Vertex Pharmaceuticals Incorporated (VRTX) Earnings Call Transcript & Summary

[ TD Cowen's 43rd ] Annual Health Care Conference. I'm Phil Nadeau, one of Cowen's biotech analysts and it's my pleasure to do a fireside chat one of the bellwethers of the industry, Vertex. Happy to have with us today, president and CEO, Reshma Kewalramani; and Charlie Wagner, CFO. Reshma, I'll hand it to you first for some opening remarks.

Sure. Phil, thank you so much for having us here. it's wonderful to see all of you in person in our home city of Boston. To start with, maybe I'll just give you a little bit of a flavor for where Vertex is today, touch on a few of our programs and then Phil, we can go into any one of those that you'd like to. It is an extraordinarily exciting time for us at Vertex. Having now brought 4 CF medicines to market and transformed that disease. The growth in our CF franchise has transformed Vertex. We are now involved in 8 disease areas, including cystic fibrosis. Those are in the clinic today, and 5 of those disease areas are now past the proof-of-concept stage. A few years ago, we would have been talking about a lot fewer programs, but we would have also been talking about a lot fewer modalities. Today, we are, of course, working in small molecules across a number of these disease areas, but we're also working in gene editing, with CRISPR-Cas9, with cell therapy and our type 1 diabetes programs, and with mRNA in our CF programs. As we've gone through this growth, we've also expanded our footprint right here in Boston. We are at our headquarters in Fan Pier, and just about a mile down the street we've opened up our second large building, we call it [ LIV-1 ]. We are building [ LIV-2 ] just across the street to accommodate our growing cell and gene presence. And with all of this growth has come a stronger balance sheet that we have been able to reinvest into innovation, both internal and external, and I'm happy to talk about any of our clinical stage programs, which now span CF, of course, sickle cell and beta thalassemia, acute pain and neuropathic pain as well as type 1 diabetes, and this particular kind of kidney disease called APOL1-mediated kidney disease and AATD. I actually count on my fingers now to make sure I get all 8 of our programs just right. With that, Phil, I'll turn it back over to you, and we can start on any of those programs.

Sure. Maybe we'll start with 1 broader question before jumping into the programs in particular. When we're here next year at the Cowen conference or the year after, what does Vertex need to do to be considered a success? What do you -- please help us understand your top priorities or goals for the next 1 to 2 years, so that when you're sitting here you'll look back and say, we had a successful 2023 or successful 2024?

Yes. As we think forward, not only for the next 1 to 2 years, but frankly, through to VX , what we call VX 2030, so all the way through 2030, it's all about execution. Our programs are significantly de-risked. As I said, 5 of the programs that we're involved in are already past proof-of-concept stage and 8 programs are in mid- to late stages of clinical development. So as I fast forward 1 or 2 years, what do I see on the horizon? Not only continued sustained leadership in CF, but expanded leadership in CF with more patients on TRIKAFTA, especially in the lower and lower age groups. You know that the PDUFA date for TRIKAFTA for the 2- to 5-year-olds is April 28 of this year. I expect by then we will have completed, shared the results of and commercialized the vanzacaftor triple, which holds the potential -- I know this is a tall order, but it does hold the potential to be potentially even better than TRIKAFTA. Next, I expect us to have completed the submissions for the exa-cel program. We've already done so in Europe. I expect that we will have done so in the U.S. actually at the end of this month and commercialized exa-cel for sickle cell disease in beta thalassemia, ditto for the pain program, expect acute pain to have completed and the filing to have gone in, and I expect significant progress in those other programs. And maybe I'll call out AMKD and type 1 diabetes in particular.

So now diving into those programs in a bit more detail. First on cystic fibrosis. Revenue guidance for this year is $9.55 billion to $9.7 billion. That's 8% growth at the midpoint. First, what are the factors and assumptions in your guidance that project that growth? And then second, the question that we get from investors frequently is whether the franchise is approaching peak. What are the expectations for revenue trajectory in the future?

Why don't I ask Charlie to tackle that, but I'll give away the punchline upfront. We expect continued significant growth from our CF franchise. Charlie?

Yes. And with respect to the guidance specifically to the range is 7% to 9%. Important to note that, that's after a 1.5 percentage point headwind from currency that we've called out. So if you look at the midpoint, it's roughly a $700 million increase year-over-year. I would say a couple of things. We recently updated our estimate of epidemiology for CF patients worldwide to 88,000. 5 to 7 years ago, we used to say that was 75,000, 2 years ago 83,000. Now 88,000, and the fact is that the CF patient population is growing. Patients are living longer, more patients are coming forward as a result of our medicines, and so we see an increase in the epidemiology. Entering this year, as you know, we've also said that there are still roughly 20,000 patients who would benefit from CFTR modulators who are not yet on medicine. So as we look at what's driving the guidance this year, it's continued penetration in markets where we've recently launched or achieved reimbursement. We are continuing to pursue additional reimbursements in countries where we don't yet have them and we're moving to younger age groups. And a good example of that is the expected approval of TRIKAFTA in April for the 2 to 5 age groups. So the drivers of growth this year are all forces that we're very familiar with. We have incredibly high confidence and a high level of visibility into that revenue guidance for the year. If you look beyond the areas Reshma mentioned, there are multiple billions of dollars of growth to go in CF as we extend access to the 20,000 patients that I mentioned earlier. Think about the next-gen vanza triple coming on as another growth opportunity. And then lastly, for the 5,000 patients for whom CFTR modulator is not appropriate, we're working on our mRNA therapy, and that is yet another driver of growth on the horizon.

Maybe diving into the vanza triple in a bit more detail. As you've said, the trials has reached full enrollment. They're expected to complete by year-end '23. I guess 2 questions that we get from investors. First, complete by year-end '23, what does that mean? Does that mean we see data this year? Or is it next year? I know it's a subtle difference, but that's something that investors care about. And then second, what would you consider a success? What does vanza have to produce in the trials for you to be confident that, that is the next generation of therapy?

Okay. Let's take the second question first, and then we'll get back to when we'll be ready to share data. So one of the great advantages have in cystic fibrosis is our preclinical HBE assays. These are human bronchial epithelial cells. This assay is the workhorse of how we have discovered and developed all of our medicines to date. And it's the same assay that we use to advance our mRNA program for that last 5,000 patients that we're working on in partnership with Moderna. When you look at that HBE assay, that's not only qualitatively predictive but quantitatively predictive of what we expect to see based on our laboratory experiments, to what we actually see in the clinic. It predicts that the vanzacaftor triple is going to be even better than the TRIKAFTA triple. And I say that based on chloride transport. We've done a number of Phase II studies. We've done it in isolation with VX-561. That's the once-a-day potentiator and with the other components for the vanza triple. And in the Phase II studies, we see improvement over TRIKAFTA of about 5 points in sweat chloride. Now I'm doing some cross-study comparisons, so keep that in your mind. But when you do all those cross-study comparisons, we see improvements in sweat chloride. And then when you look at the ppFEV1 which, of course, is the more variable measure in these Phase II studies, we also see some signs that the vanza triple could be better than even TRIKAFTA. So when we think about what are we looking for in terms of the Phase III trial, if we saw what we saw in Phase II, which is non-inferiority on the primary endpoint of ppFEV1. If we demonstrate that, if we see improvements in terms of sweat chloride, if we see the kind of safety profile we expect, that would be a home run. In terms of when will we see the results. Remember that drug development in CF now is completely different than it was, for example, just a few years ago, when we were working on TRIKAFTA. The studies are all done now versus standard of care, and there's a requirement from the regulators to do it for a 1-year duration. So this is a treatment period of a full 52 weeks. So 52 weeks, even Vertex can't make shorter, no matter how fast we go. So the studies will complete in terms of 52 weeks of dosing towards the end of this year, and then it's a matter of collecting all of the data, processing it and analyzing it. So unfortunately, Phil, I'm going to still say towards the end of this year, early next.

Perfect. As always, the potential for competition in CF continues to be a subject that investors debate. I guess, we're looking at competition from 2 sides. One, there's the small molecules like AbbVie and Ciona and then 2 genomic therapies. What are your thoughts on competition from those groups? Anything in the small molecule space that you're paying attention to? And anything you see in the genomics space that could actually be an opportunity?

Yes. Let's take the patients. So about 90% of the 88,000 patients with CF could benefit from small molecules. That's to say they make sufficient protein and so small molecules should be effective. Our goal, and this is absolutely our goal is to bring highly effective therapies for all patients with CF. And what I mean by highly effective therapies is we want to bring patients with cystic fibrosis to carrier levels of sweat chloride. Why? Because when you're at those levels, patients have virtually no manifestation of disease. Is there a competition in the CF space? Yes. Who was the competition? Well, the first competitor to TRIKAFTA is the vanzacaftor triple. And the next competitor is our own next-in-class correctors and potentiators. We've already discovered them. We've already identified them, and some of them have already made their way into the clinic. And we're going to keep going until we get to this ultimate goal of bringing patients to carrier levels of sweat chloride. Some patients have already gotten there with TRIKAFTA, but our goal is to get all our patients there. With regard to the mRNA therapy or the genetic therapies or broadly speaking, nucleic acid therapies. Remember, cystic fibrosis is a systemic disease. There is a significant manifestation in the lung, of course, but it's a systemic disease. So for those patients who can benefit from small molecules, that's the best approach because they also have cystic fibrosis-related liver disease, cystic fibrosis liver-related pancreas disease. And of course, the way we diagnose this disease is by sweat chloride, i.e. it's a full body systemic disease. But for those last 10% who simply don't make any protein, obviously we need to come up with a different approach, and our approach in partnership with Moderna is with our mRNA therapy. Now why do I think we're going to succeed where maybe others have failed? 3 reasons, the first goes back to our workhorse, the HBE assays. We have that assay, nobody else does. And we've already run the mRNA therapeutic through there, we can see that we can efficiently express the CFTR protein. We can tell that there is high chloride transport. We've already tested the mRNA with the LNP, which is the delivery vehicle we use in small animals and large and we know we can deliver it to the right cells. So as we are in the clinic now, in patients with CF, we go in high confidence and enthusiasm.

Perfect. Moving through the pipeline, maybe in descending order of maturity, exa-cel seems to be your next FDA filing. Any update on the rolling BLA? And what is Vertex's opinion of the market opportunity? Which patients do you like to go on -- are likely to go on therapy and how quickly?

Yes. So with regard to exa-cel, we already shared that we have finished our filings in the U.K. as well as in the EU for both sickle cell disease and beta thalassemia. In the U.S., Phil, the last time I think we saw each other was at JPMorgan. And what we had said is we've initiated the filing. Since then, we have even more modules that have been submitted, and we're absolutely on track to finish our filing, I used to say at the end of the quarter, but that would be the end of this month, and that is absolutely on track. With regard to the patients, so overall, there are 150,000 people with sickle cell disease and beta thalassemia in Europe and in the U.S. Of that, our initial target is 32,000 of those 150,000 because the initial approval and use will be with busulfan-based myeloablation. Those patients fall into basically 2 buckets. There are about 25,000 people with sickle cell disease, about 7,000 patients with beta thalassemia. The bulk of the patients with sickle cell disease are here in the U.S. And our goal is to approach about 50 centers to become authorized treatment centers. We've hired our field staff. We've hired our sales staff. We've hired our medical affairs team, the whole headquarters teams are hired and trained, and we are working to get those authorized treatment centers on board, and the goal here would be that narrower 32,000 patient population. The U.S. number is 50 ATCs, authorized treatment centers and 25 in the EU. This disease is very circumscribed in where it lives in the U.S. About 20 states make up more than 80% of the patients with these diseases. And outside the U.S., it's 5 countries where the bulk of patients are. So we know exactly where they are and that's where we're looking to start up our ATCs. We are also working on improved conditioning regimens, what we call gentler conditioning regimens. And we had a nice progress last year in that area so that we can get to the full 150,000 patients, but that is the next step.

In terms of those gentler conditioning regimens, it sounds like the side effect that most disturbs physicians and families from the busulfan regimens is the potential for sterility. Will these gentler conditioning regimens spare that for patients?

Yes. So let me take one half step back to the busulfan-based conditioning, Phil. There are ways to preserve fertility even with busulfan-based therapy, and that's exactly what we did in our clinical trials. We can do egg preservation and sperm preservation for our patients, and we did indeed do that in the clinical trials, and I anticipate that, that's what will happen in the real world use of these drugs. In terms of the gentler conditioning regimens, what are we trying to do? We're trying to get conditioning regimen that create a niche in the bone marrow for the edited cells to come to, but not lead to the side effects of busulfan, which include fertility, but it's also the pancytopenia that patients face. There is also a lung toxicity that can occur. So we're looking to improve all of those elements with the gentler conditioning regimens.

Moving to VX-548, another pivotal program. The Phase II data were strong, creating strong proof of concept. Maybe could you give us an overview of that program as it stands today? What were those initial data and what studies are going on currently?

Yes. The Phase II data of VX-548, this is a small molecule program that targets NaV1.8, it's a particular kind of channel in the periphery that's responsible for the transmission of the pain signal. So the interesting story here, Phil, is that there's a kindred, a family in Pakistan, and they're known as Pakistani firewalkers, and it turns out that the reason they're able to walk on these hot coals is they have a mutation in NaV1.7, a sister receptor. And people who have a mutation in NaV1.8 have this kind of chronic pain. So we have good genetic validation on both NaV1.7, which we're working on preclinically and NaV1.8, which is a program that's in the clinic past Phase II. The results from those studies that we shared were really pretty remarkable. We did a study in abdominoplasty, which is a model of what's called soft tissue pain. We also did a study in Phase II in bunionectomy, which is a model of what's called hard tissue pain. And what we saw in those studies is a very substantial and very easy to see treatment effect and a very good-looking safety profile. Note that because our molecule VX-548 works on these NaV1.8 receptors, they work in the periphery. That's to say they don't have the risk of addictive potential, which is a central nervous system phenomenon. That's a big reason for why we're so excited about this program. In Phase III, which was started in Q4 of last year, we are well under way. They are going well because these procedures, abdominoplasty and bunionectomy are high-volume procedures. We've said that we expect the studies to conclude late this year, early next. We remain well on track to do that. The last thing to tell you is the Phase III program looks an awful lot like Phase II. It's the same exact disease states post-bunionectomy, post-abdominoplasty. It's the same exact dosing schedule and the dose that we selected from Phase II, and it's the exact same endpoint. We did add a single-arm study to that, and we did that in consultation with the FDA because what we are seeking is a broad, acute pain, acute moderate to severe pain indication, so that patients can take the medicine if they need to in a surgical center or in a hospital. But equally, if they come into an ER or to their doctor's office, they can come in, get a script and go home with it.

What is a clinically meaningful reduction in pain? Does 548 have to achieve a similar level of pain reduction as the opioids to be viable? How low can it go to still be approved and adopted as part of standard of care?

Yes. So if we saw the results in Phase III that we saw in Phase II, that would be an absolute win. So what did we see exactly in Phase II? In Phase II, we designed a program that had a placebo in it as well as an opioid arm. We did not do a comparison between VX-548 and the opioid arm because it's a Phase II trial and the sample size was therefore small. But we've shared all the results, and you can see the numbers yourself. As I said, we didn't design it to do a comparison. So we should do that. But you can absolutely take a look at the numbers. It is hands down better than and provides pain efficacy compared to placebo. You can look at the numbers and see where it lies in comparison to or in context of the opioids. And those are the kinds of results we're looking for. If we have effective pain relief with a good-looking safety profile as we did in Phase II and the drug has no addictive potential, I think that has the opportunity to help significant numbers of patients and real commercial potential in the marketplace.

Moving to AMKD in inaxaplin. Can you provide an overview of that program? What were the Phase II proof of concept data that were presented in the design of the Phase II/III trial?

I know you know this, Phil. I happen to be a nephrologist by background and training. So people ask me what my favorite program is, and they often think it's going to be AMKD. I'm not going to share with you what my most favorite program is, but I do like this one quite a bit. So this is a very particular kind of kidney disease. This kidney disease, APOL1-mediated kidney disease is defined by patients who have to APOL1 mutations. They have proteinuria and they have reduced renal function. Those are exactly the patients we studied in Phase II. In fact, we took it one step further and studied the most severe of these patients. They're called people who have something that you see under a biopsy, under a microscope called FSGS, focal segmental glomerulosclerosis. This is the most egregious, the most severe of diseases. Even in regular garden variety FSGS, we've never seen a drug that reduces proteinuria, that's the measure of damage to the kidney of 47.6%. That is what we showed in Phase II in the FSGS -- APOL1-mediated FSGS population. In Phase III we're studying -- we're doing -- everyone talks about adaptive study designs but know one does it. But we do. So we have an adaptive Phase II/III study of people who have 2 APOL1 alleles, proteinuria and reduced renal function. We expect to complete the Phase II portion of that Phase II/III study this year and then roll right into the Phase III portion of that study. And the other important element to know about it is we have already had our discussions with the FDA, and we have a path to accelerated approval based on a change in the slope of GFR, which is a measure that's very related to what we've been talking about, which is proteinuria.

As we talk to KOLs about this program, the controversy that we keep encountering a thought in the physician community that the degree to which the APOL1 risk allele drives the disease varies over a spectrum in the broader AMKD population with FSGS. On one end where it's basically driven by the risk allele, in some other forms of AMKD like hypertensive diabetes, there may be other factors that are more predominant. Does Vertex share that view? And if so, how do you mitigate the risks to make sure that you have a population in the trial, where hitting APOL1 could actually change the risk of progression -- in the rate of progression?

Let me give you one conceptual framework and then I'll get to the specifics of our program. So the bottom line is that this disease is driven by having 2 APOL1 alleles. If you ask, well how do I get AMKD? Well, you have to have 2 APOL1 alleles. And then if you try to distinguish between what's called FSGS and what's not called FSGS, what distinguishes that? What distinguishes it is whether we, as a nephrologists made the decision to biopsy that person or not biopsy the person. It's nothing more than that. So when we think about the Phase III program or the Phase II/III program, it is a program of studying those with homogeneous kidney disease. And homogeneity is defined by 2 APOL1 alleles, proteinuria and reduced renal function. But let me get to the very specifics of your question. We studied 16 people in that Phase II study. That Phase II study is going to be published in a high-class journal. So I look forward to all of you reading the paper. We actually took patients who are at the high end of proteinuria, so what we call nephrotic range proteinuria, more than 3.5 grams, that is very significant amount of proteinuria, and those at a lower end. And we actually shared the results in this way when we shared the results in the press release. Whether you have proteinuria on the higher end or on the lower end, the substantive 47.6% reduction in proteinuria was the same. So when I think about the Phase III results, I feel really good about how we've designed it. And I'm very pleased with the inclusion of patients with 2 APOL1 alleles as the included population because that's what the unifying diagnosis is. If you don't have 2 APOL1 alleles, you don't have this disease. If you have 2 APOL1 alleles, proteinuria and reduced GFR, you have this disease.

Turning to VX-880 in type 1 diabetes. Can you give us an update on that program? How's enrollment progressing? Where are you in terms of dosing?

Yes. All right. So in our type 1 diabetes portfolio, we actually have 3 distinct programs that we're running that have as their underlying basis, the VX-880 cells. The first program is VX-880, let's call it, the naked cell program. So in this program, what we have is the cells that we can make in unlimited quantities in our labs, that are fully differentiated, insulin producing beta cells or islet cells. This is really important because the one insight we have from long-standing data in the literature is that if you can have patients who have type 1 diabetes get a whole pancreas transplant or a cadaveric-islet cell transplant, patients can live for many, many years, as in decades, insulin free. So the holy grail in this field has been how do we do that where we're not reliant on cadaveric pancreases or cadaveric islets? The answer is fully differentiated insulin-producing beta cells that we make in our lab, and that's what we're doing in this program. The 880 program is the first out of the gate and the furthest progressed. We've already shared the data from the first 2 patients who were treated with half the target dose. We've already declared proof of concept, and we've already shared that 1 of those 2 patients treated with half the dose has been cured -- and I don't use that word lightly, has been cured of their type 1 diabetes. When I say that, what do I mean? This was a patient who was a 30-year diabetic on 30-plus units of insulin with a hemoglobin A1c of 9.6%. The last time we shared data from this person, they were on 0 units of exogenous insulin, their hemoglobin A1c was in the 7% range, and they had C peptide, something they hadn't seen in their own body in decades. We are now at the point where we've fully enrolled Part B. The next part is really important because through Part A and Part B, we have a staggered dosing. That's to say we cannot dose patients concurrently, so it takes a little bit longer. We dose, we wait, then we dose again. In Part C, we can dose concurrently. This is a very similar scheme to what you saw us do with CTX001 now known as exa-cel. The second program, so program #1 requires immunosuppressives. That's how you protect the cells from the immune system. Program #2 is those same exact cells that we've already demonstrated proof of concept in a particular device, it's a proprietary device that hides the cells, if you will, from the immune system. No immunosuppressives needed. The IND is cleared in Canada. We're up and running there. I'm sure that the IND, which is on hold here, will clear soon and we'll be up and running in the U.S. And the third study and the third program in our type 1 diabetes portfolio is we take those same VX-880-based cells, and we gene edit them in order to evade the immune system. That third program is in preclinical development. You know, Phil, that we also late last year, Charlie, maybe September, October, something like that, we closed on our transaction with Viacyte. Through the Viacyte program, we have a partnership with CRISPR where we're working on a gene-edited program with different starting material as cells, but that program is also in the clinic.

In the last minute, maybe we'll finish off with one business development question. Vertex has a lot of cash on its balance sheet. You're generating a ton of cash. Biotech valuations are low and a lot of other small caps are cash constrained. What's your most recent thought on business development? What role is that going to play in your portfolio construction?

Let's give the last word to Charlie.

Yes. Listen, we've been very consistent on that front. Business development is important to us. We prioritize innovation both internally and externally. And so when you think about priorities for capital, BD is at the top as we invest in innovation. We've had, I think, great success over the last number of years with the deals that we've done. If you look at our portfolio right now, over 40% of the deals -- or 4% of programs in the clinic have benefited from BD that we've done in recent years. So I think we've got a very strong track record there of converting that BD into real programs. Your point about valuations, it's true they are lower, but most important to us is finding deals that are on strategy. And so there is no valuation at which we'll do something off strategy. We've been very consistent, very deliberate and very steady about that, and we'll continue to do so. I guess the last point I would make is, aside from the priority around investing in innovation, we do maintain a share buyback program. We recently announced a $3 billion authorization, multiyear authorization. And so allocating some percentage of our capital to buybacks will continue to be a focus as well.

Great. With that, I think we're out of time. Thank you so much for an interesting discussion.

Phil, thank you.