Vertex Pharmaceuticals (VRTX) - Part 1

Research & Analysis

Unless specifically indicated otherwise, this content expresses the author's views and should not be construed as investment advice.


1. Company

Vertex Pharmaceuticals Incorporated (Vertex) is a global biotechnology company that invests in scientific innovation to create transformative medicines for people with serious diseases.

The company has spent the last 20 years discovering and developing medicines that treat the underlying cause of cystic fibrosis (CF), a rare, life-threatening genetic disease. In addition to clinical development programs in CF, Vertex has more than a dozen ongoing research programs focused on the underlying mechanisms of other serious diseases.

Founded in 1989 in Cambridge, Massachusetts, Vertex’s corporate headquarters is now located in Boston’s Innovation District, and its international headquarters is in London, United Kingdom. The company employs approximately 3,500 people in the United States, Europe, Canada, Australia and Latin America with nearly two-thirds of its staff dedicated to research and development.

2. Cystic Fibrosis

2.1 Background

CF is a life-shortening genetic disease caused by a defective or missing CFTR protein resulting from mutations in the CFTR gene. The absence of working CFTR proteins results in poor flow of salt and water into and out of cells in a number of organs, including the lungs. As a result, mucus builds up and clogs the airways in the lungs, causing chronic lung infections and progressive lung damage.

Although cystic fibrosis is progressive and requires daily care, people with CF are usually able to attend school and work. They often have a better quality of life than people with CF had in previous decades.

To date, Vertex has delivered four medicines to people with CF:

  • TRIKAFTA/KAFTRIO;

  • SYMDEKO/SYMKEVI;

  • ORKAMBI; and

  • KALYDECO.

Vertex’s combination regimen, TRIKAFTA/KAFTRIO, was approved in 2019 in the United States, and in 2020 in the European Union. While the drug is not a cure for CF, it is expected to reduce the number of patients with severe lung disease. Furthermore, the drug also increases the lifespan of patients by 9.2 years. This is a 21% increase in an individual's lifespan as the average person with cystic fibrosis lives until approximately 45 years.

Collectively, Vertex’s four medicines are approved to treat the majority of the approximately 83,000 people with CF in North America, Europe and Australia.

2.2 Reimbursement

Sales of Vertex’s products depend, to a large degree, on the extent to which its products are reimbursed by third-party payors, such as government health programs, commercial insurance and managed health care organizations. The company dedicates substantial management and other resources in order to obtain and maintain appropriate levels of reimbursement for its products from third-party payors, including governmental organizations in the U.S. and ex-U.S. markets.

In the U.S., the company has worked successfully with third party payors in order to promptly obtain appropriate levels of reimbursement for our CF medicines. In Europe and other ex-U.S. markets, Vertex seeks government reimbursement for its medicines on a country-by-country basis.

2.3 Costs

Treating CF is expensive and Vertex has a 97% market share of the global CF treatment market which was valued at $6.36B in 2020.

Below is the approximate price per patient for each of Vertex’s four medicines:

  • TRIKAFTA/KAFTRIO: $310,000 per year;

  • SYMDEKO/SYMKEVI: $290,000 per year;

  • ORKAMBI: $275,000 per year;

  • KALYDECO: $310,000 per year.

In April 2020, the Institute for Clinical and Economic Review (ICER) released a report on Vertex’s treatments for CF and suggested that despite the health gains offered by its suite of cystic fibrosis drugs, Vertex’s prices are far too high to be sustainable for patients and health care systems.

Specifically, David Rind, ICER’s Chief Medical Officer stated that:

Despite being transformative therapies, the prices set by the manufacturer – costing many millions of dollars over the lifetime of an average patient – are out of proportion to their substantial benefits. When a manufacturer has a monopoly on treatments and is aware that insurers will be unable to refuse coverage, the lack of usual counterbalancing forces can lead to excessive prices. Patients who receive the treatments will benefit, but unaligned prices will cause significant negative health consequences for many unseen individuals – those throughout society who will experience financial toxicity and may have to delay care, forego care, or even abandon insurance as their out of pocket costs and premiums are driven upward.

2.4 Next Generation

The company is currently evaluating other potential small molecule medicines to treat CF including the triple combination of VX121/tezacaftor/VX561.

3. Research & Development

Vertex invests in research and development (R&D) to develop medicines for people with serious diseases with a focus on specialty markets. The company has expanded its R&D capabilities by increasing investment in cell and genetic therapies, including plans to establish a new R&D site in Boston that will focus primarily on cell and genetic therapies. In addition, the company has made several significant investments in external innovation, including:

  • a collaboration with CRISPR to access and develop therapeutics based on the CRISPR gene-editing technology;

  • the establishment of cell therapy programs, through its acquisition of Semma;

  • the establishment of genetic therapy programs, through its acquisition of Exonics;

  • a collaboration with Moderna for the discovery and development of lipid nanoparticles and mRNAs that can deliver gene-editing therapies; and

  • a collaboration with Affinia Therapeutics, to engineer novel adeno-associated virus (AAV) capsids to deliver gene therapies.

3.1 Small Molecule Programs

3.1.1 - Alpha-1 Antitrypsin Deficiency

Vertex seeks to develop medicines that treat the underlying cause of Alpha-1 Antitrypsin (AAT) deficiency.

AAT deficiency is caused by mutations in the SERPINA1 gene that encodes the AAT protein. People who inherit two mutant SERPINA1 alleles (one from each parent) develop AAT deficiency. This folding defect causes the AAT protein to accumulate in the liver, which can cause liver damage. Currently, there is no cure or treatment that targets the underlying cause of the disease in both the liver and the lung. Patients living with AAT deficiency typically experience recurring hospital visits and a shortened life expectancy.

In 2020, the company advanced two Phase 2 proof-of-concept clinical trials evaluating two investigational oral small molecule correctors, VX-814 and VX-864, for the treatment of people with AAT deficiency who have two copies of the Z mutation.

In October 2020, Vertex discontinued development of VX-814 based on the safety and pharmacokinetic profile observed in the clinical trial. Enrolment is ongoing in the clinical trial evaluating VX-864.

3.1.2 - APOL1-Mediated Kidney Diseases

Inherited mutations in the APOL1 gene play a causal role in the biology of focal segmental glomerulosclerosis (FSGS) as well as other kidney diseases.

FSGS is a rare disease that attacks the kidney’s filtering units, causing leakage of protein into the urine followed by deterioration in kidney function, scarring, and, ultimately, permanent kidney damage. FSGS is a leading cause of nephrotic syndrome in children and kidney failure in adults.

Vertex is evaluating multiple novel small molecules to treat FSGS. In 2020, the company initiated a Phase 2 proof-of-concept clinical trial for VX-147, its first investigational oral small molecule medicine for the treatment of FSGS and other serious kidney diseases.

3.1.3 - Pain

Pain can develop from a variety of pathophysiological and psychological conditions. Patients with pain can suffer from acute pain (for example, following surgery or an injury), neuropathic pain (when there is damage to a nerve), and musculoskeletal pain.

Vertex has discovered multiple inhibitors of the voltage-gated sodium channel 1.8 (NaV1.8) as potential treatments for pain. The company has obtained positive results from three separate Phase 2 clinical trials evaluating VX-150, a NaV1.8 inhibitor, in patients with three different pain conditions: acute post-surgical, chronic neuropathic and chronic musculoskeletal pain.

3.2 Cell and Genetic Therapies

3.2.1 - Sickle Cell Disease and Beta Thalassemia

Sickle cell disease (SCD) and beta thalassemia are hemoglobinopathies, a group of inherited blood disorders that result from gene mutations that alter hemoglobin, a protein in red blood cells that delivers oxygen throughout the body. These sickled cells block blood flow and can lead to severe pain, organ damage and shortened life span. Treatment is typically focused on relieving pain and minimizing organ damage, requiring medication and, for some patients, monthly blood transfusions and frequent hospital visits. Vertex believes there are approximately 25,000 patients with severe SCD in the U.S. and E.U.

Patients with transfusion-dependent beta thalassemia (TDT), the most severe form of the disease, require regular blood transfusions, as frequently as every two to four weeks. Vertex believes that there are approximately 7,000 patients with TDT in the U.S. and E.U.

In collaboration with CRISPR, Vertex is co-developing CTX-001, an investigational CRISPR/Cas9-based gene-editing therapy, for the treatment SCD and TDT. Both companies are investigating CTX-001 in two Phase 1/2 open-label clinical trials designed to assess the safety and efficacy of a single dose of CTX-001 in patients ages 12 to 35 with TDT and severe SCD.

3.2.2 - Type 1 Diabetes

Type 1 Diabetes (T1D) is a chronic, metabolic disorder caused by an absence of insulin secretion by the beta cells in the pancreas. In patients with T1D, the person’s own immune system attacks the insulin-producing islet cells of the pancreas, resulting in a complete lack of insulin.

In 2019, Vertex acquired Semma and established programs to develop cell-based therapies designed to replace insulin-producing islet cells in people with T1D.

4. Pipeline & Advantage

4.1 Pipeline

On 29 July 2021, Vertex announced second quarter 2021 financial results.

In its presentation deck, the company provided an update on on its programs in multiple disease areas active in clinical development with potential for data readouts in the next 6 to 9 months.

In relation to CF, Vertex made representations that the company is on the path to treating up to 90% of CF patients with CFTR modulators. Specifically, although 83,000 people with CF are currently treated in U.S., Europe, Australia and Canada, there is an opportunity for further grown in CF given that more than 30,000 patients are not yet being treated and could benefit from CFTR modulators.

Vertex’s management stated that VX-121/TEZACAFTOR/VX-561, the next-in-class- triple combination regimen to treat CF, will be evaluated in two 48-Week Phase 3 pivotal clinical trials.

Outside CF, the company provided an update regarding the multiple potentially transformative programs it is working on.

Vertex claims that a signification near-term market opportunity exists for CTX-001 in severe SCD patients in the U.S. & EU.

As well, according to the company, acute pain could be a significant market opportunity for Vertex due to addictive nature of opioids.

4.2 Advantage

Vertex has a unique advantage through its orphan drug designation which fast-tracks the FDA approval process. Orphan drug designation is provided to drugs that address rare diseases, which are classified as diseases that affect less than 200,000 people in the U.S.

The advantage of receiving this designation include a tax credit of up to 50% of the R&D costs and often given grants that subsidize costs involved in the various phases of drug development and testing. Manufacturers of approved drugs also receive orphan drug exclusivity which effectively prevents the FDA from approving similar drugs for the next 7 years.

Historically, this status has allowed the company to receive regulatory approval for drugs developed within 8 years as opposed to the industry average of 12 years. Orphan drugs also have a significantly higher probability of 60.8% to enter phase 3 of the clinical trial in comparison to only 20.9% for non-orphan drugs.

5. VRTX vs. S&P 500

Once viewed as one of the hottest biotech story in the world by many experts, Vertex’s stock (VRTX) has significantly underperformed the S&P 500 and its industry peers in recent months. Specifically, the stock dropped approximately 40% since July 2020.

By way of example, on 31 December 2020, VRTX was the 3rd largest company in iShares’ Biotechnology ETF (IBB). Today, VRTX is the 7th largest component in the IBB with a market capitalization of approximately 48 billion.

VRTX’s underperformance since July 2020 mainly relates to updates the company issued in October 2020 and June 2021 about its AAT deficiency program (i.e. VX-814 and VX-864).

October 2020

VRTX encountered some turbulence on 14 October 2020 after the company announced that it discontinued development of VX-814 to treat the underlying cause of AAT deficiency based on the safety and pharmacokinetic profile observed in the clinical trial.

In the press release, the company stated that:

  • The randomized, double-blind, placebo-controlled Phase 2 study of approximately 50 patients was designed to evaluate the safety and PK of VX-814, and the ability of VX-814 to increase functional levels of alpha-1 antitrypsin over 28 days of dosing.”

  • "Elevated liver enzymes (AST/ALT) were observed in several patients. In four patients, across different doses studied, elevations greater than 8 times the upper limit of normal were noted; the elevated liver enzymes have either resolved or are resolving.

A Phase 2 trial of VX-864 (which is structurally distinct from VX-814 and also aims to treat the underlying cause of AAT deficiency) is currently ongoing to treat the underlying cause of AAT deficiency .

June 2021

On 10 June 2021, VRTX again significantly dropped after the company provided an update on VX-864. In the press release, Vertex’s management stated that:

  • The therapy was generally well tolerated by patience regardless of dose levels;

  • No discontinuations due to adverse events;

  • No serious adverse events considered related to study drug;

  • Majority of adverse events were mild or moderate and not treatment limiting;

  • Liver function test results were similar between placebo and VX-864 treated group; and

  • No evidence of any impact on liver function tests with VX-864 treatment.

In terms of next steps for VX-864, Vertex claimed that:

  • It will apply insights from the VX-864 Phase 2 study and plan to advance novel small molecule correctors with the potential for increased clinical efficacy in 2022; and

  • It expects that the clinical path of future molecules will be efficient, with rapid progression to proof-of-concept and late-stage development.

6. Q2 2021 Financial Results

On 29 July 2021, Vertex released its second quarter 2021 financial results.

During the press conference, Vertex’s management told investors that it believed the company delivered “outstanding financial performance driven by continued leadership in CF”.

The key points communicated by Vertex to its shareholders are summarized below:

  • Leadership in CF:

    • TRIKAFTA/KATRIO positioned to address 90& of CF patiences;

    • New approvals and reimbursement agreements across the CF portfolio; and

    • Next-in-class combination regimen advancing to Phase 3 in 2H 2021.

  • Pipeline programs advancing:

    • Broad clinical pipeline span 5 diseases outside CF and 3 therapeutic modalities;

    • Progress is accelerating across the portfolio; and

    • Potential for multiple clinical data readouts in the next 6 to 9 months.

  • Revenue Growth

    • $1.8B in Q2 2021 revenues, an approximate 18% increase in revenue compared to the prior year;

    • 2021 product revenue guidance raised by $500M to a range of $7.2-7.4B; and

    • Ended the quarter with 6.7B in cash, following the $900M payment for the amended CRISPR collaboration.

7. Financials

According to Substack, my entire analysis is too long to be sent out via email therefore I divided my analysis in two parts. This was Part 1 out of 2.

Click here to read the second part (Part 2).


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