The brightest star in Boston’s rapidly growing biotech scene isn’t a flashy new player, but rather one of its longest standing companies.
While many biotech stocks have struggled this year amid a broader economic downturn, Vertex Pharmaceuticals has risen 65 percent since its most recent low in October 2021. And the 33-year-old firm is now Boston’s most valuable biotech by a mile.
Vertex’s market capitalization of $75 billion now surpasses that of Moderna, which has dipped to $56 billion as prospects for COVID vaccine sales have waned. Vertex’s value has also shot past Biogen, long the local leader, whose current market cap of $31 billion is half what it was when the FDA approved of its controversial Alzheimer’s drug that Medicare declined to cover.
“Biogen has been sort of the top dog in the Boston biotech community for many years,” said John Maraganore, former chief executive of Cambridge-based Alnylam Pharmaceuticals. “But now we see Vertex rising to the top, appropriate to their name.”
How the company got there by dominating the drug market for a single long-untreatable disease is one of the city’s biggest biotech success stories, and it’s not over yet.
Incredibly, Vertex has built its empire by selling just four life-changing drugs for cystic fibrosis, a rare genetic condition that predominantly affects the lungs and digestive system. Thanks to those pills, patients are breathing easier, feeling more energetic, and starting to live longer, too.
The company has become increasingly attractive to investors partly due to its higher-than-expected sales of those drugs, which have little competition on the horizon, and its plans to expand into other diseases.
“Vertex has really benefited from a more skittish, risk-averse biotech market right now, and it’s been one of those unique kinds of ‘Goldilocks’ stocks that has growth, but also has security,” said Paul Matteis, a biotechnology analyst at the investment firm Stifel.
Over the past year, Vertex has unveiled promising data on a non-addictive painkiller that could provide an alternative to opioids; a gene-editing therapy developed with Cambridge-based CRISPR Therapeutics that could heal broken blood cells in sickle cell disease; and a stem cell-derived therapy that could become a long-awaited cure for type 1 diabetes.
“The company is at a new inflection point today,” Vertex chief executive Dr. Reshma Kewalramani said in an interview. “What we want to do is replicate what we’ve done in cystic fibrosis and transform, if not cure, multiple additional diseases.”
Although many of these programs were underway before Kewalramani became CEO in April 2020, she kept pushing them forward during the pandemic.
The firm has doubled down on cutting-edge medicines with the opening of a new lab and manufacturing facility in the Seaport dedicated to cell and gene therapies. About 3,100 of the company’s 4,300 employees are based in Boston, and more jobs are on the way with a planned expansion in the Seaport.
Fueling this growth are the firm’s highly effective, and highly profitable, pills for cystic fibrosis, which made $7.57 billion in sales last year. The vast majority of that came from a single drug, Trikafta, which was approved in 2019 and costs $311,500 per patient a year. Total revenues could rise to $8.8 billion this year, and higher still in years to come as Trikafta becomes available in more countries and for younger ages.
Although Vertex has been a big name in Boston’s biotech community for decades, the firm’s current level of success was never guaranteed.
“I always viewed them as Genzyme’s and Biogen’s little brother,” said Kenneth Kaitin, a professor of medicine and drug industry expert at Tufts University School of Medicine. While Genzyme pioneered treatments for rare diseases and Biogen for multiple sclerosis, “there was poor Vertex looking to play with the big boys, but they had no marketed products,” he added.
In the two decades after it was founded by Joshua Boger in 1989, Vertex burned through billions of dollars trying to make medicines for cancer, viral infections, and other diseases. The company’s big break came in 2011 with the approval of Incivek, a hepatitis C treatment. Sales quickly topped $1 billion in 2012 before evaporating over the next two years when a competitor launched a more effective drug.
“We got out-innovated,” said Stuart A. Arbuckle, the chief commercial and operations officer. “That was a painful lesson to learn.”
Vertex used its profits from Incivek to avoid a similar failure in cystic fibrosis. The company’s first drug for the disease, Kalydeco, was approved in 2012 to help stabilize the specific proteins, called CFTR, that are crucial for clearing mucus from the airways but are broken or missing in people with cystic fibrosis.
That first pill only worked for about 4 percent of patients. Over the next eight years, under CEO Jeffrey Leiden, the company rolled out three more drugs, culminating with Trikafta, which stabilizes CFTR proteins in more than 90 percent of patients with cystic fibrosis.
Dr. John P. Clancy, vice president of clinical research for the Cystic Fibrosis Foundation, said Vertex’s medicines reduce the amount of time patients spend on daily care, such as clearing mucus that accumulates to dangerous levels in their airways. “It is fundamentally changing how their life is lived.”
Vertex has yet another medicine for the disease in advanced clinical studies that could wrap up by early 2023. Kewalramani thinks the new pill could improve the health of patients even more dramatically than Trikafta, could be taken once a day instead of twice a day, and could potentially boost Vertex’s profits even further.
The company’s commitment to improving its cystic fibrosis drugs has made it hard for potential competitors, including AbbVie, whose experimental pills have underperformed compared to Trikafta. If Vertex’s new drug proves better still, the company will strengthen its effective monopoly on treatments for the disease.
The firm’s success hasn’t come without criticism. Vertex has faced some resistance from European health care systems over its expensive drug prices. And the Institute for Clinical and Economic Review, or ICER, a drug-pricing watchdog, concluded that Trikafta would need to be discounted at least 73 percent — or cost no more than $85,500 a year — to be considered cost-effective.
“Nobody can regret the innovation that has led to the current lineup of cystic fibrosis drugs,” said ICER president Dr. Steve Pearson. “But even when you have a drug that’s really much better than what patients had before, it’s possible for the drug to be overpriced.”
A recent survey of Fortune 500 companies underscores just how profitable Vertex’s drugs are. The firm reaped about $798,000 per employee in 2020, making it the most profitable company by that measure in the drug industry and the sixth most profitable overall — beating out tech and finance giants Alphabet, Apple, Meta, Microsoft, and Visa.
An unusually small salesforce, which numbers just 16 people in the US, helps keep Vertex’s costs down — in part because they are the only game in town for cystic fibrosis. An estimated 83,000 people have the disease in the company’s primary markets of Australia, Canada, Europe, and the US.
Kewalramani said Vertex is working on a one-time gene therapy for the disease. But technical challenges that have stumped scientists for decades may not be resolved any time soon. Meanwhile, Vertex is partnering with Moderna on an inhalable mRNA therapy that would help patients who are lacking CFTR altogether make the crucial protein in their lungs. A clinical trial of that approach could begin next year.
Vertex is also in the early stages of developing several different stem-cell-derived therapies for type 1 diabetes that it acquired by purchasing two startups, Semma Therapeutics and ViaCyte.
These stem cell therapies, as well as the company’s CRISPR gene-editing work on genetic blood diseases and muscular dystrophies, mark a radically new direction for Vertex, which has long focused on developing pill-based drugs designed by chemists. But chief scientific officer Dr. David Altshuler said these new programs fit squarely in Vertex’s wheelhouse of working on diseases where the root cause is well understood and there’s a clear strategy for how to treat it.
Biotech analysts say it is hard to point to any single experimental therapy as the main driver of the company’s stock performance.
“The vast majority of large-cap biotech companies end up getting built on one or two really big drug franchises and then have difficulty in reinventing themselves once competition emerges,” Matteis, the Stifel analyst, said.
But Vertex is trying hard to buck that trend. Last year, the company spent more than 40 percent of its revenue on research and development of new drugs — far more than most pharma companies.
And since the company is sitting on about $9.3 billion in cash, investors are wondering if Vertex will acquire another firm. Kewalramani acknowledged that “there are good values to be had,” but that any acquisitions would need to align with the firm’s research strategy.
“The one thing I can tell you is Vertex is going to grow,” Kewalramani said. “And headquarters for us is right here in Boston.”