Vertex Pharmaceuticals Looks To Push The Envelope – Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)

In after-hours trade on Tuesday, Vertex Pharmaceuticals (VRX) announced results from three trials with different triple drug combinations treating cystic fibrosis. The company has already received FDA approval with a couple of its drugs treating patients with cystic fibrosis. The results on Tuesday are encouraging and will help a larger pool of patients with this rare disease. It is good to see that Vertex continues to push forward to treat a larger group of patients in the cystic fibrosis community. All three of these trials recruited patients with Cystic Fibrosis, but only those that had the F580 del mutation and one minimal function mutation.

The key finding from all the studies was that the triple-drug combination improved lung function in these patients by at least 9.6% or more. That is an important finding, because patients with cystic fibrosis have difficulty breathing. The improvement in lung function might seem minor, but it is a huge boost for those who are affected. The three triple drug combinations are as follows: VX-440, VX-152, and VX-659

Trial Data

In one phase 2 study patients were given VX-440 or a placebo compound. The final result of this study was that the drug by Vertex was better than the placebo compound. VX-440 improved FEV1 by 12% after only 4-weeks of treatment. On the other hand, the placebo compound only obtained a measly 1.4% improvement of FEV1. The conclusion of the study was that patients taking the company’s drug improved by 10.6% which is statistically significant.

A second phase 2 study that used another one of the triple combination drug VX-659 saw patients improve as well. Patients that took VX-152 for only two weeks saw an FEV1 improvement by 9.7%. That compared with placebo dropping by 0.9%, which marked a 10.6% lung funciton improvement for Vertex’s drug.

The third study was a phase 1 trial. It was an earlier stage study, but it used the triple drug combination known as VX-659. This small phase 1 study saw patients improve in lung function — FEV1 — by 10% over placebo.

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All three of these trials saw an improvement over placebo. The primary endpoint of these studies looked at FEV1 as noted above in all three trial results. FEV1 is a measure of lung capacity. That is an important measurement because pulmonary insufficiency is the root cause of death in patients with cystic fibrosis. What pulmonary insufficiency means is that the valve that goes from the heart to the lungs has trouble getting blood through. Such a problem can cause death. Therefore, FEV1 is an important measure to determine whether or not experimental drugs are helping patients with the disease.

Cystic Fibrosis

Cystic Fibrosis is a genetic disease that causes lung problems and reduces a persons ability to breathe over time. A defective gene in the lungs CFTR leads to a thick mucus that builds up over time. The mucus then blocks the path of the airway and can also trap bacteria. That leads to many complications associated with the disease. Such complications that can arise are:

  • frequent coughing
  • lung infections
  • shortness of breath
  • pancreas slows down due to mucus leading to inability for body to absorb vitamins and nutrients

There are about 75,000 patients worldwide with cystic fibrosis. The history for Vertex is a long one, but one in which the amount of patients that were treated kept increasing. In other words, Vertex kept pushing forward for newer treatments that would be effective for the other portions of the cystic fibrosis population.

The first approved drug from Vertex was Kalydeco. That drug was approved by the FDA back in 2012 but only treats 4,500 patients. A second drug from Vertex that was approved in 2015, known as Orkambi, treated patients with two copies of the F508 del mutations. Orkambi is a mixture of Kalydeco — also known as ivacaftor — and lumacaftor — also known as VX-809. The Orkambi drug targets 25,000 patients worldwide. That means that the company has two approved medications for cystic fibrosis and another one due for approval next year. With that in mind, Vertex treats up to 50% of the 75,000 patients worldwide with cystic fibrosis. The company will now decide which triple-combination drug it wants to advance to a phase 3 study. If the results of that study are successful, that will bring the percentage of cystic fibrosis patients being treated by Vertex to 90%.

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Market Opportunity

Both Orkambi and Kalydeco produced $1.7 billion in revenue in 2016. Many analysts are expecting that the revenue from cystic fibrosis could reach over $2 billion this year. They also expect, that if one of the triple-regimens are eventually approved by the FDA, Vertex cystic fibrosis sales could triple to $6 billion. The thing is that the company boasts a huge market cap of $32 billion. In my opinion, the value is not that far fetched. That is because the company has a foothold in the cystic fibrosis space. That is evidently true after this newly reported data, which means Vertex could treat up to 90% of the cystic fibrosis population.

Risks

The clinical findings are early in nature and that is a huge risk. Vertex will have to test out these findings in a phase 3 trial. That is because a larger patient population will have to be enrolled to ensure that the clinical findings shown have merit. The last major risk would be competition from Abbvie (ABBV) and a Belgium biotech Galapagos. That is because both of these companies have established a partnership for a triple-regimen in cystic fibrosis as well. The triple regimen from Galapagos is a Triple combo therapy — once daily — portion of drugs that include: GLPG2222 — C1, GLPG2737 — C2 and GLPG2451. The drug combination from these two are expected to target 90% of the cystic fibrosis market as well. While this is a risk down the line, maybe a year out or more, it is not something that Vertex needs to worry about for the time being. That is because Galapagos was set to start its triple-combination trial in mid-2017, but such a trial was delayed. On June 21, 2017 Galapagos informed investors that its trial would be delayed until Q4 2017, pending regulatory guidance. That gives Vertex at least a one-year advantage over Galapagos and its partner Abbvie.

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Conclusion

The positive results observed in the three clinical trials were highly encouraging. Even so much so that the trials exceeded analysts’ expectations. If further late-stage studies confirm these findings, Vertex will be able to seek FDA approval. That will likely result in cystic fibrosis revenue tripling to at least $6 billion. The risk of Galapagos will not go away make no mistake about that, but its trial being delayed gives Vertex some breathing room.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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