Q4 2021 Vertex Pharmaceuticals Inc Earnings Call

January 26, 2022

Good evening. This is Michael Partridge, welcome to the Vertex fourth quarter and full-year 2021 financial results conference call.

On tonight's call, making prepared remarks, we have Dr. Richard Mckee [inaudible] our CEO and President Stuart Arbuckle, Chief Operating Officer, and Charlie Wagner, Chief Financial Officer.

We recommend that you access the webcast slides as you listen to this call. This call is being recorded and a replay will be available on our website. We will make forward-looking statements on this call that are subject to the risks and uncertainties discussed in detail in today's press release and in our filings with the Securities and Exchange Commission these statements, including without limitation those regarding.

Vertex's marketed CF medicines, our pipeline and Vertex's future financial performance are based on management's current assumptions. Actual outcomes and events could differ materially.

I would also note that select financial results and guidance, we will review on the call this evening are non-GAAP. I will now turn the call over to Dr. [inaudible].

Thanks, Michael. I'm pleased to discuss our performance and progress in 2021 and to share our vision for where Vertex is headed.

2021 was a very important year for the company during which we expanded our leadership position in CF, significantly advanced the mid and late-stage pipeline.

And further strengthened our financial position and one which sets us up for high-value milestones in 2022, and a very bright future for years to come. Our revenue and earnings continue to reflect the significant growth of our global CF franchise and based on our success in treating more CF patients, we again

delivered exceptional financial results generating nearly $7.6 billion in product revenues, representing 22% growth year on year and 27% growth over Q4 2020.

Also in 2021, we initiated two global Phase III studies with our next in class CF regimen, VX 121, Tesla Captor, VX 561 completed enrollment in the pivotal studies of CTX 001, deliver proof of concept with VX 147, and a type of one mediated.

Kidney disease known as FSGs.

Delivered early but very promising results with VX 880 in type one diabetes and advanced VX 548 into two proof of concept studies in acute pain the results of which are expected this quarter.

These advancements spans small molecule gene editing and cell therapies.

And six disease areas, including CF.

Fueled by our success in cystic fibrosis, our financial profile and balance sheet have been further strengthened enabling both continued investment in internal and external innovation.

And industry leading operating margins.

We provided a detailed overview of Vertex at our webcast two weeks ago at the JPMorgan Conference. Tonight, our prepared remarks, we'll we kept the high points around our CF franchise, and our pipeline and also review our commercial performance and financial expectations for 2022, starting with CF.

For the 90% of CF patients, who can benefit from a sea of tier modulator. We see continued significant growth ahead as we have more than 25000 patients who could benefit from Tri CAFTA and our other CF medicines, but who are not yet on treatment Stuart will discuss the opportunity ahead of us.

And our high confidence that we will reach these patients in his prepared remarks.

Approved first in the US in October of 2019, TRIKAFTA set a high bar in terms of both clinical trials and real-world data and has become the standard of care for patients with CF today. To recap in late 2021, we shared 96-week data from the extension of the TRIKAFTA

pivotal trial, where we saw no decline in mean lung function. This was a first for any CFTR modulator. We now have the first real-world data for TRIKAFTA from the US CF foundation registry across approximately 16000 patients treated with TRIKAFTA and represented in the registry in 2020.

Relative to patients eligible for TRIKAFTA in the year prior to approval, we see an 87% reduction in the risk of lung transplant, a 77% reduction in pulmonary exacerbations and a 74% reduction in the risk of death.

Nonetheless, if it is possible to deliver better clinical outcomes than TRIKAFTA. We are determined to be the ones, who do so. And our next in class Triple combination of VX 121, Tezak. After 561, which holds that potential is already in pivotal development, we expect completion of enrollment in both.

Both phase III Skyline trial in late 2022 or early 2023. This combination has the potential for greater clinical benefit more convenient once-daily dosing and ease significantly lower royalty obligation.

For the last 10% of CF patients, who do not make any CFTR protein with our partners at Moderna, we've now demonstrated that we can not only if they should lead deliver full-length CFTR. M Arnie to human bronchial epithelial cells in vitro, but also to bronchial epithelial cells in nonhuman primates.

Solving a long standing delivery challenge and marking a significant step forward in bringing a treatment for the last 10% of CF patients. Based on these results IND enabling studies for our CFTR mRNA program are now underway. We plan to file the IND this year with clinical trials beginning thereafter.

Beyond CF, we have a pipeline that is broad and deep and delivering and considerably more advanced compared to a year ago. I'll review a few of our clinical-stage programs each of which is a first in class or best in class program has the potential to serve a large number of patients and represents a multibillion.

Opportunity beginning with CTX 001, or one or one-time gene-editing treatment with the potential to provide a functional cure for sickle cell disease and beta-thalassemia. This is our most advanced program outside of CF and we expect this will be our next commercial launch.

We're wrapping up discussions with regulators to finalize our submission data package for CTX 001, including the number of patients and duration of follow up.

This program accelerated significantly last year based on strong physician and patient interest we completed enrollment in both phase III studies. Both were oversubscribed and to date, we've dosed more than 70 patients. We look forward to sharing more clinical data with CTX 001, longer-term follow up and many more patients.

At a medical forum later this year. On the way to our planned global regulatory filings by year-end 2022.

Moving on to VX 147, and the [inaudible] mediated kidney disease program. In renal medicine, one of the most important genetic discoveries of the last decade was the realization that mutations in the [inaudible] one gene I key driver of significant kidney disease.

VX 147, our small molecule inhibitor, specifically targets this APOL protein and in so doing targets the underlying cause of APOL1-mediated kidney disease.

In the phase two, single arm study of 16 patients with APOL1- mediated FSGS, VX 147 demonstrated unprecedented reduction in proteinuria, a marker of kidney damage. And was generally well tolerated. Importantly, the 47.6% mean reduction in proteinuria was on top of standard of care.

These phase two results propelled the advancement of VX 147 into pivotal development. Our next step is an end of phase two meeting with the FDA and our goal is to initiate pivotal development targeting the broad MAKD population of approximately 100000 patients, including but not limited to those with APOL1-mediated FSG.

Later this quarter.

Turning to type one diabetes and VX 880.

Type one diabetes results from autoimmune destruction of pancreatic islet cells and we have known for some time that whole pancreas of cataract islet cell transplantation can be curative. The challenge has been quality and quantity of donor tissue.

We believe we've overcome this challenge. We are the only company that has shown we can make allogeneic stem cell-derived fully differentiated insulin-producing islet cells and make them at industrial scale. Our goal with our type one diabetes program is to develop a functional cure for this disease.

Including for the more than 2.5 million people living with type one diabetes in the US and Europe. We shared day 150 results approximately two weeks ago from the first patient treated with VX 880. This patient had severe longstanding type one diabetes and prior treatment with VX 880 had.

Difficulty controls sugar level and multiple severe hypoglycemic events with no detectable endogenous insulin as measured by C peptide.

He had a hemoglobin a one C of 8.6% and was taking 34 units of exaggerates insulin daily.

The results from this first patient treated with half the targeted dose of VX 880 are remarkable.

Fasting C peptide a measure of endogenous insulin production is now over 400 Picomolar. Hemoglobin, A 1 C is down to 6.7%.

And the patient is on minimal exogenous insulin.

VX 880 was generally well tolerated and the patient remains we have symptomatic hypoglycaemic events since the perioperative period.

I mentioned at the JPMorgan Conference earlier, this month and it bears repeating why these results are so foundational.

Achieving durable results in type one diabetes requires two things. High quality insulin-producing alfalfa, we have that. And the method to protect these cells from the immune system.

We can address the immune response in several different ways. Today with VX 880, we're combining the stem cell eyelets with standard immunosuppression in the phase one two study.

We can shield the same stem cell eyelets with an immunoprotective device in this approach immunosuppressive would not be needed. This approach is a 90, enabling studies and we expect to file the IND later this year with clinical trials, beginning thereafter. And in earlier stages, we're using gene-editing technology.

To make so-called hyper immune pancreatic islet, yet another approach that eliminates the need for immunosuppressive.

The VX 880 phase one two clinical trials up and running at multiple sites. The trial continues to enroll and dose patients.

We anticipate sharing data from more patients and longer duration of follow up this year.

I'll conclude the pipeline overview with VX 548, a novel selective inhibitor of Nap 1.8, which is in clinical proof of concept studies for acute pain.

Two proof of concept studies in acute pain were initiated in the second half of 2021. One in patients following abdominoplasty surgery and one in patients following bunionectomy.

These studies are dose-ranging placebo-controlled studies and both include an opioid reference arm.

The abdominal plastic study has now completed enrollment and dosing and the Bunionectomy study will complete in the coming weeks.

We anticipate having results from both studies this quarter and announcing both results together.

With that, I'll turn it over to Stuart.

Thanks, [inaudible]. I am pleased to review tonight our continued strong commercial performance.

Our CF business performed exceptionally well in the fourth quarter and for the full year in 2021.

Our Q4 global revenues were $2.07 billion.

Full year revenues were $7.6 billion, an increase of 22% over 2020..

US CF product revenues grew 10% to $5.3 billion in 2021.

Driven mainly by the launch of TRIKAFTA in the six to 11-year-old patient population following its approval last June.

Our product revenues outside the US increased 66% over 2020, to $2.3 billion.

We signed more than 15 new reimbursement agreements in 2021 and following these agreements we have seen strong uptake of [Kaftrio] and TRIKAFTA matching the launch dynamics in the US.

Looking to the future in 2022 and for the next several years. We expect significant continued revenue growth as there are more than 25000 patients remaining who are addressable with our CFT0 modulators, but who are not yet treated.

These patients fall into three categories.

Patients who have not yet initiated treatment largely in countries, where we are recently reimbursed and therefore early in the launch curve.

This includes countries, such as Canada, Spain, and the Netherlands.

Patients in geographies where we are not yet reimbursed such as Australia.

And finally, younger patients who will be addressed through ongoing label expansions.

We continue to make progress in addressing younger and younger patients.

As example we secured approval for Kaftrio in six to 11-year-old patients in Europe, and the UK just a few weeks ago.

And our submission for approval of TRIKAFTA in these younger patients who is also currently under review in Canada.

And in 2022, we plan to file for approval for ORKAMBI in patients 12 to 24 months of age in the US and Europe. Based on the recently completed phase III study.

In addition, with our mRNA programming IND enabling studies, we are making real progress in developing a medicine for the additional 5000 plus patients that we cannot address with our current CFTR medicines, but who are potentially addressable with the successful development of an mRNA therapy.

The recent long term and real-world data as discussed by [inaudible] in her prepared remarks have significantly strengthened our competitive position and highlight the benefits of our medicines for CF patients.

For a genetic disease like CF, where patients stop medicines at an early age and take them chronically over their lifetime long-term and real-world data like these are incredibly important to patients and physicians.

They take many years and thousands of patients to generate and set a very high bar for any future therapy to meet. I would now like to provide a commercial perspective on two programs that are in or entering pivotal development that highlight our future diversification beyond cystic fibrosis.

I'll start with CTX 001. A CRISPR Cas nine based gene editing therapy for hemoglobinopathies, which we plan to file for regulatory approval before the end of this year.

In terms of market opportunity, we see tremendous potential for CTX 001.

We estimate that there are more than 150000 patients in the US and Europe, who have beta-thalassemia or sickle cell disease.

Approximately 32,000 of whom have severe disease.

25,000 of these are patients with severe sickle cell disease and the vast majority of these are in the US.

Published physician surveys in the US consistently indicate that they expect a quarter to a third of the sickle cell disease patients would be good candidates for a one-time curative approach using the car T cell phone-based conditioning regimen, which is in line with our own estimates of the numbers of severe patients.

With global regulatory submissions planned for CTX001e towards the end of this year, our launch preparation activities are well underway, including building our market access patient support and health care professional facing teams as well as finalizing our manufacturing and supply chain network.

Finally, as [inaudible] noted, we plan to advance VX 147 to pivotal development this quarter. So I would like to comment on the opportunity we see in APOL1-mediated kidney disease or AMKD.

In the phase two study, we enrolled patients with two APOL1 mutations who had focal segmental glomerular sclerosis FSGS as demonstrated by biopsy.

This was an ideal population to test the clinical hypothesis of APOL1 inhibition.

There are approximately 10000 patients with APOL1-mediated FSGS.

However, we estimate that the population of people with two APOL1 mutations and kidney disease, primarily driven by APOL1 is much larger approximately 100,000 patients.

This is the initial target population that we will seek to address with VX 147, and so this represents a multibillion-dollar opportunity.

[inaudible] diagnosis and Gina typing of patients with a M. K D are all low so in parallel with the planned progression of VX 147 to pivotal development in '22, we expect to begin increasing awareness of Apol1-mediated kidney disease with treating physicians with a focus on the importance of genotype.

I'll close by noting that we are about to celebrate the 10th anniversary of the approval of our first CF medicine Kalydeco.

It has been an extraordinary 10 years as we have developed and launched not only Kalydeco, but three additional transformative medicines to address the underlying cause of disease for CF patients.

I'm excited for the opportunity in 2022 to bring trikafta katrio to even more patients around the globe.

And the potential to commercialize multiple potentially transformative therapies outside of CF in the near future, starting with sickle cell disease and beta-thalassemia.

I will now turn it over to Charlie.

Thanks, Stuart.

In the fourth quarter of 2021 Vertex continued to demonstrate very strong financial performance. Fourth-quarter total product revenues were 2.07 billion, a 27% increase compared to Q4 of 2020.

I would note that it is typical for channel inventory to fluctuate from quarter to quarter.

And in Q4, 2021 revenues benefited from moderately higher channel inventory.

We expect these inventory levels to normalize in Q1 of 2022.

Our full-year revenues of 7.6 billion represent an increase of 22% compared to 2020 revenues of $6.2 billion.

2021 revenue growth was driven by strong international uptake of katrio and 6 to 11 uptake of Trikafta in the US and with full-year sales of 5.7 billion.

Trikafta Kaftrio now represents 75% of total company revenues.

Other notable milestones are that the US CF product sales exceeded 5 billion for the first time in ex U S CA product sales exceeded 2 billion for the first time.

Our fourth quarter 2021 combined R&D and SG&A expenses were $703 million compared to $539 million for 2020 and our full-year expenses were 2.33 billion compared to 1.98 billion in 2020.

Increased expenses were driven by investment in our research pipeline.

Advancement of multiple mid and late stage clinical programs.

Incremental costs for our growing CF business and investments in pre-commercial activities for CTX 001.

Our continued revenue growth combined with disciplined spending resulted in a 2021 operating margin of 57% and non-GAAP operating income of 4.34 billion, an increase of 24% compared to 2020.

Our non-GAAP tax rate for 2021 came in at 21%.

With continued revenue growth and profitability, we finished 2021 with 7.5 billion in cash. And consistent with our corporate strategy, our top priority for capital deployment is reinvestment in innovation, both internally in our R&D programs and externally with business development aligned to our R&D strategy.

We have invested approximately 3 billion in collaborations and acquisitions since 2019.

Additionally, we have made more than 2 billion in share repurchases to offset dilution over that same timeframe.

Now to guidance.

Our 2021 performance reflected strong uptake for Trikafta in the US and for Kaftrio in multiple countries around the world.

For 2022, we project that we will achieve total product revenues of 8.4 to 8.6 billion.

At the midpoint, that's an increase of nearly 1 billion or 12% growth over 2021.

I'd like to remind you as is our practice this guidance reflects our expectations for approved products in countries, where we have already secured reimbursement.

For non-GAAP Opex, we are guiding to a range of 2.7 to 2.75 billion.

Consistent with our innovation strategy, we expect to continue to allocate greater than 70% of our opex to R&D with year over year growth largely driven by investment in our pipeline in order to advance key programs through mid and late-stage development.

Finally, we expect our non-GAAP tax rate for 2022 to be in the range of 21% to 22%.

In closing, 2021 was a very important and successful year for the company.

We significantly expanded our leadership position in CF by treating more patients, generating key long-term and real-world data.

Advancing the next in-class CATR modulator program into phase III and continuing to innovate for all CF patients.

We also accelerated our R&D pipeline in 2021 and obtained key data readouts across multiple programs in multiple modalities.

We further strengthened our financial position, enabling continued investment in internal and external innovation, while delivering industry-leading operating margins. Most importantly, these advances set the foundation, which positions us for multiple milestones and significant value creation in 2022 and beyond.

We look forward to updating you as we progress through the year, let's now open the call to questions.

Certainly and first, I'd like to hand the program over to Michael Partridge, Senior Vice President of Investor Relations.

Thanks, operator, I would just want to note to everybody before we start the Q&A that our conference from audio is cut out were all on our cellphones and we'd like to proceed with the Q&A. So please bear with us. Thank you.

Thank you.

If you'd like to ask a question at this time, please press star then one. Our first question comes from the line of Michael Yee from Jefferies. Your question, please.

Hey, guys. Thank you for the question and congrats on a great year-end.

We had a question on APOL1. I know that you are.

Certainly meeting with FDA soon in and trying to start a pivotal study. So you must have some thoughts around both the design, the endpoints and what you expect out of the FDA and what you plan to do. Maybe you could give some color on that both on primary and key secondary end points, you would expect to be in agreement with FDA. Thank you.

Sure. Hey, Michael. Thanks very much for the question and for the kind words for the year. With regard to the VX 147 program. The important point here to discuss is that in phase two what we did with study APOL1-mediated FSGS

Which is one kind of APOL1-mediated kidney disease.

APOL1-mediated kidney disease as a whole that's to say where patients have 2 APOL1 [allele.]

And kidney disease driven by those two allele. That overall population is 100,000 patients in Europe and the US. The FSGS population that we studied is about 10,000 patients. So why did we do that? This was a very deliberate decision because the FSGS group are a

Very severe group of patients with heavy proteinuria rapid progression to end-stage renal disease and no available therapy.

Reasoning that if we could have impact in those patients.

Then we could go forward into phase three with confidence that we would be able to impact the broad AMKD population. The results from our phase II study are and I don't use this word.

Loosely. They are unprecedented. 47.6% reduction in proteinuria on top of standard of care in an APOL1 driven FSGS population is.

An impressive result.

With regard to the study design for the next stage. We are as you rightfully point out, Michael, we are going to have our end of phase two meeting with the FDA in the near term that is just something we haven't done yet although we have had the benefit of conversations with the agency.

The important parameters I'll put on the table are the following proteinuria, which is what we measured in phase II data as a measure of kidney damage, it's an important endpoint in and of itself.

The community and the agency have had discussions over the last many years about that endpoint being a potential regulatory enabling endpoint for accelerated approval in homogenous proteinuria kidney diseases. So that's just one point to mention. The second point is what would be endpoints be we're talking about proteinuria and certainly the hard endpoint would be time to ESRD.

<unk> about proteinuria and certainly the hard endpoint would be time to ESR D.

A decrease in the GFR slope and death, it's usually a composite end point for the hard end point. So that's really what we're looking at we are very excited about the program. We are looking to have our end of phase two meeting with the FDA in the near term and we're looking to start a pivotal development towards the end of this quarter.

I hope that's helpful.

Thank you.

Yeah.

Thank you. Our next question comes in line of [inaudible] from Cowen and company. Your question, please.

Good afternoon. Thanks for taking our question, maybe just a follow up to Michaels in terms of the specific endpoint you just mentioned proteinuria than the composite endpoint of more clinical results.

In the recent past, it seems like the rehab division of the FDA has been shying away from surrogate markers and focusing

Companies on the more clinical endpoints. So could you talk a bit more about your optimism for maybe you can proteinuria as the primary endpoint?

Would you actually seek an SPA if if you get.

An agreement on that endpoint to try to lock the FDA and maybe how likely is it that you actually have to do a clinical endpoint-based trial.

If so, how long of a study with that would that end up being? Thanks.

Yeah. Hey, Phil.

Thanks for the follow up question there, okay, so with regard to what.

What is the likelihood of proteinuria being the endpoint and such? We have to simply have our end of phase two meeting and we're going to know that soon enough. So no need to speculate the end of phase two meeting is going to happen in the near term and we will know what I can tell you is that

The agency has been open for many years now.

For proteinuria to be an acceptable surrogate for accelerated approval in homogeneous kidney diseases. And when I say that inherent in that statement is and then of course you'd have to do the continuation of the trial to get to the heart outcome.

So those are the conversations we're going to enter into. Obviously, and I think you know this but I'll mention that just in case. The degree of proteinuria is really important because, one, not only could proteinuria b a potential accelerated endpoint, but two, the degree of proteinuria is.

Directly related to the heart outcome. So when you see an improvement in proteinuria of almost 50% it bodes well for many reasons.

Thank you. Our next question comes from the line of Alicia Yap from Cantor. Your question, please.

Hey, guys. Thanks for taking my question. I just wanted to shift a little bit sickle cell and I know, obviously, you guys are heading towards kind of a submission hopefully, but can you talk a little bit about where you stand on conditioning regimens and some of the work that you may be doing going forward to kind of maybe make them kind of less onerous for patients with sickle cell.

Yeah, great question.

Let me just step one step back and make sure everyone is tracking with you on where we are with the CTX 001 program today, and then where we're going with conditioning regimens that we're looking to improve. Okay. So where are we today? Across the sickle cell and beta-thalassemia programs, we have completed enrollment.

The initial target was 45 patients in each program. Each of the studies was oversubscribed and we have more patients than that and we have completed enrollment we have dosed more than 70 patients and we are looking as I said in my prepared remarks towards a filing.

Towards the end of this year.

This program is with B cell fan based single-agent Milo Ablative therapy, and we think that that regimen with the benefit-risk that it provides would be applicable to about 32000 people in the US and Europe with sickle cell and beta Thal 25000 of those would be sickle cell patients.

And the majority of those in the US.

But to unlock the full potential which is I would say about 150,000 patients in the US and Europe, we do see.

A gentler conditioning regimens being key to that.

We have programs internally at Vertex, we have recruited a world where now team in our what we call VCGT Vertex cell and gene therapies division, we are partners at CRISPR also have programs in improved conditioning as do a number of other academic and

other biotech companies. I will tell you that I think that this is a problem that will be solved and I say that for two reasons. One, we have line of sight onto the biology, we understand the cell surface markers and a ligand that we could use to pursue the cell types that we are trying to deplete selectively.

And two because this kind of approach. This gentler conditioning regimen would have applicable 80 beyond sickle cell and beta thal in oncology and so I do think that this is a problem that is going to be solved.

Thank you.

Our next question comes from the line of Geoff Meacham from Bank of America. Your question, please.

Hey, guys. Thanks, so much for the question.

I have a couple of also on the on CTX 001.

The first one as you know from a regulatory perspective, what would you highlight rationale that regulators you may need to see? Is it stuff like you know a number of patients, medium follow up or is it you know better clarity on things like manufacturing scale up?

And then on the commercial front.

I'm just trying to think of you know the arguments you can make with a curative approach in the cost savings you can make. So is there an evaluation ongoing on treatment costs that you're doing maybe in parallel?

Support reimbursement and things along those lines. Thank you.

Yeah, sure thing, Jeff.

Jeff, I'm going to start and then I'll turn it over to Stuart to tell you a little bit about how we see the burden of this disease.

With regard to the regulatory next steps.

The most important thing to share with you is that we are the beneficiaries of almost every regulatory designation you could imagine on both sides of the pond, Prime [inaudible], which is the selling genes for breakthrough designation. So we've had the benefit of having.

Discussions with the regulators over time. You are right about the two outstanding items, it's about the number of patients and the duration of follow up.

With regard to your question on manufacturing.

You know in the grand scheme of things, Jeff. This is an easier manufacturing approach. I don't mean to suggest it's easy but it is easier because it's an ex vivo approach.

And it requires just a cast nine enzyme and the guide RNA. Our partners at CRISPR are very thoughtful and from the start, we planned for the manufacturing that we're using in clinical trials to be the same process that we use in our commercial program and not only that it's also.

The same sites, the same exact sites that we are using to manufacture in our clinical trials program or the same sites that we expect to use when we commercialize.

So that all is proceeding to plan.

I'm going to ask Stuart to comment on the burden of disease and how we see that. Stuart. Yeah, Jeff. So you asked a great question. These are obviously, lifetime conditions and have a significant clinical but also economic burden on patients and on the health care system. There are some published data on this topic.

They're not terribly up to date many of them. So as you might expect we are working to develop updated estimates of the economic impact of sickle cell and beta-thalassemia.

It is very very significant. It's obviously impacted by things like in sickle cell disease, the cost of the [vaso] occlusive crises, particularly if they lead to hospitalizations and the other medications that patients take.

In thalassemia, it's obviously the burden of transfusions and then also some of the additional care that patients can require because of the transfusion such as iron chelation and other supportive care. So we are working to generate updated estimates of the economic and indeed, social burden are all sickle cell disease.

thalassemia, and that'll be an important part of the context to demonstrating the cost-effectiveness of a one-time curative therapy like CTX001.

Great. Thank you guys.

Thank you. Our next question comes from the line of Brian Abrahams from RBC capital markets. Your question, please.

Hey, guys.

Good evening. Thanks for taking my question and congratulations on the quarter and the year.

You've obviously shown very promising data from the first patient with the VX 880 for diabetes, and I guess I'm curious how consistent should we expect the effects to be patient to patient with this type of approach? How are you feeling overall about the safety profile as you've continued to enroll patients? and what your aim as you move through.

from half to full doses? Would it be generating a more rapid response and even more rapid response than you've seen? Or potentially moving towards complete normalization of some of the key parameters. Thanks.

Yeah. Hey, great questions. There's a number of questions in there and I think if I try to wrap up what you are foundational he asking is.

How do we see this program progressing and what should you expect when we get to full dose because the one patient data that we shared at half dose are really pretty impressive. Okay.

As you know, Brian the really important part of these data and the reason we shared the data from the first patient are threefold one it was at half.

Dose, yet the results whether you look at the endogenous C peptide levels and remember this patient has 30 years of diabetes and made no endogenous.

Insulin. That result was pretty impressive. The second is hemoglobin, a one C and the really significant decline in insulin was what made us share those results. It has not been resolved like that have simply not been seen in this field.

With regard to consistency, what we are aiming for here.

Is a functional cure for this disease. So we are expecting patients to consistently have elevations in C peptide, decreases and hemoglobin, A1 C and improvements if not elimination of exogenous insulin.

With regard to the safety profile, I'm only going to comment on the data that we've already shared and as I said, the therapy was well tolerated in my prepared remarks. And importantly, because as you think about hemoglobin a one fees decreasing you have to think about.

The patient not suffering from low glucose levels and that didn't happen. This patient has been free of severe hypoglycemic episodes since the periodic operative period. So as we look forward what are we looking to the studies up and running in multiple sites we are looking.

To enroll more patients, dose more patients and the reason we are looking to go to full dose is because we are going for a curative approach and when you look at the history and the experience of [inaudible] transplants, the quality and quantity of cells are very related to.

The durability of the response.

That's helpful. Thanks very much.

Yeah.

Thank you. Our next question comes from the line of [inaudible] Richter from Goldman Sachs. Your question, please.

Good afternoon. Thank you for taking my question.

As the bar here for the two phase two acute pain programs that are reading out this quarter in terms of moving forward? And then separately, could you speak to your capital allocation plans?

Yeah sure. Thanks, [Avi.]

Let's take the [pain] studies first.

Pain studies first.

We are in two acute pain studies, one in abdominoplasty, a model of soft tissue pain and one in banging neck to me, which is seen as a model for pain in a quote-unquote hard tissue.

Both studies are very similarly designed. They are dose-ranging studies with a placebo control arm and an opioid reference group.

What we're really looking for here is therapeutically pain relief.

Without the side effects of opioids. And obviously, the most important one of that is the addictive potential. I don't have to tell you about the opioid epidemic raging in the US and we have very high confidence in VX 548 rate on the safety side and a lack of addictive potential.

Because there is simply no receptors for NAV 1.8 in the central nervous system. On the efficacy side. We go into this with confidence for three reasons. One, this is a genetically validated target. Two, this is also a pharmacologically validated target with our own VX 150 data that you'll remember.

Had positive proof of concept across acute neuropathic and let's call it a musculoskeletal pain.

And three. This this particular molecule VX 548 amongst other properties is also multi fold more potent so that's really what we're expecting and that's how we are looking at the five for a program.

With regard to capital allocation, we've been very consistent as we've talked about our capital allocation strategy that we believe that the greatest value we can create is by investing our capital in innovation, both internal and external.

We've never invested more than we are today and internal innovation and you see the results of that with VX 147.

With the phase II results and its progress into pivotal development with the two-phase II studies we just spoke about and the pain program. Not to mention the VX one to 1561 test a captive program in CF in phase III. And you'll also see it with our investments that we've made in business development with the semi acquisition.

And the Ah.

And the really terrific results, albeit early from the VX 880 program. And going forward, what you can expect is the same. Our strategy is working and we expect that we will continue to invest in both internal and external innovation.

Thank you.

Thank you. Our next question comes from the line of Colin Bristow from UBS. Your question, please.

Hey, good afternoon, and congrats on the quarter and stone twenty-two guides.

Not to beat a dead horse, but we're obviously getting closer to our competitors CF [triplet] readout.

Plug a dead horse, but we're obviously getting closer to our competitors.

That readout.

I'd love you to remind us specifically what is it that gives you comfort around the level of competitive threat or the lack of. And then just a quick one on your type one diabetes [inaudible].

When the encapsulation device, you said you guys become fibrosis and vascularization issue.

Is there a a drug eluting component to this device? Thanks.

Yeah. Thanks very much for the kind words and for the questions lets to type one diabetes first and then we'll go back and do CF landscape alright.

Thanks, very much Anne.

Words and for the questions lets to type one diabetes first and then we'll go back and do CF landscape alright.

We talked a little bit about the results on patient number one and the progress to full dose and why we're doing that and what our real goal isn't to restate that we're looking to bring a functional cure forward for this disease.

The other reason those results in that first patient is so important is because those same cells, exactly those same cells are the cells that are in the self plus device program.

And that cells plus device program is now in its R&D, enabling studies phase and we do expect to file that IND this year.

I will keep my comments about the encapsulation at a high level, but what I can tell you is that the device has been pipe specifically configured.

To allow vascularization and exchange of oxygen and nutrients.

To allow insulin to go back and forth and for it to sense glucose, but to keep the immune system out.

I'll also tell you that it's not just the materials, but it's the geometry.

And our studies to date, including in large animal models tell us that we've overcome the historic complications with foreign body response in the lack of the ability to properly.

Properly oxygenate and provide nutrients to the cells.

With regard to the CF landscape and we've talked about it before. But I'll remind that as you look at the CF landscape today. The bottom line is that trikafta has simply set a very high bar.

More patients around the globe are treated with a vertex CF TR modulator today than ever before and the vast majority of that is with Trikafta.

Trikafta's clinical trial data are remarkable, you remember the [PPFEV 1] of 14% from the clinical trial results.

But it's not just the acute changes in lung function.

As I shared in my prepared remarks. Trikafta now has long term data from the 96 week follow up study from the pivotal trials. And what it shows is no decline in mean lung function over time, the first frightening see FTR modulator and now we also have data real-world data from there.

In the CF registry. And that shows improvements in really important measures like transplantation, pulmonary exacerbation and death.

And so you put this all together and what you really have is if there is any medicine.

That will compete with Trikafta, it'd have to go head to head against Trikafta in clinical trials, that's exactly what we're doing with 121, 561 [inaudible]. It has to have improved benefit and you have to have the long term data. The only company that has that is Vertex.

And the most advanced competitor to Trikafta is our own 121 561 tezacaftor which is already in phase III studies.

That's great. Thank you.

Thank you. Our next question comes from the line of Robyn [inaudible] with Truist Securities. Your question, please.

<unk> Securities Your question please.

Hi, guys. Thanks for taking the question so real quick ones. So just for [inaudible], does that new molecule had the ability to work in neuropathic pain? And does that you didn't do a trial this time with that molecule. And then on type one diabetes program.

There's going to be some patient data coming out of Viasat and CRISPR with an edited.

Embryonic.

The stem cell program that they have.

I was just curious like when we see that data, how do you see that as a REIT, so whether or not.

You're editing program will work with that and the problem I know what that are less differentiated program potentially then first [inaudible].

And so just trying to understand the read that we should expect or how you're looking at that data when it comes out to the potential for using an edited version without immune suppression for your program.

Yeah. Really great questions Robin, let me take the neuropathic pain question first with 548.

Really great questions Robin, let me take the neuropathic pain a question first with.

And then let's do a type one diabetes, okay.

The NAV 1.8 axis.

As I described earlier, it is an exciting one, it's an exciting target for us because of the genetic validation, but also because of the pharmacologic validation with VX 150, which had positive results not only in acute but also in neuropathic pain. So yes, I do expect VX 548 has potential in neuropathic pain.

Unlike acute pain, which.

As the name implies, is a short-lived pain syndrome. Neuropathic pain is a chronic disease states. That are kind of preclinical data and the work that we need to do in the package we need to put together is different and that's what we're doing right now, but I do expect that the NAV 1.8 axis and that target will be important.

In neuropathic pain. And I point you to the NAV 150 results as the clearest reason to believe.

With regard to the question around potentially getting to a point of having fully differentiated allogeneic.

Question around put.

Potentially getting to a point of having.

Fully differentiated allogeneic.

Insulin-producing pancreatic islet cells that could be edited to evade the immune system.

Here's the most important thing.

You have to have the cells, it's not actually about the editing. It's not actually about the device, it's not actually about the off the shelf immunosuppressive. Those are three different ways to protect the cells from the immune system.

But it's actually about the cells and the only company that has these allogeneic fully differentiated pancreatic islet cells that make insulin.

And can make these cells in industrial quantities is Vertex and we're working on multiple approaches to protect these cells from the immune system. VX 180 uses the off the shelf immuno suppresses.

We call it VX264. That's the cells plus device program that uses a device to protect.

The cells from the immune system and then of course, we have our.

Program to edit the cells, but the key is the cells.

Thank you. Our next question comes from the line of Mohit Bansal from Wells Fargo. Your question, please.

Great. Thanks for taking my question and my congratulations as well.

Maybe another one on VX 147.

How well understood is the homogeneous nature of APOL1-mediated kidney diseases with proteinuria [inaudible]? I'm asking it because genetic testing is largely performing these patient so trying to understand if there is a lack of data that could be a gating factor for the FDA.

From making the leap from FSGS to a broader.

APOL1-mediated kidney diseases.

Yeah. Thanks so much. So let me tell you a little bit about the background of APOL1-mediated kidney disease. And I think it will help you understand where we are and what it means for the future and you're right about the fact that testing is low and that we need to do more.

Thanks, so much.

So.

Let me tell you a little bit about the the background of our April one mediated kidney disease and I think it will help you understand where we are and what it means for the future and Youre right about the fact that testing is low and that we need to do more.

In order to get patients tested. But as you also know, when we have a disease.

Patients tested but as you also know when we have a disease.

For which we have no therapy to offer patients, which is the case today with APOL1-mediated kidney disease. The motivation for patients and physicians understandably is not high to get a genetic diagnosis for something we can do.

Nothing to be helpful. Okay. So the APOL1 story.

It is a very recent story, it's only about a decade, 12 years old that we have actually come to understand that the large amount of kidney disease proteinuria kidney disease that we previously didn't understand in patients.

Of African origins is APOL1-mediated kidney disease. This is only something we've figured out in the last 10 to 12 years.

Origin is April well, one mediated kidney disease. This is only something we've figured out in the last 10 to 12 years.

The homogeneity of the disease is clear and I would even say obvious and I say that because it's found in people who have kidney disease.

Found in people, who have kidney disease.

With proteinuria and two APOL1 allele. That's how you define this group and the underlying thread, therefore, is having two APOL1 allele.

There have been studies done in Ah patients who have proteinuria.

And have to April one allele versus not and when you have two April one o'neill's your outcomes are uniformly worse, you progress to kidney disease faster. That's the homogeneity now are.

The question you also ask is is this well known as this well understood because the our understanding of the genetics itself is fairly recent there was a education effort and that is part of what we're doing we ourselves are working on a.

503 C a diagnostic to accompany.

The X 147, and we're working with patients and physicians to ensure that a diagnosis.

Is supported.

Super helpful. Thank you rich.

Sure.

Thank you. Our next question comes from the line of Evan <unk> from BMO capital markets. Your question. Please.

Hi, all thank you so much for taking my question one for your restaurant. So from your view with the Nephrologist, how important egfr as a measure of kidney disease progression. This change in proteinuria compared to the same measurement in your view.

Yeah, It's a really great question Evan.

The the the thing I would share with you that's top most on my mind as a if I were my nephrology hat is that the.

Hope that VX 147 offers.

Is.

It's something that is truly <unk>.

<unk> novel.

And a big deal a big deal in the renal community.

The reason I say that is that this is one of the few.

Genetically defined kidney diseases that we understand.

And it is one of the first if not the first.

Precision medicine approach to a genetically driven kidney disease, where we're targeting the underlying cause of the kidney disease.

There is the relationship between proteinuria and Egfr. So GFR is simply a measure of kidney function right just like a P. P. F E V. One, which we're all very familiar with as a measure of lung function.

And the the relationship is this proteinuria measures kidney damage. It tells you that.

Protein, which is supposed to stay on one side of the membrane is leaking out into the urine when you have that.

And it progresses. The next step is decreases in GFR measure a function of the kidney and unfortunately, the next steps after that or.

<unk> declined leading to either transplantation dialysis or death.

So these are very related measures I think they are individually important and collectively very telling about the course of a patient.

But maybe clinically speaking what I would say is when you see a patient who is a partner of kidney disease. What are we trying to do in the clinic. We are trying to reduce proteinuria because there is a clear correlation between proteinuria and the hard outcomes of transplantation dialysis and death.

Perfect. Thank you so much.

Operator, we'll take two more questions.

Certainly our next question comes to line of <unk> Singh from Oppenheimer. Your question. Please.

Oh, great. Thank you for the questions and the really nice report.

Allow us toward a question here and I tried to give you just a quick break.

Oh, Stuart cystic fibrosis, Youre doing you'll do close to $9 billion by the end of this year and cystic fibrosis.

Penetrate about two thirds and represent a population by then.

Think about where you can get to.

Can you get to 90% plus penetration you would go see ftr's aside from the approach with Makena.

And then just quickly I'm, assuming you get approval of course, he clicks ltvs in beta thalassemia how.

How do you see an uptick I mean would there be a warehousing in the beginning.

Would there not be would be uptake peaceful and study just any color. There. Thank you for the question.

Okay, great. Thank you so yeah, our guidance for 'twenty 'twenty. Two is 8.4 to $8 6 billion as Charlie said in his prepared remarks and that is a reflection of the momentum we have coming into 2022 from 'twenty to 'twenty, one where we.

Launched six to 11 and try catheter in the U S. And also secured numerous reimbursement agreements outside of the U S. So our guidance incorporates that momentum and countries, where we already have reimbursement agreements as you said, though we still have a lot of the CF population, who could potentially benefit must see FTR modulator, who are.

Not yet being treated.

Somewhere north of 25000, and we have a lot of confidence that we're going to get to the vast majority of those patients because they are in sort of three categories that we've demonstrated that we can address the first one is.

Patients who are in countries, where we have reimbursement agreements.

Patients haven't been initiated and that's largely because we're early in the launch curve. So think of countries like the Netherlands, and Spain. The second category is countries, where we have regulatory approval, but don't yet have reimbursement.

So I think countries like Australia, and the third category is younger patient groups, where we've demonstrated with Kalydeco and ORKAMBI.

But we can develop our products down into younger and younger age ranges and as I said try CAFTA is now approved for six to 11 here in the U S. Very recently cafeteria was approved for six to 11 year old patients in both the EU and the U K and we're continuing to look at developing it for even younger patient groups. So we have a lot of confidence.

That we're going to be able to get to the vast majority of those 25000 patients over the next few years and that's going to drive significant revenue growth for several years to come and then as you mentioned in addition to that there's an additional 5000 plus patients who aren't going to be able to respond to see FTR modulators, because they produce no protein.

And those are the patients we're seeking to address with our mrna therapy and as Rajeev said in her prepared remarks, we've made good progress with that so we have a lot of confidence as a lot of growth left in our CF franchise over the next several years in terms of the sickle cell and in transfusion develop that Marcellus EMEA patient populations again, we see a very significant.

Opportunity there as Russ mentioned, approximately 32000 patients who have severe disease between the U S and the EU.

So we see a significant multibillion dollar opportunity just treating those severe patients.

Obviously this is a different type of condition. This is a different therapy and so I wouldn't be thinking of an uptake curve like we've seen in C. F. It's not going to be anywhere.

Dramatic as that but certainly in that severe sickle cell and thalassemia populations, we see a multibillion dollar opportunity ahead of us.

Great. Thanks.

Thank you then our final question for today comes from the lineup to Chuck.

But they are from Guggenheim Securities. Your question. Please.

Hey, good afternoon. Thank you I wanted to go back to VX 147, but a three part question.

So number one has the agency signaled a threshold for proteinuria reduction.

Celebrated approval.

Number two if I understood. Your prior comments the hot end points will be collected in the same study and will convert the subpart H to a full approval.

And number three does the broader higher escape will one proteinuria kidney disease population.

Is this also a double hit to disease and do they progressed to ESR D. At the same speed of S. G. S. Thank you.

Yeah.

Subject you ask we are important and related questions to.

The 147 program in a M. K D. So let me try to answer them in this way.

When we talk about the 147 program and targeting our pivotal development. So that we can address the 100000 people with two April one allele and proteinuria kidney disease. These people already have kidney disease. These are not people at risk for kidney disease. So.

The double hit hypothesis is that it's a good point that's for at risk to develop disease. These people we are talking about already have disease.

The second question is a related question Ram proteinuria its potential use as a surrogate endpoint for accelerated approval and then how you do these studies in terms of the hard endpoint as I said before we simply haven't had our end of phase II meeting.

We'll have it soon enough and then I can share details of the program with you, but generally speaking the way that studies are down when Kurt Noria is the endpoint for accelerated approval is in the same study. The study continues and you go on to the composite.

<unk> of change in GFR.

Time to ESR D or death, and that's how you collect that hard endpoint.

Got it. Thank you so much and congrats on the quarter on the guidance.

For the full year.

Okay. Thanks, so much.

Okay. Operator, thanks, very much we appreciate everybody joining us Tonight, the Investor Relations team in the office Tonight and happy to talk to you. If you have additional questions and you may now disconnect. Thank you very much.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

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