Vertex Pharmaceuticals Incorporated: Solid Sales, Prepping for Next Generation

Cystic fibrosis expert Vertex Pharmaceuticals (VRTX 0.10%) reported solid first-quarter earnings after the bell on Thursday and gave an update on its pipeline of next-generation drugs to treat the disease.

Vertex Pharmaceuticals results: The raw numbers

Data source: Vertex Pharmaceuticals.

What happened with Vertex Pharmaceuticals this quarter?

• Sales of top-selling Orkambi increased 32% year over year as doctors prescribe the drug for children ages 6 to 11 in the U.S. after the approval for that age bracket last year.
• In Europe, Vertex submitted its marketing application to treat children ages 6 to 11 with Orkambi in the first quarter, providing a future growth driver.
• Vertex's older drug Kalydeco, which treats patients with a rarer genetic change, saw a 9% year-over-year increase in sales, although more than half of that increase came from a one-time benefit mainly related to adjustments in international sales from previous quarters once a final decision on the price was reached.
• The increasing sales are flowing to Vertex's adjusted earnings line, which grew much faster than revenue. Adjusted earnings are the best way to compare quarters because this quarter had a large one-time gain from the $230 million upfront payment for out-licensing four oncology programs to Merck KGaA. That benefit shows up in the income from operations in the table above, which explains why income from operations was almost as much as its cystic fibrosis drug sales.
• On the pipeline front, Vetrex announced positive data from two phase 3 clinical trials testing the combination of tezacaftor and ivacaftor.

Image source: Getty Images.

What management had to say 

The tezacaftor and ivacaftor combination will eventually be used in combination with other drugs, but initially, it'll treat the same kinds of patients as Orkambi. Nevertheless, Stuart Arbuckle, Vertex's chief commercial officer and EVP, thinks the combination can produce higher sales than Orkabmi because of the reduced side effects:

As we know, there are a large number of patients wanting to be on the CFTR modulator like Orkambi but unfortunately weren't able to stay on the product often because of adverse events. We think that's going to a population of patients and their physicians who are likely to be very keen to try the lumacaftor/ivacaftor combination. We also know there's a number of patients who are naïve to therapy, have never tried Orkambi, and we think they also may think more favorably about the benefit-risk profile of tezacaftor/ivacaftor.

In addition to the triple combinations of tezacaftor and ivacaftor with VX-659, VX-445, or other molecules, Vertex is also working on potential triple combinations with a deuterated form of ivacaftor that Vertex recently acquired from Concert Pharmaceuticals (CNCE). As Vertex's chairman, CEO, and president, Jeffrey Leiden points out, the reason has to do with convenience. (For consistency, brand and code names used by Leiden were changed to their generic names.)

The good news there is that both VX-659 and VX-445 we believe are once-a-day regimens. We know that [tezacaftor] is a once-a-day regimen. [Ivacaftor] is a twice-a-day regimen, and so the impetus to acquire the deuterated [ivacaftor] from Concert was it's a once-a-day regimen, and we'd be able to combine it with [tezacaftor] and either 659 or 445 to get a once-a-day, highly tolerable and highly efficacious regimen.

Looking forward

Management increased guidance for Kalyedco sales and now believes they'll fall in the $710 million to $730 million range. Some of the increase is due to the one-time adjustments in the first quarter, but the demand for the drug appears slightly better than management thought when it first released guidance earlier this year.

Orkambi sales guidance remains the same, with expectations between $1.1 billion and $1.3 billion. Management appears to have decided not to raise guidance, even with the solid first-quarter growth, because the timing of securing reimbursement for the drug in Europe could have a larger effect on 2017 Orkambi sales than any changes in expectations for U.S. sales.

On the pipeline front, investors can look forward to data from three triple combinations of tezacaftor and ivacaftor with VX-152, VX-440, or VX-659 in the second half of this year. The combinations with VX-152 and VX-440 are phase 2 trials, so there may be some hints of efficacy in the data, although it certainly won't be enough to gain regulatory approval. Vertex plans to submit marketing applications for the double combination of tezacaftor and ivacaftor in the U.S. and EU in the third quarter, putting an approval sometime in 2018.