Vertex Pharmaceuticals Incorporated (VRTX) Earnings Call Transcript & Summary

Okay. Good morning, and welcome to the last day of the Bank of America Healthcare Conference. We're in Virtual Vegas. My name is Geoff Meacham. I'm the Senior Biopharma Analyst here at BofA. I have Greg Harrison from my team as well. And we're thrilled to have Vertex Pharmaceuticals for our next session. Speaking of Vertex, we have CFO, Charlie Wagner. Charlie, thanks for joining us.

Yes, Geoff, thank you. Appreciate it, and happy to join the conference today.

Yes. So let's do a Q&A, but do you want to kick it off with just something high level post the quarter and to set the stage and then we have some questions.

Yes, absolutely. Listen, 2021 is setting up to be another great year for Vertex. As you mentioned, we just released first quarter results. In CF, we're treating more patients than ever, and that was evident in the strong first quarter results and sets us up for another year of double-digit growth. Looking ahead to the balance of the year in CF, we're, of course, expecting the approval in the 6 to 11 age group. That's included in our guidance. And we have the potential to secure additional reimbursement agreements, and probably, that's not included in the guidance, but it sets up for another very strong year. Looking at the pipeline, very broad and advancing very rapidly, particularly over the last 12 months, we have programs in the clinic in 7 disease areas, spanning 3 modalities. We've already announced this year the start of Phase I for our type 1 diabetes cells only program. We've announced that in pain, we're moving to Phase II. And within a matter of weeks before the end of the second quarter, we'll have additional data out on the AAT program and on CTX001 at EHA. So lots of events and lots of progress in the pipeline. We feel very, very good about that. And then lastly, we continue with our corporate innovation strategy, where we augment internal innovation with business development externally. And you can see that in the deals we've announced already this year, the reconfiguration of the partnership with CRISPR and our recent collaboration with Obsidian. So, I mean, to sum it all up, I would say that we feel great about our strategy of investing in serial innovation for -- to develop transformative medicines. It is working, and looking specifically at 2021, we're off to a great start. So with that, I'm happy to take questions.

Perfect. Perfect. Let's focus on the commercial business. So you mentioned the KAFTRIO reimbursement across Europe. Maybe just help us with the status of where you are there and maybe how much of the ex-U.S. market really remains to be determined with respect to reimbursement?

Sure. Yes. Yes, the KAFTRIO approval was late in 2020, and the launch in markets where we are reimbursed has gone exceedingly well. I think even beyond our expectations. The rate of uptake in markets where we are reimbursed looks a lot like the rate of uptake in the U.S. that we saw the year prior. So it's a fantastic start. And just as a reminder, so we're reimbursed -- we are reimbursed in 12 countries outside the U.S. for the triple right now and -- but the largest of which is Germany and the U.K. and then a series of smaller countries; Ireland, Denmark, Switzerland, et cetera. And that was really evident. You could certainly see it in the ramp in revenues from Q4 to Q1, the strong uptake there. As we look ahead, we have the opportunity to gain additional reimbursements in Europe given that we already have approval. The largest ones we would be pursuing includes France, Spain, Italy. We, of course, also have approval in Australia and are seeking reimbursement there. So there are a number of large meaningful reimbursements in this 12-plus age group that we're pursuing right now. If I step back, when you think about the opportunity, we've commented recently our revised view of CF patients around the world, 83,000, 90% of whom should be eligible for a CFTR modulator over time, as we get label expansions and reimbursements. And today, there are 30,000 patients or so that would benefit from a CFTR modulator who are not on medicine today. And of that 30,000, about 2/3 are 12-plus and those are, of course, are mostly outside the U.S. So the opportunity ex-U.S. remains significant, and we're going to continue to pursue label expansions, approvals and reimbursements as appropriate to capture that growth.

Got you. And Charlie, is there -- are there any differences between the initial ramp once you get reimbursement in Europe versus the U.S.? I imagine level of patient awareness is super high, level of access is probably super high, but just curious if there are any nuances between the 2 different geographies.

I mean there are absolutely differences, though I think somewhat subtle. Again, as we prepared for the launch in Europe, one of the silver lining, I guess, benefits of the whole COVID experience is that our commercial team really has developed a whole new set of digital capabilities and remote capabilities for approaching the marketplace. And we developed that over the course of 2020, and that certainly helped us with the launch in Europe. What I would say is that I think our initial expectation was the ramp in Europe would be a little bit slower than it was in the U.S., but the reality is, as you point out, the awareness of the medicine is high, the demand for the medicine is high. It's a fantastic medicine, and so uptake, particularly in Germany and in the U.K., has been very, very rapid, such that the vast majority of those patients who are eligible today are already on medicine.

Perfect. Okay. And then on the pipeline as it relates to CF, so help us with where you guys are with a once-a-day triple program. Is this a potential for better efficacy, better tolerability? Or is it really just a matter of better compliance and more convenient?

Yes. Yes, we've commented that we've finished Phase II clinical trial on a once-a-day regimen that includes VX-121, 561, and tezacaftor, and we'll be releasing data on that during this year as we prepare to go to Phase III. But we are really trying to out-innovate ourselves in this case. As I mentioned, TRIKAFTA is a fantastic medicine, both from an efficacy and tolerability standpoint. And we see that in the rapid uptake and a strong persistence and compliance with the medicine. So we've created a very high bar. That said, we intend to clear it, and we do think that this next molecule has the chance to do that. In terms of what we hope to achieve, we do hope to achieve superior efficacy, particularly as we strive to bring patients closer and closer to carrier levels of sweat chloride, as we think that is a possibility with this molecule. Of course, there's the added convenience of the once-a-day regimen, which could also have a benefit with compliance. And then lastly, we've commented that the royalty profile of this next molecule will be advantageous as well with today's triple, up in the low double-digit range of royalties with this next regimen, I think, the potential to be in the low single digits. So better efficacy, better convenience, better economics. But of course, we have to overcome the incredible bar that Trikafta has set.

Great. Yes, that's helpful. When we're looking at the other 10% or so of CF patients who can't be treated with correctors, you've talked about delivery to the tissue being a challenge for gene therapy or mRNA approaches. How much of a priority is overcoming that technical barrier? And kind of what's the status of the efforts that you have underway?

Yes, Greg, thanks for the question. Absolutely. I mean our goal is to bring transformative medicines to all CF patients around the world. And so for the last 10% from a CFTR modulator would not be effective. Of course, a genetic approach is the way to go. And it's correct that we've commented that the delivery is a significant scientific and technical hurdle to clear, not only delivery to -- the long delivery of the genetic payload as well to the cells to do what it needs to do. So we are really happy with the partnership that we have with Moderna. Leveraging both Moderna and CRISPR technologies and partnerships, we continue to make progress, but we have not commented at this point. As is our practice, we will release data and additional information as we get closer to going into the clinic.

Okay. Great. That's helpful. And then when -- what is your thoughts on CRISPR type of approach or gene editing in CF? Is that an option that you're looking at? And what could we see there?

Yes, I mean, importantly, as you know, we're a disease-area-focused company, and CF, of course, is one where we have deep, unique privileged insights around the biology of the disease. And we've also commented that we are modality agnostic. So of course, any approach, any technology that we think can solve the problem is fair. And if you will -- that said, with -- for this last 10%, we're very focused on this approach with Moderna and CRISPR and continue to make great preclinical progress. And as I mentioned, as we get closer to the clinic, we'll update with some data.

Okay.

All right. Let's switch gears to the pipeline. So obviously, one of the higher profile data sets you guys have coming is AAT, and this has been talked a lot about on your 1Q call, but just to kind of ask you, is there sort of a threshold of efficacy or even safety that you want to see from 864 to move it into a pivotal study? Or at this point, is it just that 2.0 is going to look different than 1.0 with respect to safety tolerability?

Yes. Thanks for the question. And absolutely, a lot of focus on AAT, understandably. The trial for 864 has progressed significantly, of course, over the course of 2021, and we've commented that we will release data on the 864 trial during the second quarter. So clearly, that's within weeks. The trial, of course, we're trying to gain information on safety, PK and efficacy. And all 3 of those are going to be important data points and important insight for us. To your exact question on efficacy, of course, we're going to measure efficacy in terms of increases in circulating functional AAT. That is the endpoint that we're focused on. At this point, I'm not going to say there's a specific number that we're shooting for. If we see meaningful increases in circulating functional AAT, we will know that we have proof of concept that we've cracked the biology here. As we do in all of our programs, we bring forward a portfolio of molecules so that we can ensure that we bring the best one or ones forward into Phase III. So like you, we're going to wait to see the data coming out of the trial before we make our decision on how to proceed. But importantly, it's safety, PK, and efficacy, all of the above. And we're -- obviously, we're very far along at this point. And so it's only a matter of weeks before the data gets released.

Great.

Great. Yes, I know everyone is eagerly awaiting those data. But when you look beyond the data, if it is positive, what's your thinking on the registration path for the AATD program? Have you had discussions with the FDA on pivotal endpoints? And how are you thinking about having to show clinical benefit versus potential approval based on AAT level?

Yes. Of course, that's an ongoing question and ongoing discussion. And I think most importantly, we need to wait to see where the data comes out in Phase II before we get into details about how we would design a Phase III. That said, the treatments that are available on the market today have all been approved based on circulating AAT levels. And so we do think that is an important endpoint. Whether there will be additional clinical data that is required really will be a function of discussions with the regulators as we prepare to design the Phase III trial.

Charlie, I wanted to switch gears on 001 and you guys just modified the agreement with CRISPR, and we're very bullish on this asset. We had a discussion with Sam yesterday and -- but I wanted to kind of get maybe the logic of the strategy behind that. Obviously, you'd want to lead development, lead commercial, et cetera, which does have a lot of value. But just -- maybe just give us a sense for the thought that went into that and maybe your level of excitement as you look to potentially next year having a filing on this program?

Yes. We're clearly very bullish and very excited about the program. The partnership with CRISPR dates back to 2015 and has been very fruitful and very effective. That said, I would say the way that the program was set up initially was a little bit complicated. It's a 50-50 partnership with different roles and responsibilities. For example, we previously had commercialization responsibility for Europe. They had the U.S. -- parties had different responsibilities with regard to sickle cell, beta cell manufacturing, et cetera. And so while it served us well and has gotten us this far, both of us felt that it was time to recast the partnership with one party taking the lead, which is really going to streamline decision-making and execution. And that's important because the program has picked up so much momentum in the last 18 months or so. Of course, last year, we announced data on 10 patients and that data has been nothing short of phenomenal, essentially a functional cure. You saw that we just press released the EHA abstract, and that had data on 14 patients. By the time we actually get to the actual presentation at EHA, that number will be even higher. And so great momentum, great data. And so what we see is the ability to file within 18 to 24 months color. And for that reason, really, really streamlined execution is important. And again, both parties felt that it would be advantageous for Vertex to take that over. So with the recast of the partnership, not only did the economics go from 50-50 to 60-40, but the rules and responsibilities change as well with Vertex taking the lead for clinical, regulatory, manufacturing and commercial activities from here through commercialization. So we see tremendous value in the program. I think -- as you think about value, I think about 3 things, right; the size of the opportunity, the probability of success, and how far away is it, really like a time dimension, right? And so in terms of the size of the opportunity, we see a tremendous opportunity. We've commented that there are -- approaching 170,000 patients or so in the U.S. and Europe, at least 20% of whom are serious enough that a treatment like this with today's conditioning regimen would be -- would make sense. And the number of eligible patients is really only likely to go up over time as conditioning regimens improve. So we see a large opportunity there. Even with 20% eligible today, it's a multibillion-dollar opportunity. From a time standpoint, we talked about the fact that we could be filing in 18 to 24 months, so this isn't 5 or 7 years away. This is very much near at hand. And with the data that we have and the momentum that we have and our ability to lead the next steps, we feel very good about the program. Of course, time has to play out and the data has to play out, but we see this as a significant and very valuable opportunity, not only for patients but also for Vertex and CRISPR.

All right.

Yes. Charlie, ahead of that. I mean, you want to make investments pre-commercial to kind of raise awareness. I don't think you have to make too much of investment just given truly the unmet need in both indications. But what -- how much of a priority is that today to kind of build the commercial case going into the -- into filing? Or is it really just a matter of executing on the trial now and then maybe the commercial is more of a 2022 kind of investment cycle?

Yes. We're -- so we're in the process of planning for that. I mean I think you've characterized it correctly, we are -- I think where appropriate we're willing to spend ahead on commercial activities to ensure that there's great awareness and a great setup when you start to think about reimbursement. That said, we're more in a planning phase on that right now. There will be some investment, but it's relatively modest. That certainly will ramp up in coming months. And again, leading that effort with Stuart Arbuckle and our commercial team and a lot of our existing commercial infrastructure and capabilities, not necessarily the same people, but the capabilities are very transferable. We feel really good about the ability to turbocharge the commercial efforts at the right time.

Okay. Perfect. Let's talk about the pain program. This is a program that you guys had prior to AAT. It probably had the most visibility just given it was later stage and it does look to have some differentiation. Kind of wanted to ask on the next steps for that. Is this something -- I don't talk to too many investors about it. When you do, is this a main focus for investors? And where do you see this program stacking up in terms of the value it could create for Vertex kind of intermediate to longer-term?

Sure. Yes. No, I appreciate the question, and I guess it's understandable that investor interest rises and falls with the cadence of data on a given program. And so with pain, of course, we had the discontinuation of VX-150 in the past. But the importance of VX-150 is that it was proof of concept. We've cracked the biology on NaV1.8, and it's really a matter of bringing forward the best molecule. And so again, as we do with our portfolio approach, we have multiple molecules in succession. VX-548 is the next one up. We comment that we're going to a point in Phase II. We feel really good about it. Again, we feel like we have cracked the biology, we understand what it's going to take. VX-548 is clearly a better molecule than 150. Of course, it's got to go through the trial. But in terms of potency, in terms of drug-like properties, and in terms of the Phase I results, clearly a superior molecule, which is why we're very excited to be -- to bring it forward to Phase II. So I think -- and the Phase II trials are not going to be -- it's not going to be a long time to get additional data in Phase II. It could be early next year that we have additional data there. So I do think that interest in the pain -- our interest in the pain program never wavered. It's been there all along. I think investor interest may grow. And importantly, we still see it as a huge opportunity. Pain isn't a single disease. It's a number of different indications. We're very focused on acute postsurgical pain and neuropathic indications, which can be served with our specialty model. And we do feel that if we can bring forward a pain medicine with superior efficacy and none of the addictive properties of an opioid that that's going to be something that's going to be incredibly compelling for prescribers, and we're excited to continue to move this forward.

That's helpful. Just 1 follow-up on 548, as -- given that you've had prior Phase II data that looked good with previous assets, how is 548 differentiated that you would want to take this one forward over previous assets? And just wanted to get your thoughts around why this one and kind of what's the difference from previous assets that looked good in the clinic?

Yes, I mean, I'm not going to get into too much detail there other than to say that it is far more potent medicine, which, of course, then has dosing considerations, and we feel like it is better drug-like property. So feel very good about 548 and happy to bring it forward. Not a ton of value in comparing and contrasting to 150. I do feel like this is the right one to bring forward though.

That's good. Perfect. So let's move down the pipeline, the type 1 diabetes program. Charlie, you guys have talked about -- in terms of being sort of a game changer, new technology, Viacyte is your partner there. I want to kind of think about this in the context of the specialty model and the investments that you have to make. Obviously, it's not type 2 diabetes, but it's still a much bigger market by patient numbers versus some of your other programs in the portfolio, right? So just help us with kind of where that's going to go into the clinic, I think, this year or early next. And just talk us through the investments to make there to kind of get to a derisking point.

Sure. Yes. So type 1 diabetes, of course, is a program that came to us through the acquisition of Semma Therapeutics in late 2019. It's a significant opportunity for us. There are north of 2 million people in the U.S. and Europe, North America, Canada, Australia, et cetera, with type 1 diabetes. So a significant opportunity. And we've commented that we're really taking 2 approaches here. So the first approach, which entered the clinic earlier this year, is cells alone, which is really kind of comparable to a pancreatic islet cell transplant in patient population who are brittle diabetics or uncontrolled hypoglycemic events. That population is relatively small. We think that's kind of in the 50,000 to 70,000 patients worldwide, and that's the first program that's in the clinic today. The larger patient population is one that we would hope to address through a combination of cells and device. We've not -- that is in preclinical work right now. We've not commented on when that is likely to go to the clinic, but the progress that the team is making is really excellent. So a lot of excitement about this first program, VX-880, which entered the clinic fairly recently and then continuing preclinical work on the cells plus device. Even with the large patient numbers, north of 2 million people or so, they are served in a relatively small number of centers. And so it's not as concentrated, maybe not as efficient as CF, for example. But it's also not -- it's not an indication that's served by general physicians more broadly with thousands and thousands of call points. So we've done the work on the commercial side to understand where patients are served and believe that we can serve it in a relatively efficient way, consistent with our specialty model.

Right. Makes sense. Yes, with this program, the type 1 diabetes and obviously with the CRISPR alliance, you guys have enough resources in the cell therapy space to really make a difference. Is it fair to say, Charlie, that this is kind of a priority from a technology platform for you guys going forward? Or do you view it as one of many different kind of modalities that you could use to develop the medicines that you have in the pipeline?

Yes. It's a really good question. And I think one, we have to consistently refer back to our corporate strategy, we're definitely a disease-area-focused company and modality agnostic. So to the extent that we've accumulated multiple tools and technologies, of course, in small molecule, in gene editing, in cell therapy and a lot of enabling technologies around that, whether we developed the technology internally or acquire it or access it through business development, it's really in service of the disease area strategy. So we don't really think in terms of platform and where else can we leverage the platform. It's very much a focus on the strategy we've commented, right, a disease area where the causal biology is understood, where there are clear biomarkers, a clear registration path, specialty market and the ability to serve that in a very, very specific way with a concentrated sales effort. So we start with the disease area first, then we look at the tools and technologies to address that. And so I take your point, we have certainly built capabilities across a number of different modalities at this point, but the starting point is always going to be the disease area.

Got you. Okay. And you mentioned BD and clearly you guys have done a great job with doing a lot of the smaller deals that are preclinical Phase I. Investors have talked a lot about, well, what happens in a few years as -- if AAP isn't in the mix, would Vertex be amenable to do a larger scale kind of transaction. It's not really in your DNA. At least it hasn't been in your history. But what would sort of -- what are the pushes and pulls to think about doing bigger scale BD as it stands now? Is there some sort of lever that you would look to, to sort of inform that decision?

Yes. Listen, our BD strategy is really integral with our overall innovation strategy. And so we've commented with a strong internal innovation engine and augmenting that with external innovation. And we've been very productive. You look internally, we've never spent more on innovation than we're spending today, and you look into the pipeline and see the productivity of that investment. Similarly, we've been pretty active on the BD front over the last couple of years and highlighting the partnership with CRISPR, the acquisition of Exonics and Semma. And so again, you can just look in the pipeline and see the productivity and the evidence of the progress we've made on BD. So I think, importantly, there is not a single event that's going to change our BD strategy. So you commented on AAT. We're not looking at this as, "Oh, geez, if AAT goes one way, we had to change our BD strategy entirely," not the case at all. We feel very good about the strategy, very disciplined about sticking to that strategy. To date, that has led us to earlier-stage assets and enabling technologies, that is -- we're not strictly restricted to that. Again, I would start with the disease area. That's the primary focus. We do have the capabilities to do larger deals, if we find something that's very much on strategy, that's the disease area of focus and works for us. But importantly, we're not out solving for -- we're not out trying to buy revenue. We're not solving for a certain capital deployment number. We're not solving for a certain target. We're very much governed by the strategy, and you can expect that, that will continue to be the case.

Got you. And from an innovation perspective, is there still -- is it still mainly Boston? Or is there a spread in the team and then San Diego is still working on a lot of newer mechanisms and newer disease area?

Our site-based R&D model, I think, is one -- is part of the secret sauce of Vertex. So the team in San Diego continues to be wildly productive. The team in Oxford continues to be wildly productive. And Boston isn't even one location. We've got folks in Dampier. We've got our emerging Vertex cell and gene therapies team, which is as -- parts of it have come through Exonics and Semma, but they'll soon be united in 1 building that we're building in Boston. So the site-based strategy is going strong and each of the sites are contributing to innovation in a good way.

Perfect. Awesome. Well, thanks so much, Charlie, for the time. We really appreciate it. A very productive conversation.

Yes. Geoff, Greg, thanks. I appreciate the questions.

Maybe next year, we'll do Actual Vegas.

Count me in.

All right. Thank you.

All right.