I agree with Robyn Karnauskas. VX-661 will succeed. A PE of 35 is modest when compared with Alexion, which earned only 3+ dollars in the past year. The Alexion's PE is 57 right now and its market cap is greater than the Vertex' by more than 20% where it will face a great competition from Alnylam in a few years.
In my earlier estimates (Bullish Case) I made an algebraic error and the target price came out to be ridiculously high. I corrected that below, and used very conservative values for revenues from Lumacaftor and Ivacaftor. The combo will be approved to treat homozygous F508del mutation by the FDA within a month or two, and also by the EU counterpart soon after. The net the company gets for the Lum/Iva combo pill twice daily over a year per person would be assumed conservatively to be around 180 K.
There are about 20,500 homozygous 508 mutation holders (12 years old or older) in US and major EU markets. In the Lum+Iva rollover study, greater than 90% of Phase III participants joined the trial. Uptake of this combo will be slower than the speed of adoption by 551 CFers, and let us assume that 75% of 20,500 homozygotes take the combo within 2 years of launch. You get a revenue of 20.5 K x 0.75 x 180 K = 2767.5 Mln. This figure is at the low end of revenue analysts have been predicting for the combo. Add to that the sales for the Ivacaftor mono.-responsive mutation holders 3.7 K x 180 K x 0.9 = 600 M,
assuming that Ivacaftor is taken by 90% of them and the revenue from each person is again 180 K. The annual company expenditure will not exceed 1.5 Bln, and the tax for orphan drug sales is zero. By the end of 2017 latest the gross from CF drug sales would be (2767 Mln + 600 Mln - 1500 Mln) = 1867 Bln.
Dividing this figure with the number of shares in 2017 which will be about 260 Mln, the earnings per share will be 1867Mln/260 Mln = $ 7.18 per share. After paying the 10% royalty to CF Foundation, we get a net of $ 6.46 per share. If VX-661 and second generation correctors are successful, we have to give a PE of at least 35 because heterozygous 508 CFers will be treated. So you may expect 6.46 x 35 =$ 226 /share by then.
The zinc-finger nuclease (ZFN) technology used by Crane et al. is a very old technology. Vertex is focused on gene editing technologies that are specific to the target gene (CFTR) and efficient unlike ZFN. But both technologies have to overcome huge problems of delivering to human cells in the body.
Gene editing using CRISPR technology in higher animals and plants is very new, and potentially allows fixing genetic problems at the very root. Today people are talking about an exact CRISPR procedure to repair the sickle cell anemia gene. It can delete sections of the genome with precision. And a gene engineering could refill the void with normal codes in the future.
It is amusing to think about CRISPR/Cas9 techniques as new technology because bacteria have been using the method for a billion years to fight off bacteriophage infection. About ten years ago, researchers found that the bacteria carried CRISPR [Clustered Regularly Interspaced Short Palindromic Repeats] sequence in their DNA body. It took a few more years to figure out the reason. It turned out that the repeated genetic codes contained the code of phage which had attacked the bacteria before, and when attacked again by the same phage, the code sequence would be transcribed into RNA, then chopped into small pieces, each containing phage gene codes. Then Cas9 nuclease goes into action by cleaving the bonds holding the phage DNA double strands where the chopped RNA recognizes as the phage gene. Next Cas9 shreds the phage DNA and kills the phage. So, CRISPR/Cas9 is an immune system for the bacteria.
Only less than two years ago, a few groups reported that they can cut to produce a DNA double-strand break in human or mouse embryonic cells, and some reported that they repaired the cut with another gene segment to produce a new organism. They say that the technique is simple, fast, and reliable that any graduate student in biology can master it to apply to different model systems. If so, could this system be used to treat genetic abnormalities in human? Some challenges are still remaining, but those too may be overcome in future.
Glad, the full trial results are apparently not known to the sponsor of the trial. They may know the number of dropout rate for example. Should they disclose such events without knowing the full circumstances? They have to have a consistent picture of the results before reporting them. The most important fact reported for us is that the FDA approved the huge (1120 people altogether) Phase 3 trial for the 661 combo. If there were a possibility of serious safety issues, the FDA would not have allowed the trial. The efficacy is concerned, it should be better than that of 809 combo.
Glad, I am certain that the share price will reach 200 in two years. The market is mad right now. Most Wall Street analyst assume that the 809 drug combo will cost 150K per year per person. What Karnauskas found out by talking to the management is that 150K is too low a value. She told this in CNBC several weeks ago.
Good luck to you.
Robyn Karnauskas at Deutsche Bank has been bullish with the Vertex CF program. She or other members of the bank raised the target price to 155 after the Q4 earnings report because they don't see much risk for this year's clinical trial or regulatory approval.
However, I think that the interim VX-661 Ph 2b trial reading was inconsistent with previous results. This was a tiny trial with only 20 people receiving the drug combo. It should not weigh on the share price one way or another.
I am optimistic on the future of Vertex because the new CSO, Dr. Altshuler is not only a first rate scholar, but also came from the Broad Institute. Remember CRISPR/Cas9 ? A company called EDITAS is dedicated to clinical applications of this revolutionary technology. Founders of EDITAS did their work at the Broad Inst.. I guess that the name came from gene EDITing with RNASE. In vitro, they can edit DNA codes by replacing mutated sequences with normal ones. Some says that gene editing using a CRISPR technology can enter clinic in a few years. That may be too optimistic. I would be surprised if one of very first attack is not CF. Vertex pulled off a coup in being able to recruit Altshuler. I promise to post more about the gene therapy applied to CF.
Robin is the smartest of all analysts.
The only serious side effect coming from CD19-targeting CARs has to do with CRS (= cytokine release syndrome). But even this, it was found that an anti-interleukin-6 receptor antibody, with or without a steroid, has effectively and quickly reverse CRS, and has become a critical part of the CRS management. You can find this and other facts from a Journal of Clinical Oncology article called [Are all chimeric antigen receptors created equal?] written by JH Park and RJ Brentjens.
Sentiment: Strong Buy
I want to add to the excellent and conservative reply by Applejungle. For the next several years Vertex will not see any competition in treating underlying cause of CF unlike other biotech companies. Vertex CEO does not advertise drugs in preclinical development. Gilead's Harvoni sales will decrease by 60% or more when Regulus' RG-101 is launched in a few years. Celgene will face serious competition from several immunoncology drugs which are already marketed. For all drugs Isis develops against liver based proteins Alnylam can create far better ones...more effective and safer.
Specifically, Altshuler and his colleagues have shown that certain mutations in the SLC30A8 gene protects the carriers from contracting type 2 diabetes. This means that deletion of this gene would help people with T2D!!! However, other groups have shown that T2D is caused by mutation in the same gene in mice. This inconsistency can be resolved in favor of Altshuler if Vertex found an inhibitor to “loss of function” zinc transporter ZnT8 (encoded by SLC30A8) mutations. It is possible that Vertex has already found several compounds which exactly treat animal model T2D. This is a good reason for Altshuler to join the Vertex research group.
In real life, a mutation that abolishes the function of a protein useful in normal people, can reduce the risk of human disease in others. Examples include knockdown of antithrombin to treat hemophilia, or inhibition of PCSK9 function to treat hypercholesterolemia to potentially reduce heart attacks. But no target have yet been exhibited for type 2 diabetes (T2D) until this year. Would Vertex have potential drug candidates?
Dr. David Altshuler had been the second man in command at the prestigious Broad Institute in Cambridge, MA. Dr. Altshuler was also an associate professor of Genetics and Medicine at Harvard Medical School. His scientific research has focused on the discovery of causal connections between genetic mutation and health/disease. His most recent work involves genetic basis for the risk of developing type 2 diabetes (=T2D). Hence, he is an academic physician who is devoted for patient care. He is only 49 years young and a former classmate at Harvard Med tells me that he has a dynamic and friendly personality as well. He could have taken a position in any research or educational institution. Vertex is dedicated to bringing revolutionary medicine to the world, but it is not a pure research institution. I could not help but ask; what is he looking for at Vertex and what does Vertex expect to achieve by appointing an academic physician to occupy the position of CSO? As a geneticist Dr. Altshuler would be most gratified by finding out the genetic cause for a particular disease. Vertex as a biotech is interested in what molecule can cure the disease. Could these two separate goals converge?
Those two distinct goals can converge if medicine can be found based on genetic codes. What better way is there that can prove genetic basis of disease than inventing a molecule or a molecular process that can precisely repair the mutation? Altshuler’s hypothesis that certain genetic makeup is protected from T2D. This hypothesis is shown by genetic analysis of 150,000 human data, but other groups have shown earlier that the opposite is true. [read on]