Vertex Pharmaceuticals Incorporated (VRTX) CEO Reshma Kewalramani Presents at Cowen 41st Annual Health Care Conference (Transcript)

Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) Cowen 41st Annual Health Care Conference March 2, 2021 9:50 AM ET

Company Participants

Reshma Kewalramani - President and CEO

Conference Call Participants

Phil Nadeau - Cowen

Phil Nadeau

Good morning and welcome once again to Cowen and Company's hopefully only Virtual Health Care Conference. I'm Phil Nadeau, a Biotech Analyst here Cowen, and it's my pleasure to moderate a fireside chat with Vertex Pharmaceuticals. Those of you who follow our research know that Vertex is one of our top large-cap picks for this year.

So we're very happy to have with us this morning President and CEO, Reshma Kewalramani. And we'll spend about 30 minutes talking through the fundamentals of the Company.

Reshma, maybe you could start with giving a brief state-of-the-company overview, the biggest strengths, biggest challenges and what you think needs to happen to create shareholder value in Vertex's stock over the next year.

Reshma Kewalramani

Good morning, Phil. It's really good to see you, and thank you for having me here today. Maybe I'll give you a thumbnail and just walk you through the business, starting with CF. The CF business is strong, and there is plenty of growth for us to look forward to as we bring the triple combination to all people who might benefit from this drug.

To put it in very simple terms, we redid our epidemiology recently. And you remember, we used to talk about 75,000 people with CF in Europe, the Americas and Australia. That number is now 83,000. 90% of those patients can be treated with the triple combination. And right now, we're treating about half of that. So there's about 30,000-plus patients who are still to be treated. We exited 2020 at $6.2 billion. I think you can see why I say there's plenty of growth for us to look forward to in CF.

Two more points on CF, and then I'm going to go to the rest of the pipeline. We have a terrific medicine in the form of TRIKAFTA or KAFTRIO, as it's known in the EU, but we've set our goal for ourselves to come forward with even better and better medicines, and that is a call to order.

But we've been busy at work in the labs, and we have combinations of correctors and potentiators that we think can bring patients to this carrier level of sweat chloride. And that's important because patients who are carrier levels or carriers of the mutation really have no manifestation of disease.

Two real benefits there: one patient benefit, once-a-day dosing enhanced clinical benefit; and second, the royalties -- and this is a really important point that we need to make sure is well understood. The royalties are going to go from low double digits to low single digits. And of course, that's going to drop to the bottom line.

Last point to make in CF, we are actively at work for the last 10% of patients who simply don't make any CFTR protein and a nucleic acid of protein to be needed there. So that's sort of how I would contextualize CF.

There is a ton going on in the pipeline. It is broad. It is deep, and we often don't even get to talk about all of the elements. I'm going to try to give you at least one sentence on each of the areas in the pipeline. And that way, we can dig in on some of the pipeline questions in some more Q&As.

Let me start with the program that is furthest advanced. CTX001, that's the program we're doing in collaboration with CRISPR Therapeutics for sickle cell disease and beta thalassemia. This is the program where we were last year, at about this time, we had treated one patient in beta thal and one patient in sickle cell.

Fast forward a year, we've shared data on 10 patients. And really, the results look nothing short of spectacular. They do look like it's a functional cure. We've treated well over 20 patients, and we fully expect to have both trials complete enrollment this year.

I'll move next to the AATD program. That one, VX-864 is in its Phase II proof-of-concept study. We have reached a very important milestone. We have completed recruiting. Screening is done.

And just like a good novel, there's a beginning, a middle and an end to all clinical trials, and we are at the beginning of the end of this clinical trial. And I have high confidence that we're going to have the results in Q2 of this year. APOL1-mediated kidney disease, that's the VX-147 study. I expect results in that trial by the end of the year.

I'll move on to just a couple more and maybe finish off with the NAV1.8 program. We don't really get to talk about the pain program very much. We talked a little bit last year about the fact that we are really pleased with NAV1.8 because we had positive results with VX-150 in acute pain, neuropathic pain and in osteoarthritis.

But I described that we were looking for a molecule that had the perfect profile, and we're looking at a molecule now that's making its way through Phase I. That looks pretty good, and we're excited about the possibility of that one coming to Phase II this year.

I'll just end by saying, if you ask me to stand back and tell you where I see the Company today and where I see us going, here's what I would tell you. At our core, we are an innovation-driven company, an R&D-centric company. Our R&D strategy has served us exceedingly well. We have never treated more patients in CF than we are right now.

We have never been in more disease areas than we are right now. We have never used more modalities in the clinic than we are right now between small molecule, gene editing and cell therapy. And what I see is our clear intent and capacity to continue to innovate and invest in innovation.

Question-and-Answer Session

Q - Phil Nadeau

Well, that's a great overview. Maybe we'll dive into a few of those points. First, starting with the cystic fibrosis franchise, in particular, 2021 revenue guidance was a little controversial. It calls for revenue of $6.7 billion to $6.9 billion. That's 10% growth at the midpoint, but the CF franchise did exit 2020 at about a $6.5 billion run rate. So the guidance assumes a little growth in the coming quarters. Could you discuss what factors could go better than expected, could go worse than expected? What's going to drive growth versus what headwinds do you anticipate?

Reshma Kewalramani

Yes, yes. So Phil, let me just elevate a little bit and tell you about CF. There is plenty of growth to look forward to in the next, let's just say, five years. We have 75,000 people that the triple combination can treat. We're treating about half. So there is still 30,000-plus patients we can treat. And we're really good at getting to all of our patients.

What do we need to get to -- what do we need to do to get to all these patients? We need to get reimbursements in countries outside the U.S. We've proven that we are doing that better and faster with the triple combination. We need to launch in those areas, and I don't think anybody's had better launch execution than us. And we need to get approvals for lower age groups and expand the label, and that is working very well.

What you should expect in the next year is growth because of the full year of patients who came into triple combination last year, approval of 6 to 11 in the U.S. for triple combination and expansion into countries where we don't yet have regulatory approval, that would be something like a Canada or Australia and reimbursement agreements in a number of countries in the EU. I will tell you, Phil, that the way we do our forecast and our guidance that we've provided for '21, we don't include those countries where we don't have reimbursement.

So clearly, we're working hard on that, and it is our full expectation that the destination is going to be exactly the same as it is in the U.S. The vast, vast majority of patients are going to be on drug. Now of course, we don't have full control of exactly what the timing is, but it's going to happen. It's just a matter of when.

Phil Nadeau

Right. That is great on the commercial business. Let's move to the pipeline. With TRIKAFTA's launch well underway, investor focus is squarely on your pipeline. Can you discuss your overall strategy of -- and how you construct the pipeline portfolio?

Reshma Kewalramani

Yes, yes. So those of you who know Vertex, you know that we have a very diligent R&D strategy, and we hold to it with great rigor. And it is basically this: we are an innovation-driven company. We believe in making transformational medicines for diseases with high unmet need.

We only pursue diseases where we understand causal human biology, where we have validated targets. Usually, genetic with pharmacologic is just fine where we have biomarkers that translate well from what we're doing preclinically to the clinic, and efficient development and regulatory pathways for specialty markets. That's really what we do.

Part of the reason -- a big part of the reason we're so diligent about our R&D strategy is because our industry is a high-risk endeavor, and we have set up the strategy to have disproportionate success.

And part of that is our portfolio approach. We bring a portfolio of molecules. It's not a one and done. We bring a portfolio of molecules, a portfolio of approaches to all of the disease areas in which we work. And by doing so, we think we put ourselves in the best position to transform, if not cure these diseases.

And as I said, I just couldn't be more pleased with how our strategy is playing out. We are in seven disease areas using three different modalities right now, and that is just terrific to see.

Phil Nadeau

Maybe to be a bit more pointed, Vertex has recently indicated interest in in-licensing or acquiring a mid- or late-stage asset. And that's stoked a debate among investors as to how likely is a large deal, who could be the target. Could you maybe discuss how much of a change in strategy is due to the prospects for your pipeline? Is this actually a change in strategy? And how motivated are you to in-license or acquire mid- or late-stage assets?

Reshma Kewalramani

Yes, yes. I'm not going to speculate on BD, Phil. What I hear and I appreciate is the curiosity, but it's overdone. If we want to talk about what's concrete and what's in front of us and what you can expect from us, here's what it is. CF, I see tremendous growth.

And as I've described, programs coming up with a clear intent of out innovating ourselves, in the pipeline, seven disease areas, three different modalities. We've never invested more in our pipeline than what we are doing today, and you can expect that to continue.

We are about innovation. We are not about me-toos. We are not about incremental improvements. That's not who we have been, and that's not who we are, and that's not who we're going to be.

Our strategy is exactly the same. Pursue innovation in exactly those rigorous waves in order for us to bring transformative medicines to patients. You can continue to expect that from us.

Phil Nadeau

Well, that's very clear. Maybe moving on to your innovative medicines and pipeline, there's a lot of investor focus also on VX-864, particularly after the announcement last week that enrollment in its Phase II proof-of-concept study is completed with data expected next quarter. Maybe taking a step back to its predecessor compound, have you learned anything over the recent weeks or months as to the reasons for 814's failure? Is it possible to understand whether the issues they were off-target or on mechanism?

Reshma Kewalramani

Yes. Phil, I hear the interest in VX-864. And I can tell you that we at the Company are exceptionally enthusiastic about the AATD program. It fits the Vertex strategy like a glove. We understand the disease. We understand the target. And our mechanism of action with our small molecule correctors is the only one out there that holds the potential to treat both major manifestations of the disease, the COPD-like manifestation in the lung and the fibrosis in the liver. So we are very interested in this disease. We've been working on it for well over a decade.

And with VX-864, we have reached an important milestone. We're done with recruiting. We are done with screening, and we are at that tail end of the study. And as with any Phase II study, actually, with any study, as time goes by, as you get further and further into the study, the excitement builds, and that is exactly where we are. And as I said, I am confident that the time lines will be Q2 of this year.

Phil Nadeau

Has Vertex decided what data will be disclosed from the Phase II? For example, will we get circulating levels of AAT or other measures?

Reshma Kewalramani

Yes. Have you asked me what am I looking for from the data set and what you should expect? It is the first time that we've put this drug, VX-864, in the patients with AATD disease. So safety is clearly front and center. We're going to be looking for dose dependency and dose response. And we're going to be looking for elevations of functional AAT levels.

Upward movement of functional ATT is a really important measure, right, because that gives us proof of mechanism that our approach with small molecule correctors targeting the AATD, the Z-AAT, protein works. So that's what we're looking for. You should expect us to comment on those dimensions.

Phil Nadeau

If the study were to establish proof-of-concept, what would be the next steps in the program?

Reshma Kewalramani

Yes. So first thing's first. We are looking to complete the study. We're looking for those parameters, safety, dose dependency, functional AAT levels. And then, of course, we have our eyes on moving forward to Phase III. We have to have regulatory discussions. We have to go through the process, but it is our goal to work with urgency to bring a drug therapy for patients with this disease, just like we're doing with the sickle cell program, the beta thal program and all of the ones that we work on. Our goal is to work quickly to bring medicines to patients.

Phil Nadeau

And you mentioned Vertex's excitement in the program. If 864 were to fail, would you continue to advance the other AAT correctors that you've moved into the clinic?

Reshma Kewalramani

The whole goal of our portfolio approach is to be able to have the best molecule or molecules come forward. We've reached this very important milestone of recruitment being complete, screening being done and coming to this part where we can look at data, and I'm very excited about that. I'm looking at this program in that context.

Phil Nadeau

Maybe moving on to CTX001. Vertex has promised a regulatory update sometime this year. Could you give us more -- maybe more details on when we could expect -- what would be possible requirements for an FDA filing in terms of patient numbers, duration of follow-up?

Reshma Kewalramani

Yes, yes. Let me just take a step back and make sure everybody understands the CTX001 program. That's the one being done in partnership with CRISPR Therapeutics. There is a very significant opportunity to help patients. About 25,000 people with sickle cell disease that we think a therapy like this can treat the severity of disease that this therapy can treat, and about 7,000 people with beta thalassemia. So significant opportunity there.

Our program has tremendous momentum behind it. I do think we're going to finish enrollment, as I said, this calendar year. We've dosed over 20 patients, and the data that we have to date are really nothing short of spectacular with a kind of functional cure that it looks to be. We anticipate that the discussions with the regulators will circulate around three areas. One is the size of the database.

The second is the exact endpoint and the duration of follow-up. And the third is going to be around CMC. We've initiated those conversations with the regulators. We have not yet completed them. But I do anticipate that the trial that we're doing, the trial in beta thal sickle cell, will form the foundation of a filing. And I do anticipate that we're going to be able to talk to you more about our plans for the regulators this calendar year.

Phil Nadeau

Sickle cell and beta thal space is particularly topical now, following the clinical hold put on potential competitor recently. Do you have any theories as to what happened with the program? And maybe more importantly, are you considering any changes to your trials like the preconditioning regimen following the news?

Reshma Kewalramani

Yes, yes. It's a really important question that you asked, Phil. And the most important thing to remember is the disclosures with the case of AML pertained to a program with lentivirus. The Vertex-CRISPR program has no lentivirus. It has no virus. It's a completely different approach.

Many years ago, when we were looking at sickle cell disease and beta thalassemia and really working through all of the points that we've talked about with regard to causal human biology and targets and such, we thought long and hard about the approach we wanted to follow.

And we specifically chose CRISPR-Cas9 and knocked a lentivirus-based approach because the mechanism of action of lentivirus -- the way it works is by way of random incorporation into the genome. That is what it does. And insertional mutagenesis, therefore, is always a concern. That is why we chose to go down the very precise CRISPR-Cas9 gene editing route.

And what I would say is that we were happy with our decision then, and we are very happy with our decision now. I like very much the momentum in the program. I like very much how it's progressing. With the momentum in our program, delays in other programs, I feel very good about our ability to bring this therapy to patients soon.

Phil Nadeau

Moving to VX-147, you mentioned that data from its proof-of-concept study is expected this year. Can you remind us what endpoints are being assessed and what you would consider proof-of-concept that would be worthy of future development?

Reshma Kewalramani

Yes, yes. So VX-147 is a program for what is called APOL1-mediated FSGS, a bit of a mouthful. But APOL1-mediated FSGS is a particular kind of homogeneous proteinuric kidney disease. That's important because the community and regulators have worked over time. And for these kinds of homogeneous proteinuric kidney disease, the regulators have indicated that proteinuria would be sufficient as a regulatory-enabling endpoint.

What we are doing is a Phase II study, looking at exactly that endpoint. Of course, we're looking at safety, but the efficacy that we are looking at is indeed proteinuria. And what we're looking for is a reduction in proteinuria in these patients who have very severe disease, and this is the kind of disease that leads to really only one of two outcomes, either dialysis or transplantation in a very aggressive way. And so that's what we are looking for in this program, and I do anticipate that the results will be available towards the tail end of this year.

Phil Nadeau

In the pain field, Vertex has been developing for several years now for 1.8 inhibitors. What's the status of that program? What characteristics do you need to see to advance of a candidate in clinical development? And how likely is that?

Reshma Kewalramani

Yes. So I really appreciate the question because we don't get to talk about pain very often. So I appreciate the question. All right. So pain is a field where we just really haven't had, honestly, any significant innovation in decades. So I'm very enthusiastic about the NAV1.8 target. And I'm excited about it because we have demonstrated that with NAV1.8 inhibitors, that was the VX-150 program, you can interdict on pain, and we had positive results across three studies: acute pain using a bunionectomy model; neuropathic pain as well; as in osteoarthritis, call it a musculoskeletal pain.

Now what we are looking to do is to find a molecule or molecules with, let's just call it, the perfect profile. What I mean by that is formulation, drug-drug interactions, ability to take it with food and without food, manufacturability. That's really the kind of drug-like properties that we're looking at. And there is a molecule that's coming through Phase I that looks pretty good. And I'm optimistic and I'm looking forward to being able to tell you more about that, and that might be able to go to Phase II this year.

Phil Nadeau

Right. The VX-880, the stem cell-derived human islets in type 1 diabetes, what's the status of that IND? Why do you think you could succeed where others have failed? And what would be proof-of-concept?

Reshma Kewalramani

Yes, yes. So the VX-880 program is the type 1 diabetes program. That came to Vertex by the acquisition of Semma. So if you look at our pipeline, and you look at the molecule or the program that could treat the most number of patients, if that's a measure of importance, this program, type 1 diabetes, we're not talking about thousands of patients or tens of thousands of patients.

We're not even talking about hundreds of thousands of patients. There is over 1 million patients living with type 1 diabetes in the U.S. alone and an equivalent number in Europe. This is a program that has the potential to really treat an enormous number of patients. So this one is exciting for a whole host of reasons, but let me give you 3.

One, we know exactly what causes type 1 diabetes. It's autoimmune, destruction of pancreatic islet cells. Two, we know that islet cell transplants work. You can see that patients do very well in terms of A1C levels, glucose levels. And there are some patients who have been independent of insulin for years. And three, the problem and the holy grail in this area has been coming up with the right quality and quantity of pancreatic islet cells.

That's exactly the problem that Semma solves. And what I mean by that is we have a way of producing, manufacturing in industrial quantities and delivering with the second program in a method that will require immunosuppression, so really significant innovation.

There are two separate programs here, and you can think about it in that way. This first program, we just had the IND cleared. Last month, I think it was like late January, early February, very recently, we are imminently going to start the clinical trial. I just couldn't be more pleased with the urgency and the speed with which we are working. That program, let's call it, the naked cell program is the one that's coming to Phase I/II. That goes right to patients at no healthy volunteer step.

The second program, which is in late preclinical development, is the program that comes with the device. Program number one in clinic imminently is the one that will require immunosuppression, maybe about 60,000 people or so who could benefit. And the program that's with the device does not require immunosuppression, that's the one in late preclinical development.

Phil Nadeau

What measures should we look at when you do report of your initial data? What measures should we look at to know that the therapy is working as you'd expect?

Reshma Kewalramani

Yes, yes. In general, so I would say, broad strokes, think of it close to a CTX001 program, goes right to patients, we're expecting a significant therapeutic effect. And I think you can think about it in terms of numbers of patients and such and so with that as a paradigm, very standard measures.

Safety, of course. We're going to start at a low dose and then go to the target dose. So we're looking at safety, of course. But the measures are very standard and easy to assay, hemoglobin A1C, glucose levels, C-peptide is a measure of insulin. And of course, we're going to be assessing what is called SHEs or severe hypoglycemic episodes because these are very brittle diabetics.

Phil Nadeau

Moving on to your CF pipeline, we had thought a once-daily potentiator, or VX-561, the concert -- former concert molecule, was going to move into a pivotal study with 121 in tezacaftor. Last year, now you're suggesting you may advance a regimen forward this year. Is that the regimen that you're thinking of 561, 121 in tezacaftor? And what are the challenges of developing such a regimen in the days that TRIKAFTA has become standard of care?

Reshma Kewalramani

Yes, yes. So maybe a couple of things to tell you about that. You are right. TRIKAFTA, KAFTRIO, as it's known in the EU, is a terrific medicine. It has set a high bar, set a high bar for us and set a high bar for everybody else who's going to try to do drug development in this area.

I do think drug development going forward in CF is going to be completely different than what came before it. There is no ability to do placebo-controlled trials anymore, of course, with the availability of TRIKAFTA.

We've completed our Phase II study, including with the once-a-day VX-561. We are going through our interactions with regulators for exactly this reason to finalize on study design and such. And I do anticipate that we're going to be able to bring forward regimen, let's call it, the next-gen regimen for CF this year.

And of course, the benefits are the enhanced patient benefits, as I talked about, with this goal to bring patients to carrier levels of sweat chloride. So sweat chloride improvements, once-a-day dosing and the royalties dropping from low double digits to low single digits.

Phil Nadeau

TRIKAFTA has great patent protection out through 2037. Would this triple have better patent protection? Or would it be relatively similar?

Reshma Kewalramani

Yes, you're very correct. TRIKAFTA has patent protection well into the late 2030s. And of course, as this medicine comes forward, you can expect us to have significant patent property around it as well.

The leadership position we have in CF is something that is important, we take seriously, and that is the reason we are fully committed to continuing to innovate and, hopefully, out-innovate ourselves.

Phil Nadeau

Well, that is great. With that, it looks like we are out of time. So Reshma, I'd like to thank you for a very interesting session, and congrats on all the progress at Vertex.

Reshma Kewalramani

Phil, it's good to see you again, and thank you so much for having us.