Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) J.P. Morgan Healthcare Conference January 13, 2020 2:20 PM ET
Jeff Leiden - Chairman President and CEO
Reshma Kewalramani - EVP Global Medicines Development and Medical Affairs and CMO
Conference Call Participants
Cory Kasimov - JPMorgan
Good morning, everyone. My name is Cory Kasimov. I'm the Senior Large Cap Biotech Analyst at JP Morgan. And it's my pleasure to be hosting the next session here and instead of a standard presentation, we're doing a little fireside chat without the fire. And anyway it's really a pleasure to be doing this with Vertex.
And it's a good time to be doing it with the transition that's taking place between Jeff and Reshma. But -- so we'll go through a list of questions. May I also remind everybody that we are not having a breakout session. So this is in lieu of a breakout session just to make sure everyone's running into the room across the hall and fighting the lunch crowd.
With that, maybe I'll turn it over first to Jeff to make some introductory remarks.
Yeah, thank you, Corey. It's always good to start our year here at JP Morgan with you, it's sort of become a tradition. And so both Reshma and I are really pleased to be here. We'll start with the usual safe harbor statement. We are going to be making, both Reshma and I some forward looking statements this morning. So of course, I would refer all of you to our 10-K other SEC filings for more information about the risks and opportunities of our business.
I should also note that we are not going to be reiterating our 2019 guidance here, nor we're going to be giving you 2020 guidance. We will be giving you, as we usually do our final 2019 numbers, fourth quarter call in a couple of weeks. And also be giving you 2020 guidance at that point.
So as Cory said, this is somewhat of a transition year for Vertex. I'm going to be moving on from the CEO role to the Executive Chairman role in April, and Reshma will be taking over as CEO in April.
And so we thought we would try a little bit of an experiment. A different kind of presentation. And rather than me getting up and giving a formal presentation. We thought it would be more interesting for you to do this experiment, sort of a fireside chat where Cory can ask us questions about the current and the future state of business and you can hear from both of us at the same time.
So Cory, fire away.
Q - Cory Kasimov
Thank you. So Jeff, I'll start with you. And I mean, clearly you saw a significant progress across the business in 2019, both for CF but also importantly, non-CF pipeline and financially. So maybe just set the stage a little bit. Can you just summarize what you see as the company's key accomplishments for the past year?
Sure, yeah. It was a truly remarkable year for Vertex. Largely because all of the parts of our business; research development, commercial, BD, really met or exceeded our goals for the year. And as you know, Cory, every year, I come and give you a report card by which you can measure our progress for the next year.
And actually, this is the report card seeing up on the screen that I showed last year. And I think you can see quite easily that we did meet or exceed all of the goals that we set for ourselves and for you and our investors last year.
I'm not going to read this for you but maybe call out a couple of milestones. I think in the area of CF obviously, the early approval of TRIKAFTA five months ahead of the PDUFA date in October was the major milestone in our CF franchise. And not only for Vertex, this was a true medical milestone for the CF community.
We've been on this journey for more than 10 years now to create a single medicine that could treat 90% or more of all CF patients at very high efficacy. And that dream became a reality with the approval of TRIKAFTA.
The other thing though, that happened that may not have gotten as much attention is in the second half of the year, we were able to come to agreement on reimbursement in multiple countries outside the U.S. for our existing medicines for ORKAMBI and SYMKEVI. And some of the big countries so France, England, Spain, Australia, as well as some of the smaller companies [ph] like Northern Ireland, Wales and Scotland. That was incredibly important because it meant that 9000 new patients could get access to our existing medicines SYMKEVI and ORKAMBI outside of the U.S.
Turning to the pipeline, one of the biggest challenges for all biotech companies is to move from that first medicine to the second, and even more so from the first disease to the second. And we've been working on that very hard for the last five years. As you know, I'm particularly proud of what David Altschuler, our Chief Scientific Officer and his group have done.
We have accelerated our pipeline dramatically over the last couple of years, to the point where we are now in five diseases outside of CF with seven medicines in the clinic. And Reshma will tell you something about that as we go on. But those are the medicines that are going to drive the future growth of our business as the CF franchise matures into the middle part of the next decade.
And then finally, maybe turn to the financials. Obviously, as we have treated more patients with CF around the world over the last several years that's resulted in remarkable financial performance for the company. And we are seeing continued double digit top line growth, very healthy expansions of our operating margins, as well as significant amounts of free cash flow.
And that certainly continued in 2019 as well. Now some people, some of our investors have asked me well, it seems like it all happened at once. How did that work in 2019? And what I told him is actually, this was the culmination of a very disciplined execution of a strategy that I first showed all of you back in 2012 here at JPMorgan.
It's almost exactly the same slide I showed you, then. This is really the secret sauce of Vertex. It's the strategy that's gotten us to where we are, and as Reshma will tell you, it's the strategy that we intend to follow into the future. And so I thought I'd spend just a couple of minutes on this to make sure that those of you less familiar with the company, know what we're doing and why we're doing it.
It's two parts. It has a corporate strategy. Vertex invests in scientific innovation to create transformative medicines for serious diseases in specialty markets. And every part of that is essential for the strategy. In other words, we believe that scientific innovation is the only way to create true value in this industry for patients as well as for investors.
We only work on transformative medicines. You will never see a me-too medicine from Vertex a nutraceutical, those sorts of things. That's just not what we work on. Because we think the transformative medicines are the highest value for patients and for us as a company. And we are very disciplined about sticking to specialty markets.
And the reason for that is we can sell our medicines into those markets with very low SG&A expenditure, which allows us to reinvest the vast majority of our operating expenses into R&D, which is obviously essential for this kind of serial innovation model.
Now, that corporate strategy is very tightly coupled to our research strategy. And again, kudos to David Altschuler and his group for articulating this I think in a very succinct way. And we're very disciplined. Every project in our pipeline as Reshma will tell you fits this research strategy.
So we only work on truly validated targets. The reason most drugs fail isn't because of safety isn't because they don't hit their target. It's because the targets that are on target, not associated properly with a disease. And so every one of our pipeline projects has a validated target, as you'll see.
We're focused on using creative and predictive lab essays and biomarkers that will predict our clinical outcomes. So, in CF, we've used our HP cell essays and [indiscernible] that actually quantitatively predict the FEV1 improvement will see in clinical studies.
And that tremendously raises the probability of success in late clinical development. We're focused on rapid registration paths. And one of the things I think both Reshma and I are proudest of is the fact that if you look at TRIKAFTA, a recently improved triple combination, it was less than 4 years from the synthesis of that compound in a laboratory in San Diego to FDA approval.
I have never seen another example of that in my 30 or 40 years in the industry. And while all of our projects aren't going to be less than four years. I promise you that we are using the same kinds of approaches to accelerate clinical development.
And then finally, we are therapeutic modality agnostic. As you know, we are traditionally a small molecule company. But you've seen us spend a lot of time and money over the last several years to expand into nucleic acid therapies, gene editing cell therapies.
And the reason for that is we are looking for the best modality for the disease we're interested in. We're not interested in just using one modality for every disease. And we'll talk more about that as well. But I think we have a very nice toolbox now of modalities that will allow us to address the diseases that we're actually interested in.
So Cory, back to you.
It's great. So we're going to get into the pipeline and strategy and everything. But I guess one of the questions I want to focus on is what investors ask us about the most and that's TRIKAFTA and the ongoing launch. So maybe Reshma, can you give us an update on where you are with TRIKAFTA and how that launch is proceeding so far, at least qualitatively?
Sure. So Cory, the early approval in October of 2019 of TRIKAFTA in the US, for the 12 plus age group was just an enormous milestone for us as a company, but for patients as well. This is a medicine with high efficacy. It has a really good looking benefit risk profile.
And we got a very broad label here in the US. And patients and physicians have reacted to that really positively. With regards specifically to the commercial launch, obviously, really early days we're only a couple of months in. But we are very pleased with what we're seeing.
We talked about two factors in our quarterly call that we're watching closely, that we see as the drivers for the launch trajectory. The first is the throughput of patients through the clinic, that's just to say the capacity. There's only about 250, 270 CF clinics in the U.S. and this is just about patients getting through.
And the second is reimbursement. That just takes time, state by state, plan by plan. But I will say from where we are today, early days, only two months in the patients are getting through the clinic. They are getting initiated on therapy. And the reimbursement is shaping up nicely.
So we're really pleased with what we're seeing here. As Jeff said, in a couple of weeks on earnings call we’ll give you details about the launch. We’ll be able to give you final 2019 numbers, 2020 guidance, something for all of us to look forward to.
Okay. So then Reshma it certainly sounds like the U.S. launch is proceeding very, very well, in that patient segment age 12 and up. What do you do? What does Vertex do to make sure you get TRIKAFTA to the 90% of patients around the world, it could be a candidate for the product?
Yeah, great question. You can follow along on the slide and sort of look at the numbers, but here's how I would break it down for you. What we're looking at here now is the ongoing launch in the U.S. for TRIKAFTA 12 plus. That is going to be followed by the regulatory approval of TRIKAFTA in the EU. We applied for that filing in Q4 of 2019, so that puts the approval in Q4 2020 or so.
That's going to be followed by reimbursement discussions and the commercial launch in the EU and other countries. And that's going to be followed by expansion into the lower age group, just like we've done with KALYDECO/ORKAMBI, SYMDEKO/SYMKEVI. We've already started the studies for the six to 11 year age group. And that's going to lead to expansion of the label both here in the U.S. and outside the U.S. and that's how we get to 90% of patients from where we are today.
Okay, alright. So then this I guess Reshma is the transition point we go from CF to the pipeline. You've obviously had a tremendous success, the company overall in CF. We've seen a lot of companies struggles, they try to go and diversify beyond that initial approval indication from single disease. Obviously, company's been working very hard on this front. But can you summarize where you are with the pipeline right now beyond cystic fibrosis?
Yeah, you know, Cory, I cannot underestimate and I don't think anybody does the challenge of going from one medicine to many; one disease area to many. And this is something we've been thinking about and working on diligently for the last many years, as Jeff alluded to. David Altschuler and his research group have really accelerated our pipeline in the last three, five years.
You can really think about our pipeline in two components. The first is a small molecule pipeline. That's really come up through our own internal research engine. And then our cell and gene therapies, gene editing pipeline that is largely come to us through our business development activities.
But regardless of whether you're thinking about our internal pipe or our pipeline that's coming through business development, really three things are exactly the same. The first and probably the most important, each and every one of these diseases, pain APOL1 associated kidney disease, AATD, Sickle Cell, Beta Thalassemia, DMD, Type 1 diabetes, whatever you're looking at, they follow our R&D strategy and our corporate strategy to a tee.
These are all diseases of high unmet need. We understand causal human biology. We have biomarkers that translate from bench to bedside. These are all programs with efficient development pathways, and they're all served by specialty markets. That's probably the most important thing to know about our pipeline.
Second, the pipeline is broad. Five disease areas already in the clinic today; and we'll talk through two more that are in late preclinical development that I know I'm really excited about, but I know Jeff and David are equally excited about.
And the third thing to know is that this pipeline is at a point, it's a very special point, we're on the -- we're on the brink. We're poised to look at Phase 2, proof of concept data in this next, let's call it 12, 15 month period. And I think that's really important to talk about.
I'll see a couple of words about one of our small molecule programs. Just as an exemplar of this part of our portfolio and then I'm going to ask Jeff to comment on the cell and genetics portfolio. I could go on and on about AATD, but I'll keep my comments short.
This is a disease that scientifically, medically, clinically looks a whole lot like CF. This is a disease that's genetic in nature. This is a disease that is a lung disease. This one also happens to have a very significant liver component.
This is a disease that is a misfolding protein defect. And this is a disease that we're going to apply we are applying the same approach as we did with CF, that is to say small molecule oral correctors to refold this misfolded protein. And so doing really target the underlying cause of disease.
One last thing to tell you on this particular page is the number of patients, the estimate is about 100,000 in the U.S. and in the EU. I suspect that's an under diagnosis just because there's not universal screening and diagnosis. But, that's a number to start with. And that's the kind of patient population we're looking at.
One last thing to tell you, before I show you these data, pre-clinically that are terribly exciting is, in essence, in normal people like you and me, this protein alpha one antitrypsin, it's made in the liver, secreted into the bloodstream, and it goes to the lung where it does its job, which is to prevent auto digestion of the lung through the various proteases in the body. That's what's supposed to happen.
In these patients with this mutation their protein, because of this defect as misfolded. It does not get secreted into the bloodstream. So the liver ends up having disease. And because it doesn't get secreted into the bloodstream, the lung is not protected. And you get this early form of COPD, that's -- those are the two really big clinical manifestations.
And, Jeff, if you would advance the slide, here's the data. Again, I could spend an enormous amount of time on this. But what I will tell you is that what you're looking at on the left hand side of the slide is AAT levels, functional serum AAT levels in a transgenic mouse that is expressing the mutant human protein.
And in the blue what you see is vehicle treated animals, low levels of functional AAT. And in the red, what you see is a rapid and a sustained increase in functional serum AAT levels. The magic number here to look for is 11 micromolar, that's the protective threshold. When you get above that people with this mutation don't have disease.
And in this case in our animal models, you see we are multi fold there. Now, equally interestingly and to many, maybe myself included is the data on the right side. That's the pathology sample from the liver, that kind of brownish red. What you see there, that is the misfolded protein in the liver. That's what's causing the liver disease and in 12 weeks of treatment with one of our small molecule correctors, which you see is really remarkable clearance of this disease.
Very quickly. Where are we? We have finished the phase one studies. We started Phase 2 in December of 2019. And again, I expect in this next 12, 15 month period, will be able to look at some results from our program.
Jeff, a little bit on the cell and gene therapies.
Sure. So I think you can hear from Reshma's voice. How excited we are about the internal innovation that David and his group are doing across a number of diseases. But no matter how good we are at internal innovation, obviously we can only capture a very small percent of the innovation going on in the biotech world.
And so we have ramped up our business development activities pretty substantially over the last couple of years as we've had more capital to invest. And we've done it with a very strategic focus in a couple of areas. One, we were interested in new therapeutic modalities that could complement our small molecule approaches.
And particularly in gene editing, where we've built a large portfolio in gene therapy and in cell therapies. And two we are interested in bringing in additional programs that would supplement our pipeline. Early stage preclinical or clinical programs where we could add value through our clinical regulatory and commercial expertise.
And this slide just shows you four of those programs, sickle cell and beta thalassemia, which came to us through our collaboration with CRISPR, starting in about 2015. Duchenne muscular dystrophy, a gene editing approach that came to us through our recent acquisition of Exonics in 2019.
And Type 1 diabetes, which is a cell therapy approach for Type 1 that came to us through our most recent acquisition of Semma Therapeutics. And as Reshma said every one of these meets and matches our corporate strategy and again, our research strategy.
Won't have time to talk about all of them, but let me let me show you some data from sickle cell and beta thal. Those are the two most advanced programs and show you why we're so excited about this new technology and this new approach.
So this is a gene editing approach in which we're trying to use gene editing in a single treatment to essentially cure patients with beta thalassemia and sickle cell disease who expressed immune form of the beta globin protein. And we publish these results with our partner CRISPR a couple months ago now.
And I'll just walk you through them quickly. This is one patient with beta thal on the left one patient with sickle cell on your right. So early days one patient of teach. Each treated with a single treatment of our CTX-001 product. And on the left, this is a very severe beta thal patient almost making no hemoglobin of their own and requiring a transfusion every two the three weeks for life to just maintain a hemoglobin concentrations in the physiologic range.
Patient was treated once with CTX-001. And you should look at the blue bars here. Because we're monitoring fetal hemoglobin levels in this patient. And you can see that within a very short period of time their fetal hemoglobin rose, eventually up to around 10 to 11 grams per deciliter. And their total hemoglobins were 11 to 12 grams per deciliter.
That's the same hemoglobin I would have or Reshma would have if you do our blood today. And that was sustained over a nine month period of time. And to correlate with that the patient has had required no transfusions over that nine month period of time despite the fact that they had been getting one transfusion every two to three weeks prior to that.
Right hand side very similar data in sickle cell here, we measure the percent fetal hemoglobin. Because we know from experiments of nature that if you have more than 30%, fetal hemoglobin and sickle cell disease, you don't get the symptoms of the disease. So that's the number we're aiming for.
You can see one treatment in CTX-001 resulted in a rapid increase in fetal hemoglobin up to 47% or so of the total hemoglobin and that was seen in more than 90% of the cells. And to correlate with that this patient who had been having about seven painful days, occlusive crises each year has had no painful crises in the four months since they received the single treatment.
So while this is still very early days. These are essentially functional cures that we're seeing in these two patients with a single treatment with this gene editing approach. And that's why we're so excited to accumulate more patients, which we're doing now is these trials continue to enroll, and you'll see more data from additional patients coming in 2020.
Alright. So given how well CF is progressing along with the pipeline investment being made kind of putting this all together, how should we think about revenue and earnings growth for Vertex?
Yeah. It's a great question and you can follow along on the slide that's up on the board. The bottom line is I think it's really no secret that Vertex has delivered extraordinary performance over the last many quarters. I mean that in terms of revenue, in terms of expansion of the operating margin, as well as a generation of free cash.
That's allowed us to do what we really want to do, which is to invest in internal R&D as well as in business development. You can see the numbers here. When I look over 2020, and let's call it the next 10 years or so, what I would say is the first half of this period is going to be about the CF franchise and treating more patients.
The U.S. launch of TRIKAFTA followed by the European regulatory approval and launch there followed by expansion to the lower age groups. I see that being carried in terms of growth through the middle of the decade. After that, I see the pipeline kicking in. And we are talking about five disease areas in the clinic. The two additional ones in late preclinical development.
And while not all of them are going to work. Not all of them have to work, even if a couple do and I fully expect that they will. We're talking about significant opportunities that are going to carry us through the back end of the decade. And that's really the picture that you see here.
Okay. So then Reshma we had to close, Jeff started this conversation and always shows us the scorecard for how to judge the company going into a new year. So maybe can you just kind of wrap up by highlighting the key milestones you anticipate for 2020.
No, not at all.
The pressure comes next year.
I quite like the report card. I think it's a good way for us to give you what we're looking at in terms of milestones and for you to hold us accountable to what we say we're going to do. Here's a report card for 2020, I’ll call out a couple of things. Obviously in CF which is at the top of the list, what we're looking at is the ongoing U.S. launch and European regulatory approval.
In the middle of the screen, importantly, these are the proof of concept data. We called out AATD, sickle cell beta thal. And we have set an ambitious goal for ourselves for the Semma program. That's the type 1 diabetes program cell therapy. We're looking to bring that into the clinic to patients late 2020, early 2021.
And we talked about the finances already. We're looking forward to double digit top and bottom line growth in 2020. Cory, if you would indulge me, we've had time to talk through all of these specifics and put up the goals. I want to take a step back and let you know where I see the company at 50,000 feet.
This company has never been stronger. We have never been better positioned for success. Our strategy is working exactly as we expected. The pace of discovery and development of new medicines for a number of disease areas has never been greater.
And based on this I have high confidence that we're going to be able to continue to deliver great value for patients, for our company and for shareholders for many years to come. And I'm looking forward to coming back next year, telling you about the report card and the progress.
We look forward to having you back. Well Jeff congrats on a remarkable run and Reshma best of luck. You're joining the company at a great time.
Thank you so much.