Vertex to see payoff at last for massive R&D splurge

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Vertex Pharmaceuticals’ future is Orkambi. With the FDA’s approval of the cystic fibrosis treatment yesterday, the Massachusetts-based group has unlocked a revenue stream that will lead to sustained profitability.

Nearly $4bn in R&D spending in the last five years has produced a disease-modifying treatment forecast to become the 11th biggest drug in the world by sales in 2020. With this level of investment it is no wonder that Vertex is keen to seek a return, setting a list price of more than a quarter-million dollars a year.

Given the unmet need and the proven benefit of Orkambi, its approval appeared to be more of a fait accompli than most decisions by the US regulator. On top of the fact that it has shown disease-modifying effect in a disabling disease that leads to premature death, it had vigorous support from the patient advocacy community and breakthrough therapy designation. It won support of an advisory committee on a 12-1 vote and before approval some analysts were giving it a rare 100% chance of success.

Thus there was a fairly subdued reaction yesterday when news broke of the approval during trading hours. Vertex shares ended the day 4% higher at $131.26.

Biggest target

Orkambi has been approved for cystic fibrosis patients with two copies of the F508del mutation, the largest group of patients representing 8,500 of the 30,000 people in the US affected by the disease. It is a combination of ivacaftor, the active ingredient in the marketed cystic fibrosis drug Kalydeco, and lumacaftor, a second agent. The latter increases the amount of mature cystic fibrosis transmembrane conductance regulatory protein at the cell surface to improve lung function, while the former enhances the function of the protein when it reaches the surface.

Kalydeco had been approved for a comparatively small population, the roughly 1,200 patients with one copy of the G551D mutation, although it has expanded modestly since then. That drug, priced at about $300,000 per patient per year, pulled in around $1bn in its first three years on the market.

Orkambi, on the other hand, should manage to go over the billion-dollar-a-year threshold in 2016, according to EvaluatePharma’s consensus.

In a conference call with analysts, Vertex executives said they had set a list price of $259,000 a year. Broadly, they expect a deeper rebate than Kalydeco’s 12-15% because a greater share of the population eligible for Orkambi is enrolled in the Medicaid programme for the poor and disabled. Orkambi's discount could be 35-40%.

The only limiting factor for Orkambi hitting greater sales totals in 2015 is sheer patient numbers. With Kalydeco the typical cystic fibrosis speciality centre had about three to four patients who fit the genetic profile, while with Orkambi the number is 30. Thus it will not reach peak sales numbers as quickly as Kalydeco did, according to Vertex executives.

What next? 

When it does trip over the blockbuster threshold, however, it will turn Vertex from a money-draining development company into a solid cash generator. With the exception of 2011, when Vertex’s hepatitis C drug Incivek was burning brightly on its balance sheet, it has failed to show a profit, in spite of booking some royalties from other antivirals.

Orkambi will pull in $5bn in sales in 2020, creating a good problem to have for Vertex – namely, how to spend its newfound cash. It has a decent pipeline of cystic fibrosis drugs along with a healthy R&D appetite, but given that it has just grabbed the biggest share of patients, follow-on agents can only hope to exceed Orkambi’s outlook if they can do better or address a broader population.

Thus the sector could see more deals like the recent collaboration with Parion Sciences for its work in cystic fibrosis. Vertex should have the capacity to execute them.

To contact the writer of this story email Jonathan Gardner in London at jonathang@epvantage.com or follow @ByJonGardner on Twitter

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