Company’s fundamentals and its perception by market participants should determine its share price. However, quite often the share price can determine the perception of the company to project distorted sentiment. I chose two similar biotech companies to contrast the differences.
Even if Van Goor had never invented VX-809, VX-661, and second generation correctors, Vertex could be profitable with Kalydeco alone with annual revenue and earnings similar to those of Alexion Pharma (= $1.4 B and $1.7/share, respectively, provided Vertex downsizes to the Alexion workforce of 1300 employees). The market cap of ALXN is 24.6 B as of last Friday. Alexion has only one drug Soliris for two rare indications, PNH and aHUS. Soliris is humanized mAb(=monoclonal antibody) to target C5 of complement system. It enjoys monopoly in treating the two indications now, but may face a serious challenge from Alnylam’s ALN-CC5. ALN-CC5sc is subcutaneously deliverable RNA drug and has the advantage over a mAb. Alexion is however developing other mAbs in phase I and II trials.
On the other hand, Vertex is conducting two VX-809/770 Phase III trials and Phase II trials that include a VX-661/770 trial. Both of these two combos have tremendous market potentials.
Several weeks ago at the NACF Conference 2013, it was reported that a long term use of Kalydeco was efficacious and safe. Kalydeco on G551D patients were shown to be effective and have NO tachyphylaxis (=drug fatigue) over a period of 144 weeks. There are molecular level reasons for this. Drugs targeting cancer cells, or virus, bacteria encounter tachyphylaxis after a short or long-term use. This is because genome in cancer cells, viruses, and bacteria are fundamentally unstable and target segment of genome can mutate. On the other hand, CFTR gene is stable and its mutation is rare events as we know, and the chance that target gene segment will mutate again during a lifetime of patients will be extremely unlikely. [contin']
What I wrote three months ago is still true and perhaps more so. Kalydeco taken as monotherapy is on the way to treat 7000 patients soon, and can treat 28,000 more people next year as combination therapy. The valuation of ALXN at the last Thursday's closing was greater than 36 Billions, almost twice the VRTX' valuation.
I predict that VX-809+770 combination will be safe with a limited discontinuation rate, and the ABSOLUTE FEV 1 change in the Phase III trials of VX-809+770 will be about 4% at the 4 week time point, but it will increase further and reach 6% at 24th week. The relative changes at these time points would be about 6% and 8%, respectively. Kalydeco on G551D heterozygote had about 10% ABSOLUTE improvement for FEV 1. The weight gain and CFQ-R will indicate significant improvements, but pulmonary exacerbation would show only minor improvement.
Third, Cohort 2 and 3 of the Phase 2 809/770 clinical trial data showed better results in both Absolute and Relative FEV-1 improvements after just four weeks of combination therapy than you are predicting for TRAFFIC and TRANSPORT. In anticipation of possible further improvement after 6 months of treatment, would you not expect at least the same improvements in FEV-1 reported in Cohorts 2 and 3 to be reported as 4 week improvement results in the Phase 3 clinical trials, with the possibility of even greater improvement in FEV-1 at the end of the 24 week trial period?
Even if it does, mutations can occur only in few cells out of trillion body cells in a CF person. For this reason, I am confident that the two Ph III trials of 809/770 will show strong efficacy and would be more than replicate the efficacies of the two highest doses given to Cohort 2 and Cohort 3 of Phase II. Besides, because the drug action mechanisms of VX-809 and VX-661 are the same, good results of VX-661 not only support the results of VX-809 and vice versa, but also strengthen the validity and statistics (p-value) when the two data sets are combined.
Vertex’ fundamentals will easily surpass Alexion’s next year.
Does the recent focus on secondary end points cause you any concern that even though still blinded vertex thinks fev improvement won't be good? Would they have any idea on whether fev is improving based on overall results?