Investing in the stock markets is a reliable strategy that generates wealth. Over the past 33 years, S&P 500 IndexThe average annual return is around 10.6%. It is difficult to find a much better return elsewhere.
However, some individual stocks have performed even better. Vertex Pharmaceuticals (NASDAQ: VRTX)a leading biotechnology company whose average annual return since its initial public offering (IPO) in 1991 is 15.1%. The pharmaceutical company has grown by 10,310%.
It’s an impressive performance, but Vertex still has plenty of growth ahead and the stock looks like a solid buy-and-hold option. Here’s why.
^SPX data by YCharts.
The secret of Vertex’s success
Some 7,000 rare diseases affect 25 to 30 million Americans. Many of them have no approved therapies that address their underlying causes. So it’s not hard for a biotech company to pick a target in this universe of unmet medical need that could prove highly lucrative. The hard part is developing effective drugs. That’s Vertex’s primary (though not only) focus. The company seeks to attack the underlying causes of diseases for which few, if any, therapies exist.
Their work in the field of cystic fibrosis (CF) over the past two decades is an astonishing success story. CF is a disease that affects about 92,000 patients in North America, Europe and Australia. It causes damage to internal organs. And until Vertex’s advances—its first CF product was formally approved in the U.S. in 2012—there was no drug that addressed the disease at the genetic level. Vertex has been handsomely rewarded for its progress in this field. Revenue and profits have grown rapidly.
VRTX revenue data (quarterly) by YCharts.
But that’s a thing of the past. Can Vertex Pharmaceuticals continue to perform well in the future?
Don’t change a winning formula
Success in business doesn’t happen by chance. Yes, there is often an element of luck. However, corporations that consistently perform well over a long period of time must have a vision and the ability to execute a winning strategy. Vertex’s vision remains the same. It continues to develop drugs for rare diseases (and not-so-rare diseases, too). In the past, the biotech company has proven it can do just that. Many of its peers tried to develop competing therapies for cystic fibrosis. They all failed — until now.
Vertex is proving its worth outside its core area. It recently won approval for Casgevy, a gene-editing treatment for a pair of rare blood-related diseases. It is advancing key programs across its pipeline. Inaxaplin, a potential therapy for APOL1-mediated kidney disease, is now in the Phase 3 portion of a Phase 2/3 study.
Suzetrigine, an investigational drug for acute and neuropathic pain, performed well in a late-stage clinical trial, the results of which were announced earlier this year. There are many painkillers available, but they often have bothersome side effects, so it remains necessary in this area.
Vertex’s initial programs also 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 variety) generally need Insulin. These results are impressive, although it is too early to celebrate. Vertex Pharmaceuticals is working on more things.
The important point, however, is this: Don’t invest in biotechs based on specific clinical programs. VX-880 could prove ineffective, as could inaxaplin. Despite positive Phase 3 results, suzetrigine could run into unforeseen regulatory hurdles. After all, Vertex has faced such clinical or regulatory hurdles in the past.
For example, in October 2020, the biotech company halted a Phase 2 study for a promising candidate in part due to safety concerns. As a result, the company’s stock plummeted within a day. Here’s how the stock has performed since then.
VRTX Total Performance Level data by YCharts.
The lesson? Vertex’s prospects are not dependent on any particular program. The company’s strength is its clear vision and strategy and its culture of innovation, which enables it to make that vision a reality. This is what makes Vertex Pharmaceuticals stock worth holding on to forever.
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Prosper Junior Bakiny has positions in Vertex Pharmaceuticals. The Motley Fool has positions in Vertex Pharmaceuticals and recommends it. The Motley Fool has a disclosure policy.
1 Stock That Rose 10,000% in 33 Years and Is Worth Buying and Holding Forever was originally published by The Motley Fool