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I wish to be wrong, believe me, I have a sizable investment at Vertex and now I am not sure the best path to get out. Wait or sell now? Will it ever recover? How long will it take?
But in the interest of sharing my opinion and learning from others points of view I will answer some of your points.
Your speculate that 809/770 CF combo therapy will not reach market in 2014
Yes, 809/770 combo will not hit the market until 2015, probably H2-2015, with NDA filing by the end of 2014 to early 2015. These are the current expectations by Vertex management.
Kalydeco monotherapy when approved next year for twice the current treatment population
Yes, this is the most possible option to increase revenues. I just doubt they will be able to balance the loss of Incivek revenues, at least in 2013, for certain not. At most Kalydeco will sell $100/quarter, to reach $400 million/year in 2014, I doubt will be in 2013. Just think that in 2012 Kalydeco has already saturated the USA market at a rate of $50 million per quarter. Approval for other mutations will not happen until 2014 ... and then there are a number of mutations, so will take some years to double the market size. Expansion in Europe will be progressive and slow, and pricing will be pressure down.
I believe your 2013 revenue estimates are too low
Can you be more specific, what part of the revenues you think I am underestimating, Incivek or Kalydeco?
VX 809/770 will generate 3 to 4 billion a year alone
Do you recall that they have not even started phase III trials ?... yes, if approved this could (not sooner than 2015) be a large revenue for Vertex, and it is the only reason the stock is now valued close to $10 billion ... any misstep with the combo and the company is gone ... that is what irritates me ... it is now like a biotech with a risky pipeline needing to underscore its promise.
Oral VX 509 could easily become a replacement for injectable drugs like Humira
Vertes, today, doesn't have capacity/funding to undertake this molecule to market, they need to partner and so far they haven't. Even if they develop the molecule, it will not be in the market until 2016 ...
VX 787 could generate a billion a year in an average flu year and many fold more in a pandemic
Vertex will stop development of VX 787 once the finish the current trial. To stock pile the drug after approval (assuming it is approved) Vertex will need to invest hundreds of millions of dollars that cannot afford. The government will not pay for stockpiling, will only pay if there is a pandemic and the drug is used, and being third line of treatment, it will be too much risk for vertex to invest in the stock pile. Consequently this drug will not add much value to the company, even if they sell it to a Big Pharma after the phase II trial (something they desperately try to do!).
This quarter's drop in Incivek sales was anticipated, with current revenue guidance for this year unchanged since July.
You mean 20% sequential drop in sales for Incivek was anticipated. maybe, but if they knew why they always fail to forecast and meet the earning/revenue expectations? In my calculation I assumed a progressive sequential drop of revenues from here ... based on the past drop.
The key however will be successful timely completion of positive clinical trials to prove my point I am optimistic Vertex, who delivered both Incivek and Kalydeco to market as promised last year, will succeed with the expanded lablel for 770 and approval for 809 in 2014. Positive 661, 787, 509 and 135 Phase 2 trials will continue to promise future growth.
Exactly, you have to assume that every single drug works well in the clinic ... something unrealistic ...
The Pre-clinical pipeline for Huntington' s, and drug candidates for other neurologic, oncology, and infectious diseases will likley be on hold until revenues increase sufficiently to fund additional future clinical trials
Vertex has been very inefficient developing drugs from their own R&D, that is why I propose that they reduce it dramatically ...
I agree that 809/Kalydeco won't be on the market until mid-2015. As Qdelfan states, it will be a 6 or 12 month trial, but I think 12 months is more likely. That's what was required for Kalydeco approval. A trial looking at 12 months of efficacy per patient is going to take ~18 months assuming quick enrollment (likely, IMO). Filing the NDA and waiting for approval puts you somewhere mid-2015.
But that's where our agreement ends. Your Kalydeco estimates are definitely low. There are a significant number of G551D patients still receiving Kalydeco for free as part of a long-term follow up trial. When those patients start paying in the next few months, I'm estimating we get to $57 million/quarter. Then Europe starts to kick in. The number of patients is estimated to be the same as in the US, but let's say pricing is 50% of US levels. That's an extra $28 million per quarter, which should be in place for Q1 2013. Let's say Canada and Australia are on board too, worth $5 million. That gets you to $90 million/quarter, or $360 million in 2013 before any market expansion happens.
The R117H trial (3% of population, close to doubling G551D's 4%) finishes in July 2013. When those results are announced, there will likely be a huge ramp in off-label usage for those patients. Assuming they're worth 75% of the G551D revenues, that's an extra $43 million/quarter, just in the US. That would put Kalydeco at a ~$533 million/year run rate at the end of 2013.
Then there are your Incivek estimates, which extrapolate the recent decline in revenues as if the end destination is $0. That's completely unreasonable. Until the all-oral treatments get approved, there's going to be some steady state reached. I think it's unlikely we'll see more than another 20% drop from here, which puts the annual run-rate at $800 million. Combined with the Kalydeco estimates above, that puts 2013 almost flat with 2014. And as we've all more or less agreed, Kalydeco moves up from there in 2014.
On 809/Kalydeco you claim "one misstep with the combo and the company is gone". That's nonsense. They have solid proof of concept. The trial and its endpoints are straightforward, and approval is highly likely, unless major safety issues arise.
On VX-509, they may not have the resources to develop it fully alone. That just means they're likely to partner. A program like that with 2 phase II trials done will bring multiple 100's of millions in up-front cash plus development money, while retaining US rights.
On VX-787, "Vertex will stop development of VX 787 once the finish the current trial." Sure, maybe, if the results are bad. If they're impressive, Vertex will certainly either partner it or increase their burn rate to push it forward. I don't see how you can write it off completely based on speculation.
"you have to assume that every single drug works well in the clinic ... something unrealistic ..." No, you just have to assume a 25% success rate... something entirely realistic.
"Vertex has been very inefficient developing drugs from their own R&D, that is why I propose that they reduce it dramatically" Kalydeco, Incivek, VX-509, VX-787, VX-809, VX-661... inefficient? Looks pretty great to me. And cutting research completely would probably save a grand total of $50 million a year. That's a rounding error in their R&D spend. They're burning tons of cash because they aggressively moving multiple programs through the clinic. If you want to cut the burn, pick a drug to drop from development. Myself, I'm comfortable watching the burn and waiting for the payoff.
Leiden's closing remarks from his prepared remarks during Thursday's CC:
In closing, some remarks on our operating philosophy and how we're managing our business today and in the future. Today, we have significant annual revenues from multiple sources that allow for the investment into a diverse portfolio of discovery and development programs and commercial initiatives, while also creating positive cash flow and earnings. This has enabled us to complete the quarter with approximately $1.3 billion of cash and equivalents, while advancing our pipeline in CF, HCV and autoimmune diseases. We are excited about the product development opportunities we have. But at the same time, we are being disciplined in our investment in the business. As we enter 2013, we have and we will continue to prioritize our R&D projects, investing in those areas that we believe will create long-term value for patients and for Vertex while exercising strict financial discipline on SG&A spending. We remain mindful of our revenues and cash flows and how to most prudently invest these revenues to grow our business.
These remarks reflect your concerns, and represent a flexibility in prioritizing the development of CF, hep C and autoimmune disease as the most potentially lucrative drugs to develop over the next few years. Licensing influenza, for future development may be an option since it was not listed as top priority in the above list.
Mueller's prepared comments on the timing of Phase 3 pivotal 809/770 trial in CF d508 homozygotes:
And on the basis of these positive data, we are planning to initiate a pivotal program of VX-809 plus ivacaftor in the early part of 2013. While details of the pivotal program design will depend on the outcomes of regulatory discussions, we can provide some of what we think the important aspects of the pivotal program will be. Firstly, we will seek to confirm the safety and activity of 600-milligram VX-809 qd in combination with 250 milligram of ivacaftor twice a day in patients homozygous for Delta 508, 12 years of age and older. This was the regimen that demonstrated the greatest improvement in FEV1 compared to the patients' baseline and also to placebo in the Phase II study. Based on our experience with KALYDECO, we anticipate the pivotal study to be anything between 6 and 12 months' duration pending our discussions with the regulatory authorities.
These remarks suggest completion of the pivotal Phase 3 809/770 trial in 6 to 12 months, with submission and approval reasonably exptrapolated to be 2014. Given the urgency and priority given to this program by both the CF community and Vertex,2014 is likely the year of lauch and the uptake will likely be quick as it was for Kalydeco.
Leiden's prepared remarks regarding the expansion of Kalydeco monotherapy:
In the third quarter, we've made significant progress on executing this strategy. We've now initiated 4 studies, 3 of which are pivotal Phase III studies, with ivacaftor monotherapy to significantly expand the CF population that we believe we can address with this medicine alone. If our KALYDECO monotherapy strategy is successful, we could increase the addressable population from the current 4% to perhaps up to approximately 15% of the total CF population. That would bring tomorrow's total population of CF patients in the U.S. and Europe who could benefit from KALYDECO monotherapy to about 10,000.
This revenue would likely kick in the US first, during 2013, depending on timing of submission of the expanded label, and uptake after approval. Based on the uptake of use by the G551 patients in the US, the other gating mutations patients will be on Kalydeco very quickly next year upon approval. European revenue in 80% of the G551 population in the EU will be coming in next year according to the comments made by Stuart Arbucle during the Q$A during the conference call.
How much revenue will be realized from Incivek and Incivo sales worldwide in 2013 is yet to be projected, but I do not believe that patients with advanced liver disease have a choice about waitng, and since 7000 patients initiated treatment in the US in the third quarter this year, representing one quarter billion in revenue alone, with the knowledge that all oral combos are coming in the future, I think liver specialists will continue to treat a subpopulation of hep C patients in comparable numbers during 2013 who simply do not have the option to wait due to the advanced nature of their liver disease.
Obviously regualtory agencies need to copperate with the approval of Kalydeco and 809 combination Phase 3 clinical trials and approve it's launch after their completion on a timely basis. But the unmet need for these patients, and the safety profile of these drugs, and the history of early and prompt approval of Kalydeco in the 551 population makes this likely.
Sentiment: Strong Buy