Vertex Pharmaceuticals Incorporated (VRTX) Earnings Call Transcript & Summary

Great. Thanks for joining us, everybody. I'm Terence Flynn, I'm Morgan Stanley's U.S. biopharma analyst. I'm very pleased to be hosting Vertex Pharmaceuticals this afternoon. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, I'm going to turn it over to the company's CEO and President, Reshma Kewalramani, who's going to give us some opening remarks, and then we'll dive into questions. But thank you so much both for being here. Really appreciate it.

Great. Terence, thanks so much for hosting us. It's very nice to be with all of you. Maybe two or three themes for opening remarks, and then we can dive into any particular areas that you wish. Maybe the first thing to say is that our leadership position in CF continues. We are absolutely delighted to be treating more and more patients year-on-year. And now with ALYFTREK, the medicine that we launched late last year, beginning of this year, we can treat even more patients in that there are some 39 more mutations that are in the [ ALY ] label and there are some patients who previously were on one of our other medicines that discontinued, but those patients can come back and people can gain by being on a once-daily medicine that has to date, the best efficacy that we've seen. Second, maybe two years ago, Terence, if we were talking, we'd say, well, that was what our commercialized portfolio would look like. Two years forward, we now have a presence in heme with CASGEVY in sickle cell disease and beta thalassemia, and we also launched JOURNAVX in acute pain. And as we look out on the horizon, we talked about five launches in five years a little while ago. And I would say we are well on track to make that, if not exceeded. Second, to talk about the pipeline, there's a lot going on. There are four programs already in pivotal development with the fifth to come very soon. And I'll just enumerate them for you in the event that you have some questions on them. There's Povetacicept, the dual APRIL/BAFF inhibitor in IgAN. There is the two DPN studies with suzetrigine. There is also the Inaxaplin study in AMKD that's in pivotal development as well as type 1 diabetes, that's the cell-based therapy. The second [ KOBE ] program, you'll remember we described this as a product with a pipeline. That one will be membranous,and that should start its pivotal development shortly. And if I think a little bit behind that, there's some really exciting work going on in ADPKD, which is a Phase II program that started in something called DM1, myotonic dystrophy type 1. That's also in a Phase I/II, and it's in the Phase II part. So it's multiple ascending dose where we can look at safety and efficacy and some cool work earlier in the pipeline in terms of improved conditioning for CASGEVY, NaV1.7, alone or in combination with our paying products and improved immunosuppression for the type 1 diabetes program. So lots going on in the commercial world in the pipeline, both mid- and earlier stage. And as I think about the company, we've also been taking some time, effort and focus to scale the company to keep up with all of this growth as we look forward to these next, let's say, 3, 5 years.

Great. Well, I appreciate the broad overview there, and I know we're going to dig into a lot of this over the subsequent half hour here. You discussed the diversification journey that you've been on as a company and made a lot of progress there. I guess as you think about the forward is there more work that you have to do? Or you feel pretty comfortable you're talking about scaling the company, making investments, obviously, from a bandwidth perspective, a lot going on. So do you see more opportunities? Or do you think you have enough right now and you kind of want to execute on the current opportunity set?

It's both. There is definitely more coming. So let's say we have three franchises today, CF, heme and pain. What we can see in front of us, there's more coming. And I would say that's going to be a renal franchise led by Pove and AMKD right behind that before we get some more Pove and then ADPKD. Type 1 diabetes is also right around the corner. And because of the fact that it's in Phase III, I see chronic neuropathic pain by wave DPN being right there. But then when I look at the mid-stage pipeline, you can already see products emerging. So there's more in the near-term for sure. But as we think about our sandboxes between 12 and 24 diseases, many of those diseases have progressed from the research stage, from the discovery stage into the clinic. And I expect that, let's call it, a decade and look out 5 years that there's more coming.

Yes. And do you think there's also opportunities for external innovation? I know the [indiscernible] povetacicept, that was an example, the type 1 diabetes program. But as you look at your sandbox, are there opportunities out there that you continue to pursue and see a need for, you think, again, you're comfortable with kind of where you stand on the internal side.

Yes. I'm going to sound like a very broken record on this, Terence, but nothing has changed. If you look at our pipeline today, about 40% of our pipeline comes from external innovation. About 60% comes from internal innovation. And our approach is exactly the same. We stay very close to our knitting on our R&D strategy, and we stay very close to our knitting on our external innovation strategy. And basically, what that means is it is all about our R&D approach. And if the best assets are internal, that's superb. And if we find great external assets, that's super. But what matters to us is to execute on our R&D strategy.

Okay. Great. Maybe one last one on the strategy front before we get into the kind of launch products and some of the pipeline is. Obviously, there's a lot of focus on tariffs in MFN. I know from a tariff perspective, you guys are less exposed than maybe some of your peers. But on MFN, is still an area of uncertainty. I know you guys are engaged in Washington, D.C., like lot of your peer companies. What's your latest view on how this is evolving? And are we getting closer to any resolution here?

Yes. I will say it is a little bit of sculpting fog. It's a crystal ball that's kind of blurry. It is difficult to tell. The facts on the ground are for tariffs. There is a 232 process that continues, and there has not been new news since the announcement that they would be a review in this 232 process would be undertaken. I will tell you, from a Vertex perspective, we have a very diversified supply chain. We are not dependent on any one continent or country for our raw materials or our API. And the overwhelming majority of our manufacturing is actually done here in the U.S. We do manufacture CASGEVY in Europe for some of our ex U.S. markets, but the vast majority of our manufacturing is actually done right here. On the MFN side, I think all of you know that 17 companies received a letter and a request to think about U.S. pricing and ex U.S. pricing. We did not receive such a letter. Obviously, we're studying the situation. We have a very good line of communication into D.C. and we are closely following, but there is no new news on our front.

Okay. Great. Maybe we'll pivot over to the launch -- newly launched products. So JOURNAVX, obviously, you mentioned as one of your diversification efforts. Maybe just help us think through some of the near-term dynamics, but also maybe set the stage for 2026 in terms of some of the efforts you're making now and how that sets you up for growth in '26?

Absolutely. Let me turn it over to the expert who is the architect of the JOURNAVX launch and you can hear it right from the horse's mouth. Duncan?

All right. Good morning, everybody. Nice to see you. Thank you for the time today. Appreciate it. In terms of the JOURNAVX launch, we continue to be extremely pleased with the progress that we are seeing so far. As we mentioned on the earnings call, we've seen rapid coverage by payers at the time -- at the beginning of August, we communicated 150 million lives covered here in the U.S., which in 6 or 7 months is impressive progress. Obviously, the number since then has only further increased, and we look forward to updating you in the future. We continue to make great progress in terms of hospital coverage, hospitals putting JOURNAVX either on their formulary or into their discharge protocols and as a result of that, we continue to see tremendous feedback from both the physician community as well as patients in terms of their clinical response to JOURNAVX. We're also seeing the product to be highly promotionally responsive, particularly to field engagement and field activity as well as to our digital engagement. As many of you know, we put in place a patient support program to enable patients to easily access JOURNAVX in advance of payer coverage. And obviously, as that payer coverage increases, the degree to which the patient support program kicks in, commensurately decreases. The reason I mentioned that at this particular point is that, obviously, as we see prescriptions grow over the course of 2025, we'll continue to see more of those prescriptions converted into revenue in the balance of 2025. And as we conclude our access arrangements through the balance of 2025, it then gives us the opportunity to power up our commercial investments in terms of sales and marketing to drive prescriptions towards the back end of 2025 and particularly into 2026 and on.

And based on that, I would assume we should expect gross to -- an improvement on gross to net as well as a result of that turnover that you talked about?

Yes. Absolutely.

I suppose it's fair to say, Duncan, that the gross to net was 100% when we were covering all the scripts?

For those prescriptions we were covering, it was 100%. Yes.

So there's only one direction to go.

Yes.

Yes.

Okay. Have you -- can you comment at all about where you think steady-state gross to net might shake out given some of these payer agreements that you've reached?

I think, in general, we do not provide steady state gross to net guidance. But we certainly expect it to reduce significantly.

Okay. Fair enough. Yes. And what about the quality of coverage like as you think like the tiering structure. I know that's something else we get a lot of questions on. How is that playing out relative to your expectations, like the quality of the coverage that you're actually seeing?

Great question. So to step back a little bit, our strategy in terms of coverage, as we articulated even before launch was to ensure that there were no prior authorizations and no step edits in the deals that we do with payers. Obviously, in this space, a step edit makes really very limited clinical sense. You don't want patients to start on an opioid, have to fail the opioid and then to be given JOURNAVX when they have acute pain. And we also wanted to make sure that prior authorizations were not in place because we know that for surgeons with a relatively sort of standardized workflow, prior authorizations are somewhat unwelcome step in the process, should we say. So every single one of the contracts we have concluded with a payer to date, does not have a prior authorization and does not have a step edit. There are, of course, some payers that are covering JOURNAVX in advance of or on the side of doing a -- having an agreement with us, with Vertex. And in some of those cases, they have put in place prior authorizations in step edit. So the 150 million lives is not 100% unrestricted. But for all the deals that we have done, which is about 94 million of those lives, then the access is unrestricted. And obviously, as we conclude arrangements with payers we continue to seek unrestricted access for JOURNAVX.

Okay. Great. The other one that I know is -- this top of mind is just the NOPAIN Act coverage, and I think there's going to be an update on the list this fall. So maybe just should we expect JOURNAVX to be on the list this time around?

Yes. Maybe I'll ask Duncan to comment on this one. I'll give you a little bit of background. The NOPAIN Act, which passed in December of 2023 was a concerted effort by the community. And certainly, we were supporters of that bill because it was a bill that provided hospital outpatient or surgical center add-on payment for the Medicare population. And if you go back and read the transcripts and you go back and read the letters at Congress sent in, it was meant for drugs like JOURNAVX. And so it is a little bit perplexing that when the draft list came out that JOURNAVX was not on that list, as you rightfully point out, the final list will be out this fall. And I'll turn it over to Duncan to tell you a little bit about that.

Yes. So we are continuing to work with the administration to secure JOURNAVX on the final version of the list rather than the draft version. I would also make the comment that because of the patient population that Reshma alluded to as Medicare patients in outpatient surgeries or ASCs, is actually financially a relatively small part of the business opportunity for JOURNAVX. It's less than 2%. So I think it is important that JOURNAVX is on that list from a sort of iconic point of view, but it's not a huge driver from a financial business point of view.

What is the -- it sounds like you're -- I don't know, it's like super confident that you'll be on there yet. So what's like the hesitation, like what's the gating factor that you think that...

I think it's the difference of opinion on how you interpret our label. Our label does not have the words in postsurgical pain, which is what is in the legislation. But obviously, JOURNAVX in the Phase III program was used after bunionectomy and after abdominoplasty, both of which I think you would usually define as surgeries. So we do believe it has shown efficacy and works in postsurgical pain. It's just those words don't happen to be on the FDA label for the product. But we think that common sense will prevail, and it will be on the final list.

Or is there an opportunity to update the label to add those words?

Yes. So the label is exactly the label we wanted, a broad label for moderate-to-severe acute pain so that as patients think about it or doctors think about it, because there's the label then translates to a patient leaflet, right? So as doctors look at it, it's very clear to them a kidney stone, a sprain, a strain, a pain of any variety is in just as obvious as it is that post-surgical is in. So it's the right label. I do think that when people review the label and look at the clinical trials that led to the label, I think you will come to the conclusion that those surgeries, you can call them surgeries, you can call them operations, but I don't think there's anything else you can call them.

Okay. Fair enough. All right. On the Phase III DPN program, Reshma, you mentioned this is one of the key pivotal programs that you guys are conducting. Maybe just give us an update on kind of enrollment and where we stand. And then any thoughts on data timing because, again, I think last time we spoke, it sounded like potentially the first trial, obviously it started, enrollment seems to be going well, it could read out maybe next year, but just want to check on timing there and enrollment.

You're spot on, on all of it. So we had one trial that had started in, I guess, this calendar year, about 6 months, 8 months, something like that. And now we are starting the second trial to secure that DPN indication. It's really important in pain, as you all have recognized that we need to work with specialized sites that are understanding of how to conduct that clinical trial can appropriately train their patients because the endpoint is ultimately a subjective endpoint and the placebo effect is important and important to manage. So for that reason, we're going to the same circumscribed number of sites there, the well-trained sites who have done this before and know how to operate in DPN. And so what I expect is that the enrollment in the first trial will now slow as the sites start to enroll in the second trial, and I do expect both studies will complete enrollment by the end of next year. And I do expect, therefore, that we'll be able to not only enroll the studies at approximately at the same time, but share results at the same time.

So you don't do -- the first trial won't read out earlier you think?

I don't think so. The enrollment is -- that one has been ongoing for more than 6 months, maybe 8 months. So we have a good line of sight on the enrollment metrics and the momentum, and it's going very well. I expect now when the second study starts, enrollment will, therefore, slow in study #1 as people come on to study #2 and therefore, they will both end at about the right time so that they can set up for readouts together.

Okay. And that will be second half of next year?

The enrollment should complete in the second half of next year, second half of 2026. The study is a 12-week duration in terms of treatment study. So after enrollment, we need 12 weeks. So we haven't guided to when results will be available. We've been talking about the fact that the study enrollment should end at about the same time somewhere towards the tail end of next year.

Okay. Got it. And then just remind us the target profile here. Obviously, a little bit different from some of the acute studies that ran different from LSR, Lyrica has been approved here and used. So if you think about the target profile, what's the win look like from your perspective from these Phase IIIs?

Yes. In DPN, there have been trials done with the gabapentinoid or Lyrica when it was a branded drug with Duloxetine. There've been positive Phase II studies. There've been positive Phase III studies and this is a tried and true regulatory pathway as well. Frankly, that's why those who go into the peripheral neuropathic pain area, start with DPN. And equally, frankly, that's why we started with DPN because it's a tried and true path. For study #1 for us, it's designed very, very similarly to the Phase II study. There's a JOURNAVX arm, and we chose the high dose. So 70 milligrams. There is a placebo arm and there is a gabapentinoid arm. The gabapentinoid arm is not required for regulators. We've put it in so that you can have a magnitude of the treatment effect for context. It is a primary endpoint of JOURNAVX versus placebo. The second study is a smaller study in terms of sample size. It does not have a gabapentinoid arm because study #1 does. And again, the primary endpoint is JOURNAVX versus placebo. What would be a win? A win would be a statistically significant and clinically meaningful results. There is a definition of clinical meaningfulness in this field and has to do with an improvement compared to baseline of about 30%. And so that's what we're looking for in this area.

Okay. Great. Maybe, Duncan, you could just level set us in terms of the opportunity in chronic relative to acute, just big picture and what DPN represents from an opportunity perspective.

Sure. We don't necessarily give exact $1 billion guidance, but I would say that both of them obviously offer multibillion dollar opportunities. And to put some numbers behind that, in moderate-to-severe acute pain there are about 80 million patients per year that go through moderate-to-severe acute pain. About half of them are still prescribed an opioid even today. But of course, those patients are generally speaking, on a relatively short course of treatment, the average treatment duration is about a 14-day prescription for non-opioid prescriptions, and that is exactly what we're seeing with JOURNAVX right now. The DPN market is about 2 million, 2.5 million patients here in the U.S., but of course, those are chronic patients who will be taking the products as with any other chronic disease on a daily basis. So obviously, therefore, they both offer multibillion-dollar opportunities, but how the mathematics get you there is a little bit different.

What's the -- and if you were to look at like a steady-state penetration number for Lyrica of that 2 million to 2.5 million, do you guys have any idea where Lyrica kind of shook out on a steady-state basis roughly?

Duncan, you'll correct me if I go stray, but I think at its peak, when Lyrica was branded, it was north of $5 billion in terms of revenue. And that was made up of a few different conditions under there, but the lead indication was in DPN.

Okay. Great. The other -- well, maybe just in the interest of time, I'll pivot over to povetacicept, again, another important late-stage program for you guys. You're going to have some of the first pivotal data first half of next year. Again, I think there's a lot of debate and kind of two things. One is competitive target profile. I think you guys are aiming for best-in-class. So maybe you could speak to that, Reshma, in terms of the Phase II that you guys have. And then the second is just the market opportunity here in light of the competitive landscape and where you see this going over time for the lead indication in IgAN?

Yes. Sure thing. Let's split that question, Duncan, you take the second half, and I'll take the first half. It just happens to be the case that I am a nephrologist, and it is a really great time to be a nephrologist or be interested in the field of nephrology. We have not seen this kind of drug development, certainly not in my lifetime, but I don't think we've seen this kind of drug development ever in renal medicine, including in IgAN. So it's a wonderful thing for patients suffering from renal disease because there's real hope coming. For us, IgA nephropathy or IgAN, has been in our metaphorical sandbox for some time now. The issue was before we acquired Alpine, we did not have an internal program, and we did not have an internal approach that we thought would be transformative. But we knew that an APRIL/BAFF approach could be that. And so as we saw Alpine emerge, that's why we targeted that company, and that's why we made that acquisition. So starting with the preclinical, povetacicept has best-in-class potency, best-in-class binding affinity and was specifically engineered as this dual APRIL/BAFF therapeutic to have the right format, so think size, isoelectric point and other biophysical properties to have the best tissue penetration. So that's what we saw in terms of the molecule and preclinical. In terms of the Phase II data, what we saw was best-in-class potential on proteinuria, hematuria, as well as emerging data on GFR. Now GFR takes a little bit of time. So you can't really see that with 12-week, 24-week 48-week data but you can see proteinuria and hematuria in that time frame, and we really liked what we saw. And that really drove this. In terms of best-in-class for patients and competing in the marketplace, I'll turn it over to Duncan.

Yes. So obviously, IgAN is a significant market. It's about 300,000 patients. And in terms of the profile of povetacicept, as Reshma alluded to, it has an incredible profile as a medicine, and we're seeing that play out in the clinical data that's been published so far. So we're very excited about the opportunity that it offers. Obviously, this is a market where people can transition from one medicine to another. And so what we think is important here is things like proteinuria as an endpoint and to a lesser extent, hematuria as well, where we're seeing very strong data. Put another way, although nephrologists will tell you their goal is 0.5 grams per gram of proteinuria, most patients never get anywhere near that goal. And frankly, all of us who don't have disease would have 0 grams of protein in our urine. We'd also have 0 grams of blood in our urine as well. And we're seeing good data both in terms of proteinuria as well as hematuria. And of course, HCPs and the nephrologists use both of those as indications of disease control indications of inflammation even if GFR is actually stable. The other comment I'd make around povetacicept is that there is a dosing advantage, we believe, to the product as well as a size of dosing advantage. So put simply, if we come on to the market with a product that has excellent proteinuria data, excellent hematuria data, it is easy for the patient to take and has been engineered to be highly effective in this disease area unlike a wild-type molecule, we believe that physicians will want try using that product because, frankly, they don't want any protein or any blood in people's urine.

Yes. When we think about the Phase III data relative to Phase II on UPCR, I think from some of the other companies in the space, we've seen a little bit of a step down in efficacy. Is that generally what you guys would expect as well, just as we go to broader sites, more patients that you see some diminution versus the Phase II data? Or is there a reason to think that we should expect a very similar level of UPCR?

Yes. In IgA nephropathy, unlike in pain, for example, you are advantaged by the fact that the endpoint is an objective endpoint, and that really helps. It's a very well-controlled 24-hour urine for protein. The entry criteria in the type of patients enrolled in Phase II are very, very similar to the entry criteria and the types of patients in Phase III. We expect to release more Phase II data towards the back end of this year. And I think what you'll see in that data set is more patients with longer duration of follow-up. And so I think you'll be able to make your assessment on what happens when you have more patients go through 24, 36, 48 weeks. But I expect the kind of magnitude of treatment effect on proteinuria and hematuria to remain. And I expect that as we get our Phase III data, we're going to expect to see this very high level of reduction in those kinds of parameters, of course, with GFR stabilization.

And will we get GFR data in this Phase II update as well?

You should be getting some GFR data. Just note that GFR is slow to move. So you want to look at it in the -- it's not something that's going to move in two weeks, but you will see more GFR data as well. The good news with renal medicine is as goes proteinuria, so goes GFR. So when you get good proteinuria reduction, you should see good GFR stabilization.

That's what I was going to ask, [ Translatability ] is pretty high. Okay. Great. All right. And then maybe just remind us, I mean, you've talked about platform and a product here potential for pove. So what are the other indications that you're focused on? And when could we start to see some more data from a pivotal setting there?

Yes. So on the last earnings call, we talked about the fact that Alpine did a really clever study design and had two basket studies that they initiated and we continue. The first basket is a renal basket. There's four diseases in there, IgAN, which we've already talked about. The IA, the interim analysis cohort for potential accelerated approval has already been enrolled. We expect to see pivotal data in the first half of next year and file soon thereafter. The next one from that is membranous, and I expect the pivotal program to start in the back half of this year. There are two more studies in there, an ANCA-associated vasculitis, ANCA-associated nephritis study and a lupus nephritis study. And then in the RUBY-4, there are three hematologic conditions, ITP, cold agglutinin disease and warm hemolytic anemia, otherwise known as wAIHA. We are prioritizing IgAN and membranous out of RUBY-3 and we're prioritizing wAIHA out of RUBY-4. We are also prioritizing, as I shared on the earnings call myasthenia, generalized myasthenia gravis. And what that means is for wAIHA prioritizing means that we are going to be awaiting the full Phase II cohort, which I expect towards the tail half of this year to make our decision on next steps. We've had a chance to see some of the emerging data, which looks good. And prioritizing for generalized myasthenia gravis means proceeding to a pivotal trial and we are going through our discussions with the FDA for what that looks like, and I'll be able to share more and when that starts in the coming months.

Okay. Great. Maybe just in the last couple of minutes here, the ALYFTREK launched. You mentioned this in your opening remarks, Reshma. Maybe just one thing is help frame for us some of the puts and takes on conversion. How does it compare U.S. versus rest of world as we watch the U.S.? Is that a good leading indicator for rest of world or maybe vice versa? And maybe, Duncan, it might be a better question for you.

Yes?

Sure. So as we communicated before, physicians are using ALYFTREK sort of in order of clinical unmet need, as you would expect and as they have done for our previous products. So they're prioritizing patients who are newly indicated to a CFTR modulator. Here in the U.S., that was 31 mutations, about 400 or so patients. ex U.S., that's a much larger number of patients. It's in the thousands, not in the hundreds. They're then obviously prioritizing those patients who discontinued off of CFTR modulator because, again, they're currently not benefiting from one of our medicines. And then last but not least, they're looking at transitioning the patients. I would say that the transition of patients, again, is being done under the sort of profile of clinical unmet need, so where the physician believes that ALYFTREK may offer more efficacy where they believe that the patient has had some sort of tolerability profile with TRIKAFTA, they're transitioning those patients more quickly. There are obviously about 30,000 of them in the U.S. going to about 250 CF centers. So it takes a little bit of time for them to get through those patients. And in terms of the U.S. versus rest of world dynamics, I'd make a couple of comments. Firstly, it's relatively early in our launches ex U.S. from a sort of post reimbursement point of view. And I made the second comment that the labels between TRIKAFTA and ALYFTREK differ between the U.S. to Europe, to the U.K., to Canada. They're all actually slightly different from each other. But the consequence of that does mean that in some of those jurisdictions, the liver monitoring burdens on ALYFTREK are much lower than they are here in the U.S. And so as a result of that, you might suggest that you would see more rapid transition of those patients where the label burdens are a little bit lower ex U.S. than they are in the U.S.

Great. Well, I think we're up against time. But thank you, Reshma. Thank you, Duncan, for your time today. Really appreciate it.

Terence, it's good to see you. Thank you.

Thank you.