Vertex Pharmaceuticals (VRTX 1.54%) and Eli Lilly (LLY 1.16%) are two leading drugmakers that dominate their respective core therapeutic areas. Vertex has a monopoly in the market for drugs that treat cystic fibrosis (CF), a rare disease that affects patients’ lungs. Eli Lilly leads the market for anti-obesity medicines and has a strong presence in diabetes care. Despite their strong performances in these fields, both are actively trying to decrease their exposure to their most important markets. What’s more, Vertex and Eli Lilly have chosen a diversification path that puts them on an eventual collision course. Here’s what investors should know.
Image source: The Motley Fool.
Revolutionizing the market for pain management
There are plenty of medicines to help patients who suffer from acute or chronic pain. However, many options carry significant potential side effects. For instance, opioid-based pain medications can cause gastrointestinal side effects, but those are mild compared to the possibility that patients will develop dependence — or perhaps even addiction — to them. That’s why there is a need for new, non-opioid options. Vertex Pharmaceuticals has made significant strides in that direction. Last year, it received approval for Journavx to treat moderate-to-severe acute pain. It became the first oral non-opioid pain signal inhibitor to receive the green light from the U.S. Food and Drug Administration.
Today’s Change
(-1.54%) $-7.09
Current Price
$451.90
Key Data Points
Market Cap
$115B
Day’s Range
$450.44 – $464.55
52wk Range
$362.50 – $507.92
Volume
81.8K
Avg Vol
1.3M
Gross Margin
86.38%
Journavx hasn’t generated much revenue yet, but we could see the medicine’s sales ramp up over the next few years. It could also earn a label expansion in diabetic peripheral neuropathy (DPN). Further, Vertex Pharmaceuticals is developing another pain medicine, VX-993, that is undergoing phase 2 studies in DPN. These products could go a long way in helping Vertex decrease its exposure to its CF portfolio. Meanwhile, Eli Lilly has made several acquisitions to dip its toes in this space.
Last year, Lilly acquired SiteOne Therapeutics in a deal valued at up to $1 billion in upfront and milestone payments. The key asset from that transaction was STC-004, an investigational non-opioid treatment for chronic pain. And more recently, Eli Lilly announced it would acquire 4E Therapeutics for an undisclosed amount. 4E Therapeutics’ platform focuses on developing non-opioid treatments for chronic pain. Its lead asset, 4ET1103, showed a robust safety profile in a phase 1 study.
Today’s Change
(-1.16%) $-12.87
Current Price
$1099.13
Key Data Points
Market Cap
$1.0T
Day’s Range
$1088.47 – $1122.55
52wk Range
$623.78 – $1182.73
Volume
137K
Avg Vol
3.2M
Gross Margin
82.83%
Dividend Yield
0.59%
Can Eli Lilly catch up to Vertex Pharmaceuticals?
Vertex has a lead in this market, and it will likely be at least a couple of years (or so) before Eli Lilly launches a competitor. However, a first-move advantage — while important — isn’t everything. Provided Eli Lilly’s candidates post stronger efficacy results than Vertex’s, the former could still dominate this space. That’s what Eli Lilly did in the weight management space. Despite Zepbound earning approval more than two years after its main competitor, Wegovy, Zepbound now has the lead.
Still, it’s too early to tell whether Eli Lilly will pull off the same feat in this niche. It’s also worth pointing out that there could be plenty of room for multiple winners. Vertex Pharmaceuticals estimates that there are 80 million patients in North America and Europe who suffer from acute pain, with several million more in smaller niches such as DPN. So, both Vertex Pharmaceuticals and Eli Lilly could capitalize on this opportunity.
Which stock is a buy?
Vertex Pharmaceuticals has lagged broader equities over the past 12 months, but the company continues to post solid financial results thanks to its dominance in the CF market. Also, the biotech leader is slowly generating more revenue from newer, non-CF launches, including Journavx and a gene editing medicine for a pair of blood-related disorders called Casgevy. Vertex Pharmaceuticals expects at least $500 million in revenue from this duo this year. Lastly, the company should expand its lineup even more soon. It is inching closer to earning approval for povetacicept, a medicine for IgA Nephropathy (a kidney disease), and it boasts several other pipeline candidates.
These factors suggest that Vertex Pharmaceuticals could perform well over the medium term, making it an attractive stock to buy now. We could say the same about Eli Lilly. The pharmaceutical giant has a deep pipeline in its core area, which will help it capitalize on the fast-growing weight-loss market. It also has blockbusters and attractive pipeline candidates in other fields. Eli Lilly is generating strong revenue and earnings and boasts a solid dividend program, making the stock an excellent pick for investors.