Vertex Pharmaceuticals Incorporated (VRTX) The 44th Annual William Blair Growth Stock Conference

Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) The 44th Annual William Blair Growth Stock Conference June 4, 2024 5:00 PM ET

Company Participants

Reshma Kewalramani – Chief Executive Officer

Conference Call Participants

Myles Minter – William Blair
Sami Corwin – William Blair

Myles Minter

All right, thank you very much. Welcome back to the William Blair Growth Stock Conference, the 44th Edition, as I understand it. My name is Myles Minter. I’m a Senior Biotech analyst here at the firm. I’m joined next to me by Sami Corwin, a challenging therapy expert, also a Senior Biotech analyst, and we are together to co-cover Vertex Pharmaceuticals.

It’s my pleasure to have Reshma Kewalramani here, the Chief Executive Officer of Vertex. She’s nicely taking time out to come from Boston. I live in Boston as well, and I see the building every time over in Seaport there, so it’s nice to know we’ve got a nice neighbor. Full disclosure is available at williamblair.com. Very, very briefly, I think Vertex here is the best quality and most durable growth story you can buy in biotech right now.

Obviously, have changed the way that we think about people living with cystic fibrosis with their lead candidate, TRIKAFTA, which is generating close to $10 billion as a franchise per year. But, I think the other aspect of it that I really like is that at the heart of this company is still innovation, and I think as Reshma is going to tell you they play an integral part of the commercialization of the first-ever approved crisper-based therapy for sickle cell.

We’ll hear a little bit more about that today and also hopefully a non-opioid pain alternative, which has really been a long time coming, particularly here in the U.S. So it’s enough of me talking, I’ll pass it over to Reshma.

Reshma Kewalramani

Thank you so much. Thank you for the invitation to be here today. I was going to thank you for the Midwest hospitality but I was thrown off by the non-Midwest accent, but I’ll thank you anyway, it is actually our first time as Vertex and certainly my first time here at the William Blair Conference and it has been super informative and very exciting.

So, let me take about 20 minutes or so to introduce you to the company for those of you who may not know us, and for those of you who do to reintroduce you to the company, there’s been a lot of advancement, and we are quite a different company today than we were maybe even just five years ago.

You’ll read some of the important disclosures and risks in the other prepared materials, but there are some of it here on the screen today. There are a couple of really important slides in the deck and I’ll try to call them out as we go along. This is probably the most important one because as you try to figure out who we are, what we’re interested in, why we are pursuing certain modalities and not others, and why we are going after certain diseases, but not others, this slide will tell you all about it.

So, around 2013, 2014 or so, we set on the course of setting up a new strategy, and that wheel on the left of the slide is our corporate strategy and our R&D strategy and it is different. It is not pithy, but there’s five components to it, and if you follow along those five components, it really tells you about who we are, what we do, and why we do it, and it goes like this.

We are interested in cracking open new disease areas. We are interested in creating value by serially innovating for our patients and for our shareholders and we believe that by going after diseases with high unmet need, diseases where we understand causal human biology, diseases where we have validated targets, usually genetic, but pharmacologic is just fine, diseases where we have biomarkers that translate from bench to bedside, and diseases where we have efficient development and regulatory pathways, then we will have disproportionate R&D success, that will lead to corporate investment and success, and because we only intend to work in specialty areas, this will allow us to reinvest the majority of our investment back into R&D to do the same thing and get this virtuous cycle going.

So, when you wonder about, well, what kind of company are you anyway, we are not a platform company. We are not a therapeutic area company. We are a disease-first company. If you’re wondering about why are you into mRNA at the same time you’re pursuing cell therapies at the same time you’re doing small molecules and I note that you have some antibody and protein therapeutics in your pipeline, yes.

The modality we see as a tool to the end of transforming, if not curing the diseases that we’re going after. And so as you think about us and wonder about our pipeline and think about where we’re going, I think this slide is the most helpful to you to try to understand us best.

If you wonder — okay, understood, that’s the strategy, that’s the corporate strategy, that’s the R&D approach, where has that led you? So remember, I said this was a strategy that was formed Circa 2014-2015, here’s where it has brought us. We have serially innovated in CF and that word serial is really important. We are not only about innovation, we’re about a special kind of innovation, serial innovation, and I do think CF is the best example of that.

We started with KALYDECO, moved to ORKAMBI, SYMDEKO, then TRIKAFTA, now vanzacaftor, which we just filed a couple of weeks ago, and we intend to keep going. If it is humanly possible to do better for our CF patients, we are absolutely committed to being the ones who do so.

In addition to the portfolio of CF medicines, we also have approved what I think will be seen in current day and in retrospect as a real achievement in science and medicine, CASGEVY, the first crisper/Cas9-based therapy and it was approved in rapid order in the U.S. and in the EU, the U.K., Bahrain, and the Kingdom of Saudi Arabia, and I’ll tell you a little bit more about it in future slides. Upcoming for us are approvals for vanzacaftor, let’s call it, the next-in-class for cystic fibrosis that was filed about two weeks ago, and Suzetrigine, the first non-opioid pain medicine in over 2.5 decades, which we intend to complete the filing by middle of this year.

And beyond that, there’s a whole host of programs in mid and late-stage development, and the mid-stage development here is meant to signal that these are the programs that are in patient-based studies. There are more programs that are in Phase 1 healthy volunteer studies, but the list here are all in patient studies. If you try to look at the same sort of disease map, you can also get a sense for the number of patients that might benefit from these therapies. These circles represent the number of patients who are eligible for the diseases in which we are working, and I want to make two points here. One, some people think about Vertex as a rare disease company. We are not a rare disease company, as you can see from the number of patients who suffer from acute pain or Type 1 diabetes.

The second point to make is, in all of these diseases, just as we did in CF, there is a first medicine and then there is a serial innovation approach to bring better and better medicines or treat more and more patients or treat patients with less of a burden for them, and an example of that would be gentler conditioning for our CASGEVY program. Today, we are targeting about 35,000 people in the U.S, in Europe for CASGEVY, which requires Busulfan-based conditioning, and an additional 20,000 or so people in the Middle East, and the goal here would be to be able to come forward with a gentler conditioning regimen that would then open CASGEVY to the full 150,000 people who live with this disease in Europe and the U.S.

I won’t be able to cover all of the diseases today, but I’ve picked four diseases to start the conversation. The first is cystic fibrosis. We continue to reach more patients around the globe as we have brought forward TRIKAFTA, which can treat up to 90% of patients with cystic fibrosis, and as we go further down the age group, TRIKAFTA now is approved for two to five years. KALYDECO, that was our first medicine approved around 2012, is approved for patients down to one-month-old. And what are we trying to really do here with CF, we’re trying to get to patients at the youngest age possible so that we can treat them, and hopefully, they have no manifestation of their disease.

One of the learnings in medical school, and I’m not that old, so I went to medical school and reasonably speaking, the last couple of decades here, we were taught that the average age of mortality for CF patients was around 30 years of age. I’m going to share some modeling data with you. It’s modeled data, but the life expectancy of a child born with cystic fibrosis today taking one of our CFTR modulators and with all of the other advances in therapy is more than 70 years of age.

And what we’re trying to do now with the vanzacaftor program and then with other CFTR modulator programs behind that is get to higher and higher levels of efficacy with the goal of bringing our patients, the 90% who can benefit from oral small molecules to either diagnostic levels of sweat chloride, that’s 60 mmol or better yet to normal levels of sweat chloride.

So, in you and me, our sweat chloride levels are less than 30. The diagnostic threshold is 60. If you’re more than 60, you’re diagnosed with CF. With the vanzacaftor triple, in this 6 to 11 age group, 95%, so it’s not 100%, but it’s pretty close, 95% of our 6 to 11-year-old have sweat chloride levels now below 60, and more than half, 53%, have sweat chloride levels in that study, less than 30.

Next on the agenda, we’re working on an mRNA program with our partners at Moderna, for the last 10%, let’s call it, 5,000 to 7,000 people, who simply don’t make any protein and therefore cannot benefit from our CFTR small molecules, we have to somehow introduce the protein. Our lead program is using an mRNA approach with an LNP. It’s an inhaled nebulized therapy. That program is in its multiple-ascending dose phase of the Phase 1/2 program and we’ve said that we expect to complete this program later this year or in Q1 of next year.

Beyond that, we continue to invest in cystic fibrosis because I said — as I said, we’re not just about innovation, we’re about serial innovation, and if we can get better than TRIKAFTA and we can get better than vanzacaftor, boy, we’re invested in doing so in the next-generation of molecules beyond vanzacaftor are already in clinical development.

CASGEVY, a few words to say about that. We’ve started the launch in the last quarter and what we shared is that ATC activation, authorized treatment center activation, and the number of patients who start their journey with CASGEVY are important early indicators of where we are in the launch, and that’s what we would share with you over time.

CASGEVEY is not a CFTR modulator. Our CFTR modulators are medicines that the doctor prescribes, you go to your pharmacy, pick it up and you can start on it right away. This is a procedure that takes many months. You’re identified by your hematologist as a candidate for CASGEVY therapy as a potential. You go to your transplant physician, a lot of testing is done.

There’s plasmapheresis involved, one session is possible, multiple sessions may be needed, and then your cells are sent to have the editing procedure performed, and then when you are ready for reinfusion, there is a step that requires you to be in hospital for between 20 and 30 days while you have the busulfan myeloablative conditioning. Long way of saying, it’s a long process, but hopefully, what our patients get from it is a lifetime of benefit.

Before we had regulatory approval in the United States, we already had nine ATCs activated. That’s actually quite remarkable. Now, we have about 25 ATCs activated in the U.S. and we have ATCs activated around the globe in all regions in which we have regulatory approval. With regard to patient initiations, we also have patient initiations in all regions where we have regulatory approval around the world. So, how is the launch going? It is both going well and as predicted, which is to say, this is a bit of a journey for our patients, but the patients have started the journey.

Moving on to acute pain and VX-548, otherwise known as Suzetrigine. The big idea here is we would like to come forward with an effective pain medicine that is not an opioid, that doesn’t have the side effects of opioids, it doesn’t have the addictive potential of opioids, but has efficacy and a good looking benefit-risk profile, that’s our goal here. Our goal is to do this in acute pain and our goal is to also do this in neuropathic pain.

And the first medicine that we have brought forward or I should say, potential medicine is Suzetrigine. We have covered and completed our Phase 3 program in acute pain. We have fast-track designation. We have breakthrough designation and we also were able to secure a rolling submission with the FDA. That rolling submission has already begun and what we’ve said is that we will complete the rolling submission by middle of this year and we are well on track to do so.

Without going into all of the details about the mechanism of action, I do want to make sure that I share with you the reason for our enthusiasm for this program is the following. NaV 1.8 and its sister channel, NaV 1.7, are genetically validated targets. NaV 1.8 is also pharmacologically validated by our own predecessor molecule VX-150. The way that you and I, all of us perceive pain is through an action potential that is perpetrated or propagated through C fibers, a particular kind of nerve fiber. The action potential is initiated by NaV 1.7 and that action potential is propagated by NaV 1.8, and here we are working on NaV 1.8. Those NaV 1.8 receptors are not present in the central nervous system.

So if you think about, okay, well, how does this really work? How do you get pain relief and how do you know that you’re not going to have addiction potential? Addiction is a central nervous system phenomenon. The way this works is on the underlying channels, these NaV 1.8 channels that are only present in the peripheral nervous system. And what we’re really looking to do here with acute pain is have an option for our patients who need a prescription medicine, acetaminophen or ibuprofen is not enough for them, but they are not wanting to go on to opioids.

Physicians don’t want to prescribe opioids. Patients don’t want to take opioids, but we do need to have effective pain medicines and we hope that, that gap of having an effective pain medicine that doesn’t have that side effect profile or addictive potential of opioids is exactly the gap that Suzetrigine fills.

Let me move on to Type 1 diabetes. I pick this one as an example of another program to share with you because it’s in that mid-stage of development. There are actually three programs within our Type 1 diabetes umbrella. Here, we’re talking about Type 1 diabetes, not Type 2. The etiology of Type 1 diabetes is very well-known. It’s autoimmune destruction of pancreatic islet cells, we know that. We also know that if you have a patient with Type 1 diabetes transplanted with a whole pancreas transplant or if you have an islet cell transplant from cadaveric donors, patients can do very, very well. They can have five, 10, a lifetime of insulin freeness with excellent blood sugar control.

So what’s the problem? Why don’t we do this across the globe and in a bigger way? The problem is quantity and quality of cells. We simply don’t have enough cadaveric islets or cadaveric whole pancreas. The solution, Doug Melton, in his postdoc at the time, Felicia Pagliuca, found a way to take embryonic stem cells and coax them into becoming islet cells. We can now do this in our labs and we can produce them in unlimited quantities.

The three programs all use the same cells and we already know that the cells work based on data we shared last year. We’re going to share additional data at the ADA later this month, but these cells have a method one, that’s called VX880, they are delivered in your portal vein, let’s call it, the naked cell program. You need to take immunosuppression with them.

Those same cells, which we’ve already shown work in the 880 program are used in what’s called the VX-264 program, where we take those cells and we encapsulate it in a proprietary device, and based on that enclosure of the cells, there’s no need for chronic immunosuppression. And the third program is those same cells and we make certain genetic edits so that the edits hide the cells from your immune system, again, another way to avoid taking immunosuppressive.

The first program, VX880, its completed parts A, B, and C in terms of enrollment. It’s a Phase 1/2 study and we expect to complete enrollment in the — I’m sorry, complete dosing in the near-term, enrollment is complete. The VX-264 program is also a Phase 1/2 A, B, C program. Part A is complete and we are in Part B now. For the hypoimmune program or that third program, that’s in preclinical development, so it’s not yet in the clinic. The last program that I’ll cover is a recent acquisition of a company called Alpine Immune Sciences. It is an extraordinarily good fit for Vertex.

With the acquisition of Alpine, we bring in a dual April BAFF inhibitor that’s called Povetacicept or POVE for short. POVE is a Phase 3 ready asset for IgA or IgAN. In this space of IgA nephropathy, there is a real reason to believe that dual inhibition of both April and BAFF will have the best likelihood for a benefit-risk and the best-in-class potential. That’s why we went after Alpine and that’s why we’re so enthusiastic about the Povetacicept profile. I expect that the Phase 3 study of POVE in IgAN will begin in the second half of this year.

The Alpine team did something very clever. They did two basket studies that total about seven indications in all. So, there’s multiple other Phase 2 programs with potential readouts in the back half of this year or the first part of next. In the renal basket study called RUBY-3, they are also investigating Povetacicept in addition to IgA nephropathy and membranous nephropathy, and something called ANCA-associated nephropathy, as well as in lupus nephritis.

And then there’s a RUBY-4, a basket study of B-cell driven cytopenias, like ITP and Cold agglutinin disease. Not only are we so excited about Povetacicept but they have a platform that has pretty neat potential for certain Vertex diseases, like the gentler conditioning for CASGEVY and the immune evasion for Type 1 diabetes, but also terrific people.

The acquisition has now closed and we are so excited to get Povetacicept into Phase 3 for IgAN, which I do expect will happen in the latter half of this year. If you put it all together, the diseases that I covered as well as the diseases that I didn’t cover, here’s what our pipeline looks like, and here’s what you can expect in terms of advancement of our programs and data releases through select preclinical assets all the way through to our approved molecules.

I’ll end with two more slides. This one to tell you about the terrific growth that we’ve seen in revenues and that we expect to continue as we get to more and more patients with CF to lower age groups and as we prepare for the vanzacaftor launch and for the mRNA program readout.

And on the right-side of the slide is a little bit about what we’ve done in external innovation or business development. The Alpine acquisition at almost $5 billion is the largest in our history, but all of the acquisitions or partnerships that you see us do follow the same philosophy in terms of our R&D strategy and our corporate approach.

And when you look at the slide that came before this with the full pipeline, it’s interesting to note that about 40% of our pipeline that’s in the clinical stage today, not including Alpine came from business development deals and about 60% of our pipeline not counting the Alpine acquisition was through internal innovation. In fact, we think about internal and external innovation so similarly, it’s the same strategy and it all reports up to the same person, i.e., the Chief Scientific Officer.

I’ll end with this slide. As you think about this year, the coming year and the coming years, this is what you can expect from us in broad strokes. Our goal is to expand our leadership and raise the bar in cystic fibrosis to drive our — what we are calling, era of diversification with commercial launches in multiple additional areas. CASGEVY has already begun and Suzetrigine is the next one on deck.

To continue to advance our pipeline, you’ve seen the mid and late-stage pipeline and there’s some pretty neat molecules that are in first-in-human development, I’ll call one of them out, that’s the ADPKD program that just got to first-in-human this year, and then there’s the next wave of innovation that’s in late preclinical development that you saw on the previous slide. And of course, to continue to deliver financial performance as we have.

With that, I’ll turn it back over to you.

Question-and-Answer Session

Operator

Q – Myles Minter

Thanks very much. I’m happy to take questions from the audience at any time as well, if you want to chime in, but we do have just over four minutes left for some questions. So my first one is just back on the top-line revenue growth for the company in the CF franchise in general, you did mention there’s 20,000 patients out there that are not on CFTR modulators but would be amenable to that. How do we think about the TRIKAFTA and the next-gen vanza coming on board in terms of the growth trajectory for Vertex’s top-line just from a CF basis?

Reshma Kewalramani

Yes. We have a lot of growth to look forward to just in CF, and I would break it down in the following. For the near term, it’s about getting down to the patients in the lower age groups and to getting to certain additional geographies where we have had named patient sales, but where we now have full regulatory approval and reimbursement, think Brazil. The next step is the vanzacaftor launch and that’s important because there are about 6,000 patients, so about 10% of the treated population who have CF, who are in contact with their physicians, who see their physicians every quarter, who tried TRIKAFTA, but for one reason or another are no longer on it. I do expect that the vanzacaftor launch will be fastest in those patients.

There’s another group of patients for whom vanzacaftor will be important because it’s a once-a-day drug and patients — some patients have a hard time taking their medicine twice a day. TRIKAFTA is two times a day. And then for the longer term, it’s about the mRNA medicine that brings another 5,000, 7,000 people into the fold. I should also tell you with the — there’s some really nice things to look forward to with regard to vanzacaftor because it’s not only about increased efficacy by way of CFTR function in sweat chloride but for the company it also comes with lower royalty burden compared to TRIKAFTA.

Myles Minter

Okay. And then the company is generating pretty impressive free cash flow here, it’s north of $3 billion, and depending on how you play the numbers, it could be even higher than that. The Alpine acquisition you talked about, that was the first sort of sizable deal I think we’ve seen in probably the company’s history here.

So, maybe thinking more about like is that sort of size of deal once every couple of years just looking at that free cash flow, is that something that’s like you’re amenable to? And if you are looking at that size of deal, is it going to be in the I&I space? Are you indication agnostic here? How do we think about a Vertex in two to five years on an inorganic self?

Reshma Kewalramani

Yes. Really I’m going to sound like a broken record on this. Our primary deployment of capital is going to be towards innovation, both internal and external. We have a stock buyback program and what you’ve seen us do is what you should expect from us, stay close to our knitting. R&D strategy is exactly the same, whether it’s for internal innovation or external innovation, and that we are not going to be the kind of company that does something different than what this strategy has laid out and has led to where we are today.

Sami Corwin

With the last minute, I would love to touch on CASGEVY real quick. Although it’s a very transformative treatment, it does some very burdensome treatment process, so would you expect some seasonality in terms of revenue recognition with patients being treated around certain periods of time in which they may have more flexibility in their schedule such as summer vacation or holidays? And then it sounds like there are multiple patients who have started the treatment process by considering the amount of time it takes to harvest the cells, engineer them, and then the preconditioning treatment itself, can you provide any color on when we might expect to see first revenue and what indication that might come from?

Reshma Kewalramani

Yes. No, the expectations you should hold for us is that we are going to report out on ATC activation and the number of people who have initiated the process as we did recently on the earnings call. You shouldn’t expect us to drib and drab additional information in the intervening periods. I will tell you two important facts. One is, we recognize revenue on infusion. So that’s when we will be able to share that.

And with regard to seasonality, it’s actually kind of interesting if you look at the experience in the clinical trials, you might expect that patients don’t want to have their infusions around the holidays or you might expect that they do want to have their infusions around holidays because that’s what fits best for them. So I think it’s going to be — time will tell us what really to expect, but it’s not entirely clear whether holidays are a pro or con for infusion. I think it really is about a patient fitting it when it fits into their life.

Myles Minter

All right, and with that, the red flashing screen says we’re out of time, so the breakout session will be in the room on the second floor called Mei Ma, I’m on the record for that.

Reshma Kewalramani

Nice.