Key Points

• Vertex Pharmaceuticals is the leader in the cystic fibrosis market and has the intellectual property to maintain this dominance.

• The company has expanded into additional treatment areas and is awaiting a regulatory decision for another potential new product in the coming weeks.

• 10 stocks we like better than Vertex Pharmaceuticals ›

Vertex Pharmaceuticals (NASDAQ: VRTX) has been a clear winner for investors over time. Earnings and stock performance have progressed steadily thanks to the company's dominance in the cystic fibrosis (CF) treatment market and its success in broadening its presence into other areas.

Vertex is the world's leading provider of CF treatment, with game-changing drugs that have extended the lives of patients, and in recent years, it launched a gene editing treatment for blood disorders and a non-opioid medicine for pain. Those two newish products delivered triple- and quadruple-digit year-over-year growth, respectively, in the latest quarter.

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Wall Street analysts are generally positive about Vertex and expect the stock to rise in the coming months -- and two in particular think the shares can soar another 20% or more over the next 12 months. Here's why they're right.

Vertex is down from a record high

Today, Vertex trades at about $527 per share, down from a record high of nearly $560 just a few weeks ago. H.C. Wainwright & Co. has a $641 price target on the shares, implying a 22% increase, and Morgan Stanley has a $665 target, suggesting a 26% gain. And at least 26 analysts have a positive recommendation on the shares.

Now, let's consider why the analysts who predict a 20% or greater gain in the coming year for Vertex may be right. As mentioned, Vertex is the leader in CF treatment, and this is expected to hold through the late 2030s thanks to the biotech's solid patent portfolio. On top of this, Vertex, which already has treatments to address about 95% of the CF population, is working on additional candidates in the pipeline that may extend this leadership even farther into the future.

And now, in the near term, Vertex could have certain catalysts ahead. First, it's important to remember we're still in the early growth stages of Casgevy, its gene editing treatment for blood disorders, and Journavx, its pain medicine. The U.S. Food and Drug Administration recently approved Casgevy for children as of age two, meaning 5,500 new patients could be eligible for treatment. Additional approvals in other countries, as well as reimbursement agreements, could further increase uptake of Casgevy in the quarters to come.

Journavx coverage is broadening

Meanwhile, coverage of Journavx is broadening, with three of the four big pharmacy benefit managers for Medicare Part D signing agreements. About 260 million Americans now have access to reimbursements for Journavx.

At the same time, November could bring major news for Vertex. The FDA is reviewing povetacicept for IgA nephropathy, a kidney disease, and is set to decide on or before Nov. 30. An approval here could further broaden Vertex's presence into a new treatment area and add a fresh revenue stream to the portfolio.

Vertex is feeling optimistic about the future, too, as the company increased its full-year revenue forecast to the range of $13.1 billion to $13.2 billion from the range of $12.95 billion to $13.1 billion.

Now, let's look at valuation: Vertex, trading at 32x forward earnings estimates, isn't dirt cheap. But it's reasonably priced considering its earnings performance over time and long-term prospects. This could encourage more investors to buy the shares.

The upcoming catalysts that I mentioned above, along with the stock's valuation, may help Vertex stock to climb 20% or more in the coming 12 months. Even more importantly, however, the company has what it takes to generate earnings growth and stock performance over the long term. This is due to its existing portfolio, solid moat (competitive advantage) in CF, and its successes in entering new treatment areas. Vertex's solid pipeline also should boost growth in the years to come as new products win approval.

All of this means that whether the most optimistic Wall Street analysts are right in their forecasts for the coming year or not, Vertex is likely to reward investors in the long run.

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Adria Cimino has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.