Why Vertex Pharmaceuticals Could Conceivably Succeed Too Well

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Over the course of The Motley Fool's 26-year history, one of its guiding principles has been to look for the positive side of the story. The best stocks, services, and stories have produced some of the best returns for investors. Those innovators don't always pay off fast, but that's OK -- when you buy and hold for the long term, you can afford to be patient. And speaking of patience...or rather, of patients, it's time for Rule Breaker Investing host David Gardner to pick another of his five-stock samplers, and this time, his theme is medical miracles. Each company he's recommending has big potential to cure a condition that has thus far been incurable, or to create new possibilities where none existed before.

By definition, that means that his picks this time may carry more risk than some of his prior recommendations. For every biotech breakthrough that makes it to market, there are many "promising candidates" that don't pan out. Still, three years from now, The Motley Fool co-founder expects that on the whole, this basket of stocks (all of which are all already active recommendations in the Rule Breakers portfolio) will be beating the S&P 500 -- and saving lives, too.

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Recommendation No. 5 is Vertex Pharmaceuticals (NASDAQ: VRTX), the leading company in treating cystic fibrosis. It's a genetic disease, which means that the technologies now being developed in genomic medicine have the potential to not just treat it, but cure it. In this segment, Gardner goes into detail about what he likes about this $48 billion mid-cap company, as well as why it could conceivably succeed too well.

A full transcript follows the video.

10 stocks we like better than Vertex PharmaceuticalsWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

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*Stock Advisor returns as of March 1, 2019

This video was recorded on April 3, 2019.

David Gardner: That brings me to my final stock of this five-stock "age of miracles" sampler. All the way down -- is this Sesame Street? -- to the letter V. Should that be the letter of the day this week on Rule Breaker Investing? The letter of the day is V. That's the first letter of the company Vertex Pharmaceuticals, VRTX. We've been playing the market cap game a little bit. We do a little bit every week on this podcast. You should know, how does Vertex Pharmaceuticals compare in size to a company like Amgen, or Illumina, just mentioned? The answer is, it's just about exactly the same size as Illumina. Vertex is a $48 billion company. I mentioned Illumina is a $46 billion company.

Illumina is the picks-and-shovels company powering the revolution. Vertex is one of those companies that's taking that data -- and in fact, it's tied into some of the other things we've talked about because CRISPR, if CRISPR worked in gene editing, that would also really help empower Vertex Pharmaceuticals. This is a company that is focused on cystic fibrosis. In fact, of all the companies that are public today, really Vertex owns cystic fibrosis.

Now, some of you may either have it or have friends or family members that may have cystic fibrosis. It is a genetic disease. It's one that affects the lungs, though it can also affect other organs inside us. What it does is it makes it hard for us to breathe over the course of time, more mucus, these kinds of difficulties. It's a really tough disease. The good news is, it's a genetic disease, which means it's curable, potentially. We'll see. Vertex has been working toward that and serving up one drug, getting FDA approval after another, fighting cystic fibrosis, trying to make the world better for those sufferers. That's thing No. 1 that I like.

In an age of miracles, it comes one miracle at a time. When a company focuses or locks down on anything from diabetes to, in this case, cystic fibrosis or making surgery more effective for you, it's creating a better world. Vertex is absolutely doing that. That's something that you should know about this company.

You should also be really happy to know how well the stock has done. This is a stock I first picked in January of 2005 for Rule Breakers. It was at $10 a share back then. Today it's at $188. Those who were subscribed to Rule Breakers in 2005 and who've been patient and it held it along with us, it's been active all the way, all 14 years and counting, up 17 times in value. Remember what we said earlier, though? It doesn't matter what already happened with the stock. Dave likes it today going forward. That's all that really matters for this five-stock sampler. So, yes, I really like Vertex going forward. No. 1, it is that focus on something that's a real-world solution. It would be really powerful if a little miracle here could be created by Vertex in the years ahead.

The second thing that I like about Vertex is its sales growth. I just shared with you Illumina growing its sales 50% in the last three years, which is really good for any company, especially a large company like Illumina, doing valuable work. Well, how about Vertex's sales growth in the last three years? It's tripled in fact, since 2015. Still only has about $3 billion in sales today. So it's really ramping now. Years after we first bought this document just patiently held it, finally, the businesses ramping. It's been a tremendous performer. But all the matters is what's happening next. So sales growth counts for a lot.

Now, what's something to watch for with Vertex? Well, here's the blessing and the curse. For anybody who knows Gilead Sciences, and its story around hepatitis C, where it's hugely rewarded for curing it, but then once you cure a disease, where's the business come from next? That's a dynamic that could take hold with Vertex. That's because cystic fibrosis is brought about by the mutation of a single gene. Now, my friend Karl Thiel reminds me that it's very different, the mutations across a population. But this, take it all in all, comes down to those who have it to a single gene. So there is the potential that gene therapy or gene editing could cure -- in fact, I predict, surely, one day it probably will cure -- cystic fibrosis. But in the meantime, we're not holding our breath. This is not something that's going to happen overnight. Vertex is likely to own any such cure if and when it comes -- Vertex itself. We'll see.

Of course, everything about an age of miracles is speculative. We're talking about fanciful things that we hope might happen one day. We've seen in the past, these kinds of things can happen. We don't know whether it will work for Vertex and cystic fibrosis in this case, or really, for any of the stocks in this five-stock sampler.

David Gardner has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends GILD and ILMN. The Motley Fool recommends AMGN and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.