Matt Emmens – Chairman and Chief Executive Officer
Dr. Jeff Leiden – President, and Chief Executive Officer
Geoff Meacham – JPMorgan
Vertex Pharmaceuticals Incorporated (VRTX) JPMorgan Global Healthcare Conference January 9, 2012 2:00 PM ET
Geoff Meacham – JPMorgan
Okay, good morning. Welcome to the morning sessions of the Day 1 of JPMorgan 30th Annual Healthcare Conference. I am Geoff Meacham. I am the Senior Biotech Analyst here at JPMorgan. It’s my pleasure to introduce Vertex Pharmaceuticals, one of the leaders in the hep C, cystic fibrosis, RA and other spaces, which I am sure, will be detailed. And speaking on behalf of Vertex is its current CEO, Matt Emmens who will then introduce the incoming CEO, Jeff Leiden. Matt?
Matt Emmens – Chairman and Chief Executive Officer
Thank you, Geoff. Welcome, thank you for your interest in Vertex. We have a full house. The fire marshal would not be pleased, but anyway, it’s a privilege to be here representing what Vertex has achieved and the opportunities they were in front of us, which are both significant. Moving making forward-looking statements as usual in our presentation today and please consult our latest SEC filings including our 10-K, our 10-Qs and 10-K for a complete understanding of the risks associated with our business and everyone in this business for that matter.
I came on board three years ago and that was my contract and I had two main priorities. One was to help build the commercial organization at Vertex that would launch our first drug INCIVEK, which I think we have done. And number two was to build the development capability that had the scale to get many more game changing medicines through to the market. I am proud of Vertex’s accomplishments on both fronts. Execution and the launch of INCIVEK was perfect at every step and that is remarkable for any company, especially one for its first time out. We got the drug to patients very fast. We shipped INCIVEK a day after the approval and the first prescription was filed – was filled, excuse me, at the pharmacy only three days later. And I am pleased to tell you that INCIVEK is on track to be the fastest product launch in the history of this industry. We have a second drug, KALYDECO for the orphan disease cystic fibrosis. The execution on the development and regulatory submissions in 2011 are extraordinary and we expect to launch this drug obviously this first quarter of this year.
We have significant cash flow and earnings now. We have the ability to pursue focused market investment in our late-stage pipeline while also making a return to our shareholders. I am proud of what we have done. I am proud of the team at Vertex. And I am also proud to introduce Jeff Leiden. As I retire for my second time, I am proud, sorry, didn’t get it right the first time, try it again, that we have been able to tap exceptional leadership to take Vertex forward.
I have known Jeff for seven years. He came on the Shire board. As you know, I am the Chairman of that company and he impressed everybody and because of that I led him to believe that Vertex would be a great board to be on and he agreed and came over and has been with us for over two years, going on three years. And we love him and he was the obvious choice. It’s unusual to find somebody that’s a physician, a scientist, a business person and has had a successful commercial career and he has all that. He was President, CEO, and Chief Scientific Officer at Abbott from the years 2000 to 2006 and more recently he was managing a partner at Clarus Ventures. He is familiar with Vertex. As I said, he joined our board in 2009 and now he is going to take our company forward. And I as a shareholder couldn’t find anyone I’d rather have doing that. So, please welcome Dr. Jeff Leiden.
Dr. Jeff Leiden – President and Chief Executive Officer
Well, thank you very much Matt. I am thrilled and excited to be joining Vertex at this very critical and important point in the company’s evolution. As Matt said, Vertex is now a business. We are generating significant revenues and profits. We just launched our first product and we are now poised and preparing to launch our second. But equally importantly, we have a very exciting and deep pipeline that will force the opportunity to launch a number of additional drugs over the next few years, and not just any medicines, these are transformative medicines that will add great value to patients and to their families. And finally, this is the company and the team that’s proven its ability to develop and launch these types of breakthrough drugs. So from my perspective, Vertex is very well-positioned to fulfill the vision that was made when the company was founded almost 23 years ago by Josh Boger.
During the last several years, hepatitis C has typically, and of course, quite logically been the biggest focus of investors in Vertex. And INCIVEK and hepatitis C remained very important for the company. I am going to spend more time on them a little bit. But today, I want to start with our pipeline, because that’s where I think I can best convey to you the fact that Vertex’s future opportunities are both diverse and global. You can get a sense of what that means for the trajectory of our future growth.
We handed out some cards, which I hope you got at the beginning of the presentation. We figured that you will probably sit in on dozens of presentations during the day. And so the cards are really something we created for you to remember us by. I am going to go through the pipeline described what we are doing in each area and what differentiates our approach and you will see that these same ideas are outlined on the back of the cards as well.
Today, I want to leave you with two messages. First, that Vertex has a broad and deep portfolio of differentiated medicines that we planned to bring to patients into the market in the next three to five years. And second that we have a team with a proven track record of developing and launching breakthrough drugs. The cards in your hand really represent a metaphor for the data slides that will be turning over in 2012 for many of these pipeline drugs. And of course the true value and the full value of the pipeline will only be clear once we have turned over all those data cards.
Let’s look at the first card, this one. Every week in the U.S., 12 young people with cystic fibrosis either die or get a lung transplant and these patients die far too young. The median age of death for a CF patient in the U.S. is 26 years. As you probably know, cystic fibrosis is a complex multi-system genetic disease that causes mucus buildup in the lungs resulting in progressive loss of lung function as well as damage to other organs. It’s also a disease that’s marked by severe disease complications and recurrent, expensive, and painful hospitalizations. And that’s despite the fact of the recent introduction of very aggressive symptomatic treatments to help these young patients. These patients typically use vibrating vests and mucus thinning agents to help clear the mucus from their airways. They use bronchodilators and nebulizers that deliver antibiotics to prevent and treat the common lung infections that they get.
And unfortunately, many patients have to take literally handfuls of pancreatic enzyme pills to help digest their food and treat their malabsorption. On average, a CF patient in this country typically spends two hours a day receiving their treatments. And if you do the math, that means the average CF patient each year receives treatment equivalent to four months of fulltime work.
Now, you probably know that most current therapies for CF are really aimed at treating the symptoms of the disease. But at Vertex we have taken entirely new approach for the treatment of cystic fibrosis. Our medicines address the underlying cause of cystic fibrosis with the goal of actually changing the course of the disease. And this year we hope to launch the first medicine of that type called KALYDECO.
Our vision starting many years ago was that we could actually make a dramatic difference if we could design new kinds of drugs, oral drugs that restored the function of the mutant protein called CFTR in patients with cystic fibrosis. And I think when we started this program it’s fair to say that there were few people outside of the company and certainly few people in the industry that thought it would ever be possible to develop a pill to overcome the genetic defect in patients with cystic fibrosis. But that’s what our scientists tried to do and that’s what they have done.
This slide shows you some of the Phase 3 data for KALYDECO, which is also known as VX-770, which we obtained and released last year in 2011. I think the results were significant. What we showed was that a subset of patients with CF who have a mutation known as G551D has significant improvements in lung function as measured by FEV1. And it’s important to emphasize that in this study KALYDECO was given on top of standard-of-care therapy that these patients were already receiving and yet it still produced the single most significant incremental improvement it’s ever been seen in CF patients from the single drug.
To my mind, there are three particularly noteworthy findings about this from the study. One, the improvement in lung function as you can see on the slide was seen as early as two weeks after starting therapy. Second, the effects were sustained for out to 60 weeks, which are shown on this slide.
And finally as seen in the right part of the slide, when the placebo patients rolled over on to KALYDECO, they responded within two weeks as well. So, I think these data clearly show that patients had significant improvements in their lung function. It was easier for them to breath, but KALYDECO also resulted in additional important benefits for these patients as shown on this slide. One, they had significantly fewer pulmonary exacerbations. That’s very important for these patients, because it means they aren’t hospitalized as often, they aren’t sick as often. They had fewer hospitalizations in fact and they felt better.
And finally, they also gained weight and in CF unlike many other diseases, that’s a good thing, because these patients often suffer from malabsorption and they are underweight. On average, CF patients in this particular trial gained about 7 pounds. So taking together, these findings are consistent with the idea that KALYDECO was actually successful in restoring CFTR function throughout the body in these treated patients.
As you know, we have submitted both an NDA and an MAA for KALYDECO and both the U.S. and European authorities have agreed that this will be a priority review medicine with the PDUFA date of April 18 in the U.S. So, we’re hopeful to receive approval for KALYDECO in the coming months. At this point, we are really focusing on being ready to launch the product if and when we get approval and to ensure that KALYDECO is available to patients with the G551D mutation as soon as possible after approval.
Overall, G551D represents about 4% of all patients with cystic fibrosis both here and in Europe. But we are now getting ready to begin three additional studies of KALYDECO as monotherapy, which may help to expand the addressable population. First, the study in patients with gating mutations that are similar to G551D. Second, a study in patients with the mutation R117H that causes abnormal function of CFTR at the cell surface. And finally, a study in children with gating mutations, where we are aiming to show the benefits of monotherapy in patients as young as two years of age.
With positive results from these studies in 2012, we could submit data to expand our label in 2013 and that would significantly increase the addressable population for KALYDECO monotherapy. But in addition to monotherapy with KALYDECO, we’re already thinking more broadly about how we can use our unique approach to benefit many more patients with CF. As you probably know, we are pursuing an additional clinical approach in which we are combining KALYDECO with the second class of molecules known as correctors, to target the most common CF mutation, which was called Delta 508.
We have early stage studies ongoing now with two different correctors in parallel and we should begin to get clinical readout from these studies later this year. So, in cystic fibrosis, we have a broad portfolio of molecules and we are committed to doing everything we can to help as many CF patients as possible. We think we are actually beginning to crack the code in this disease. And therefore it’s an orphan disease area that could represent an important growth area for Vertex for many years to come.
Let’s move on to the next card and the next disease, influenza, it’s this card here. Here is an intriguing fact about the flu, each year in the U.S. more people die from flu than die from HIV AIDS. I think that probably tells you a lot about the need for new drugs in this area. In the typical year, 30 million people in the U.S. get the flu and it’s important to appreciate that for many patients the flu isn’t just the sniffles, it’s a serious disease that results in 200,000 hospitalizations and an average 30,000 deaths in the U.S. each year. And every 20 years or so, there is a pandemic, as you probably know, the 1918 pandemic killed more than 50 million people around the world, which represented about 3% of the entire world population.
What if there was a new antiviral agent that was one clinically effective against all strains of influenza A, including both pandemic and avian flu strains. Second could be effectively dosed as a therapeutic agent many days after the initial development of symptoms. And third could be given prophylactically to vulnerable populations during an outbreak to actually prevent infection of those patients. We are working on an interesting molecule just like that called VX-787 at Vertex.
I think the data shown on this slide will help explain why we are excited about the potential of this compound to expand the treatment window for flu. This in an in vivo model of flu in mice, I mean, this model Tamiflu or oseltamivir, which is the current standard-of-care had to be dosed within 24 to 48 hours in order to rescue the mice from lethal infection.
In contrast, as you can see on this slide, VX-787, the Vertex molecule was effective out to four and five days post infection. In fact, no mice died if they were dosed with VX-787 within four days. To our knowledge, this is the first and only molecule so far no one to do this. So, this was very encouraging data to allow us to take the molecule into the clinic and given that data we have moved VX-787 into Phase 1 studies in healthy volunteers already and we’ll be moving into a proof-of-concept clinical study in patients infected with flu in the first half of 2012.
Let’s look at the third card, the one about rheumatoid arthritis. RA, rheumatoid arthritis is greater than $15 billion year market that as you know is currently dominated by injectable biologics. This is a market that I actually know very well from my experience at Abbott and it’s an exciting one to me. We actually developed Humira when I was at Abbott and the Humira course is now the leading drug in the market for RA.
Rheumatoid arthritis is an extremely debilitating disease in which the body’s own immune system and T-cells attach the joints leading to joint pain and deformity, but also although not widely appreciated leading to premature death. And despite all of the RA therapies that exist today, there is still an urgent need for new therapies. About 30% or so of patients who were taking injectable biologics don’t respond to those therapies and even for those that do effectiveness convey in significantly over time. And more than a quarter of patients who start on injectable biologic will actually switch to a different agent within two years, which tells you something about the need in the market.
New therapies that have attractive qualities including improved long-term efficacy, enhanced safety and/or tolerability and oral dosing, I believe I have the potential to take significant portion of this marketplace and to be adopted by physicians and patients. At Vertex, we are developing a molecule called VX-509, which is a selective oral inhibitor of an enzyme called JAK3. And what may potentially differentiate 509 is its large therapeutic window. In Phase 2, VX-509 was highly active as monotherapy through 12 weeks and a range of doses were quite well-tolerated.
The slide shows you some of the Phase 2 data that we have reported last year. You probably know ACR50 as the standard measure of disease activity in RA. And you can see in the top panel, patients dosed with 150 milligrams b.i.d. of 509 demonstrated ACR50 scores of around 50%. But perhaps more importantly on the bottom of the slide, you can see that about a third of patients had DAS28 scores of less than 2.6, which is considered evidence of essentially normal function and an absence of disease activity. This is the first evidence to our knowledge that a JAK3 selective inhibitor can actually be effective in treating RA.
And of course at this point in time, it’s too early to conclude that 509 is clinically differentiated from other JAK inhibitors, but we did see some encouraging signs in this study in terms of its high efficacy as monotherapy in 12 weeks and it’s lack of effect on blood cells. For instance, there was no anemia or neutropenia seen in these patients and also no apparent affect on kidney function. So based on that data, VX-509 is starting a six-month Phase 2 study in combination with methotrexate in patients with RA this year and we also planned to explore VX-509’s activity in other autoimmune diseases.
Finally, let’s turn to hepatitis C, the final card in your pack. We launched INCIVEK in May of this year as Matt mentioned. And today, it’s been an outstanding launch more than 25,000 genotype-1 patients have started treatment. INCIVEK combination therapy has allowed physicians to almost double the cure rate for patients new to treatment with genotype-1 HCV to nearly 80%. And well that’s impressive, let’s remember the bigger picture, 170 million people around the world have chronic hepatitis C, but less than 1% of those patients are currently treated. It’s very frustrating, because hepatitis C is actually now a highly curable disease, but left untreated it can lead to progressive liver disease, liver cancer, and early death.
INCIVEK is marketed by Vertex in the U.S. and Canada. And it’s been launched as INCIVO by our partner J&J in Europe and as TELAVIC by Mitsubishi in Japan. We feel fortunate to have taken a market leading position with INCIVEK. The drug is now generating as you know several hundred million dollars a quarter in sales, but there is still a lot of pent-up demand in this market, which is a cure market and we have a rare opportunity to treat and to cure many more patients over the coming years.
I think it’s been tempting for many people to think of hepatitis C as a single patient population that will ultimately be treated by a single magical drug regimen. But in reality, I think it’s going to be much more complex. Hepatitis C patients today don’t all respond the same way to the same treatment. In a way, it’s actually much more reminiscent of many types of cancer, different populations receiving different treatment according to their specific needs and their specific prognostic factors.
And this slide just shows you some of the examples of the different populations within hepatitis C. For instance, patients who have failed prior treatments, patients who are co-infected with HIV, patients with cirrhosis, there are significant differences between genotypes 1 and 2 and the additional genotypes, the virus for example. These are all different sub-populations and they may evolve to be treated with different regimens. But it’s important to remember that INCIVEK combination therapy has already proven that it’s effective in some of the hardest to treat genotype-1 patients.
At Vertex, we are thinking about these different populations carefully as we study INCIVEK and also as we seek to develop new combination regimens involving multiple direct acting of antivirus. We actually have a portfolio of medicines in development including the non-nuc VX-222 and the two nucleotides we licensed from Alios targeting this opportunity. We are currently conducting studies that we believe will allow us to conclude, which combinations are the best fit for which subsets of patients with this disease. One of our objectives, of course, has always been to develop all-oral interferon-free regimens and we are making strong progress in this area.
We are exploring multiple all-oral interferon-free treatments for the treatment of different sub-populations with hepatitis C. The most advanced of these of course is in all-oral triple regimen that combines INCIVEK with VX-222 and ribavirin. VX-222 is the most advanced investigational agent on our portfolio. It’s a non-nuc polymerase inhibitor that thus far in clinical studies has been well-tolerated and it’s distinguished by its potency. And it’s this potency of course it’s the key to getting a steep drop in viral levels early in treatment, which in turn allows for the shortest possible duration of therapy, which is good for patients.
We are currently conducting a Phase 2a study in VX-222 plus INCIVEK and ribavirin in genotype-1a and 1b patients. All patients in that study have now passed the 12-week time point and we expect to report 12-week on treatment data as well as additional post treatment data, including SVR4 data in the first quarter of 2012. Pending these data and of course discussions with the regulatory authorities, our goal is to advance to pivotal studies as soon as possible with this interferon-free triple oral regimen.
In addition to VX-222 and this later-stage oral triple that I told you about, we also have two very interesting compounds that are in Phase 1 clinical development called ALS-2200 and ALS-2158. These are uracil and adenosine nucleotide analogs and they could be developed in multiple types of oral regimens. We’ll see our first clinical data this year, but based on their profile so far we know several things. First their potent, second they appear to be pan-genotypic, and third, they could each serve as an anchor in an all-oral short duration regimen.
With these compounds, we actually have the potential to design many different combinations, one nuc with ribavirin for example or two nucs together or a nuc with 222 and/or INCIVEK. There are many different possibilities. And the data that we gather in the first part of 2012 should position us to rapidly advance multiple nuc combination regimens during the second half of this year. So, in hepatitis C, we are proud of what we have already achieved for patients with INCIVEK and we believe that our pipeline could allow us to sustain our leadership in different segments of this market for many years to come.
So, I have spent most of the last half hour reviewing for you our broad and deep late-stage pipeline. I want to end by talking about an additional important platform for our business and that platform is profitability and cash flow. The significant cash flow to be generated by INCIVEK and KALYDECO in the next several years will enable us both to sustain our innovation and to bring forward new products from our pipeline, but also to deliver significant earnings and returns to shareholders.
So, in summary, we have launched a breakthrough medicine INCIVEK, which has already transformed the treatment of patients with hepatitis C. We’re poised for approval and launch of a second breakthrough medicine KALYDECO for some patients with cystic fibrosis. We have created a deep and broad late-stage pipeline of differentiated products. We are profitable and we are generating significant cash flow on earnings. And we have proven our ability and the team’s ability to develop and launch breakthrough drugs.
So, given these attributes, we are looking forward to great things in the years ahead. We are committed to advancing our business with the balance of financial discipline on the one hand and focused investment to ensure both the greatest and best benefit for patients. We now are waiting for these new therapies as well as value for our shareholders. Thanks very much for your attention.
[No Q&A session for this event].
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