This has good implications for Vertex and for the whole biotech sector. If AZN does not agree to the merger, Pfizer has to look elsewhere. Eli Lily, Merck, Glaxo would be looking for takeover targets also. Pfizer acquired FoldRX a few years ago when FoldRX was developing CF drugs. It is still an active program for Pfizer, but they might need Kalydeco to make their corrector candidate to be viable.
July put option prices don't increase, but the call option prices are going up. At the striking price of 100 the call options were traded in $3.20 - 3.40, and the July 125 calls were traded at 1.10. Some are betting that the share price would double from here by July 19.
Right. Analysts keep saying that 809 trials are binary events for the company, but they forgot about 661. 661 and second generation correctors have broad potential; the triple combo could treat ~90% of all CF persons.
They announced at the JP Morgan HCC time that they were planning to begin enrollment of homozygous 508 in a Phase 2 study in Q1, that lasted 12 weeks of dosing, and also announced that they completed the enrollment of another Phase 2 study to dose 661+770 for 508/551 heterozygotes for a 4 week study. There has been no progress report for either one so far. The second Ph 2 is a very interesting trial and the results are expected in H1, but its commercial value is less compelling for a share price change.
Q, I repost your message to highlight your view.
[[Amazing novel approach to treating cancer if it works. I'm more excited about VX 765 and it's more immediate prospects for clinical use if proof of concept Phase 2 clinical trials prove positive in treating HIV.(I suspect Vertex new CMO who is an HIV expert, and is taking over for retiring Bob Kaufman this summer, is working with Warner Greene to plan this Phase 2A trial).
Wall Street needs to see the TRAFFIC and TRANSPORT clinical trial data before rewarding VRTX, but when positive 809/770 data supporting the NDA filing is announced some time in the next 8 weeks, Vertex will likely start to be valued for the expected revenue growth for treating the majority of CF patients. IMO after that, management will reveal it's plans for R&D going forward for all it's early pipeline assets (in addition to CF treatments for 508 heterozygotes), including VX 765 to treat HIV, it's chronic MS remyelination drug, and this stem cell oncology program. (Management knows the cash flow from CF is what Wall Street is fixated on, and they do not want to distract analysts with new programs until they reward Vertex for the likely success of 809/770 suggested by management's new manufacturing facility for continuous production of 809/770 tablets in Boston, the hiring currently underway of the expanded international commercial team to market 809/770, and the work underway in the development of these preclinical pipeline assets, which could only be funded by the huge cash flow expected from the imminent approval of 809/770 and the expanded indications for Ivacaftor monotherapy.
The Biotech sector will likely come back to life very quickly with the announcement of positive TRAFFIC and TRANSPORT data and the NDA filings for 809/770 treatment of CF in 508d homozygotes.]]
Biotech sector is in a bear market right now. Biogen, Cellgene, Gilead, Alexion, and Regeneron, all lost about 20% from their peak value. Alnylam lost more than 50% of its value recorded in mid-January, and look at Celldex. The bulls powered the market until several weeks ago are struggling against bearish sentiments. When the above first five report earnings, they will lift all biotech boats. Gilead bulls are very much alive, but Vertex bulls are almost abandoned by the mngt.
John, to estimate the market size and commercial value of 809, it is handy to remember one or two numbers. The probability for occurrence of 508 mutation in either of two alleles is 0.72, and the number of all CFers in the world is 75K. So, the chance that both alleles to have 508 mutation is 0.72 x 0.72 = 0.52, and the chance of a CF person to have homozygous 508 is 52%. 52% of 75K CFers is 39K with 30K in major markets of NA and EU. The chance to be heterozygous 508 would be twice of 0.72 x 0.28 = 0.4 = 40 %. A more realistic way to estimate 809 market is the following. Only 2000 G551D CFers are taking Kalydeco where they constitute about 4% of all CFers. Since 4% corresponds to 2000 treated, 52 + 4 = 56% corresponds to 2000 x .56 / 0.04 = 28,000. This is the sum of homozygous 508 CFers and 551 CFer. This is a very realistic number for patients who would benefit from Kalydeco alone or in combination with 809. You should add other gating mutations and R117H mutation also, but they make up only 3% or less.
The latest (just published online) issue of the New England Journal of Medicine published the trial results of two groups of all-oral HCV drugs in separate papers, here are the comparisons.
1. Both drug combos treated GT1, non-cirrhotic patients and achieved a high SVR12 rates: ~95%.
2. GILD's drug combo, SFV+LDV, was just as effective without adding Ribavirin (RBV) to the combo as adding it to the combo, while AbbVie's combo included RBV to achieve an average of 96% SVR.
3. AbbVie's combo is made out of total 5 drugs: protease, NS5A, non-nucleoside polymerase inhibitors, with a booster ritonavir, plus RBV. RBV has to be dosed twice daily, while SFV+LDV is a single tablet composite which is dosed once a day. SFV+LDV combo has a clear advantage here.
4. Another advantage for Gilead's combo is the duration of treatment. An 8 wk dosing regimen is just as effective as a 12 wk regimen.
5. There is no drug induced discontinuation with the 8 wk SFV+LDV regimen w all mild side-effects.
RESULTS for SFV+LDV [ from NEJM]
The rate of sustained virologic response was 94% (95% confidence interval [CI], 90 to 97) with 8 weeks of ledipasvir–sofosbuvir, 93% (95% CI, 89 to 96) with 8 weeks of ledipasvir–sofosbuvir plus ribavirin, and 95% (95% CI, 92 to 98) with 12 weeks of ledipasvir–sofosbuvir. As compared with the rate of sustained virologic response in the group that received 8 weeks of ledipasvir–sofosbuvir, the rate in the 12-week group was 1 percentage point higher (97.5% CI, −4 to 6) and the rate in the group that received 8 weeks of ledipasvir–sofosbuvir with ribavirin was 1 percentage point lower (95% CI, −6 to 4); these results indicated noninferiority of the 8-week ledipasvir–sofosbuvir regimen, on the basis of a noninferiority margin of 12 percentage points. Adverse events were more common in the group that received ribavirin than in the other two groups. No patient who received 8 weeks of only ledipasvir–sofosbuvir discontinued treatment owing to adverse events.
Q, I absolutely agree with you. Without foreseeing revenues flowing from 809 sales, they would not set up a research center overseas to engage in rather speculative research areas. Traffic and Transport are double-blind trials, so that they would not know who is taking placebo and who is taking the drugs, but they keep the records of clinical signs of all participants, from which you can qualitatively infer the outcome.
From the stated responsibilities of the positions to be created, one can surmise that Vertex already has a cancer program in place, and its objective is to transform cancer stem cells back to a non-growing, harmless tissue. It is easy to kill cancer cells, but in doing so you damage lots of normal cells. Using small molecules it may be possible to trigger re-differentiation of cancer cells without harming other normal cells. Knowledge of stem cell differentiation would be helpful for that purpose.
For the short term, Alnylam is delivering two Plenary oral presentations and one poster on April 30:
Patisiran; International Symposium on Amyloidosis (ISA), April 27 - May 1. One Plenary paper further analyzes Phase 2 data of Patisiran.
Pending acceptance, more papers will be presented in the following meetings.
ALN-PCSsc; Arteriosclerosis, Thrombosis, and Vascular Biology, May 1 - 3
ALN-AAT; Digestive Disease Week, May 4 - 6
ALN-AT3; World Federation on Hemophilia, May 11 - 14
ALNY 5X15; TIDES, May 12 - 15
ALN-CC5; International Conference on Complement Therapeutics, June 6 - 11
For the time frame of October – December, look up my post of March 29: [[ When the data from ALN-AT3 for hemophilia A and B, -TTR02 for FAP, and -TTRsc for FAC come out, the share price could triple from here.]]
Don't miss the last paragraph in the Barron's Cover Story.
[[ .... The marquee biotech stocks look more attractive after their selloff. Some, including Amgen (AMGN), Gilead Sciences (GILD), and Celgene (CELG) -- have close to market multiples. Profits per share at Celgene and Gilead are expected to double by 2017. Few big companies are capable of that. ]]
The latest Barron's Cover story has the following paragraph.
[The marquee biotech stocks look more attractive after their selloff. Some, including Amgen (AMGN), Gilead Sciences (GILD), and Celgene (CELG) -- have close to market multiples. Profits per share at Celgene and Gilead are expected to double by 2017. Few big companies are capable of that.]
Q, thank you for posting this. CFO also said in the cc several weeks ago that a commercial structure for sales of 809 has been in place.
Now, suppose that VX-809/770 pills were to be sold at a price less than that of VX-770 (Kalydeco). All CFers who respond to Kalydeco monotherapy would switch to the combo therapy; much better results at a lower price. This is the reason one cannot sell the combo pill at a lower price than Kalydeco. On the other hand, this combo is assumed to be less effective to homozygous 508 CFers than Kalydeco is to 551 CFers. If this is the case, some may argue for a lower price of the combo pill.
A way out of this dilemma is to lower the price of Kalydeco to that of the combo. It may be 250 K, or 200K, but not much lower. Even if you charge 200 K, since there are 28 K homozygous 508 and 7 K monotherapy responsive mutations in major markets, a 7 Bln peak (before a triple combo replaces all) revenue can be achieved.
Vertex management would face a dilemma in pricing VX-809+Kalydeco pills. Van Goor’s in vitro work has shown that this combination improves a majority of heterozygous 551 CFers to another higher level of CFTR activity compared with the level Kalydeco alone can achieve. This is so because a majority (72%) of 551 CFers carry 508 mutation on the other allele of the gene, and VX-809 repaired the 508 allele and Kalydeco repaired the 551 allele. This is like having twin-engine cargo plane compared with having only a same-size single engine one. This happens in a clinical setting also.
The New England Journal of Medicine reported last year about a homozygous 551 CFers who had only 30% FEV 1 and decided to have a lung transplant, but started to take Kalydeco. She saw health improvements in a week. All indicators improved without leveling off through 52 weeks where the dosing stopped. The absolute changes in % FEV1 were 9%, 13%, 15%, 16%, at Week 10, Week 20, Week 30, and at Week 52, in the same order. Her weight gain was also impressive; she gained 18.5 lbs (=8.4kg, from 42kg (= 92.6 lbs.) to 50.4kg (=111.1 lbs.)) for the treatment duration of 52 weeks. In this case, the same drug, Kalydeco, repaired twice as many CFTR molecules because both alleles produced CFTR. She came to have a second thought about the planned lung transplant.
So, it won’t be surprising to find a majority of 551 CFers would benefit from 809/Kalydeco combo. But it is not just 551 CFers who would benefit. All Kalydeco monotherapy responsive CFers would have 72% chance of having F508del mutation in the other allele. This means that about 10% of all CFers would benefit more from the combo than from Kalydeco alone.
[ to be continued]
A good observation. We need major M&A activities in the biotech sector, and good Phase III results from biotech companies.
Without including potential market value of VX-661+2nd gen corrector for all 50,000 508 CFTR gene holders, analysts agree that the market value of treating homozygous 508 holders with Lumacaftor + Ivacaftor is 6 - 8 Bln. This means that the 2017-2018 earnings will be about $20 per share ( take 7 Bln for rev and substr 2 Bln for expense and divide the remainder with shr number 250 Mln). So, Vertex shares are being traded right now at a 2017 forward PE of less than 3.5. I know all CF molecules would be a great success. I bought more shares today.
You are conservative. When the data from ALN-AT3 for hemophilia A and B, -TTR02 for FAP, and -TTRsc for FAC come out, the share price would triple from here.
The FDA has approved the use of Kalydeco for the CF patients with 9 gating mutations including G551D holders. They make up about 2500 individuals in major markets. There was a press release on the approval about February 21 of this years.
It looks as if all previously frustrated sellers are converging on biotech stocks to sell. These sellers trade on stock movement trends, but are weak on fundamentals. It is absurd, but look at ALXN, BIIB, CELG, GILD, REGN, and SGEN, all rolling over. GILD's fundamentals are strong, but it dipped below the 200 day-MA for a short time. Buyers will win over the sellers soon or later.
The chance to double the share price from here in 3 - 4 months is pretty good. Add the value of VX-765 to that of Lumacaftor. I have been very bullish and buying more shares. Think about this.
Around June - July, the market will be shocked to find that Lumacaftor and Ivacaftor combination works to treat F508del mutations, and the FDA would accelerate the combo approval, contrary to general perception.
The most likely price for a 400 mg Lum + 250 mg Iva combo pill twice daily over a year would be 250 K. Ian Smith would not allow anything lower than this. 250 is lower than the price of Ivacaftor alone, which is 310 K.
There are 35,000 homozygous 508 mutation holders in the world, but there are 28,000 in major markets. So, what do you get when you multipley 28 K by 250 K?
Ans. = 28 K x 250 K = 7 Bln. This is the figure some people have been predicting as the eventual revenue from the combo. Add to that the sales for the Ivacaftor mono.-responsive mutation holders, which will be 1.5 Bln by 2017. Ivacaftor is taken by nearly all 551 mutation holders within two years of launch. 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 per-share earnings would be (7 Bln - 1.5 Bln +1.5 Bln)/275 Mln shrs. = $25.5 per shr.. assuming the share number increases to 275 Mln by 2017. You have to give a PE of at least 20 because of the promising pipeline which include VX-661 and second gen. correctors for heterozygous 508. So you may expect 25.5 x 20 = $510 share price by then.
This is the target I have been getting over and over. But remember this is a very bullish case. On the other hand, don't let daily fluctuations of indices dictate your decisions.
Even w/o revenues from VX-809, Kalydeco alone can generate almost 1 Bln next year for benefiting up to 4000 CFers (only 6% of all CFers) with G551D, other gating mutations, and R117H. The release of 809 trial results for homozygous F508del is hardly a boom-or-bust event as some analysts think. A "boom" yes, but a "bust" no.