Jeffrey Leiden, chief executive for Vertex Pharmaceuticals, plans to eradicate cystic fibrosis. (Vertex)
Jeffrey Leiden’s office shelves are plastered with all the accoutrements you’d expect from the chief executive of a $39 billion biotech. But from the awards, letters of accommodation and inevitable family photos, emerges a theme.
Leiden’s Vertex Pharmaceuticals (VRTX) currently aims to treat 31,000 cystic fibrosis patients across the globe. Cystic fibrosis is a progressive, genetic lung condition and those who survive into adulthood generally don’t live past the age of 38, according to most estimates.
In 2012, Vertex set out to change that and the success it’s seen with two medicines — soon to be three — on the market have generated the 50 to 100 pieces of mail plastered to Leiden’s shelves. They’re letters of thanks from graduates and newlyweds.
“We get about 50 (letters and emails) a week from patients and families thanking us for what we do,” Leiden told Investor’s Business Daily. “We know all these patients. Most of them are kids and teenagers and we watch them grow up. It’s like being part of a family. Not a company.”
Vertex wasn’t always a cystic fibrosis play. In earlier days, it was focused on treating hepatitis C and launched a drug known as Incivek in 2011. Then Gilead Sciences (GILD) launched its drug, Sovaldi. That launch was one of the most successful in history. It also nearly put Vertex out of business.
From Crisis To Blockbuster
Though Incivek became a blockbuster drug shortly after its launch, Vertex pulled it from the market in 2014 as demand withered. Leiden describes that time as one of “crisis” for the company.
“We were in the middle of a crisis,” he said. “We had gone from being a hepatitis C company with a billion-dollar drug for literally one year to essentially zero revenue. And there are very few companies that can, frankly, survive that kind of crisis simply because it’s so hard to pivot to a new area or drug.”
But for 13 years, a division of the company in San Diego had been quietly working in the cystic fibrosis arena. The indication fit in with Leiden’s strategy: investing in scientific innovation to create transformative medicines for serious diseases with large unmet medical needs in specialty areas.
Vertex’s specialty focus allows it to keep its sales and marketing forces slim which, in turn, allows it to reinvest nearly nine in 10 dollars of its revenue back into research and development. It sells cystic fibrosis drugs in the U.S. with a sales force of fewer than 20, Leiden said.
Fast forward to 2017. Vertex has two drugs on the market — Kalydeco and Orkambi. In the second quarter, sales of Kalydeco, its first approved cystic fibrosis drug, grew 5% year over year to $190 million and Orkambi rocketed 32% to $324 million.
Year to date, Vertex stock has more than doubled, rising 108%. Shares began forming a cup with handle and a 163.74 buy point in late July. Meanwhile, the broader biotech industry group has risen 28% and is ranked eighth out of 197 groups tracked, up from No. 20 just 13 weeks ago.
Shares of Vertex dipped 0.5% to close at 151.26 on Friday.
Why Vertex Is A Rarity
Vertex is a rarity among biotechs, in a way. Its pipeline is almost solely in cystic fibrosis. Of 13 drugs in its pipeline not already licensed out to bigger pharmaceuticals, 11 are in cystic fibrosis. Leiden acknowledges the risk from a portfolio standpoint.
But some products simply don’t make sense for Vertex, he said. Vertex has farmed out drugs in flu and cancer to Dow’s Johnson & Johnson (JNJ) and Merck KGaA because the enormous sales contingent it would take to sell drugs in those indications would take away from reinvesting in science.
Reinvesting in science has allowed Vertex to do something else unique. Whereas medicines from other firms target the symptoms of cystic fibrosis, Vertex is working to correct the genetic underlying causes of the disease to, eventually, prevent infants diagnosed with it from ever fully developing it.
The underlying science focuses on about 200 genetic mutations that can be divided into four “buckets,” Leiden said. Kalydeco can treat 10% of patients. Orkambi, a combination of Kalydeco and a drug known as lumacaftor, can treat another 50%. Eventually, though, Vertex plans to treat 90% of patients.
Getting to that third “bucket” of patients, though, will require a three-pronged treatment strategy. Already, the “backbone” for that triple is being considered for approval in the U.S. and Europe: A combination of Kalydeco and a drug called tezacaftor. That looks likely to be approved in February 2018.
On top of Kalydeco/tezacaftor, Vertex is adding a “next-generation corrector,” a drug that can fix other abnormalities in genes to treat another 30% of patients. Vertex has strong Phase 1 data for three next-generation correctors in combination with Kalydeco/tezacaftor, and a fourth ready to read out soon.
Seeking Most Efficient Treatment
The eventual goal is to decide which of the four possible triple-pill combinations will provide the most efficient treatment with few to no side effects. After that, Vertex plans to use gene editing to treat the last 10% of cystic fibrosis patients for whom traditional small molecule medicines won’t work.
Leiden won’t comment on when he expect a triple-pill to get approval. He sees pivotal trials beginning next year. Most analysts take that to mean the U.S. Food and Drug Administration could approve a triple-pill from Vertex in 2019-20.
Vertex’s goal with the triple is to prevent infants, less than 1 year of age, from developing cystic fibrosis as it’s known today. In adults who already have lung damage, Kalydeco has been shown to improve lung function within two weeks and, over time, slow the rate of decline in lung function.
“Rather than declining at 1%-2% per year, they decline at 0.75% per year in lung function,” Leiden said. “And while that may not sound that significant, it’s sort of like compounded interest. Take that over a lifetime and it makes an enormous difference in both their survival and their quality of life.”
The quality of life improvement is huge, Leiden said.
“They used to go to the hospital four to five times per year. Now it’s zero to one time per year,” he said. “They used to be on a transplant list. Now they’re not a transplant list. They used to be able to walk one block. Now they can walk miles. It’s not just their longevity but their quality of life.”
Can Others Catch Up?
Galapagos (GLPG) and AbbVie (ABBV) have teamed up to follow in Vertex’s steps, but both Leiden and JMP Securities analyst Liisa Bayko are doubtful the duo can catch up. To get FDA approval for a triple-pill combo, they must show strong data for each component first.
Bayko estimates Galapagos is several years behind and even if it does make it to market, its triple-pill would have to have outstanding efficiency to persuade Vertex’s patients to switch to a new medicine.
“Vertex has done a good job at continually improving on its meds,” she told IBD. “They keep moving the bar higher. They make it challenging for people to want to go on a drug that will be just as good as Vertex’s. Why would you want to do that if you can just get on Vertex’s drug?”
Some are more bearish, though. Jefferies analyst Michael Yee sees Galapagos eventually getting 20% of the cystic fibrosis market. Still, he notes Vertex has created a strong setup for itself with making barriers to entering the market high and delivering strong medicines.
He, like others, questions what Vertex will do after its cystic fibrosis well runs dry. Leiden acknowledges the cystic fibrosis journey is nearing an end but says Vertex has plans to shift into other rare diseases like sickle cell, a genetic lung/liver condition and a deadly nerve disorder.
“Alpha-1 antitrypsin deficiency (a lung/liver condition) looks a lot like cystic fibrosis,” Leiden said. “We have the technology and we know how to go after it.”
And as to the bears skeptical about Vertex’s cystic fibrosis pipeline?
“There’s a group of analysts or investors out there that say, ‘Well, it’s really great they want to do that but we’ll see if they’re able to, I’m skeptical,'” he said. “The reason that’s weird to me is we’ve already done it. We’ve proven we can do it and we’ve proven the model.”
“I don’t think it’s a question anymore. I think we’ve demonstrated it works.”