Vertex reported the results from its two phase 3 clinical trials of VX-548, a painkiller intended for treating moderate to severe pain. While the trials met their primary endpoint, which was to significantly reduce the pain experienced by patients after receiving abdominoplasty surgery or bunionectomy surgery beyond what might be possible with a placebo, they were not a total success.

The secondary endpoint, which was to prove that VX-548 was more effective at relieving pain than an opioid painkiller, was not reached, meaning that the candidate wasn’t as helpful for patients as a low-potency opioid medication. Management hasn’t indicated that there will be any attempt to do additional clinical trials to get more favorable results, though a phase 2 trial for the drug’s ability to treat peripheral nerve pain is still ongoing and could yield positive findings upon completion.

The implications of the failure to meet those secondary objectives are massive for investors. Per a market research report by Precedence Research, the global pain management market was worth around $78 billion in 2022, $42 billion of which was derived from sales of non-opioid drugs. By 2032, that subset of the pain management market could be worth close to $80 billion, and the wider market is sure to be even larger.

But if VX-548 is successfully commercialized, it won’t be able to access the entire market as initially envisioned as it won’t be effective enough to compete against the opioid medicines on the basis of acute pain relief.

The company is now assembling its petition to regulators at the U.S. Food and Drug Administration (FDA) for the candidate’s approval for sale. It hopes to submit the paperwork before mid-year. Since the program has both Breakthrough Therapy and Fast Track designations, it should get its application processed a bit faster than it would otherwise, though it’s a toss-up as to whether that means it’ll be out the door before the close of 2024.

Investors should recognize that, assuming VX-548 gets approved (and based on the reported data, it probably will), it’ll still take a couple of quarters after launch to get a good feeling for how much market share it’s actually gaining relative to expectations. Nonetheless, news of the program’s approval is likely to be a large catalyst for Vertex’s stock.

There’s plenty of upside here

Now, let’s approach the question of whether Vertex is worth investing in, given its less-than-desired clinical trial results and everything else it has going on.

VX-548 has a massive market to approach. And as it’s a brand-new solution in a challenging field where there’s almost always a strong need for additional tools to put into clinicians’ toolboxes, it is very likely that it will find some traction. The fact that it whiffed its original aim of one-upping the opioid class of drugs does indeed permanently decrease its addressable market.

But there’s no point in focusing on the negative when there’s still an abundance of opportunity on the table. Plus, commercializing the program will mark yet another success. It’s a big step toward Vertex’s longstanding goal of diversifying its product portfolio beyond its traditional fare, drugs for treating cystic fibrosis (CF).

The rest of Vertex’s portfolio is still going to keep yielding growth, too. Its gene therapy Casgevy for both sickle cell disease (SCD) and beta thalassemia just launched, and the company hopes to launch a total of five medicines by 2028. According to Wall Street analysts, the business is expected to bring in $10.6 billion on average in 2024. In the year after that, its top line could be as large as $11.5 billion. Given that it’s strongly profitable, the company will likely be accumulating more resources over time as it grows.

Therefore, it’s worth buying Vertex Pharmaceuticals on the basis of its pain program’s probable future revenue. There’s always the risk that regulators will have an issue with the application and require more work before granting an approval. But with the data it has in hand and plenty of income, any issues will probably be worked out as quickly as possible, so don’t let that dissuade you from making a purchase.

Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

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