Vertex: Leading in Cystic Fibrosis Therapeutics
Vertex has firmly established itself as a dominant player in therapeutics for cystic fibrosis (CF) – a genetically based condition with limited treatment options. With strong pricing power, robust demand, and few competitors in this space, Vertex has built a strong position. Notably, their latest product, Trikafta, accounts for nearly 90% of their total sales. Despite the concentration of revenue, Vertex is expected to maintain its market dominance in the rare disease drug market.
Vertex has also ventured into the realm of gene-editing with partner CRISPR Therapeutics. They recently received regulatory approvals for a gene-edited product and have ongoing clinical studies in diabetes, pain management, and progressive kidney disease. Although substantial investments in research and development have been made, Vertex remains cash-flow-positive. The main area of concern lies in their pipeline, as they haven’t delivered a blockbuster outside of CF. The recently approved Casgevy for rare blood diseases aims to address this, but a quick ramp-up is unlikely.
Exact: Pioneering Next-Generation Cancer Diagnostics
Exact has made significant strides in the next-generation cancer diagnostics space since its commercial launch in 2014 with Cologuard. This home-based colon cancer screening test has created a new market. Exact has also acquired advanced platforms to develop a diverse portfolio of cancer diagnostics, successfully trialed an improved version of Cologuard, and amassed a substantial cash position.
With a focus on innovation, Exact invests approximately 16% of its annual revenue in research and development. This investment is higher than that of its peers and aimed at establishing long-term dominance in the home-based cancer screening market, representing a lucrative commercial opportunity.
While Exact is not yet profitable, its next major growth driver – a multicancer early detection test – is anticipated to take several years to reach the market. Concerns have been raised about potential competitors eating into Cologuard’s market share, but its first-mover advantage provides some assurance.
If you have the funds, investing in both stocks is a wise choice. However, in a head-to-head matchup, Vertex emerges as the slightly better option. With solid growth, healthy free cash flow, and an underappreciated pipeline, Vertex presents a winning combination for investors.