Vertex Pharmaceuticals Incorporated (VRTX) Earnings Call Transcript & Summary

Good morning, and welcome once again to TD Cowen's 46th Annual Healthcare Conference. I'm Phil Nadeau, one of the biotech analysts here at Cowen. It's my pleasure to do a fireside chat with Vertex. We have Vertex's CEO, Reshma Kewalramani with us this morning. And as many of you know who follow our research, Vertex has been one of our favorite large caps for a long time. So we're happy to dive into the details once again at the Cowen Conference. Reshma, maybe I'll hand it over to you to begin.

Can you give us a state of the company statement? What are Vertex's strengths, its challenges? And what will it do to create shareholder value over the next year or 2?

Sure. I think, well, good morning Phil, and good morning all. It's nice to be with all of you today. From a thumbnail sketch point of view for the company, we're at a place where our CF leadership continues to be extended and expanded. We have 2 other verticals in heme with CASGEVY and in pain with JOURNAVX. And at a point where the fourth vertical, the fourth franchise, that being renal is emerging with pove in IgAN that I imagine will be the first of the renal medicines that we bring forward. In addition to those either commercialized or near-term commercialization opportunities, the R&D pipeline continues to make very nice progress. In total, there are 5 programs in pivotal development. There are a host of programs in Phase II development, and I really like what I see coming out of research. There are some really neat programs. And if we can get to it, I know there's a lot of questions on pove, but if we can get to it, there's some really good-looking programs in research that over the coming years will be ready, I think, to come into the clinic. And on the balance sheet side of things, the balance sheet has been and remains strong. And with our growing company, the balance sheet also is growing stronger. I'm sure we'll talk a little bit about what we're doing there. But commensurate with the size of the company, we're doing more stock buybacks, and I really like our strategy focused on innovation, both internal and external innovation, and you should expect us to be quite boring in that way, more of the same.

Can you talk a little bit more about your strategic vision for Vertex? A lot of other companies have struggled when their cornerstone franchise has begun to age. What's Vertex's strategy to thrive as cystic fibrosis matures?

Yes. I think that one thing you can count on for Vertex is we study everything. And this notion that you raised, Phil, it's a real one. Many companies in our sector have gotten to a point where there are patent cliffs nearby. There is a declining revenue base, and there is insufficient R&D momentum. And then there is a look outward to do business development, some of which may be in haste or not in keeping with strategy that oftentimes makes things worse and you end up being in this snowball going in the wrong direction. It has nothing to do with me because it was far before I ever came to the company. But my predecessor CEO, Jeff Leiden, and the then Executive Committee have thought about this situation long and hard. When it was the KALYDECO and ORKAMBI, so we're talking 2012, 2015, the company moved on a pathway to diversification, diversification in R&D and diversification commercially. And what we have done since that time of 2012, 2015, that's when we set the strategy of R&D up, going after diseases of high unmet need where we understand causal human biology, where we go after diseases with biomarkers, efficient development and regulatory pathways, validated targets, specialty markets, and we've been doing that for the better part of a decade. It's also why CASGEVY is already commercialized and we're the third year in and now really gaining momentum there. JOURNAVX is already commercialized. And as I said in my opening remarks, we're on the brink of the fourth pillar, the fourth vertical emerging. So this point is a real one. It's happened a lot. We've studied it deeply. And the key to it is ensuring that we have a diversified pipeline and a diversified revenue base that we started doing 10 years ago. We didn't arrive at this point sort of by accident nor have we woken up and said, "Gosh, how did we end up here?" We've dreamed about being able to bring our company to this point to -- we've been planful about bringing our company to this point and we are extremely ready to be here with the fourth vertical emerging and many more after that.

We'll start by discussing that fourth vertical since it is quite topical. The biggest event that we expect from your pipeline in the first half of the year is the interim analysis from pove's trial in IgAN. What are Vertex's expectations for that interim analysis? And in particular, how important is it that the UPCR reduction that pove produces beats that from either Vera or Otsuka?

Okay. Sure thing. Just to complete the last thought, if some of you are newer to this. You know this point that Phil raised about the decline and the patent cliffs and such, just to make sure you have the dates. The TRIKAFTA patent doesn't expire until 2037 for the core patent. ALYFTREK is later than that. And our next wave of molecules are obviously even later than that just to close that out. On pove, extremely exciting program. It's extremely exciting in and of itself for pove in IgAN, but it's particularly exciting to us because of the pipeline in a product potential. So it's not just about pove in IgAN, it's about pove in membranous, pove in myasthenia. And obviously, it's -- because it's the same medicine, we look forward to each readout because it informs the safety of the other potential indications. So lots of enthusiasm there. With regard to what you should expect, we are fully on track for the data readout in the first half of the year as we've been guiding, and for us to be able to complete our submission in the first half of the year. You'll remember pove in IgAN has breakthrough designation, and the FDA has also granted rolling review, and the rolling review has already started. So that's sort of where we are. On what you should expect from the data. We have shared the data in IgAN from RUBY-3, that was the Phase II study. And the data that we've shared had 24-week data. That was something like a 25%, 30% reduction in protein. 36-week data, that was like a 50% reduction in protein. And 48-week data, that was like a 64-week reduction in protein. And then that study continues over time. This Phase III study, if you're trying to peg it to where should you look on the RUBY-3 data, this one is a 36-week study. There are very many similarities between RUBY-3 and RAINIER, that's what the Phase III study is called, by design. The dose is the same, the endpoint is the same, the inclusion, exclusion criteria is the same. The one difference to be aware of is that the Phase II study was a single arm change from baseline study. The Phase III study is obviously a placebo-controlled study. And so you have to adjust for that and think about that. But that's what you should be looking for.

In terms of the UPCR reduction, we've recently surveyed investors. They suggest a 47% reduction in UPCR in the interim. What are Vertex's expectations for that and how important is it that you show something numerically better than what the competition has shown?

Yes, 47% is a big number. That is a significant reduction in protein, and it should bode well for a medicine that achieves that going forward. So that seems like a fantastic result. Just remember, I happen to be a nephrologist so indulge me for a moment. The importance of protein reduction in homogeneous kidney diseases like IgAN is that it's very predictive of long-term outcomes. So that's why people focus on it. What are we really trying to do in renal medicine? It's not actually that we're trying to reduce the protein in urine. It's not even that we're trying to stabilize the GFR. We're trying to do both those things, but that's not really the high fruit. What we're really trying to do is prevent death, dialysis and transplantation or push that out. That's the actual hard end point. In slow-moving diseases like IgAN, that takes a long time, 10 years, 15 years, 20 years. And therefore, regulatory agencies have accepted the flattening, the not declining of GFR as the regulatory enabling endpoint. And the FDA has accepted reduction in proteinuria as the surrogate endpoint. So when you think about what are we really trying to do here, think about proteinuria for sure, think about -- because that's the accelerated approval endpoint. Think about the GFR slope because that's the regulatory enabling endpoint for full approval. But remember, what we're really trying to do is over the course of this disease in our patients, push out death, dialysis and transplantation. And in that regard, Phil's question is really important. So what are we really trying to do with these near-term markers that we have? We are trying to drive down protein to the lowest level. We're trying to drive down hematuria, blood in your urine, to the lowest level. We're trying to drive Gd-IgA levels down. Gd-IgA is to IgAN as sweat chloride is to CF. It is the proximate pharmacodynamic marker. And so we are looking at all of these elements to get them down to the best levels because think about it as compounding over time, over the next 5 years, 10 years, 20 years. The drug that does that best has the best opportunity to get our patients out of this death, dialysis and transplantation. The data that all of us are showing, Vertex included, are 36-week data. It's just the beginning. And if you look at RUBY-3, obviously, 24 weeks gets you a certain number, 36 weeks gets you another number, 48 weeks gets you another number and so on and so forth. So these are very important. And I think your number of 47% is a very big number, and I think that would be fabulous.

In terms of safety, investors are focused on low IgG. I think the KOLs we talked to are more focused on infections. How does Vertex frame the safety data at the interim? And what should we pay attention to?

The safety data, if you break that down, thinking about infections is the right thing to think about. At the end of the day, this disease, IgAN, is a disease that's mediated by B cells and it is a disease of autoantibodies. So what you are doing, if you're using a B cell mediator to control this disease is you're tamping down on B cells. When you do that, you are going to decrease immunoglobulin levels, that's how these drugs work. You're going to decrease IgA levels, you want that, right? Because that's the Gd-IgA, that's the aberrant autoantibody. You are going to decrease IgG, you're going to decrease IgM. But you're going to decrease the Gd-IgA more than those others, but that's how these drugs work. And I think that the Phase II data are a good representation of what you could expect in terms of the benefit risk. What I would be looking for is in that category of infections and what you're really trying to make sure is that you don't have serious infections. You don't have opportunistic infections. You should expect immunoglobulins to go down, and you should expect a focus to make sure that the infections are manageable, but you are indeed tamping down on the B cell. So that is the right area to focus on.

How does Vertex expect to position pove in the market?

The market is a big market. In the U.S. and Europe, 300,000 -- 330,000 people with IgA nephropathy, add another 700,000 or so patients in, let's call it, Greater China, add some more for Japan, Korea, et cetera. It's a big rare disease. You clearly need to have a positive benefit risk profile. You clearly need to have efficacy that is sufficient for approval and a risk profile that's acceptable. You need that. It's table stakes. But beyond that, how is a physician going to select which medicine they want to use. To me, the first next thing after you go through safety and efficacy is dosing and administration. As we discussed, this is a disease where you're going to take this medicine chronically for the next 10, 15, 20 years, for the rest of your life. There are 3 advantages that Vertex and pove has that no other medicine has. And we're not waiting for anything. We already know that there are advantages. First, it's once monthly dosing. Nobody prefers to take an injection weekly if you can take an injection monthly. Maybe nobody is an exaggeration, but you can look at market research, it's far preferable to take monthly dosing versus weekly dosing. We already know that we have that. Second, the pove medicine is a very low-volume injection. It's 0.46 ml. Third, it's in an auto-injector. The only medicine that has all of those qualities is pove, and I think that's a huge differentiator. Second, in the marketplace, pove is -- not only pove in IgAN, but it's pove in membranous. And I think in nephrology, we're calling this immunonephrology. That's the positive side. We're finally going to have medicines that are target therapies. But some people are calling this the tsunami of therapies coming to renal medicine. We, as nephrologists, are going to have to learn a lot of new therapies. And I think having one drug that can potentially treat multiple indications is a plus in that regard. And then thirdly, I've been moved, taken by how many times I've been asked, and I don't think it's because I'm a nephrologist, I think it's because I work at Vertex. People in the renal field have asked me to come and talk about what's happened in CF. How did that disease move from high mortality, transplantation is the only real available option to a chronic disease. And how should we be thinking about this in renal medicine? And we are bringing not only pove in IgAN, but pove in membranous, inaxaplin in AMKD, and VX-407 in ADPKD. So there's like a whole suite of medicines, and I think that's an advantage to Vertex. So we are looking to compete, we're looking to earn the business, and we're looking to win.

Turning to inaxaplin as the next interim analysis expected over the next 12 months. Can you remind people of the inaxaplin program, AMKD and Vertex's enthusiasm for it.

Yes. So AMKD is APOL1 mediated kidney disease. The Phase III program is a pure AMKD or, let's call it, primary AMKD. So the only disease that you have that we know about is that you have 2 APOL1 alleles, proteinuria and reduced GFR. We have a separate study we can get to that looks at people with 2 APOL1 alleles, and potentially another disease like diabetes. But the Phase III study is a pure APOL1 mediated kidney disease group. We have already completed the enrollment of the interim analysis cohort, and we are on track for those interim analysis Phase III results towards the tail end of this year or beginning of next. If those results are positive, we would be set up to file for accelerated approval in the U.S. So that's sort of how that one looks. And the enthusiasm for that one is high because the Phase II results looked pretty neat, 47.6% reduction in protein, that's big. And this is a real example of precision medicine, right? This has the trifecta of what every drug developer wants in their Phase III trials. One, it's a genetic inclusion criteria, 2 APOL1 alleles. Two, it's an adaptive design. It was designed as a seamless Phase II/III. And three, there's a pathway already agreed to with the FDA for potential accelerated approval.

You referenced the AMPLIFIED trial from which we'll get data midyear this year. How will Vertex use that data to decide whether to move into the additional patients? And what's your confidence that you'll see efficacy given that those -- the patients being studied are much more complicated?

Yes. The reason we separated out -- the Phase III program is called AMPLITUDE. The separate Phase II program is called AMPLIFIED. So in the AMPLIFIED study, we have one cohort that is 2 APOL1 alleles and lower proteinuria. And we have a second cohort that's 2 APOL1 alleles and diabetes as a comorbidity. So as an example of not a pure AMKD. The reason we separated these is because it is less clear what the role of APOL1 is when you have a second disease like diabetes. In other words, if you have APOL1 and you have diabetes, does the treatment of diabetes take care of your proteinuria and your kidney disease? Unknown. So we have to study this separately. So the way I imagine this will work is we'll have the results in the 2 APOL1 alleles and lower proteinuria group, and 2 APOL1 alleles and diabetes group. And then we're going to be waiting for the results of the 2 APOL1 alleles in the pure group. And then we can do next steps after that. It is an -- easier is not the right, it's a more -- it's a cleaner study to do the Phase III study the way we've done it because there's only one thing that we're worrying about. It's about 2 APOL1 alleles, proteinuria and low GFR. But we'll take that together to make our next steps for 2 APOL1 alleles with a comorbidity or lower proteinuria.

Turning to your marketed portfolio. Your CF franchise guidance for this year assumes growth of 8% to 9% year-over-year. What continues to drive growth for that franchise?

Yes, 3 things for continued near-term growth in CF. The first is going down to lower age groups. The second is geographic expansion. And the third is ongoing launch of ALYFTREK around the globe. You know, of course, that we launched ALY here in the U.S. starting around about January of last year. It was approved in Europe and in other regions outside the U.S., let's say, sort of in the middle of last year, and then we have to work for reimbursement. Now we're at the point where we have reimbursement in the Nordic countries, Germany, the U.K., et cetera, and we're working to get reimbursement around other countries. A more recent example, just to make it concrete for you, is Italy. ALY just got -- ALYFTREK just got reimbursed in Italy, and there are more mutations in the ALY label than even in the TRIKAFTA label. And these ultra rare mutations are more common in Southern Europe. So as an example, in Italy, there are 1,500 patients who are now newly eligible for a CFTR modulator because ALY has more mutations. So those are the 3 ways of growth for the near term.

Investors are paying increasing attention to the potential for competition, both from other small molecules as well as genomic therapies. What's Vertex's opinion of the competitive environment?

Okay. So let's separate out small molecules from everything else. If you think about cystic fibrosis, although it is seen as a lung disease, it is actually a systemic disease. We just focus on the lung because unfortunately, that's what our patients die of, of lung failure. . So if you're trying to think about the perfect way to treat cystic fibrosis, you would use a small molecule approach. That's the best way to treat it because it's liver disease, it's pancreas disease, it's gut disease, it's sweat chloride full body skin disease. Back in the day, people with CF would be small, breathing hard, malnourished because it's a systemic disease So. I think the best approach is a small molecule. For the 5,000 or so, it's actually becoming increasingly uncommon because TRIKAFTA and now ALY treat more and more mutations. For the patients who just simply don't make any protein, you need a nucleic acid approach, but that's the small component. So that's how you could think about CF as a whole. With regard to potential competition in small molecules, what I would say is that the medicine that I'm most concerned about that I think is a real potential threat to ALY is VX-828. VX-828 is our next gen. It's actually next, next, next gen, it's next gen 3.0. TRIKAFTA was next gen 1.0. ALYFTREK is Vertex's next gen 2.0. And the VX-828 medicine. And there's another one in that family called VX-581. Those are the next gen 3.0 medicines. They, in vitro, look even better than ALY. And now that's getting to be increasingly difficult. I mean I know I've said it to you that's even -- it's hard to beat TRIKAFTA. Yes, we did it with ALY, but it is getting really, really hard. I said this on the last earnings call, but there was so much interest in pove. I'm not sure if everyone registered it, ALY, so ALYFTREK in 2- to 5-year-olds, 2/3 are below the normal threshold of sweat chloride. So you and I, presumably in this room, if we don't have CF, our sweat chloride is some number less than 30. The diagnostic threshold is 60. Our goal used to be bringing the majority of our patients to less than the diagnostic threshold, but that's been blown past. Now we're working on bringing the majority of patients down to less than 30. But with these recent ALY results, we're already there, 65%, 2/3 of the patients are already normal. So like there's very little unmet need, but boy, if there's any way to do better than that, we're motivated to do it, and we're committed to being the ones who do so. So if you're thinking about ALY and how can -- what's next, I would look at VX-828.

Maybe one last question. Capital deployment, how does Vertex prioritize business development versus returning capital to shareholders?

Yes. As I said in my introductory comments, quite boring, broken record, more of the same, stay close to our knitting, any analogy that you want to pick, that's us. We have a very stringent view of R&D. We have this very particular way of doing it. We are disease first. We're not therapeutic area-focused. We're not platform aligned. We will use any tool, mRNA, cell therapy, gene editing, small molecule, biologic. We see them as simply tools to crack new disease areas. We see our job in the way of creating most shareholder and patient value by cracking open new disease areas, and that's what we're busy doing. We have this thing that we call the Sandbox, it's imaginary, but it's our box where we put the diseases of interest. There are between 12 and 24 diseases of interest in there, and we methodically work on those. We do those internally, and we do that with external innovation. And one clear example of that is what we're doing in DM1, myotonic dystrophy type 1. It's actually the most common muscular dystrophy more than DMD. We have a small molecule program internally that we're working on. And we in-licensed an oligo plus circular peptide approach from Entrada. And we're working on both approaches. And it's just a good example of we're disease first, and we are -- we do not have any issues with the not invented here mentality. And in this example, we have a program that was fully internal, and we have one program that we in-licensed. You should expect more of the same from us.

Perfect. With that, I think we're out of time. Thank you.

All right. Phil, thank you so much. Thank you all. Thanks so much.

That was great.