It’s hard to sugarcoat the current state of equity markets and the broader economy. Things don’t look good. Inflation, a potential recession on the way, geopolitical tensions, and supply chain issues are just some of the challenges we face. With all that going on, it might be tempting to give up on investing in stocks right now.
However, it’s worth noting that some companies are doing just fine, even amid all these troubles. Let’s look at two such corporations in the biotech space: Vertex Pharmaceuticals (VRTX 4.79%) and Exelixis (EXEL 0.37%). These drugmakers have done an excellent job of defying the market sell-off this year, at least so far. Here’s why they could continue along that path.
1. Vertex Pharmaceuticals
Vertex Pharmaceuticals’ shares have soared 24% year to date despite the macroeconomic headwinds in its way. The biotech owes that in part to its dominance in the market for drugs that treat the underlying causes of cystic fibrosis (CF), an area in which Vertex is the only game in town.
Revenue and earnings continue to grow for Vertex thanks to its CF franchise. But the market is forward-looking. And the biotech’s long-term prospects beyond CF are also playing a significant role in its performance this year. Vertex is developing several exciting drugs that could become highly successful.
Let’s consider two. First, there’s VX-548, a potential treatment for acute and neuropathic pain (pain caused by nerve damage). Although pain treatments exist, they are limited. Opioids are a standard option for acute pain, but as we learned from the recent opioid epidemic, their use and misuse can have profoundly negative consequences for entire communities.
Other medicines suffer from drawbacks as well. Acetaminophen is a popular pain medication sold under several brand names, including the all too familiar Tylenol. Taking too much acetaminophen is the leading cause of acute liver failure in the U.S.
Vertex argues that there hasn’t been a major breakthrough in this therapeutic area for decades, and that patients have a dire need for new options. The company plans on starting a phase 3 study for VX-548 in the fourth quarter.
Second, there is VX-880, a potential therapy for type 1 diabetes. This targets one of the underlying causes of this condition: patients’ inability to produce insulin. Vertex has released encouraging data from two patients in an ongoing phase 1/2 study of VX-880.
The first patient’s glucose time in range (TIR) — how long a person’s blood sugar stays within certain parameters — increased from 40.1% before treatment to 99.9% 270 days post-treatment, a point by which the patient achieved insulin independence. The second saw glucose TIR increase from 35.9% to 51.9% at day 150, and the patient needed 30% less external insulin. VX-880 still has a long way to go, but targeting the underlying causes of a disease is an approach that has served Vertex well before.
In all likelihood, the company’s next launch will be exa-cel, a potential one-time curative treatment for sickle cell disease and transfusion-dependent beta-thalassemia, two blood disorders with few therapy options. Vertex plans to send applications for exa-cel in the U.S. and Europe by year-end, with potential launches in these respective markets happening sometime next year.
Within the next five years, expect the company to continue generating revenue from its CF products while it benefits from newer therapies. That means higher revenue, higher profits, and a solid stock-price performance. These factors make Vertex Pharmaceuticals a top stock to buy right now.
Exelixis is a biotech that focuses on cancer treatments. That’s not a bad place to be. While oncology is a highly competitive therapeutic area in the biotech industry — with many of the largest drugmakers present in this field — it’s also one of the biggest by total sales and one of the fastest-growing. Exelixis’s main product is Cabometyx, which treats some forms of kidney cancer and liver cancer.
This single product has racked up regulatory approvals one after another, and it continues to do so. A major new indication it earned last year — as a first-line combination therapy for advanced renal cell carcinoma (a form of kidney cancer) — was instrumental in driving Exelixis’ revenue and earnings upward.
There’s more where that came from as Cabometyx is undergoing dozens of clinical trials, either as a stand-alone therapy or a potential combination treatment. Last month, the company released positive results from a phase 3 clinical trial for its crown jewel.
Exelixis is looking to expand its revenue base. In June, it started a phase 3 clinical trial for its candidate XL092 as a potential treatment for metastatic colorectal cancer. This form of cancer is the third most common and the third-deadliest in the U.S., and it is challenging to treat after it has metastasized, which is when about 25% of cases are diagnosed.
Exelixis has other programs in early-stage studies. Diversifying over several therapeutic areas has its perks, but Exelixis’ laser-focused approach to developing novel cancer therapies has been successful in the past, thanks to Cabometyx. I expect the company to continue reaping the rewards of these efforts as its current programs eventually pay off.