Vertex Pharmaceuticals Picks Between "Sirloin Steak and Filet Mignon"

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Vertex Pharmaceuticals (NASDAQ: VRTX) rounded out 2017 on a high note with fourth-quarter sales of its cystic fibrosis franchise up 37% year over year, besting the 29% increase when looking at the entire year.

And on the pipeline front, the company announced impressive phase 2 data for its next-generation triple combinations with plans to bring two combinations into phase 3 development, checking off one of the items on its 2018 to-do list.

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Vertex results: The raw numbers

What happened with Vertex this quarter?

  • Revenue was boosted by a $25 million milestone payment from Johnson & Johnson for the start of a phase 3 clinical trial testing flu-treatment pimodivir.
  • Even excluding that boost, cystic fibrosis drug sales looked good with Orkambi increasing 32% and Kalydeco up 44% year over year. Expanded approvals for both drugs in younger patients have helped drive sales in the U.S. Abroad, growth is being driven by increased reimbursement in various countries.
  • In December, data from a phase 3 trial showed Kalydeco was helping patients aged 1 to 2. Vertex plans to submit the data to regulators this quarter to gain expanded approval for toddlers.
  • In January, after the quarter ended, the company gained approval in Europe to treat children ages 6 through 11 with Orkambi, setting up additional sales in the coming quarters.
  • Vertex and its partner CRISPR Therapeutics (NASDAQ: CRSP) announced plans to develop CTX001, a gene editing treatment for two blood diseases, beta-thalassemia and sickle cell disease. Separate phase 1/2 trials for both diseases are expected to begin this year.
  • In conjunction with the earnings release, Vertex released impressive data for its next-generation cystic fibrosis triple combinations containing VX-659 and VX-445. Vertex plans to start two phase 3 trials testing VX-659 in combination with tezacaftor and ivacaftor in the first half of 2018. A phase 3 program testing VX-445 with tezacaftor and VX-561, which is a once-daily version of ivacaftor, will start in the middle of the year, assuming positive phase 2 data for that combination, which is due out in the first half of the year.
  • The board authorized a $500 million repurchase of stock through the end of 2019.

What management had to say

Vertex had four different triple combinations to choose from, but as chairman, president, and CEO Jeff Leiden pointed out, the data for all four were promising. "The good news is they all look very, very good, so we are picking a bit between sirloin steak and filet mignon here," Leiden said.

Leiden also explained why the company is going to test both VX-659 and VX-445 in phase III trials, rather than just one of them. "We're taking two forward because that's one way of modifying one risk, and that's the risk of some rare off-target toxicity due to the next-gen corrector in one of these regimens and obviously by taking two forward, we mitigate that risk," Leiden said.

The same principle holds for why only one of them will be tested with VX-561, which Leiden refers to by its other nickname, d-Iva. "And so I would hate to put all my eggs in that basket and find out there is some very rare tolerability or safety issue with d-Iva that would set both programs back," Leiden said.

Looking forward

While the triple combinations are preparing for phase III development, Vertex still has one more potential approval with the combination of tezacaftor and ivacaftor, which the FDA is expected to rule on by the end of this month.

Given the pending application, management smartly decided to wait on issuing 2018 revenue guidance. While an approval seems extremely likely given the data, rolling back guidance would just add insult to injury if the FDA issued a rejection or delayed its decision, so there's no harm in waiting.

Investors should also keep in mind that the combination is likely to result in patients switching from Orkambi and Kalydeco to tezacaftor/ivacaftor, so total overall cystic fibrosis sales will be more important to watch than the moving parts of the three individual drugs.

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Brian Orelli has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Johnson & Johnson. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

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