5 Ways Vertex Pharmaceuticals Plans to Grow in 2017 and Beyond

Last year wasn't so hot for Vertex Pharmaceuticals (VRTX 0.20%). The biotech's shares dropped 40%. However, Vertex CEO Jeff Leiden said on Monday at the J.P. Morgan Healthcare Conference that "business has never been stronger." He also emphasized that the company has a clear pathway to growth in 2017 and beyond. Here's how Vertex plans to achieve that growth.

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Finalize reimbursement arrangements

In 2015, Vertex began marketing cystic fibrosis (CF) drug Orkambi in the U.S. and won regulatory approval in Europe. So far, around 9,000 patients have started treatment with the drug. Vertex thinks it can grow that number to 25,000. The key to doing so is to finalize reimbursement deals for the drug in Europe.

Vertex's challenge is that it must negotiate country by country. The company thinks it can generated of $1.1 to $1.3 billion in sales for Orkambi in 2017, but that range is highly dependent on European countries finalizing reimbursement for the drug. Vertex doesn't expect a big change in the first quarter from the latter part of 2016, but it does hope to make significant progress on the reimbursement front this year.

Expand labels for Orkambi and Kalydeco

There's an even larger potential patient population for Vertex's CF drugs if the company can obtain label expansions for the drugs. Vertex thinks it can treat 44,000 patients with both drugs by expanding the labels.

The easier path will likely be in doing so for Orkambi. Vertex already has late-stage data that could support approval in Europe for the drug in treating children ages six to 11. A late-stage study evaluating Orkambi in treating children ages two through five is in progress.

For Kalydeco, the biggest opportunity is in treating the roughly 5,000 patients with residual function mutations. Unfortunately, Vertex has already been turned down once by the U.S. Food and Drug Administration (FDA) for approval of the drug in treating these patients. The company is still in discussions with the FDA about a path for moving forward.  

Develop next-generation correctors

A longer-term strategy for growth is to roll out next-generation correctors for cystic fibrosis. Vertex has several possibilities on this front and projects a potential pool of around 68,000 patients if it's successful.

The company expects to announce data from three clinical studies featuring triple-combination regimens in the second half of 2017. All three studies include tezecaftor and Kalydeco plus a next-generation corrector. Two of these are phase 2 studies for candidates that have received fast-track designation.  

Partner on genetic approaches

Vertex also hopes to go the last mile to treat remaining CF patients using genetic approaches. To accomplish this, the company knows it needs to partner with other players. Vertex has already forged two such partnerships.

In 2015, Vertex announced a deal with CRISPR Therapeutics (CRSP -1.98%) to option up to six programs. Vertex paid CRISPR $75 million up front and bought a $35 million stake in the gene editing company. CRISPR is at the forefront of a groundbreaking new technology that alters genes using the Cas9 protein.

Vertex also announced a partnership with privately held Moderna Therapeutics in July 2016. As part of the deal, Vertex paid $20 million up front and made a $20 million investment in a convertible note that will convert to an equity position in Moderna. In return, Vertex gained access to Moderna's messenger RNA technology that could enable the delivery of correct genetic instructions and ultimately trigger lung cells to produce functional CTFR protein in cystic fibrosis patients.

Grow revenue while controlling expenses

While Vertex executes on all of the strategies mentioned above to grow its revenue, Leiden said the company should also be able to keep costs under control. He projects only modest growth in operating expenses, which should lead to increasing profits.

Leiden announced that Vertex is projecting 2017 revenue between $1.79 billion and $2.01 billion. Orkambi should experience solid sales growth, while Kalydeco's sales should be flat year over year. Non-GAAP operating expenses (research and development plus sales, general, and administrative expenses) in 2017 are expected to be between $1.25 billion and $1.30 billion.

What to look for in 2017

Much of Vertex's progress this year should be measured against the five items Jeff Leiden identified. The most important near-term goals will be to win reimbursement deals for Orkambi in Europe and to advance the pipeline.

I wouldn't be surprised to see Vertex make more partnership deals and/or acquisitions in 2017, either. The company plans to "bolster the CF and non-CF pipeline with internal and external assets" this year. The reference to external assets sounds like deals could be on the way.