Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) Goldman Sachs 43rd Annual Healthcare Conference June 15, 2022 4:20 PM ET
Company Participants
Reshma Kewalramani – CEO, President and Director
Conference Call Participants
Salveen Richter – Goldman Sachs
Salveen Richter
Good afternoon, everyone. Thanks for joining us. Really pleased to have Vertex with us today, and we have CEO, Reshma Kewalramani. With that, Reshma, I’m going to open it up to you if you have any opening comments, and then we can jump into questions.
Reshma Kewalramani
Sounds good. Salveen, thanks so much for the invitation. It’s so good to be in-person and in real life without a screen in front of us. I wanted to make a couple of opening comments. The first was to say, I will make some forward-looking statements, and I refer you to our SEC disclosures to look through all of the risks.
Maybe to start with Salveen, a couple of points about where we are as a company. Vertex is at a new inflection point today with clear sustained leadership in CF, a pipeline that is broad and advanced with five programs that are now post proof-of-concept and a balance sheet that is strong and growing and allows us to reinvest in innovation, both internal and external. We are looking forward to this conversation with you, and I’m excited to address questions you might have about any of the programs, the strategy or the financial profile.
Question-and-Answer Session
Q – Salveen Richter
Great. So to start here, the cystic fibrosis franchise is over — at over an $8 billion revenue run rate here. Can you just comment on the drivers of growth for CF and the remaining population left to treat? And do you think it can continue to grow in the United States?
Reshma Kewalramani
Yes. So the guidance that we provided for ’22 is between $8.4 billion and $8.6 billion. At the midpoint, that reflects $1 billion year-on-year versus 2021. And another year of double-digit growth for ’22, that would be 12%. The growth that we’re projecting for ’22 that’s included in this guidance and frankly, the growth that I see ahead for the coming few years comes from three buckets of patients that can benefit from CFTR modulators, that’s to say patients who make some amount of protein.
The first is in countries where we are in the early launch phase of the launch curve, that’s to say we have received regulatory approval and more recently received reimbursement. Think Australia, think Spain. The second category is in countries where we have yet to receive reimbursement, but we have already received regulatory approval. Those countries are becoming smaller and smaller, but think Belgium.
And the last group of patients where I do include patients in the U.S. is the lower age groups. We start our clinical trials in the 12 plus, then we go down to the six to 11-year-olds. Six to 11 is approved in the U.S. and in the EU. We are well underway for the two to five-year olds. I expect that filing to go in later this year for the U.S. and then we keep going down the age group. So those are the areas in which I see growth for the 90% of patients who can benefit from a CFTR modulator.
There is also the 5,000 or so patients who simply don’t make any CFTR protein. And for them, we need to have a nucleic acid approach, our lead approaches with our partners at Moderna. It’s an mRNA approach. We had a very significant breakthrough in the last 12 months for delivery of the mRNA construct. I expect the IND to go in, in the second half of this year. Clinical trials to start thereafter. And those patients are in the U.S. as well as outside the U.S. that last 10%.
Salveen Richter
Great. And then comment post the AbbVie setback that we saw here, do you foresee any competition in CF over the next four to five years? And what makes the field so difficult or challenging from a competitor standpoint to break through?
Reshma Kewalramani
Yes. When TRIKAFTA was approved in the U.S. in 2019, I think it really became a completely different ballgame for cystic fibrosis. And I say that for two reasons, primarily: one, certainly was the efficacy of TRIKAFTA, but two, it was also because now, for the first time ever, 90% of fundamentally all mutations, any mutation where you have protein could be treated with this drug.
And with the uptake that was so rapid both in the U.S. and outside the U.S., it makes it awfully difficult for anybody, including ourselves to come forward with newer medications. Specifically, the challenges in drug development in CF start with the translation from what you see in the lab to what you can expect in the clinic.
We are very fortunate in that we have these HBE cells, this translational assay. These are human bronchial epithelial cells. We have been working with these cells for KALYDECO through ORKAMBI, SYMDEKO, TRIKAFTA. They are not only qualitatively predictive of what we will see in the clinic, but quantitatively slow.
And that is a very, very significant barrier to others who simply don’t have access to this assay. The second is we’ve talked about the efficacy and safety of this medicine. But we’ve also invested a great deal to collect long-term safety and efficacy. We just shared data at the ECFS meeting, which was last weekend with TRIKAFTA.
So we have three years’ worth of data now, and we started to share data from this USCF registry. There is an 87% reduction in lung transplant, a 70-plus percent reduction in pulmonary exacerbations and a 67% reduction in mortality. These long-term data are impressive, and it is very difficult to imagine that patients who are benefiting from these medicines now already down to 6-year-olds will change from what is working for them to something else.
That all being said, we ourselves are trying to out-innovate TRIKAFTA. And I think we might have a medicine that does that in the form of 121/561/tezacaftor. But no doubt about it, the bar is very high.
Salveen Richter
You have a significant amount of cash on the balance sheet. With the pullback in biotech valuations that we’re seeing, should we expect you to be more active on the BD front? You bought the catalyst assets recently. So maybe help us understand if you do so, what type of transactions you’re looking for?
Reshma Kewalramani
Yes. Our capital allocation strategy has been really the same ever since we have had capital to allocate, which frankly has only been in the last five years, but the strategy has been really the same, and I’ll outline it for you here. It is based on investment in innovation. And I say that because we find that to be the path to greatest value creation for our shareholders and our patients equally.
In terms of what we’re looking to invest in, you can see that our pipeline has really blossomed over the last six to 12 months, and you can expect us to invest behind that pipeline in terms of R&D, but also in terms of commercial readiness for example, CTX001 for sickle cell disease and beta thalassemia.
We’re also interested in assets that could complement our CF pipeline. But in all honesty, there’s very little there, given what we’ve done internally. Tools and technologies, and you see us do that with partnerships with Arbor and Affinia, Moderna, CRISPR, et cetera, as well as with Chimera in the small molecule side. And lastly, assets that fit our R&D strategy. But that R&D strategy is fairly strict and it doesn’t budge because there are assets that are available cheaper today than yesterday.
Surely, if that’s possible, that’s great. But the strategy is what’s paramount. You mentioned the asset we recently bought. The reason we did that deal is because it fits our R&D strategy. And to review that for you quickly. What I mean by that is there are diseases where we understand causal human biology, there are diseases where we have validated targets, diseases where there are biomarkers that translate from the bench to bedside where we have efficient development and regulatory pathways and it must be in specialty markets.
So the deal we did fits that in that there are some diseases that are complement mediated that fit all of those criteria. This is an early-stage asset. It’s in discovery stage, so we haven’t enumerated the diseases but they fit these criteria, and that’s why we did that deal. And any deal you see us do, you can expect and you can count on the fact that it’s going to fit that R&D strategy.
Salveen Richter
You have five late-stage programs in clinical development. Maybe help us understand the risk profiles of these programs.
Reshma Kewalramani
Yes. Many companies are either platform companies or therapeutic area companies, and those are easier to understand because there are as many of them — we are a disease-based company. So when you think about our five assets that are post proof-of-concept stage, they don’t form either a platform view or a therapeutic area of view. They are sickle cell disease and beta-thalassemia, APOL1-mediated kidney disease, the pain program and specifically our first indication is an acute pain and our type 1 diabetes program. These programs span cell therapies, gene editing and small molecules and they are all very important in the diseases they can serve, but they are not all rare diseases. Type 1 diabetes, for example, is more than 2.5 million people in Europe and the U.S. alone.
And what I see in this kind of pipeline is a risk profile that is far lower than industry norms. And let me tell you why I say that. In the last 18 months, we’ve been involved with six programs in clinical development. One of them, our AATD program had proof-of-mechanism, but not proof-of-concept. The magnitude of the treatment effect was simply not great enough for us to pursue Phase 3.
I do think we get 0.5 point because we demonstrated proof of mechanism for that program, but whether you subtract 0.5 point or one point, five out of six programs were successful that far outstrips the industry average. And I also think that by being modality agnostic and frankly, having programs in late-stage development across cell, gene and small molecules, it decreases the risk profile of any one modality.
Salveen Richter
What are the events we should be looking for from this portfolio of assets over the next 12 to 18 months?
Reshma Kewalramani
Yes, yes. Really great question. If you just look back 6-months or 8-months, we certainly believe that the pipeline would be at the stage it is today with CF as the exemplar, but many other diseases where we could rapidly advance through proof of concept, get to Phase 3 and commercialize. But sure enough, if you said, well, where is the evidence for that, that’s just come in the last 6 to 8 months. So let me give you a little bit of a road map for what you could expect in the next coming period.
For CTX001, that’s the program for beta-thalassemia and sickle cell disease. This is the program in partnership with CRISPR Therapeutics using CRISPR/Cas9 to lead to gene editing and what we hope and expect will be a onetime functional cure for these diseases. We have fully enrolled the program. We have dosed and shared information from 75 patients across those two indications.
We have just recently completed our conversations with the MHRA and the EMEA for the U.K. and Europe, and we have come to agreement on the submission package which will go in by the end of this year. In the U.S., we continue our conversations with the FDA. They are productive conversations, but we simply haven’t reached the milestone where we know what the submission package that they’re looking for is.
I expect that, that will complete in the summer months, and we’ll be able to give you an update after that. So that’s the most advanced program, and I do think that’s going to be the next commercialized medicine from Vertex. Behind that our VX-548 in acute pain and 147 in AMKD. The 147 Phase 2 results were unprecedented. As a nephrologist, I can tell you, we’ve never seen protein reduction of that magnitude in that disease. We are already in Phase 2/3. That’s well underway. A little early to give you a sense for what the enrollment looks like, but Phase 2/3 is well underway.
We can come back and talk about some of the special elements of that program, which includes a pathway to accelerated approval. 548 in pain, Phase 2 results look really good, both on safety and efficacy. We are awaiting our end of Phase 2 meeting, and I do expect the Phase 3 program to start before the end of this year.
Last but not least is our Type 1 diabetes program. We just shared data at the ADA meeting that adds to the proof-of-concept results which were grounded in insulin reduction or independents as well as hemoglobin A1Cs that came down in those first two patients but it added the CGM or continuous glucose monitoring results to show the timing range, which are really something else.
That program is continuing to enroll in Canada. We are on clinical hold in the U.S. We have received the questions from the FDA. We’ve responded to those questions. I expect that we will be able to get up and running as soon as the agency informs us.
So there are multiple milestones from those five programs. And then there’s another wave of programs that are on the doorstep to coming into clinical development that we can talk about as well.
Salveen Richter
Just a follow-up to your last comment on the cell therapy program for type 1 diabetes. Did you have to submit any clinical data in response to the FDA?
Reshma Kewalramani
Yes. Really good question. You remember, we put out a press release at the time of the clinical hold, we were surprised by it, and that was the reason for the very fulsome press release. Since that time, we’ve received their questions, there was no request and no need for any new data preclinical or clinical. They had some information requests, we had all of the data ready and available, and we’ve responded to their questions.
Salveen Richter
Your operational or operating expenses had expenses have stepped up quite a bit in the recent quarters. What’s driving the increase? And will this pace of investment continue?
And help us understand as you broaden your portfolio outside of CF, what this does to operating margins.
Reshma Kewalramani
Yes. Yes. So our expenses have stepped up over the last two quarters perhaps unsurprisingly, given the success of the pipeline, especially this clinical stage pipeline that has progressed now post proof-of-concept in multiple disease areas. We are investing heavily behind the success of our internal pipeline, and you should expect for those investments to continue as the programs either progress to Phase 3 through regulatory approval or in the case of CTX001 not only progressing through Phase 3 but investment also in commercialization as we build medical affairs and government affairs, our sales and marketing functions payer functions in the U.S.
for sure, but also in our international region as we plan forward for commercialization of that asset.
So as you think about our expenses, you can expect that we will invest behind these successful programs. And in terms of operating margins, this really is the beauty of our business model. We have a business model that is very lean on SG&A, and it is a highly profitable business, and you should expect that our operating margins will remain at the top of our group and industry leading as it has been.
Salveen Richter
Going back to the beta-thalassemia and sickle cell programs. You presented data at EHA over the weekend. How do you view this data? I mean, it was very impressive. And then help us understand what the FDA wants. Because it seems like you’re in agreement with the EMA. But do you have a sense of follow-up duration of follow-up number of patients? Or are there other factors you’re looking at here?
Reshma Kewalramani
Yes, yes, absolutely. They’ve been — in the past for Vertex, when it was June, it meant ECFS, the European Congress of Cystic Fibrosis. This year in June, it meant the European Congress with Cystic Fibrosis, ADA and EHA. So there were multiple data points that we shared. And for EHA, the data we shared was now patients worth of data with duration of follow-up that goes from somewhere around three months to a little bit more than three years.
At EHA 2021, so last year, we shared about 22 patients worth of data, so it’s significantly more. In terms of what exactly did the data say? Well, in the sickle cell disease patients, we have 31 out of 31 patients who were dosed with CTX001 who are now free of veno-occlusive crisis, VOCs. These are patients who came into the trial with two or more VOCs in each year for two years prior to entering into the trial. So these are very severe patients, and we’re 31 out of 31 with no VOCs.
On the beta-thalassemia side, we shared data from 44 patients. 42 of the 44 patients are transfusion free. And the two patients who are not yet transfusion-free have a 75% and 89%, respectively, decrease in the transfusion burden. These data are impressive when you look at the top line numbers and they are. And when you sort of scratch below the surface, the efficacy is equally impressive.
And I mean that if you look at the beta thalassemia group, for example, the more severe patients are called beta 0, beta 0 patients versus beta plus the less severe, if you will, and the efficacy is the same across these patient groups. And when you think about the safety the safety experience is fundamentally a profile that reflects busulfan myeloblative conditioning and the transplant procedure itself.
In the sickle cell experience, we have no SAEs that are related to CTX001. In the beta-thalassemia experience, we have two SAEs that are related to both beta-thalassemia and to busulfan. But we don’t have any that are related to CTX001 alone. And when you look at the overall profile, The overwhelming majority of AEs happened in the first few months transplant, unsurprisingly because they are related to the conditioning and the transplant procedure itself.
So as we look at the data, we are very, very pleased with the profile we have reached agreement with EMA and MHRA and the submission package. And the points that we were discussing with them are, frankly, the same points that we’ve been discussing with the FDA, which is the size of the package and the duration follow-up.
For U.K. and Europe, we’ve come to agreement, and that’s on track. So the U.S., it is those two points. It’s the size of the filing package and the duration of follow-up. And I expect that we will wrap up those conversations in the coming months.
We don’t have outstanding other issues that we are talking to each other about. And the reason for that is that we’ve had every major designation available, prime, orphan RMAT. That has allowed us to have conversations over the years as the program has progressed. So it’s down to these two areas for us to come to an agreement before we can make our filing.
Salveen Richter
Two follow-up questions here. One, why did you switch the primary endpoint? And then secondly, what are you doing in terms of bringing in a gentler conditioning regimen? And then could you out innovate yourself as well with an in vivo approach?
Reshma Kewalramani
Yes, yes. Really great questions. Okay. So on the where are we with — why don’t we do gentler conditioning first and we’ll walk backwards. So if you think about the sickle cell and beta thalassemia market opportunity, that would be about 150,000 patients in Europe and the U.S. We are not pursuing that 150,000 overall patient population with CTX001 with the current busulfan based conditioning.
And the reason for that is very simple, because I don’t think that the benefit risk of busulfan based myelo conditioning regimen is there for that full population. We are pursuing 32,000 as a subset of that full 150,000. Those 32,000 are the most severe sickle cell patients and the most severe beta-thalassemia patients. Of that 32,000, 25,000 are sickle cell, 7,000 are beta-thal and the vast majority of sickle cell patients are in the U.S. So that’s what that landscape looks like.
With regard to how do we get to the full 150,000, we have to get to gentler conditioning in order for the benefit risk to be positive. We are working on it at Vertex. Our partners at CRISPR are working on this problem. Academics are working on it as are other small biotech. And the reason for that is the opportunity is far beyond sickle cell disease and beta thalssemia.
The opportunity is in multiple oncology indications as well. I don’t think this is going to be solved tomorrow, Salveen, but I do think that this is something that will be there in the next three to five year period, something like that. We have line of sight in terms of biologically what we should be looking for, and it involves certain self-surface markers that we can target attached to either radioligand or a toxin in order to make space for the CTX001 edit itself.
So that’s what we’re going to need and that’s what we’re working towards to unlock the potential for the full 150,000 people. You had another question in there that I don’t think I answered yet.
Salveen Richter
In vivo and the primary endpoint.
Reshma Kewalramani
Yes. Let’s do in vivo and then we’ll do primary end point. So the way we’re doing this program, CTX001, is ex vivo gene editing. It obviously has advantages in that you don’t need a vector to deliver to the bone marrow you do plasmapheresis and edit outside the body and for safety, it has enormous benefit, and that’s why we went in this way for the first approach.
For future approaches, we are out innovating ourselves and thinking about in vivo delivery. And we are also thinking about small molecule approaches for sickle cell and beta thal. So yes, there is an entire program behind that. It’s obviously further behind. The launch will be with CTX001 and busulfan based conditioning.
With regard to the endpoints for the CTX001 program for sickle cell disease and for beta-thalassemia, we had end points that you would consider to be surrogate end points. For example, hemoglobin eft in sickle cell disease and total hemoglobin for beta thalassemia. After we’ve had our conversations with regulators, we’ve evolved the endpoints so that they are — they reflect our conversations with regulators mainly the beta- thalassemia primary endpoint is transfusion independence, and the sickle cell disease endpoint is decreasing or elimination of these veno-occlusive crises.
Salveen Richter
Moving to the ADA presentation over the weekend. Help us understand how significant these data sets are that we’ve seen for these two patients and what it means for your overall portfolio here. And why are we seeing variability between the two patients?
Reshma Kewalramani
Yes. The ADA results have garnered enormous interest within the company and outside the company. And they are — I know I’ve used this word in our 30-minute discussion multiple times, but I’ve no other word for it. They are remarkable. We have never before seen this level of efficacy from a laboratory-based embryonic stem cell derived cells for type 1 diabetes, they are absolutely groundbreaking and path setting.
All right. So what did we see? Our program in type 1 diabetes has three components to it, and I’ll describe them for you. The VX-880 program is one of those components. So when you think about type 1 diabetes, the few basic background facts to know are that type 1 diabetes results from autoimmune destruction of pancreatic islet cells.
The other fact to know is that we have been doing whole pancreas transplant or cadaveric islet cell transplants for many years. And we know that those kinds of interventions can lead to long-term durable benefits, including insulin independents. The thing that we’ve lacked in the holy grail in this field has been quantity and quality of these pancreatic islet cells. And that’s exactly what we have solved for with our VX-880 and our other programs.
We can make industrial quantities of fully differentiated insulin-producing islet cells that we can transplant into people with type 1 diabetes. The results that we showed at ADA are from the first two patients. Those two patients were dosed at half the targeted dose by design, to allow for an assessment of safety before we escalate to the full target dose, where I imagined we would have our first indication of efficacy.
It turns out that we have our first evidence of efficacy and proof-of-concept with the half dose patients. And what we had previously reported is for patient number one insulin independence, which doesn’t mean insulin free. It clearly means they no longer take insulin, but that’s in the context of having fasting glucoses of less than 120 and postprandial glucoses of less than 180. So it’s a very high bar.
The second patient is down to a hemoglobin A1C of 7.1 with a 30% reduction in their exogenous insulin and what we shared at ADA was the clots from their continuous glucose monitors, which basically shows the second to second, minute-to-minute glucose levels, and it shows remarkable improvements in their time in range, which is the measure that we assess. Patient number one is 99.9% time in range and patient number two is about 52% time in range. You had another question in there, Salveen.
Salveen Richter
The variability.
Reshma Kewalramani
The variability. We have about two patients. So it’s hard to really do an analysis of why did patient number one have the response they did versus patient number two. But broadly speaking, I didn’t expect efficacy in either patient. I thought we would see that in the full dose cohort. So it’s actually quite impressive that both patients have responded. If you try to break down what is — what can account for the responses that are patient-based factors and then there are factors that have to do with the cells and the immunosuppressive regimen and such.
The patient factors include elements like how they’re eating, how they’re exercising, et cetera, that obviously has impact on glucose and therefore, insulin and the cell based factors and the treatment-based factors have to do with things like making sure that patients are compliant with the immunosuppressive regimen and such.
As soon as we get to more patients at full dose, I think we’re going to be able to assess this. If you ask me my prediction for what we’re going to see with the full dose patients, I expect us to see very efficacious results based on what we’re seeing with the half dose patients.
Salveen Richter
Well, you have two other pivotal programs underway that you mentioned earlier, but maybe I’ll jump to a pipeline program. You didn’t talk about your in vivo Duchenne program. Help us understand how this is going to be differentiated versus the gene therapy approaches that are in development?
Reshma Kewalramani
Yes. So our DMD or Duchenne’s Muscular Dystrophy program was a program that came to Vertex by way of an acquisition of Axonics in the summer of 2019. Now what others in the field are doing to try to transform if not cure DMD is fundamentally based on micro or mini dystrophins by gene therapy, okay? And the reason people are using micro or mini dystrophins are because the full length dystrophin protein is enormous, and you simply can’t find a delivery vehicle to be able to administer full-length dystrophin.
So the pathway is to use as much of the dystrophin gene as you can fit into a vector. When we made our decision to enter DMD and buy Axonics, we made a scientific bet. And our scientific bet was that the best in terms of efficacy and durability approach to DMD was not by way of mini and micro dystrophin. Our scientific bet was based on making full-length or near full-length dystrophin.
And the way we do that is by exon skipping using gene editing, and that’s our approach. And the reason we favor this approach is based on human genetics. There is a milder form of DMD called Becker’s muscular dystrophy, and it’s quite mild in its phenotype. And when you look at those patients genetically, the difference is that they have near full-length dystrophin. And therefore, our approach is to recapitulate that experiment of nature and not pursue mini and micro dystrophins.
We have been working in our labs. We are now at the point where our program has entered IND-enabling studies. Those are underway. I expect that IND to go in next year and clinical trials to start thereafter.
Salveen Richter
Great. I think we have one minute left. Is there anything else that you want to highlight from the pipeline here or just the strategy overall?
Reshma Kewalramani
We’ve talked about almost all of our programs, perhaps with the exception of VX-548, our program in pain. And maybe the couple of words to leave you with is our strategy is grounded the principles that I outlined around understanding causal human biology, validated targets, biomarkers that translate inefficient development and regulatory pathways. And I think by doing that, you see the success we’ve had in CF, and I do expect that in the coming years with these programs now pass the proof-of-concept stage, you’ll be able to see those same kind of transformative results in multiple other disease areas including in pain with VX-548.
Salveen Richter
Well, thank you, Reshma.
Reshma Kewalramani
Thank you, Salveen. It’s very nice to be here with you.
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