Vertex Pharmaceuticals Incorporated: Profit on the Horizon

Vertex Pharmaceuticals (VRTX 1.25%) released outstanding third-quarter earnings on Wednesday with sales of both cystic fibrosis drugs, Orkambi and Kalydeco, selling like hotcakes.

Vertex Pharmaceuticals results: The raw numbers

Source: Company press release.

What happened with Vertex Pharmaceuticals this quarter?

• In its first quarter on the market, Orkambi managed sales of over $130 million, creeping up quickly on the $166 million in sales of Kalydeco, which was approved in 2012. The potential market for Orkambi is much larger than Kalydeco because more cystic fibrosis patients have the mutation Orkambi is designed to treat.
• Management is now expecting 2015 Kalydeco revenue in the $605 million to $620 million range. No guidance was given on revenue for Orkambi, but that's to be expected since we're still in the initial launch phase.
• Sales of Kalydeco could increase further next year after the FDA reviews Vertex's application to expand Kalydeco's use in children as young as two. A decision from the agency is expected on or before Feb. 6, 2016.
• Vertex still lost money in the quarter, but that seems trivial given the sales trajectory of its two drugs. The company expects to be profitable in the fourth quarter.
• On the pipeline front, Vertex highlighted two next-generation cystic fibrosis drugs -- VX-152 and VX-440 -- that are both ready for the clinic, VX-970, which has phase 1 data that will be presented at a meeting in early November, a pain drug, VX-150, that will start a phase 2 trial by the end of the year, and VX-787, a flu drug which Johnson & Johnson (JNJ 0.29%) renamed JNJ-872. Johnson & Johnson licensed the drug from Vertex in June 2014 and was recently awarded funding of up to $131 million from the Biomedical Advanced Research and Development Authority to help develop the drug.

What management had to say
Jeff Leiden, Vertex's chairman and CEO, highlighted how fast Orkambi's ramp has been: "In July, Orkambi became the first FDA-approved medicine to treat the underlying cause of [cystic fibrosis] for the approximately 8,500 people in the U.S. 12 years and older with two copies of the F508del mutation, and as of Sept. 30, 2015, we already were treating more than 3,000 of these patients." The ramp-up is quite impressive, but don't expect the launch to necessarily be linear: 6,000 patients at the end of the current quarter seems highly unlikely. Coming close to doubling Orkambi sales, on the other hand, is theoretically possible, since some of those 3,000 patients started therapy at the end of the quarter and didn't contribute much to third-quarter sales.

Stuart Arbuckle, Vertex's chief commercial officer, said the company is ready to launch Orkambi in the EU: "Our EU commercial infrastructure is largely in place, and upon approval, we will then begin pricing and reimbursement discussions on a country-by-country basis to secure reimbursement for eligible patients who may benefit from Orkambi." But don't expect the same kind of quick ramp-up like we saw in the U.S. right after approval. "With Kalydeco, the completion of reimbursement discussions took 9 to 20 months following approval," Arbuckle said

And finally, a comment on the pipeline front about Vertex's new deal with CRISPR Therapeutics, in which Vertex paid the start-up a $105 million upfront payment, including a $30 million equity investment and $75 million in cash, to gain access to its CRISPR-Cas9 gene editing technology. "Gene editing represents a new and powerful technology platform that could represent a future paradigm shift in the treatment of [cystic fibrosis], as well as other genetic diseases," Leiden said.

Looking forward
It's hard not to get excited for Vertex's future. Orkambi is living up to expectations -- and then some -- and Kalydeco continues to grow, albeit slower than its initial launch.

With success comes the "what next" question, but Vertex has a solid pipeline and cash flow to fund deals like the one with CRISPR Therapeutics.