Vertex: New, Longer-Term Casgevy Data Makes Case For Blockbuster Sales (NASDAQ:VRTX)

Natali_Mis Investment Overview – Vertex’s Empire Built On CF Franchise – Casgevy First Non-CF Drug Approved Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) is a $120bn market cap (at the time of writing), Boston-based Pharma giant whose success is built upon its mighty cystic fibrosis (“CF”) franchise – as per the company’s latest quarterly report / Q1 2024 10-Q submission: Our four approved CF medicines, led by TRIKAFTA/KAFTRIO (elexacaftor/tezacaftor/ivacaftor and ivacaftor), are being used to treat nearly three-quarters of the approximately 92,000 people with CF in North America, Europe, and Australia Thanks to its CF franchise, Vertex has grown revenues from ~$1bn per annum in 2015, to $9.9bn in 2023. In Q1 2024, the company reported $2.69bn of revenues, up ~14% year-on-year, with a non-GAAP operating income of $1.34bn, and an operating margin of 50%. The company boasts ~$14.6bn in cash and is guiding for $10.55bn – $10.75bn of revenues in 2024, and ~$5bn in operating expenses, suggesting 2024 will be another successful and highly profitable year for the company. In total, Vertex says (in its Q1 2024 quarterly report/10-Q submission) that it treats “nearly three-quarters of the approximately 92,000 people with CF in North America, Europe, and Australia,” with plans in place to treat the remaining patients using messenger-RNA based therapies. Nevertheless, with the CF market close to saturation, the company has developed a diverse pipeline targeting a range of new disease indications, and late last year, gained approval for a first non-CF drug – Casgevy. Casgevy utilizes the power of CRISPR (“clustered, regularly interspaced, short palindromic repeats”) gene editing technology to treat patients with both Sickle Cell Disease (“SCD”) and transfusion-dependent beta-thalassemia (“TDT”). Otherwise known as exagamglogene autotemcel or “exa-cel,” it is an ex vivo cell therapy, in which patients’ blood stem cells are extracted, and then taken to a lab, where CRISPR technology is used to edit a gene known as BCL11A, which controls the production of fetal hemoglobin, before the cells are reinfused back into the patient. Fetal hemoglobin can prevent red blood cells from becoming disfigured and forming the “sickle” shape, which results in their restricting blood flow and oxygen delivery, causing severe pain and organ damage in SCD patients. The therapy treats TDT, caused by anemia, and a lifelong debilitating condition like SCD, similarly. Vertex’s partner in the development and FDA approval of Casgevy is CRISPR Therapeutics AG (CRSP), whose scientific co-founder was Emmanuelle Charpentier, who was awarded the Nobel Prize, alongside her collaborator Jennifer Doudna for her work developing CRISPR, a defense mechanism used by bacteria, into a gene editing tool, alongside the enzyme Cas9, which is used as a cutting tool. Back in 2021, Vertex made a $900m payment to Crispr Therapeutics, rising to $1.1bn on approval of exa-cel, to increase its share of profits from commercial sales of the therapy from 50% to 60%. This underlines the value that Vertex has long attached to Casgevy – the company sees it as a multi-billion selling product, however, being an entirely new type of drug – Casgevy is the first CRISPR-based drug to have been approved in the form of human medicine – the company must first persuade regulatory authorities, health insurers, patients, and physicians that it is a safe and effective therapy. Casgevy, A Revolutionary Therapy, Faces Several Challenges At Launch Casgevy was formally approved by the Food and Drug Agency (“FDA”) on December 8th last year – as I wrote in a note for Seeking Alpha at the time, the approval was: based on the results of its pivotal CLIMB-121 study, which showed that 16 out of 17 patients treated with the cell therapy achieved the primary endpoint of freedom from vaso-occlusive crises (“VOCs”) for at least 12 consecutive months. The mean duration of VOC-free was 18.7 months, with a maximum of 36.5 months. 17/17 (100%) achieved the key secondary endpoint of being free from hospitalizations related to VOCs for at least 12 consecutive months. These results are groundbreaking, suggesting that Casgevy provides a “one and done,” permanent “functional” cure for a disease that creates lifelong health issues for patients, often shortening the duration of life and severely affecting the quality of life. Nevertheless, treatment with Casgevy can be a long and arduous process – moving a patient’s blood stem cells from marrow to bloodstream to harvest them requires a “mobilization medicine” which can take a week to work, and may be required more than once (details from Casgevy.com). Then, the patient must wait up to 6 months for their cells until they are returned from the lab (rescue cells are also collected in case the engineered cells do not engraft, and if these are required to be used the treatment will have no benefit). Finally, more conditioning medicine is required before reinfusion, and patients must stay in the hospital for 4-6 weeks after reinfusion so that they can be monitored by doctors. Infertility is a potential side effect of the conditioning medicines used. Casgevy is also an expensive therapy, costing ~$2.2m. Even though Vertex estimates the cost of a lifetime of treatment for SCD to be ~$4 – $6m, suggesting Casgevy is the more cost-effective option, it is not difficult to see how health insurers may balk at agreeing to reimburse for such a therapy. Finally, although an advisory committee convened by the FDA concluded that the benefits of a treatment with Casgevy clearly outweighed the risks, doubts over whether the therapy really was durable enough to provide a permanent cure, and whether the gene editing process could lead to the unintentional mutation of “off-target” cells, will persist as long as there is no long-term data to suggest otherwise. In summary, the commercial launch of Casgevy faces some unique challenges. Being the first drug with the CRISPR / cell therapy mechanism of action, patients may be wary of potentially spending many months in hospital to receive a therapy whose risks are not entirely known, physicians may be wary of recommending such a therapy, and health insurers may be reluctant to provide reimbursement. Vertex Shares Updated Casgevy Study Data Demonstrating Safety/Efficacy In that context, the fact that Vertex shared some updated long-term data from its clinical studies at the end of last week is significant. The data was taken from >100 patients, 46 of whom were treated for SCD, and 56 for TDT. Casgevy was approved to treat TDT in late January this year based on data from the pivotal Phase 3 study CLIMB-111, which showed: 42 out of 44 patients with Transfusion Dependent Thalassemia (“TDT”) were able to stop red blood cell transfusions after a treatment period ranging from 0.8 to 36.2 months, while the other two experienced 75% and 89% reductions in transfusion volumes. Now let’s review the data Vertex shared last week. It is probably simpler to quote directly from the press release, and then analyze: beginning with SCD: In SCD 36/39 (92.3%) evaluable patients (those with at least 16 months of follow-up) were free from vaso-occlusive crises (VOCs) for at least 12 consecutive months (VF12), consistent with the previously reported primary endpoint data. Mean duration of VOC-free was 27.9 months, with a maximum of 54.8 months.38/39 (97.4%) patients with at least 16 months of follow-up were free from hospitalizations related to VOCs for at least 12 consecutive months (HF12), consistent with the previously reported key secondary endpoint data. The mean duration of VOC freedom was well over two years – according to research I found via an abstract published in the National Library of Medicine, “A benchmark study found a mean annual rate of 1.52 admissions per SCD patients.” VOCs are typically thought to have four phases, with the most severe part – constant pain and often fever – lasting three to five days. The abstract also states: In 2004, more than 80,000 hospitalizations were incurred by adult SCD patients in the US, costing nearly $500 million, with majority of the cost arising from inpatient hospitalization associated with VOC. From an efficacy perspective, it seems hard to argue that the success rate of Casgevy is anything other than exceptional, and also from a cost-efficiency perspective. Turning to TDT, the results look equally impressive: In TDT 49/52 (94.2%) evaluable patients (those with at least 16 months of follow-up) were transfusion-independent for at least 12 consecutive months with a mean weighted hemoglobin of at least 9 g/dL (TI12), consistent with the previously reported primary endpoint data. Mean duration of transfusion independence was 31.0 months, with a maximum of 59.4 months. All TDT patients dosed with at least 16 months of follow-up are transfusion free.Two of the three patients who did not achieve TI12 in CLIMB-111 achieved TI12 in the long-term follow-up study, CLIMB-131, and have been transfusion independent for over one year. The third has been transfusion free for 3.4 months. The data for TDT shows that the mean duration of transfusion independence was over two and a half years, with a maximum of very nearly 5 years, whilst two of three patients who initially failed to achieve independence have now successfully done so. Again, this appears to be great news for patients and a strong endorsement for treatment with the therapy. Current standards of care for SCD / TDT seemingly cannot match this level of efficacy – for example, according to notes from the European Medicines Agency (“EMA”), reviewing Pfizer’s (formerly Global Blood Therapeutics, before Pfizer acquired the company in a $5.4bn deal) widely used Oxbryta’s pivotal study: The total number and annualized incidence rate (“IR”) of on-treatment VOCs were as follows: 219 events with an adjusted IR of 2.4 events/year in the voxelotor 1 500 mg group and 293 events with adjusted IR of 2.8 events/year in the placebo group. No statistically significant difference was observed between the treatment groups; however, the study was not designed to detect a difference. The study may not have been powered to monitor VOCs, but nevertheless, it seems clear that Oxbryta (voxelotor) is unable to fully prevent them, whereas Casgevy can in >90% of instances. Vertex also discussed health and safety data as follows: Both SCD and TDT patients reported sustained and clinically meaningful improvements in their quality of life, including physical, emotional, social/family, and functional well-being, and overall health status. In both SCD and TDT patients, edited levels of BCL11A alleles were stable over time in bone marrow and peripheral blood indicating successful editing in the long-term hematopoietic stem cells. All patients engrafted neutrophils and platelets after exa-cel infusion. The safety profile of exa-cel was generally consistent with myeloablative conditioning with busulfan and autologous hematopoietic stem cell transplant. The improvement in quality of life, with no hospitalizations or transfusions required by the majority of patients, seems self-evident. The consistency of editing is also a good sign, as is the 100% engraftment rate. In summary, the new, longer-term data, supports the view that Casgevy is effective – significantly more so than current standards-of-care – safe, based on nearly five years of data in some cases, and durable. Furthermore, Vertex notes about trial participants: Patients will be followed for approximately two years after CASGEVY infusion. Each patient will be asked to participate in the ongoing long-term, open-label trial, CLIMB-131. CLIMB-131 is designed to evaluate the safety and efficacy of CASGEVY in patients who received CASGEVY in other CLIMB studies. The trial is designed to follow patients for up to 15 years after CASGEVY infusion. The company has every intention of continuing to follow patients and establish the safety and efficacy of Casgevy beyond all reasonable doubt. Casgevy’s Impact on Vertex’s Valuation I have argued before in posts on Vertex that the company’s shares are relatively expensive by some metrics – for example, the price-to-sales ratio, based on 2024 guidance, is ~11.6x, and the forward price-to-earnings is ~31x. Vertex believes its market opportunity with Casgevy is presently restricted to ~30k patients with SCD and ~5k with TDT, despite the global incidence of the two diseases being more in the region of 300k and 60k respectively, due to the conditioning regimes currently required, although the company is already working on improving these. Chief Medical Officer (“CMO”) Salveen Richter spoke at The Goldman Sachs Group, Inc. (GS) Healthcare Conference last week, discussing the use of “antibody-like approaches” to enable bone marrow transplant, which would negate the damaging use of busulfan, a chemotherapy like agent, and, longer term, introducing in vivo editing, which would be an even more revolutionary step that could potentially open up use of the therapy to the vast majority of patients. Analysts have speculated that Casgevy could drive ~$2.6bn of revenues by 2028, and ~$400m in 2024. Vertex reported in its Q1 2024 earnings that five patients have had their cells collected, and are ready for treatment – with at least one from each of the different territories where the drug is approved, being the US, Europe (approval was granted in March), and the Middle East. That is obviously a small number, but it is early days, and the company says it already brought 25 treatment centers online, with a target of 75. Vertex says it has contracts or policies in place with insurers covering ~65% of total lives, with negotiations ongoing in 18 states. The total market opportunity – 36k patients by $2.2m cost of therapy, would be ~$80bn, a notional figure, but worth bearing in mind. Crispr Therapeutics takes a 40% share of all profits, but if we assume Vertex was to achieve 25% patient penetration over a period of 10 years, the company would earn on average >$1bn revenues per annum, before we even consider improvements in conditioning increasing the target patient population. Vertex pipeline opportunities by patient population (presentation) As we see from a slide taken from a recent Vertex presentation, SCD / TDT is one of the smallest patient populations the company is targeting. The next drug the company may win approval for is its pain drug, VX-548, which the company regards as a “multi-billion dollar opportunity,” while diabetes, and thanks to its recent acquisition of Alpine Immune, kidney disease represent exciting revenue opportunities. Nevertheless, Casgevy is the only one of these opportunities to have received full commercial approval, and its efficacy profile is arguably the most compelling. There appears to be a good chance that Vertex can earn revenues in the double-digit billions from this therapy over the next ten years, and even if that is a fraction of the revenue the company will earn from CF in that time, Casgevy has undeniably played an instrumental role in a bull run on Vertex stock that has seen it gain >35% on a 12-month, and 18% year-to-date. Although we won’t see revenues of real significance from this source in 2024 – I suspect the figure of $400m may be over-optimistic – Vertex and Crispr Therapeutics have broken new ground medically with the approval of Casgevy and the signs, seemingly, are increasingly pointing to this drug eventually becoming a commercial success.

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