Vertex Pharmaceuticals' Management Presents at 2013 Deutsche Bank BioFEST Conference (Transcript)

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 |  About: Vertex Pharmaceuticals Incorporated (VRTX)
by: SA Transcripts

Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)

2013 Deutsche Bank BioFEST Conference

December 2, 2013, 2:50 PM ET

Executives

Stuart Arbuckle - Executive Vice President and Chief Commercial Officer

Analysts

Robyn Karnauskas - Deutsche Bank

Alethia Young - Deutsche Bank

Robyn Karnauskas - Deutsche Bank

Thank you all for joining us this afternoon. My name is Robyn Karnauskas, for those of you who are listening to the webcast. I am one of the analysts here at Deutsche Bank. Feel free to e-mail me any questions, I've been reading them anonymously.

I also have with me Alethia Young, my colleague here. And next we have Vertex Pharmaceuticals. And with us we have Stuart Arbuckle, EVP and CCO of the company. We really appreciate you coming today. Thank you.

So we've noted that Vertex could be, there are several stocks next year that are going be having a lot of potential for upside because they have big catalyst, and of course Vertex is one of them. And I just wanted to start off with I think a good question, one year in, what are your impression for Vertex?

Stuart Arbuckle

I think probably my impressions are pretty much the things that drew me to the company a year ago, is that it's got a combination of great people and great science. And the great science is evident everyday. I've spent a lot of time going to our R&D sites within our U.K. site last month.

San Diego, our research facility there, was one of the first places I went to, when I joined. And you get a real sense of just how passionate people are about making the difference, and just terrific, terrific science. I think we've seen that play out in hepatitis C, I think we've seen it play out in CF so far, and hopefully more to come. So, great science, great people.

I also think it's a company, which has a very clear strategy and we are kind of executing on that strategy and we genuinely use that as a guiding light for the decisions that we make. So it's been a fun year.

Robyn Karnauskas - Deutsche Bank

And thinking about one of the big events I want to focus on, the 809 combination study last year. Can you remind us the powering of that study? And I'm just curious, so I know that it’s powered to detect a very low delta in FEV, and it's just hitting significant enough to drive uptake because some people are worried that just hitting significance won't be enough?

Stuart Arbuckle

Sure. Yes, so just to remind those who aren't as familiar with the design, we have two 500 patient studies called TRAFFIC and TRANSPORT, so a 1,000 patient in all. So it's very highly powered. It's 90% powered to detect a 5% difference in FEV1. Importantly, it's also powered to detect differences on the secondary endpoints. And some of the secondary endpoints are really, really important, probably as important to patients and physicians as purely FEV1 is in the sort of endpoints.

I'm talking about things like weight gain, as people will know probably cystic fibrosis, patients can tend to be relatively small, relatively thin, they have a sort of failure to thrive, it's part of this kind of systemic manifestations of CF. It's more than just a lung disease.

So weight gain is certainly one, pulmonary exacerbation is certainly another, if you're patient or a provider that's what you want to avoid at all costs. So it's powered around FEV1, but it's also very highly powered to detect any improvements in those secondary endpoints.

And I think that's important to think about, as we think about what's good enough, in terms of the results from the study, because all sorts of things could happen in the study, it could be 5%, it could be 8% in FEV1. It could be 5% with a really, really great reduction in the exacerbations, it could be a high FEV1 without a great decrease in exacerbations. It could be all sorts of different things.

I think what's going to drive uptake is really the combination of the constellation of endpoints that we are looking at, because providers certainly recognize that CF is more than just a lung disease, it's a systematic disease. And so those improvements and things like weight gain, reductions in hospitalizations, exacerbations, reductions in antibiotics, improvements in quality of life, all of those things are important.

To some people they are more important than FEV1 itself, which is clearly, obviously the most important regulatory endpoint, but not necessarily the most important endpoint to providers and to patients themselves.

Robyn Karnauskas - Deutsche Bank

I mean do you see - it seems like SAE rates and things like that are overall blinded safety results of these studies?

Stuart Arbuckle

In this study currently?

Robyn Karnauskas - Deutsche Bank

Yes.

Stuart Arbuckle

Yes, absolutely. Everything is blinded in this study.

Robyn Karnauskas - Deutsche Bank

So do you have a sense though of the blinded rates of pulmonary exacerbations, just to make sure that there will be enough of them to maybe see a difference? You'd want to see some of those, if you want to show a delta?

Stuart Arbuckle

Right. So you certainly see them in this population of all the types of CF, when people look at the different mutations and the different severities of cystic fibrosis. The 508del homozygote population is considered to be one of the more severe, and so you do see a significant number of exacerbations in those patients.

Not only that, this is going to be a six month study, so it's long-ish. It's not as long as, for instance the KALYDECO pivotal studies, where we had six months efficacy and 12 month safety. This is going to be a six month treatment study, so it's a shorter window to see that. But with 500 patients in two Phase 3 studies, the study is very highly powered to detect a difference in those secondary endpoints as well as the primary.

Robyn Karnauskas - Deutsche Bank

And theoretically though you could actually show a significant difference on an FEV that's lower than 5%. Like if it's 2.5% or 2.8%, is that concerning, is there a level on which on you are like that’s…?

Stuart Arbuckle

I don't know. I mean I think as always with these things, it would always be considered to be a review issue by the FDA. I mean they're going to wait and see the data and I think they'll look at both the primary, but I think they'll also look at the secondary endpoints as well. I mean they are very well educated in the division that we deal with on CF. And so I think they are likely to take the evidence in its totality.

Robyn Karnauskas - Deutsche Bank

So TRAFFIC, TRANSPORT, complete enrollment about a month ago. So if we technically think about the ending of the trial, it would be done in second quarter. But you guys are saying, middle of the year. So how long is the delta for looking and analyzing the data?

Stuart Arbuckle

Well, I mean the study is six months on treatment, then a follow-up visit a month after the end of therapy, which is in the protocol. So people aren't necessarily adding that in. But by the time we've got that, got all the data in, cleaned it, it's a big database. I think it is the biggest single study that's ever been done in CF. It's going to need a lot of cleaning and that sort of thing. And we want to make sure that the data is all right and accurate before we look at it. So it's going to be the middle of next year, before we really got all of that data in, cleaned and had a good look at it.

Robyn Karnauskas - Deutsche Bank

And you said within the press release, now you've learnt how to disclose data in the press releases accurately. Have you thought about whether or not you're going to put the magnitude of FEV and the endpoints or just say it hit significance, like how much information is the Street going to get?

Stuart Arbuckle

I don't think we've decided that, to be honest with you.

Robyn Karnauskas - Deutsche Bank

If the data disappoints, how do you move forward with 661 aggressively to get the combination to patients?

Stuart Arbuckle

Well, I mean in many ways, the answer to whether the data disappoints or not is partly tied up in 661. 661, certainly gives us another potential option. We've got studies ongoing to evaluate 661 and get it ready for future stages of development. If the study disappoints, let's hope that it doesn't, then 661 certainly gives us another opportunity to try and demonstrate benefit in that patient population.

Robyn Karnauskas - Deutsche Bank

So as far as adding a third corrector, I think we're all really excited about learning about the third corrector, so the analysts can add the heterozygotes to our model. But is there any possibility for and you've mentioned hopefully having or identifying one by the end of next year, is there any possibility that that could be accelerated or is it really just early days?

Stuart Arbuckle

Well, we're hoping to have identified one and our aspiration is to have it in the clinic by the end of next year. I think any acceleration on that is probably unlikely. I think we'll probably stick with what we've said is that we're in lead optimization now. We've got a few promising different series of compounds that we're looking at. But to get it from there to the clinic, I think we'll be pleased if we can get it to patients by the end of 2014.

Robyn Karnauskas - Deutsche Bank

As far as capturing the heterozygotes, do you see it as each - the triple will be able to get a good chunk of the heterozygotes? Are you looking for something that will get a good chunk of them or get like a little piece of them or maybe having multiple products that…?

Stuart Arbuckle

Yeah, our overall strategy is to try and bring benefit to as many patients as we can over time and continue to increase the benefit we're bringing to those populations, including those we're even already treating today. In terms of heterozygotes in general, we think it's most likely that we'll going to need a triple to be really effective in those patient types.

If you look at the data we've had from our in vitro models, which have proven pretty predictive of what we see in the clinic. We think it's unlikely that we're going to need a triple, whether the triple will be enough to get a large quantity of those heterozygote patients. I think we'll really have to do the study and wait and see once the in vitro models are predictive. That's kind of that they're exactly that. They are kind of predictive, they are not exactly a 100%, it's going to work exactly like this every time.

Robyn Karnauskas - Deutsche Bank

But are you looking for a certain corrector that at least is predictive at least 20% or 30% or 40%?

Stuart Arbuckle

I don't think it's that precise, to be honest. We can't dial it in that - quite that precisely. What we're looking at in our next generation correctors is really a corrector, which works on a different step in the folding pathway. And if we can correct then two steps in the folding pathway and then have a potentiator as well, we think that's going to give us the chance to bring benefit to a portion of the heterozygote population. Exactly how big a population we can bring benefit to, I think we're going to have to let the clinical studies play out.

Robyn Karnauskas - Deutsche Bank

And then turning to R117H, so we're getting a lot of questions now, given the data is closed. And there is concern around the results, given the heterogeneity of the patient population. Can you just help the Street understand how you're thinking about the data and the commercial opportunities?

Stuart Arbuckle

Yeah, so how am I thinking about the data? I'm kind of excited like everybody else to see it. We're hoping to have it by the end of this year, so I'm excited to see it. How we think about R117H, as you say, it's generally considered to be a more heterogeneous mutation than, for instance, G551D or even the 508del homozygote population. And overall it's considered to be a kind of milder mutation in the way it plays out kind of phenotypically in patients.

Having said that, it is a spectrum of disease. You have patients who are R117H, who do have very low FEV1s and have significant lung disease, colonization, everything you'd see in the more severe mutation, all the way up to those who appear to be almost sort of physiologically CF-free.

So that having been said, we do see it as being a more heterogeneous population that we're dealing with, and therefore it's likely that the absolute level of uptake and even the rate of uptake is likely to be different in R117H patients than it is in the G551D patient population, where as you know we've got the vast majority of patients very, very, very quickly.

Alethia Young - Deutsche Bank

Could you guys ever characterize like kind of in that FEV 40% to 90% range, like how many of the 1,100 patient are kind of there in the real world or any kind of stratification?

Stuart Arbuckle

Yeah, that’s a good question. So the data, as you know, in this area is not wonderful. We have done some work here in the U.S., where the data was a little bit more robust. And probably about 50% of patients have FEV1s below 90% and/or have some kind of symptomology, which would be indicative of that being kind of ongoing lung disease in those patients. But as I say, that's kind of a pretty wooly number, that's the best we can get here in the U.S. It's less robust when we go to some of the ex-U.S. markets. And as you know, I mean those become pretty important in that overall 1,100 patients.

Alethia Young - Deutsche Bank

And I mean just in general with that situation, is it kind of like you might go up to the 40% to 90%, then maybe that's for the trial design, but over time these people would proactively treat if you're outside of the FEV range?

Stuart Arbuckle

I think it's a great question and one which I think there's going to be a lot of debate on. There was a conference call with a physician in Boston just last week, and he was raising the question, and he says, he has having those debates with his colleagues now. There are some people who will say, I am not going to treat unless the patient is either has an FEV1 below something like 90% and/or they've got some other symptomology, which leads me to believe they need to be treated.

You've got other physicians who are saying, well, we know this disease leads to declines over time and they are thinking about whether they should be putting something like KALYDECO into those patients to prevent the long-term decline, they're going to see. So I think we're going to see a bit like the disease is heterogeneous, I think we're going to see heterogeneity in the way that physicians choose to interpret the data and choose to use the product based on how they view those patients.

Alethia Young - Deutsche Bank

Can I sneak one more in Robyn? So on the KALYDECO studies like now that you have some experience in 551D, like how is that real world experience? How can it be additive to the monotherapy studies like 117H for doctors and like what the feedback? How do you connect the dots between the two?

Stuart Arbuckle

Well, and I think the feedback on the product would be hard to beat. I mean certainly that the results we saw in the study have certainly played out in the real world. I mean you have to read the blogs or talk to a few patients with G551D and hear how their lives have been changed by KALYDECO. It's everywhere. It's everything you would hope it would be. It really has been transformative for those patients.

So I think the overall impression people have got of the product is overwhelmingly positive. It has a relatively low level of adverse effects. It's very easy to give. It's a very simple regimen compared to a lot of the other things that CF patients have to take, which are very difficult.

So I think just about everything about the product profile that people have experienced has been very positive. I think that's going to stand us in good stead. Having said that, I think they're going to treat the data from each of these populations on their own merits.

Robyn Karnauskas - Deutsche Bank

And given that you're adding on 809 on top of KALYDECO and that maybe helpful in current 551D patients, how do you think about pricing? Do you keep pricing the same or do you think that this is adding something incremental?

Stuart Arbuckle

Well, I may be misinterpreting your question. I mean we have got an ongoing study, where we're adding 661 on to KALYDECO in patients with G551D to see whether that can bring incremental benefit. And again, from the in vitro work we've done there are suggestions that that could provide incremental benefit, and we'll see if that plays out in patients.

And if that plays out that will be a great problem for us to have that the study that we've done is a pilot, if you want to call that, it's not a pivotal study. So we'd still be some ways between here and having that combination on the market. And so I think it'd be a bit early to say exactly how we're going to price that combination if it ever gets to market.

Robyn Karnauskas - Deutsche Bank

And just a big picture pricing question, because I think that as soon as the data comes out in the summer with 809 combination turning to price and there is a huge range.

Stuart Arbuckle

You mean they're not already?

Robyn Karnauskas - Deutsche Bank

Well, they are. But still, it will be loud, very loud. Given that it's important to manage expectations. When do the conversations with payers begin? And what do they really need to see, do you think, for you to maintain the price point that you have with KALYDECO?

Stuart Arbuckle

So I mean the sorts of things that are important to payers are undoubtedly the approvability of the product that kind of goes without saying. But some of those secondary endpoints that we spoke about before or some of the ones that are probably more meaningful to them than they might be to the regulatory authorities.

And things like exacerbations, things like hospitalizations, things like reductions in the use of other therapies, like antibiotics, all of those things are both important to providers and patients, but also it is important to payers, because they provide some level of cost offsets. So those are, clearly when you talk to payers, almost disproportionately more important than FEV1, in and of itself.

The other thing that's important to you, some of them, not all of them I would say, but certainly some of them are the quality of life improvements that you get with the products. Certainly many of the more, kind of enlightened payers put a high price on whether those patients are actually feeling better as a result of the products that they're paying for.

Robyn Karnauskas - Deutsche Bank

Is it on the table that you could price it the same as KALYDECO. Is that even on the table?

Stuart Arbuckle

I would say every thing is on the table, I wouldn't want to take anything off the table, until we see the results of the study. But the most important things we're going to be taking into account are the results of the study, because that inherently is the value proposition for the product.

Now, we're not insensitive to the fact that if it's successful that we'll be going into a population, which is in order of magnitude greater than G551D population and we'll obviously have to think through what that means, in terms of the budget impacting that sort of thing for payers. But I would say at this stage it's too early to say how we're going to be pricing the product, because we don't have the most important piece of the information, which is how well does it do in the biggest CF study that's ever been done.

Robyn Karnauskas - Deutsche Bank

Have you seen, there are other examples of people maintaining a high price point going from a small population to a larger population?

Stuart Arbuckle

There are some. There are not many in the orphan and ultra-orphan space. There is some in things like oncology, for instance. What there aren't many examples of, which I think is going to make this situation a little bit unique is there aren't many examples where you're going from a small population to a large population, but you're not just doing that with one product. I mean, we're doing that by bringing an entirely new chemical entity to market in 809 and bringing this combination product to market.

So you've seen it where people have expanded from small populations to larger ones with the original agent, but I'm not aware of one where you've seen that sort of thing happen, where the original agent is being combined with a completely new chemical entity, which obviously is what 809 is.

Robyn Karnauskas - Deutsche Bank

For business development and thoughts on end licensing, I guess two questions, is what kind of things do you think would fit in nicely to a CF platform? And then, do you expect more activity now or in the future?

Stuart Arbuckle

So what things in CF would fit? I mean as I've said, our strategy all along has been to try and bring benefit to as many CF patients as we can, and to continue to increase the benefit that we can bring to those patients. So what are some of things that we don't think we're able to do with our current assets? Well, we think there is probably around 10% or so of patients that we're not sure, based on what we currently understand today about corrector and potentiators, we think we'll be able to serve with those agents.

If we could bring things in, which would enable us to try and potentially get to those 10% or 15% of patients that would clearly be something that we would be interested in, it's clearly in line with our overall strategy. On top of that, other things would be, all that things that we can add in that would be bringing incremental benefit, different mechanism other than correctors and potentiators, which could bring added benefit in homozygotes or heterozygotes or something like that.

So those would things that would be kind of advantageous for us to have, because as I said, they are either expanding the population that we serve or allowing us to bring incremental benefit over and above what we think we can do with the agents that we think we know well.

Robyn Karnauskas - Deutsche Bank

Can't wait to see the 809 data, before you make some of the decisions around what direction to go in?

Stuart Arbuckle

We're not waiting for that data to make that decision. We're keeping our eyes and ears open. The CF space has not surprisingly got a lot more competitive over the last three or four years. There is a number of technologies out there. All of them have their various pros and con, so I wouldn't say we're necessarily going to wait, if the right opportunity comes along, and it's at the right price, and is the right fit for us, I think we'd be open to doing something on that in advance of the 809 data.

Robyn Karnauskas - Deutsche Bank

Raise your hands if you have any questions. I was going to ask about spend. You guys spend a lot of money and wondering how are you prioritizing the programs internally because I feel like we, on Wall Street, don't have a sense of all that's going on at the company and a lot of smart scientists have come to the company. So what's in that spend and how do you view it going forward?

Stuart Arbuckle

So I'd really break it down into two buckets. If you look at our overall research and development spend, the first one is research, we've typically spent about $200 million a year on research. And we have said that we want to continue to protect the level of investment that we put into research. We think that Peter and his team and the various sites involved in research around the world have done a pretty good job. They have been probably over productive in terms of research and we want to maintain that, because we think that's really the future of the company.

We then move to the development side of the house, but really our priorities are twofold. The first one is CF. We are all-in in CF. And as you know, we've got a number of studies ongoing. You talked about TRAFFIC and TRANSPORT, we've got studies ongoing with 809 in other populations. We have a pediatric study. We have a study in heterozygotes, which is more of an FDA commitment, but we'll see how that study plays out. We have 661 studies ongoing, both in F508 del heterozygotes. We have it ongoing in the G551D heterozygotes, who have 508 on the other allele. So we are all-in on CF.

The other area that we continue to prioritize is in hepatitis C, and we have as you know ongoing studies with our new VX-135 in New Zealand in combination with Daclatasvir and we'll see the results of that study early in the new year and we'll see how that that plays out, but that would continue to be a big area of investment for us. And so from a development point of view, those two are it, but the clear number one area for us is cystic fibrosis.

Robyn Karnauskas - Deutsche Bank

Two question to follow up with that. So there is a competitor starting development with another CF program that claims that they might have more potent corrector. How do you avoid the situation you wound up in Hep C, where you had, like the first best-in-class drug and then loss that on the market, like in this case what have you learnt from that?

Stuart Arbuckle

I think the most important thing is to have an out eye to the outside, not believe that you've got the absolutely best or only insights into the market or the best science. And whilst, we love our pipeline, and Peter and I, talk about this a lot, our pipeline is good, but it's never good enough. And so we're not going to be shy about bringing in assets from the outside. If we can do that, if we think that they're going to additive or superior to what we've got internally, and maybe that's a lesson.

The bigger lesson for us, I think is, within INCIVEK, is we're in the innovation business, we're in the transformational drug business and sometimes you're going to make other people obsolete and other times other people are going to make you obsolete. And that's I think the most important lesson that reminds us that that's the nature of the business that we're in, and so we just need to keep that innovation focused and not be obsessed that we've got the best technologies or the only good ideas that are out there.

Question-and-Answer Session

Robyn Karnauskas - Deutsche Bank

Question from an investor, would you combined with other companies' correctors.

Stuart Arbuckle

I think if we thought that their correctors were superior to our correctors, I certainly think we'd be open to talking to them and looking weather that's a possibility. As I say, our strategy is irrespective of where these things come from, treat as many patients with CF as we can and continue to raise the benefit.

Robyn Karnauskas - Deutsche Bank

And what does 135 need to achieve in order to be competitive for Hep C?

Stuart Arbuckle

I think the hurdle rate for 135 is crystal. You've got to have SVRs that begin with 90. You've got to be treating patients in 12 weeks or less. You've got to be really convenient to give and you've got to be very tolerable. So I think the bar that we've got to get over is very high, but at least it's crystal clear. I think it would be nice to have as well, would be if you had a regimen, which was pangenotypic. So if you could hit on all of those things, then I think you've got a regimen, which can be competitive in all over the world.

Robyn Karnauskas - Deutsche Bank

I guess, lastly, do you feel you have enough cash on the balance sheet right now to fund operations through 2015?

Stuart Arbuckle

I think we're feeling really good about our financial position. It was a strategic priority for us this year, in '13. We knew we wanted to maintain and strengthen our balance sheet. We came into '13 with $1.2 billion of cash and cash equivalents and $400 million with a debt.

We're going to be exiting without debt, and we are going to be ending the year with somewhere around $1.4 billion in cash. And so I think we've done a great job in strengthening our balance sheet. And as we sit here today, we're certainly not thinking that we need to go outside to fund our ongoing operations.

Robyn Karnauskas - Deutsche Bank

Well, thank you very much.

Stuart Arbuckle

You're very welcome.

Robyn Karnauskas - Deutsche Bank

Thank you very much.

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