Nowadays almost everything goes well Eli Lilly (NYSE: LLY). Turnover and profit have increased enormously. That includes its stock price, which is up more than 50% year to date after a 59% gain in 2023. Lilly now ranks as the largest healthcare company in the world. The drugmaker has more room to grow with its obesity drug Zepbound and a U.S. approval for Alzheimer’s disease drug donanemab likely on the way.
But is Eli Lilly the best biopharma stock to buy right now? No. I think investors should buy another great biotech stock instead.
Not exactly David versus Goliath
What stock do I have in mind? Vertex Pharmaceutica (NASDAQ: VRTX). However, we’re not talking about a David-versus-Goliath type matchup between Vertex and Lilly.
To be sure, Vertex is much smaller than Lilly, with the latter’s massive market cap exceeding $840 billion. But it’s certainly not small: Vertex’s market cap is over $120 billion, making it one of the largest drugmakers in the world.
Stock performance wasn’t too bad either. It’s beating the S&P500 so far in 2024, after an increase of almost 41% last year.
A nice plus for Vertex is that it has a monopoly position in the treatment of the underlying cause of the rare genetic disease cystic fibrosis (CF). All four approved compliant therapies are marketed by Vertex, including the super-successful Trikafta/Kaftrio.
Vertex’s enormous opportunities
I like Eli Lilly’s growth prospects; obesity, type 2 diabetes and Alzheimer’s disease present particularly lucrative opportunities for the biopharmaceutical giant. But Vertex also has enormous opportunities.
The company could have its most powerful and profitable CF therapy yet on its way to market. Vertex is awaiting US and European Union approval for its triple combination of vanzacaftor, targeting CF.
Meanwhile, commercial launch of Casgevy, as a one-time functional remedy for sickle cell disease and transfusion-dependent beta-thalassemia, is ramping up. The gene-editing therapy seems likely to be another blockbuster drug for Vertex.
Don’t think that Vertex is limited to rare diseases. It expects to soon complete a rolling submission to the U.S. Food and Drug Administration for suzetrigine (VX-548) in the treatment of moderate to severe acute pain. Suzetrigine should have enormous potential as a non-opioid drug in the multi-billion dollar acute pain market.
The company has also advanced inaxaplin into a late-stage clinical trial targeting APOL1-mediated kidney disease (AMKD). There are no approved therapies that treat the underlying cause of AMKD – and it affects more patients worldwide than CF.
Another late-stage program from Vertex could be in the pipeline soon; the takeover of the company Alpine Immunosciences should close any day now. This deal will add povetacicept to Vertex’s portfolio. The experimental drug has shown promise in treating IgA nephropathy, a serious autoimmune disease that affects the kidneys. As with AMKD, there are currently no approved therapies that treat the underlying cause of the disease.
Vertex also has other earlier stage pipeline programs. I’m particularly intrigued by the type 1 diabetes program. Vertex thinks it is on the right track to develop a drug with its islet cell therapies.
Where Vertex pranks Lilly
If we were to compare Vertex’s current products and pipeline candidates line-by-line with Eli Lilly’s, I suspect Lilly would come out on top. However, there is one area where Vertex absolutely blows Lilly.
Eli Lilly shares trade at over 64 times forward earnings, and the stock’s price-to-earnings-growth (PEG) ratio based on five-year growth projections is 2.6. Vertex is dirt cheap in comparison: its forward profit margin is a much lower 29.6 and its PEG ratio is just 0.64.
I think both Lilly and Vertex have impressive growth potential. However, much more of Lilly’s expected growth is anchored in its stock price than is the case for Vertex. Eli Lilly is a good choice for biopharma investors, but Vertex Pharmaceuticals is an even better choice.
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Keith Speights holds positions at Vertex Pharmaceuticals. The Motley Fool holds positions in and recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
Forget Eli Lilly, buy these great biotech stocks instead, originally published by The Motley Fool
