|A Special Note From Michael: Before we get started with our chat today, I wanted to take a moment to tell you about some special research that I’ve been working on. You see, America’s wireless infrastructure was already due for a complete overhaul. But now, the coronavirus crisis has driven so much of our everyday lives online, and we need better, faster connections now more than ever. And creating those connections could drive massive profits for the right companies, and for you. Just click here to see what I’ve discovered.|
In our twice-weekly chats, I often suggest investments that are part of large tech sectors.
For instance, the life sciences field defines huge. Just the prescription drug segment alone will be worth $1.2 trillion by 2024, according to data from Statista.
So, you might be wondering why I am focused on a medical area that will be worth just 0.1% of that figure over roughly the same time frame.
It’s a fair question. The answer is pretty basic. A high-octane leader
focused on specialty drugs can make a killing.
And the one I’m going to reveal to you today defines profit machine. It’s on pace to double per-share earnings in as little as a year.
Untangling Specialty Medicine
Now then, specialty drug makers can earn outsize profits because they address patient groups with unmet needs.
This often means the patient group is very small. But on the other hand, the underlying conditions are often very complex.
So, drug firms receive much higher profit margins as an incentive to undergo the rigors of finding the right drug and guiding it through the rigors
of clinical trials before getting federal approval to sell it.
The firm I have in mind for you is tackling cystic fibrosis. It’s a genetic disorder that affects about 30,000 Americans.
Many different mutations to a single gene can cause it. But the net result is that the protein that cells use to push out water doesn’t work.
Because of that, normally thin fluids like sweat, digestive fluids, or mucus become abnormally thick.
Mucus, for example, is normally thin enough to clean the lungs by capturing foreign particles and moving with them up the windpipe. But for people with cystic fibrosis, the mucus is so thick it pools in the lungs. That traps contaminants in the lungs, leading to constant infections and lung damage.
Similar problems happen in the pancreas, liver, kidneys, and other organs. People with cystic fibrosis on average live only 42 to 50 years – way below the U.S. average of 78.9 years.
That’s where Vertex Pharmaceuticals Inc. (VRTX) comes in. Founded in 1989 in Cambridge, Massachusetts, this biotech was the first company ever to receive FDA approval for a drug that actually treats the underlying cause of cystic fibrosis, rather than just the symptoms.
The drug, ivacaftor or Kalydeco, acts as a “booster” that helps cells activate the protein that is supposed to push water out of the cell, improving lung function by 10%. Unfortunately, this drug only works for 4-5% of cases, as it targets only specific mutations.
Then, in 2015, the company received FDA approval for a combination drug that works for about 50% of all cystic fibrosis cases.
Three years later, the FDA approved another Vertex combination drug targeting even more mutations.
And just last year, Vertex’s Trikafta drug was approved to treat 90% of cystic fibrosis cases. That’s a game-changer, and studies show people on Vertex’s treatments are 33% less likely to need hospitalization and a whopping 71% less likely to need a lung transplant.
With all this in mind, let’s run it through my filters for finding true tech wealth. Take a look:
Tech Wealth Rule No. 1: Great Companies Have Great Operations.
These are well-run firms with top-notch leaders.
Key to Vertex’s amazing progress is CEO and President, Reshma Kewalramani, M.D. She joined the company in 2017 as the Chief Medical Officer and Executive Vice President of Global Medicines Development and Medical Affairs and led the development and approval for the 2018 and 2019 drugs.
She’s also been instrumental in shepherding some of Vertex’s other drugs from the lab into clinical trials.
And no wonder – Kewalramani joined Vertex after 12 years of doing research and development for pharma giant Amgen Inc. (AMGN) and has won numerous awards and distinctions.
Tech Wealth Rule No. 2:Separate the Signal From the Noise.
To create real wealth, you have to ignore the hype and find companies that have rock-solid fundamentals.
If you just looked at the headlines right now, you’d think all stocks are down. But in fact, Vertex’s stock price just reached new highs.
As I’m writing this, Vertex is up 15.85% since the February 19 coronavirus selloff. Meanwhile, the S&P 500 has done almost the opposite. Since February 19, the index is down by 13.29%.
Tech Wealth Rule No. 3: Ride the Unstoppable Trends.
Look for stocks in red-hot sectors because they offer the best chance for life-changing gains.
Today, any news about COVID-19 immediately captures headlines. Meanwhile, politicians from both parties agree that we need treatments, tests, and vaccines against this pandemic – preferably yesterday.
In other words, this pandemic has been a good reminder that cutting-edge medical science is crucial.
In fact, according to Global Market Insights, the world’s biotech market is set to grow by 8.3% a year until 2025 when it will be worth $729 billion. Vertex will be right here growing with that market.
Tech Wealth Rule No. 4: Focus on Growth.
Companies that have the strongest growth rates almost always offer the highest stock returns.
Vertex is sitting on a long pipeline of eight drugs in clinical trials and two more still in pre-clinical development.
The firm has also licensed out four other drugs to big pharmaceuticals like German giant Merck. This means Vertex gets paid as the drugs succeed, but doesn’t have to spend money developing them itself.
And of course, with four cystic fibrosis drugs approved since 2012, there’s plenty of money coming in the door already.
Over the last three years alone, Vertex has grown sales by 31% a year. With its impressive pipeline, the firm can keep that up for years to come.
Tech Wealth Rule No. 5: Target Stocks That Can Double Your Money.
This is where we look at the firm’s earnings growth and see how long it will take to double profits. By doing that we can figure out how long on average it should take for the stock to roughly double.
After pouring through the financials in detail, I’m projecting that earnings per share will grow at an average of 35% a year.
And that’s a conservative estimate, as the real number over the last three years has been more than twice as large.
Now we use what I call my doubling calculator. Mathematicians call it the Rule of 72. Let’s divide the compound profit growth rate of 35% into the number 72.
That tells us Vertex stock is set to give us a double in just over two years. I believe the firm will remain at the forefront of treating cystic fibrosis and other genetic disorders for many years to come, giving this winner a very long runway.
So, if you’re nervous about the broader markets, put Vertex on your wealth-building watchlist at the very least.
Cheers and good investing,
Michael A. Robinson