Vertex Pharmaceuticals stock (NASDAQ: VRTX) is trending higher after the U.S. FDA approved Journavx – an oral non-opioid pain medication. This is a big win for Vertex, given that Journavx can potentially garner $4 billion in annual peak sales. For perspective, Vertex’s company-wide sales are around $11 billion currently. Journavx comes without the risk of addiction, likely making it a favorable pick for physicians. Journavx is indicated for managing moderate-to-severe acute pain conditions, typically stemming from surgeries, injuries, medical procedures, illnesses, or trauma. According to Vertex, approximately 80 million U.S. patients receive prescriptions annually for medications targeting moderate-to-severe acute pain.
This development boded well with the investors, evident from a 9% rally in after-market hours on Thursday, January 30. But, if you want upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
VRTX stock has fared well in recent years. It rose 106% from levels of $220 in early 2022 to $450 now. This can be attributed to:
- a 46% rise in the company’s trailing P/S ratio from 7.5x in 2021 to 11.0x now; and
- a 40% rise in the company’s revenue from $7.6 billion to $10.6 billion over the same period.
Vertex Pharmaceuticals’ revenue growth has been driven by strong uptake in Trikafta/Kaftrio – a prescription medicine used for the treatment of cystic fibrosis – amid label expansion and better price realization. Notably, 93% of the company’s total sales are generated by Trikafta/Kaftrio. Vertex’s Casgevy – a CRISPR gene-edited cell therapy for the treatment of sickle cell disease and beta thalassemia secured the regulatory approval last year, but it hasn’t contributed much to the company’s top line so far. However, its peak sales are estimated to be over $2 billion.
Although Vertex has seen solid sales growth lately, its operating margin has contracted by 1,150 bps from 51.4% in 2021 to 39.9% now. This can be attributed to the company’s increased investments in R&D. For perspective, R&D expenses rose 78% since 2021, versus a 40% rise in sales.
With a rise in Trikafta demand, the investors have assigned a higher valuation multiple for VRTX stock. The increase in VRTX stock over the recent years has been far from consistent, and has largely been as volatile as the S&P 500. Returns for the stock were -7% in 2021, 32% in 2022, 41% in 2023, and -1% in 2024.
In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, is less volatile. And it has comfortably outperformed the S&P 500 over the last four-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Looking forward, VRTX stock may continue to see higher levels. At its current levels, VRTX stock is trading at 11.0x trailing revenues, higher than the stock’s average P/S ratio of 9.2x over the last four years. However, a rise in valuation multiple seems justified, given the uptick in Trikafta sales. Furthermore, the Journavx approval means Vertex can look forward to an even better top-line growth in the coming years.
While VRTX stock looks like it may see higher levels, it is helpful to see how Vertex Pharmaceuticals’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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