Investing in biotech stocks isn't for everyone. An unsuccessful clinical trial can cause a huge decline. The competition is usually fierce. Volatility is almost always present.
However, some biotech stocks are exceptions to the rule. And one, in particular, looks like a great pick even for investors who normally would avoid biotech altogether. Here are three reasons why I think Vertex Pharmaceuticals(NASDAQ: VRTX) is the best biotech stock to invest $1,000 in right now.
1. Resilience
Sure, Vertex Pharmaceuticals can exhibit some volatility. But it's far less volatile than most biotech stocks. Vertex's beta coefficient over the last five years is a super-low 0.41.
I think this low volatility is due in large part to the company's resilience. Vertex commands a monopoly in treating the underlying cause of cystic fibrosis (CF). The nearest potential rival to Vertex is only in phase 2 testing -- years away from even having a possibility of competing against its drugs.
Vertex expects to generate sales in the ballpark of $10.75 billion this year, most of which will stem from its CF franchise. An economic pullback or major geopolitical crisis shouldn't impact the company's revenue much, if at all. Patients will still need its CF drugs regardless of what happens in the world.
The company's strong financial position also adds to its resilience. Its cash stockpile totaled $10.2 billion as of June 30.
2. Growth prospects
While Vertex's resilience allows investors to play defense, its growth prospects enable them to go on offense. And that growth should be spectacular.
The company's launch of Casgevy, which treats sickle cell disease and transfusion-dependent beta-thalassemia, is in the early innings. Casgevy is the first CRISPR gene-editing therapy to win U.S. regulatory approval, and is expected to become a rousing commercial success over time.
Vertex awaits U.S. Food and Drug Administration (FDA) approvals for two potential blockbuster drugs. The FDA should announce its approval decision for the vanzacaftor triple-drug combination in treating CF by Jan. 2, 2025. A decision on approval of suzetregine in alleviating acute pain is anticipated later that month.
The biopharmaceutical company will soon advance suzetregine into a pivotal phase 3 study targeting diabetic peripheral neuropathy, a type of nerve damage that sometimes affects people with diabetes. It's also moving forward in the third quarter of 2024 with a late-stage study evaluating povetacicept in treating IgA nephropathy, a rare kidney disease.
Inaxaplin is already in a phase 3 trial for treating APOL1-mediated kidney disease. This indication would open up an even bigger market than CF to Vertex if the experimental drug wins approval.
Vertex's pipeline also features several promising programs in phase 1 and phase 2 testing. They include other target indications for povetacicept and suzetrigine, a next-generation nonopioid pain drug (VX-993), a messenger RNA therapy for CF (VX-552), and a therapy targeting myotonic dystrophy type 1. Arguably the most important programs to watch, though, are the company's islet-cell therapies, which hold the potential to cure type 1 diabetes.
3. Valuation
It wouldn't be surprising if Vertex Pharmaceuticals' valuation was priced at a premium, considering all the positives the company has going for it. However, that's not the case at all when Vertex's growth prospects are factored in.
The biotech stock's price-to-earnings-to-growth (PEG) ratio is a super-low 0.58, according to the London Stock Exchange Group (LSEG). Any PEG ratio below 1.0 is viewed as an attractive valuation.
The bottom line
Vertex might have a few clinical setbacks along the way. But with multiple late-stage programs -- which have a greater probability of success because they've already passed earlier safety and efficacy hurdles -- Vertex's risk doesn't particularly concern me.
An initial amount of $1,000 would allow you to pick up a couple of shares of Vertex Pharmaceuticals. I think an investment in this biotech stock will pay off handsomely over the rest of the decade and beyond.
Should you invest $1,000 in Vertex Pharmaceuticals right now?
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Keith Speights has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
