Vertex Pharmaceuticals Incorporated (VRTX) Earnings Call Transcript & Summary

Good afternoon, and welcome once again to Cowen & Company's 42nd Annual Health Care Conference. I'm Phil Nadeau, one of the biotech analysts here at Cowen. It's my pleasure to moderate a fireside chat. We are very happy to have with us today Vertex's President and CEO, Reshma Kewalramani. Reshma, I'd love to hand it over to you for some opening remarks, and then we'll dive right into the Q&A.

Great. Thanks so much, Phil, and thanks to Cowen for hosting this fireside chat. Hopefully, the last that we'll be doing virtually for years to come, and good afternoon all. Before giving you a top line view of the company, let me just remind the audience that my comments today will include some forward-looking statements, and these are subject to risks and uncertainties discussed in our SEC filings, which I encourage you to review. Phil, 2021 was a really important year for Vertex and one which sets us up for a very bright '22, but many years beyond that as well. And I say that really for 3 reasons: First, we not only sustained, but expanded significantly our leadership in cystic fibrosis last year. We're treating more patients in CF with our medicines than ever before, be it ADVANCE, the next-in-class, the VX-121/561/tezacaftor program into Phase III. And we progressed the mRNA program. This is for the last 10% of patients who simply don't respond, cannot respond to CFTR modulators into IND-enabling studies. And I expect the clinical trials to start later this year. Second, we saw marked advancement in our clinical stage pipeline outside of CF, with multiple programs now in mid- and late-stage clinical development. This pipeline is considerably more advanced than 12 months ago. And if you ask what accounts for the speed of this progress, it's a direct consequence of our R&D strategy, where we target causal human biology, we focus on validated targets and on diseases with biomarkers that translate from bench to bedside. And based on this approach, we're able to generate meaningful, risk lowering and often transformational data quite early in development, which significantly accelerates the clinical time lines. And you've seen that. You've seen it in our CRISPR-Cas9 gene editing program, which has delivered remarkable results in beta-thalassemia and sickle cell disease, in the 147 program, small molecule inhibitor for a particular type of kidney disease, in our VX-880 program, our cell therapy for Type 1 diabetes, the kind of efficacy we showed, albeit in 1 patient, is of the likes we haven't seen before in any stem cell-derived program. And soon, the results from the VX-548 program, small molecule inhibitor of NaV1.8, which is on track to deliver a POC later this quarter. And third, our execution has been strong across the board, including in the CF business just as much as it has been on our R&D strategy. Revenue growth in '21 was 22% year-on-year, and our guidance for 2022 is between $8.4 billion and $8.6 billion in revenue, which at the midpoint is 12% growth, and we forecast significant continued growth beyond 2022 by treating more CF patients. And over time, we expect our business to deliver enhanced top line growth beyond CF first with the launch of CTX001 and then with multiple programs like 147 in kidney disease, VX-880 in type 1 diabetes and more. Phil, as we get into, I'm sure a lot of questions that you might have, I thought I would just touch upon 4 of the non-CF programs and give you a thumbnail and then we can dive into any one of those or any other program that you want. The first is CTX001. This is the onetime curative approach for sickle cell disease and beta thalassemia. It is the most advanced program beyond CF, and I do think that's going to be our next commercial launch. I see significant opportunity here with about 32,000 patients in the U.S. and EU with severe sickle cell disease and beta-thalassemia, who may benefit from this treatment. And that 32,000 is a subset of the approximate 150,000 overall with beta-thalassemia and sickle cell disease. We've completed enrollment in both studies. We're wrapping up our discussions with regulators on the data package for filing. And the key milestone for this program is regulatory filings, which we project for the end of this year. VX-880, that's the cell therapy program for type 1 diabetes. We shared results from the first patient day 150 results. And these are really nothing short of remarkable. The C-peptide level, which is the endogenous insulin production. And in this patient who has had diabetes for 30-plus years, they had no detectable C-peptide. Their levels were in the normal range at 400 picomoles of this day 150, hemoglobin A1Cs within the ADA recommended guidelines of less than 7%. This patient was at 6.7% and 90-plus percent reduction in exogenous insulin use. And the one point I want to emphasize on this program is these data are important for sure for this VX-880 program, let's call it the naked cell program. But it's also important because these cells are the very same cells that go into our cells plus device program that's in IND-enabling studies now. And it's the same cells that go into our approach that uses gene editing to evade the immune system. The foundational advance here is the cells. The third program I want to just quickly touch on is VX-147. This is the one for APOL1-mediated kidney disease for which we delivered the proof-of-concept results late last year. The immediate next steps here are to complete our discussions with regulators, and we are on track to start our pivotal development towards the end of this quarter for the broad AMKD population, about 100,000 patients, which include but are not limited to FSGS. And lastly, acute pain. There are many more programs we can go into, but I'll stop with this one. This is VX-548 in acute pain. The milestone here to look for is the proof-of-concept results in both the abdominoplasty and the bunionectomy studies. Both studies have completed enrollment. Both studies have completed dosing, and we're on track for the data readout later this quarter. Thanks for letting me make those introductory remarks, and I'll turn it back over to you.

That was a great overview. I guess first question is when we meet at Cowen next year where we'll hopefully be in the same room in Boston. What will you look back on as a success for 2022? And then similarly, help us understand what your top priorities and goals are for the next 2 to 3 years among all the milestones and pipeline programs that you just outlined.

Yes, yes. Based on the top line view that we just talked about, you won't be surprised to know that the key priorities for the coming months, and for the coming years, focus on: one, CF. Expanding our leadership in that disease area, advancing the pipeline and continuing to deliver strong financial performance, specifically in CF, reaching all patients with this disease. That includes the last 10% in our mRNA program, but it also includes the continued innovation with VX-121, tezacaftor, 561 and David Altshuler and our San Diego team have been busy in the lab, and we've already identified further molecules beyond that. It includes that full portfolio. In terms of the disease areas outside of CF, let me call out a few specific milestones to look for. And I sure hope we can look back on this when we are indeed in the same room. Beta-thalassemia and sickle cell disease, the key milestones to look for end of this year is the filing and then, of course, commercialization globally beyond that. In AMKD, it is indeed, I hope when we're together next year, that we're well into the pivotal development program. Type 1 diabetes, dosing more patients. I expect that the next big milestone to this program is proof-of-concept results and getting the IND filed for the cells plus device program. In pain, if the Phase II results are supportive, then it would be well into Phase III by the time we meet next year. And certainly, with our R&D strategy that we talked about at the onset, I expect multiple additional molecules in additional disease areas to go from the bench into the clinic. All of this translates to continued significant top line revenue growth by treating more CF patients. And of course, as the other diseases come online, expansion of that growth with these additional diseases.

Turning to CF. You noted in your opening remarks that guidance for this year is $8.4 billion to $8.6 billion. That's up 12% year-over-year at the midpoint. Nonetheless, the CF franchise did exit 2021 at an approximate $8 billion run rate. So the expense does assume some of modest growth in the coming quarters. In light of the several years of strong growth, it appears to be a deceleration of revenue growth over the quarters of 2022. Do you think that the same franchise is getting close to peak revenue? Can you recap the factors that could drive growth and perhaps go better or worse than expected?

Sure. Our growth has been exceptional. And we continue to see significant growth in 2022 and beyond based on treating more patients with CF. Let's just break that down a little bit into how many patients we have in CF, where we are exactly, where the growth we are projecting and what's included in our guidance. And where I see additional growth beyond that, that is yet to be had. Okay. So about a year ago, maybe a year and 3 months ago, we recast our CF epidemiology, and we have a total population size of about 83,000 in U.S. Europe, Canada and Australia. And about 90% of this 83,000 patient population are treatable with the oral CFTR modulators. What that means is despite our successes and the number of patients that we've treated, there are still about 25,000 people with CF who are not yet on therapy. I have high confidence that we're going to get to these patients, these 25,000 patients because what we need to do to get to them is clear, and we've done much of this before with our other CFTR modulators. So let me break that down into 4 categories. The first is successfully launch in countries where we have both regulatory approval and reimbursement, think France, think the U.K., think Spain, think the Netherlands. That is simply where we are early in the commercial launch, and I have very high confidence we'll get to those patients in those countries. The second is, we need to secure reimbursements in countries where we have regulatory approval, but we don't yet have reimbursement. Think Australia, think Belgium, once we get those reimbursement deals, our ability to launch is very good. The next one is expanding the label into younger age groups. We've done this before. We've done it with KALYDECO, that's down to 3 months. We've done it with ORKAMBI, that's down to 2 years of age, and we've done it with SYMDEKO, which is down to 6 years of age. And we are well on our way with TRIKAFTA. You know we've secured 6 to 11 in the U.S. We've recently secured the 6 to 11 age group in Europe, and we are working our way down to lower and lower age groups. And then the last approximately 5,000 patients or so, those are patients who simply don't make any CFTR protein. The small molecule regimen won't be able to help them. That's where the mRNA program comes into play. And we're already in IND-enabling studies for that program. I do expect the clinical trials to start later this year.

Investors are also focused on the competitive environment in cystic fibrosis. AbbVie in particular, is going to release data from a triple regimen, we think over the next several weeks. What does Vertex I think would be a competitive data package for AbbVie's Phase II program? What changes in FEV1 or sweat chloride would cause Vertex to worry?

Phil, as is our practice, I won't comment directly on any 1 competitor, but let's talk about the CF landscape in general. As we talked about earlier on, we've clearly established a leadership position in CF. And over 2021, we've expanded it fairly significantly. And I say that in particular because we've reached so many more patients around the globe with TRIKAFTA/KAFTRIO and because of the advancement of the 121/561 tezacaftor program into Phase III. For where we are today, TRIKAFTA sets an enormously high bar. And I say that not only because of the results from the clinical trials, but as the use in the real world has progressed, the real-world data just makes that bar go even higher with long-term and real-world data. That all being said, if it's possible to come forward with a therapy that's better than TRIKAFTA, we are absolutely committed to be the ones who do so. And with 121/561 tezacaftor, it looks like a program that has that potential. Preclinically, the only assay that's ever been shown to translate from the bench to the clinic is our own HBE assay. And in that assay, 1:1, is the most potent corrector we brought forward. The triple combination of 121/tezacaftor/561 has superiority to TRIKAFTA in terms of the chloride flux. And in our Phase II program, when you look at what we were able to deliver with TRIKAFTA, and you compare it to 121/561 tezacaftor and I'm doing some cross-study comparisons to take it with a grain of salt. It does look like 121/561 tezacaftor has that potential for greater efficacy. But look, bottom line, TRIKAFTA sets an enormously high bar. Going head-to-head against TRIKAFTA is table stakes. The acute improvements need to be there, but that's necessary but far from sufficient. It's going to take this kind of long-term real-world data and physicians and patients have come to expect that. And frankly, the closest competitor to TRIKAFTA is our very own 121/561 tezacaftor.

We often get 2 questions on the economics of the CF franchise in future years. The first is on the potential for price competition should AbbVie launch. I think that's in the back of everyone's mind because of the price competition in HCV that developed 5 or 6 years ago. And then the second is on your own royalty burden on the next generation triple. How confident are you that the royalty program for the next gen will be low single digits versus the low double digits for TRIKAFTA?

Okay. Two separate questions in there, and let me tackle the royalty question first, and then I'll come back around to the question around pricing competition from competitors. This is really not a matter of opinion or debate. The royalty obligation is contractual between Vertex and the CF Foundation, and it is very clear. The royalty burden depends on the -- a specific regimen in the components of that regimen. In terms of 121/561 tezacaftor, there is a royalty owed only on tezacaftor that is low single digits. And in terms of TRIKAFTA, that is on the elexacaftor as well as the tezacaftor and ivacaftor, and that's what brings it to low double digits. So this is really not a matter of opinion. It's simply the contractual agreement. And for this 121.561 tez combination, it is indeed low single digits. With regard to the possibility of competition based on price, not on improved efficacy or more patients being able to be treated with CF regimen. The HCV market is just vastly different than CF. Let me tell you what I mean. HCV is a disease of millions of people, the therapies in acute treatment that a patient takes for a few weeks. And with every new patient that presents to a doctor's office, is a new opportunity to make a brand choice for that individual. In contrast, CF is a disease of about 83,000 patients in the U.S., EU, Canada and Australia. It's a genetic disease that presents at birth and it's a disease that requires chronic treatment as in therapy is started in childhood and it is continued over a lifetime. So when it comes to cystic fibrosis, I do believe that the evolution of treatment is going to be characterized by serial innovation, either by treating more patients as we did with KALYDECO to ORKAMBI to SYMDEKO to TRIKAFTA. Or it is because of innovation that brings greater efficacy and a better medicine forward. I do not see innovation in this disease area where children are starting a medicine and taking it for a lifetime to be based on inferior products that have a price commensurate with the value that they bring.

With that, we'll move to the pipeline. VX-147 was one of the highlights of 2021. Where do you stand with those regulatory discussions on the Phase III program? Could you gain approval based on proteinuria or harder endpoints be required? And can you just run 1 pivotal study in AMKD?

Yes. there's a few different questions in there, Phil. But I think it basically comes down to what next. What are the exact next steps that get us to pivotal development and then commercialization. Let me take a half step back and just ground everyone on that program. This is VX-147 small molecule inhibitor to APOL1. And the disease here is a disease of about 100,000 patients who have, this is going to be a mouthful, APOL1-mediated primary proteinuric kidney disease. So that's what we're looking at here. The Phase II results that we released towards the tail end of last year are unprecedented. We've never seen an almost 50% reduction in proteinuria, in FSGS, let alone in APOL1-mediated FSGS, which is a more severe form of the disease and parenthetically fill the proof-of-concept trial results that we're just discussing, have been accepted for the National Kidney Foundation Spring meetings, which will take place next month. Looking forward to sharing that data in the medical community. So that's what we've delivered, really terrific efficacy, a very good-looking benefit-risk profile. And we did that in APOL1-mediated FSGS because it is a more severe disease with a very aggressive progression to end-stage renal disease with no approved therapies reasoning that if we had success in that population, we could go forward into pivotal development with high confidence, and that's exactly where we find ourselves. Now to your question about what are the exact next steps. Okay, we are preparing to start our pivotal development program. We are looking forward to doing that by the end of this quarter, and we are on track to do so. With regard to our discussions with regulators, we've begun those discussions, but we have not yet completed them. I expect we will be doing so in the near term. And to the very important question you asked about proteinuria, can that be a surrogate endpoint for accelerated approval for VX-147? It's a great question. I don't have an answer for you today because we simply haven't completed our discussion, but let me tell you why it's such a question of interest. One, the community has been talking about this for years. And the agency has expressed openness to proteinuria being a potential endpoint for accelerated approval for homogeneous kidney diseases that have proteinuria as the key manifestation. The community is really interested in this as proteinuria occurs early in the disease course, even before GFR is affected. We know that you can impact proteinuria over the short term. And you know that with our 147 program, for example, because we showed that in 13 weeks. Many studies in the field have shown that when you have proteinuria, it is a strong predictor of adverse outcomes in terms of time to end-stage renal disease. And when you decrease proteinuria that, that bodes very well for delaying time to renal disease. And in the case of 147, it's particularly important because that is the direct PD or pharmacological -- pharmacodynamic marker of how our drug works, right? APOL1 to APOL1 in [ leos ] you can think of in simplistic terms as punching holes in the kidney, leading to proteinuria. And this APOL1 inhibitor VX-147 prevents exactly that. So proteinuria is a direct read out for that. As I said, we're going to complete our discussions in the coming weeks and we are on track to start our Phase III program by the end of this quarter.

Just so I understand it. It sounds like with the trial going to start in the next few weeks, you can start the study without actually knowing necessarily with the partner, the significance of partner's going to be. So you can start the trial, collect proteinuria data, have a primary endpoint of clinical composite after several years. And really the only difference that these regulatory discussions will make is whether you can submit that proteinuria data for accelerated approval or whether that's more of an interim end point and the final data of the clinical composite will be necessary as well. Do I kind of have the sequence of events in that process, right?

Yes. I think you have it reasonably well-summarized, Phil. At the end of the day, when you do clinical trials in this disease area, you need to have a final endpoint. And that final end point is well understood. It's a measure of renal function. That endpoint being GFR, right? You have to measure renal function. That's always the final endpoint whether or not there is an opportunity for proteinuria is an opportunity to submit earlier for regulatory approval. And that's a very good discussion, and that's where the interest is, and that's the discussion we're having with the agency.

On VX-548, it's my own opinion that Vertex seems to be speaking more positively of 548 today than, say, 6 or 12 months ago, maybe that's just the proximity of the data. This is the next major catalyst with Phase II data expected by the end of the quarter. I'm curious, what is your bar for success? Does it have to be more effective in opioids? And kind of where is this renewed confidence in the pain program coming from?

Yes. Phil, the enthusiasm and excitement for the VX-548 program comes from really 3 places. The first is NaV1.8 is a genetically validated target. And you know we have great affection for genetically validated targets. But added to that is it's also a pharmacologically validated target with our own VX-150, an earlier program that had positive proof-of-concept readouts across acute pain, neuropathic pain and muscular skeletal pain. And the third reason is VX-548 as a molecule is multifold, more potent than was VX-150 and it has all the drug-like properties we're looking for in this indication, that's to say the ability to take it with and without food, DDIs, manufacturability, et cetera. With regard to framing up how to think about these results, let me just remind what the studies are. There's 1 study in abdominoplasty, "a soft" tissue model and 1 study in bunionectomy "a hard" tissue model. These studies are designed very similarly. They are multiple doses, dose ranging with a placebo group that is the control with an opioid arm that's there as a reference group, but that is not what it's powered for. So when you think about these results and when I think about the results, what we're really looking for is effective pain control versus the placebo group, without any of the limitations of opioids, most notably addictive potential. And that is very likely with 1 -- with VX-548 and with the NaV1.8 inhibitor, that is to say no addictive potential because there simply are no receptors in the central nervous system for VX-548.

Moving to type 1 diabetes. What is the significance of the VX-880 data that you shared? And how much confidence can we derive from a single patient's experience when we're talking about a cell therapy program that includes 3 different technologies essentially that could address a very large market?

Yes, yes. So let me take one full step back and just make sure I ground everyone on this program. There are 2 important things that we already know about type 1 diabetes. One, we know what the etiology of the disease is. It is pancreatic autoimmune cell destruction. That's how you get type 1 diabetes. And the second thing we know, equally importantly, is when you do whole pancreas transplant or cadaveric islets cell transplant, you can get to long-term curative outcomes. That's really important because that's what gives you the confidence behind our approach. We already know it works. So what's the limitation? The limitation with the cadaveric approach is quality and quantity of cells. We simply don't have enough of the numbers of patients who have type 1 diabetes. We're talking about 2.5 million patients with type 1 diabetes in Europe and the U.S. alone. So our approach to make embryonic stem cell-derived, fully differentiated insulin producing, these are allogeneic cells, in our lab and make these cells in industrial quantities. To be clear, no one else can do this. The results from the first patient tell you that these cells are functioning exactly as you would want them to, C-peptide, that's the endogenous insulin production. That's 1 very important component. The second important component is that they control this exquisite control in you and I that is glucose responsive is exactly how these cells function. And you know that with the day 90 MMTT results that we produced. And lastly, you know that the improvements in glucose control, which you can see in the hemoglobin A1C are happening with a reduction, 90-plus percent reduction in insulin, exogenous insulin, right? And the reason these results are so important is that the first step to having a potentially transformative, if not curative therapy is having these cells. No one has had these kinds of results from a laboratory derived stem cell program. And this is the same cells that are going to go into the cells plus device program, and the same cells that we are working on for our gene editing approach. That's why these are such important results. It's the cells that are the foundational advance.

We are almost out of time. One last question on business development. Biotech valuations have been really hammered over the last 12 months. You do have a lot of cash on your balance sheet, you can be generating more. In the past, you've said BD is a priority. So are you on front for deals? What type of assets or transactions would interest you?

The decrease in valuations in biotech are clearly an advantage for acquirers, no doubt about that. Our -- the way we assess business development and the way we think about external innovation, though, is grounded in a fit in our R&D strategy and in our corporate strategy. And nothing has changed there. I love the deals that we've done with Semma. You see the VX-880 program that's resulted from that, with Exonics in DMD. We've never invested more than we are now in our own internal pipeline. And that investment in internal and external innovation is going to continue.

Well, that was perfect, and we are out of time. Thank you so much, Reshma, for joining us. We always appreciate the discussion. Congratulations on all the progress and best of luck in 2022.

Phil, it's good to see you.

Hopefully, we'll do it again and we'll do it in-person next year.

You got it.