Vertex Pharmaceuticals

Vertex Pharmaceuticals

Sales of cystic fibrosis treatments from Vertex Pharmaceuticals (NASDAQ: VRTX) are on pace to pass $10 billion annually, but investors want to see the company expand beyond an indication that only affects around 105,000 people globally.

To help expand its addressable market, Vertex finished September on pace to spend more than $3 billion on research and development in 2023. Soon, investors will see if an important portion of that research can pay off.

In early 2024, Vertex is expected to share results from two studies with VX-548. This is a new, non-opioid pain-relief candidate that inhibits NaV1.8, a protein that plays a crucial role in sending pain signals to the brain.

Last November, Vertex said it had already finished a phase 3 trial with VX-548 as an acute pain reliever for patients following "tummy tuck" procedures. Another phase 3 trial with patients who just had bunions removed from their feet has likely wrapped up as well.

A new way to treat chronic and acute pain could bring in billions for Vertex, but success in phase 3 is far from guaranteed. Pain is hard to measure, and trials designed to measure pain relief are highly subject to a placebo effect. This combination of challenges makes developing new pain drugs a risk that most drugmakers avoid.

Shares of Vertex are up more than 40% over the past year thanks to the recent approval of the first therapy from its collaboration partner, CRISPR Therapeutics. The rally pushed its valuation up to 24.9 times forward-looking earnings expectations.

Vertex Pharmaceutical's valuation appears reasonable when you consider how rapidly sales of its cystic fibrosis drugs have grown so far. Looking ahead, though, there aren't enough untreated patients available to continue growing at the same pace.

Vertex's pain-relief program could produce results that push the stock higher, but the stock presents a level of risk that should convince cautious investors to keep looking for better ideas.

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