Vertex Pharmaceuticals Incorporated (VRTX) Earnings Call Transcript & Summary

Well, good morning, everyone, or good afternoon, depending on where you are in the world. I'm Michael Yee, and thank you for joining us on this exciting session here at the 2020 Virtual Jefferies London Healthcare Conference, and you see I'm here virtually in London right behind me. I wanted to introduce my friends here at Vertex Pharmaceuticals. We have the President and CEO, Reshma Kewalramani. I think I got that right, I practiced. And also, of course, everyone knows a good friend, Michael Partridge, who runs the IR group at Vertex.

I just wanted to take a step back and maybe just start with Reshma. 2020 has been a bit of an unprecedented year for everyone. But I would point out that Vertex has been quite a standout because you have executed quite well throughout the year, even during COVID. So maybe I just wanted to take a step back and turn it over to you and say, tell us about the progress with the CF business, which, of course, is most important throughout 2020, the U.S. launch but most importantly, since I guess here I'm virtually in London about the progress in Europe and what's coming about there. So maybe describe the progress for the CF franchise first.

Yes. Sure thing. Mike, it's good to see you again, and nice to be with all of you virtually on this conference. So you all know that the CF business has been really strong. And with the launch of TRIKAFTA in the U.S. starting in October of 2019, at this point, the vast majority of U.S. patients who are eligible for TRIKAFTA are on the medicine, and we're absolutely delighted about that. We also recently received early approval for the triple combination KAFTRIO, as it's known in Europe in August of 2020 for European patients. The approval came towards the tail end of August, so we are in our early days of the launch in Europe. But I will say that the experience in the U.S., the positive reception from both physicians and patients has translated across the pond. And while it's very early days, and we are launching completely virtually given the pandemic, I am pleased that patients are getting access, and I'm pleased with the early metrics. I think the important thing to mention is that while the approval for KAFTRIO has come through, and we do have access in certain countries, we're still working to get access for patients in other countries. So very early days in the countries in which we have access and reimbursement, patients are getting on the drug and that early days view looks really very good.

So remind us, Mike, maybe you can help out here, too. In your new guidance that you had, what -- how much and what was included for Europe? Which countries do you have contracts in? And what are the big countries that are still being worked out? And how -- and what -- tell us about that?

Yes. So Mike, in Europe, it's important to realize that Europe is not a monolith, and those of who are in Europe really do understand that. Where we have approval right now is for countries within the European Union who are following the EMEA, that has regulatory approval. And I'll come back and explain where we still have to get regulatory approval. In that set of countries, Germany has free pricing. And so there's access available for patients for KAFTRIO. Next, we have some portfolio agreements, for example, in Denmark and Ireland and so patients in those countries have access. And lastly, we were able to -- Stuart Arbuckle and our commercial team were able to secure reimbursement in the U.K. So England, Scotland, Wales, those patients also have access and reimbursement to KAFTRIO in the 12-plus age group. For the rest of the countries, we are working hard to get reimbursement there.

And those are, although very early. Germany is free to price and free to launch. Other countries may take some time, country by country. But the ones you sort of mentioned, like where you have contracts like U.K. those are in the guidance and are launching well?

Correct. Those are in the guidance, and we are seeing the same kind of reception in the EU, as we saw in the U.S., again, very early days. What I would say is based on the benefit risk profile and the experience, which is now a year in, in the U.S. The destination in terms of the number of patients who are going to take this medicine, I do think is going to be just like in the U.S. The path to get there is different because you do have to go country by country to secure reimbursement, and the countries that I mentioned are the ones where we already have reimbursement, the rest we will be working on.

And if I can just make a quick comment about guidance. Our habit is really to provide guidance in places where we know we are on the market or we are reimbursed, and we don't tend to project ahead of time where we're going to get reimbursed and the timing of that. That's likely to continue to be the case as we roll into 2021 as well.

Okay. And it's 1 quarter until the end of the year anyway. So there's some of that in there, but more -- much more of an impact for '21. That's in more...

I think that's a good way of saying it. We should be seeing the impact on the revenues for the European launch in 2021 as that launch continues.

Well, it is -- this is a question as to the read-through of other countries. What are some of the other bigger ones? I mean, actually, I think Australia, you did land a contract there. I'm not sure if that was mentioned, like some of these other countries, they all matter. But the question is, what other countries are still to come? And the experience suggests that you got U.K. reimbursement and some of these portfolio deals a lot faster than people thought, particularly in the U.K. with my friends here in the background. But that was a bit of a sticking point for a while with ORKAMBI and then TRIKAFTA came on in advance of actually the approval, right? So was there I don't want to say some compromise between the 2 parties. What sort of happened that we finally came around here on the third drug here or maybe the fourth depending and you look at it? And is that a read-through to other countries likely to come on faster as we get into early part of '21, so people feel very good about '21 CF business?

Yes. Mike, let's break that question down into a few components. The first is where do we have regulatory approval. You mentioned Australia as an example. So we have regulatory approval in the countries that follow the EMEA.

Okay.

We don't yet have regulatory approval, for example, in Australia, Canada, Switzerland, those are coming. So first, the regulatory approvals and then reimbursement. But as you rightfully point out, in the U.K., for example, we were able to secure reimbursement even before the approval came through. And I would say that the reason for that is a few different things that I do think can be helpful to think about as we go to the other countries. The first is we really understand each other. The 2 parties in all of these countries have gone through it before, not only with KALYDECO, but ORKAMBI and SYMDEKO. The points that are important to us are clear. The points that are important to the governments are clear, and we have gotten to know each other through this process. I think the second thing that is just the way it is with TRIKAFTA, KAFTRIO is that the benefit risk is simply something else. In terms of the efficacy, in terms of the safety profile, it is just in a category on its own. And I think that has come through. The third and maybe the most important thing to say, these are high-value medicines. These are medicines that provide incredible efficacy. If you look at ppFEV1 or sweat chloride levels, weight gain or CFQ-R, which is a measure of quality of life. That value and recognition of that value is really important to us. And I'm very pleased with the recognition of that value with the contracts, including for the U.K. as an example.

The reason I asked that was because it was mentioned over the past year that the methodologies of valuing CF products didn't necessarily work out well to encompass all of those other benefits and so there was some sticking point with that. Are you suggesting that the U.K. was able to take a more holistic approach at things and you guys find that we're able to come together on that? And that is what changed, so the model, and they will be able to be more flexible on looking at that? And the reason I ask that is because that's a read through, if true, to other things that could be coming down the pipeline where it is not always just a single primary endpoint, but other things, FSGS and some of these other things, and that's why I asked that question.

Yes. Yes. So the net sum of it is this. I think you have some of it right. The U.K., each country, you know, has a different way to reimburse. In the U.K., the nice bodies, the body that does the modeling and does the factoring of the various variables, and we had some concern with how the pricing works for diseases that are rare, that give -- for medicines that give you lifelong benefit, for how generics were being encompassed and how the discount works in the model, given that these drugs have effect over time. The nice assessment, therefore, was pushed out. And they are contemplating their models. They understand that it is antiquated at this point given the kinds of medicines that we are looking at. But the model has not yet been revised. What has actually happened is the government stepped in. We have a way of getting the medicines to the patients. And then the nice process will continue and think about how they want to evolve, taking into account where we are and the methods that I think...

It did go up another level. It did go up higher up. And some of us have seen some of those letters back and forth.

Yes.

Okay. That -- I think that's great because you have made a lot of good early reimbursement progress on that. You guys have executed well on that. And so we have confidence that some of these other regions will come through earlier. But in essence, 2021 has a lot more visibility, particularly in U.K. and in Europe. And so that was always a sticking point with some of these European launches whether CF or anything, to be honest. So I hope you feel good about the 2021 outlook.

Yes, yes. Obviously, we're not providing guidance today for '21. We'll do that in January. But as Michael says, what you should expect from our guidance is inclusion of the countries in which we have either free pricing or deals and not inclusion in countries where we don't have a consummated deal per our tradition.

Okay. Okay. Makes sense. While I've gotten the sense that you guys continue to execute well, you're always seemingly quite conservative on guidance, Mike. So we'll think about that when we get to 2021. But your point is you see the launch, although early, very much mirroring what's been going on in the U.S. It's a strong uptake that has translated across the pond. So that's the key takeaway. And it's not like COVID or anything else has been a big impact, right? So that's -- I think that's tying that together.

I would evolve that a little bit, Mike. What I would say is the destination for the launch I do believe is going to be like the U.S. The pathway to that, we need to give it a little bit more time. We've only been in launch mode for, what, a month, 1.5 months or so, fully virtual launch. COVID is in its second surge, particularly in Europe. We have to look at all of that. I am highly confident that the end destination will look very much like the U.S. but the pathway, we need to just watch.

Very good. One pipeline CF question, if I may, before I get to the rest of the pipeline. You guys have commented before holistically that you have other CF program still in the works. So I don't want to get too far ahead of myself and people start freaking out, wait a second, there's another one coming. But holistically, you do have at least 1 or 2 other programs, one with the once-a-day, right? And one, with potentially much higher efficacy, and that's still being evaluated. But those aren't still in late stage. Just remind us.

Yes, yes. So Michael, in terms of the CF pipeline before we get to the non-CF pipeline, we always have to pause and make sure folks understand. What we're looking to do in CF is the following: clearly launch KAFTRIO; get more reimbursement deals so that the 12-plus population can be served; get regulatory approvals for KAFTRIO in areas where we don't yet have regulatory approval; then go lower in age groups, 6 to 11 U.S. filing this year. And then, of course, outside the U.S. and then continue the progression down to the lowest-age kids. For KALYDECO, that's already 6 months. Second, we have a next, next-generation of molecules like VX-121, VX-561, which is the once-a-day potentiator that are making their way through Phase II development. And if you ask, well, what is the goal with that? The goal is to bring patients with CF to carrier levels of sweat chloride. And that will require a next group of medicines that we're already working on. And the last part of the CF pipeline is the last 10%. Those patients make no CFTR protein. They will not be able to be served by CFTR modulators. And therefore, we're working on a nucleic acid approach for them, including an mRNA approach with our partners at Moderna. So that's really what the CF pipeline looks like.

Fantastic. Okay. And part of that is based on our view that the longer-term tail, longer-term franchise continues to evolve such that you've set a high bar, right? And have excellent medicines for people as we go out. So...

It's so true. When you look at the safety, you look at the efficacy of something like TRIKAFTA, the bar is exceedingly high. It's high for us. It's high for everybody, given what we're seeing here. But our goal is to out-innovate ourselves in CF, and we are well on our way to doing so.

Well, the tail value, as we start to think about, people are now doing some of the parks, right, about how to think about things, that the tail value you feel is good, and it's not just about TRIKAFTA, but an evolution of the franchise with next-generation programs that are still evolving. That I don't want to get into it here, but the data looks pretty good to -- the near carrier levels.

Sure. I think if you think about the long term, just pausing on TRIKAFTA, which is not the end of our road, that has patent property until well into 2030s, 2037 and such. Then we have the next-generation of molecules coming, and there is plenty more that we need to do in CF.

Very good. So let's shift to the pipeline a little bit because I think what is critically important is that people have seen phenomenal success with Vertex with CF, you have executed across that. There has been a tremendous success. And people are so eager to hear about the next wave of medicines over the next few years. Now one of those is AAT. We'll comment about that. FSGS, we'll comment on that and some other early stuff. So let's talk about that. First, I guess, to say the strategy, right, Reshma. So the strategy has been unique. You guys don't do big acquisitions and things of that nature. You kind of apply the science early on to get this stuff proof-of-concept or internally, right. So tell us about in a minute or so, what the strategy has been to give investors confidence that there will be growth as CF starts to mature in the next few years?

Yes, yes, yes. So Mike, this is a really important question. And maybe the most important thing I'll say today is what our strategy is in terms of R&D and how you should think about the programs in our pipeline. So on the surface, you could look at our pipeline and wonder, well, what is this about? They're small molecules, the cell therapy, there's gene editing, gene therapies, and you have programs in kidney disease in diseases like AATD in pulmonary, how does this all unify? And here's what it is. We have a series of filters that we apply to have diseases in what we call our Sandbox. And we are exceptionally disciplined about our R&D such that we tackle only the diseases in our Sandbox. This is that early application of scientific medical judgment and a sense of the programs that are Vertexian. Here's what it is: One, diseases with high unmet need. Most good companies do that. We don't do nutraceuticals, we don't do lifestyle diseases, but I do think most good companies do that. And the filters get narrower as you go down; second, we must have an understanding of causal human biology; third, validated targets. Usually genetic, but pharmacologic is just fine; fourth, biomarkers that we really understand in the lab that translate to the clinic. Chloride transport is the best example of that. But proteinuria, AAT levels, you go across our pipeline, and you will see that. And then lastly, efficient development and regulatory pathways, you will not see us doing 40,000 patient studies that take 5 years to complete because we look at diseases, and we have big treatment effects in mind with these kinds of efficient pathways. You know that we only pursue specialty markets, and that's what unifies our approach to drug development.

So that's exactly what people have fallen in love with because it has worked out so well in CF, right? And so then with AAT, FSGS diabetes and the list goes on. People could see that replicating itself many times over because that strategy could work on each one of those programs. The first 1 comes along with AAT and people are surprised, they see a disappointment. Should maybe just make a comment about that because we had a speed bump. We're going very steadily cruise control down the highway, and then we had a speed bump. How should investors digest the recent AAT data? Do you still have just as much confidence before? For us about the time line and your confidence there because people are nervous. People seem worried.

Yes. Yes, sure thing. So Mike, our strategy, the 1 I just described, was so designed to give us greater success than the average biotech company. If you look at our track record, it certainly played out that way. That does not mean 100% of our molecules and 100% of our programs will be successful. And our strategy contemplates that as well. That's why we have a portfolio approach. For all of our diseases in the pipeline, we have multiple molecules that we advance in parallel into late preclinical development and early clinical development. 814, we discontinued because of 4 LFT events in the setting of not reaching our target exposures. But 864 is only 6 months behind. And that's the approach because we contemplate and recognize that not every single molecule and every program will be successful. Boy, what I have been the happiest person if the first molecule that we took into this disease went all the way to approval. That's not always going to happen. When you look at the field as a whole, small molecule drug development, for all the molecules that enter Phase I, right? 910 don't make it to approve.