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What Vertex’s Results Mean for Corbus, ProQR, and Nivalis

NEW YORK, NY / ACCESSWIRE / February 16, 2016 / Vertex Pharmaceuticals Inc. (VRTX) was down by as much as 11.4% to $81.98 yesterday as investors were split on its earnings, reported after market close on January 27. Negative sentiment quickly turned around however as a buying blitz brought shares back up to $91.76 by the end of the day. While the company did report a loss of $75.5 million for the quarter, adjusted profit still beat Wall Street expectations due to strong sales for its cystic fibrosis drugs.

Those drugs, Kalydeco and Orkambi, are the Rolls Royce of pharmaceuticals, and hence some of the most controversial on the market. The exorbitant price tags for them however do not seem to be deterring sales, at least not yet. The question is, will Vertex's earnings affect other biotechs involved on the cystic fibrosis space in the medium to long term?

Some of Vertex's competitors did not take the news well. ProQR Therapeutics N.V. (PRQR) was down nearly 15% post Vertex earnings. ProQR is a preclinical stage company focusing on gene repair for CF sufferers among other diseases. This is somewhat similar to Vertex as its CF drugs act as helpers for the defective CFTR gene that causes the disease. Nivalis Therapeutics (NVLS) was also down 9.5% on the news. Nivalis is a clinical stage company with a lead candidate that also acts quite similarly to Kalydeco and Orkambi in providing support to defective CFTR genes.

A third, Corbus Pharmaceuticals Holdings (CRBP) traded down 8.5%. While Vertex's results were not at all disappointing at least as far as the CF market is concerned, and therefore there is little fundamental reason for its CF competitors to react this way, Corbus's negative reaction to the news was perhaps the most out of place. This is because Corbus, while actively engaged in the CF market, is unlike the other three because its lead drug candidate Resunab does not aim to compete with either Kalydeco or Orkambi.

Had Vertex's lead CF drugs shown unambiguously negative sales numbers--which they didn't--then perhaps it would make sense for ProQR and Nivalis to fall, as both of those companies are developing drugs that perform similar functions and are expected to be in similar price ranges if and when approved. But Corbus's Resunab does not target the CFTR gene at all, but rather the inflammation and fibrosis associated with the disease.

In other words, while Kalydeco treats the disease by dealing with the defective gene itself, Corbus treats the symptoms. Treating the disease over the symptom is a popular refrain in medical debates, but in the case of CF, a case can be made that treating both simultaneously is the only way to significantly reduce the diseases impact.

Why? Because Vertex's flagship drugs targeting the CFTR gene do not have the ability to totally fix the gene itself and make it replicate the proper proteins missing in CF patients. If they did, treating the symptoms would be superfluous. Kalydeco and Orkambi can only aid the mutated proteins being produced by the mutated CFTR gene to try and make them do their job of ion transport a little bit better. While this is somewhat helpful, it certainly does not qualify as a cure or anything close to it. Given the current landscape of CF drugs, treating the symptoms directly is still emphatically necessary.

Where Corbus's Resunab differs from other anti-inflammatories is its potency. Resunab is derived from naturally occurring cannabinoids known to be anti-inflammatory and chemically altered to increase its anti-inflammatory properties by a factor of 100. While the CFTR gene may be the cause of cystic fibrosis, it is the inflammation and fibrosis caused by the immune system's reaction to the defect that are responsible for the morbidity and mortality associated with CF. Neither inflammation nor fibrosis are addressed by Kalydeco or Orkambi.

What happens with cystic fibrosis is that due to the defective gene, mucus gets caught in the lungs which triggers the immune system to activate the inflammatory response. This only makes things worse though as the inflammation makes it even more difficult to breathe and eventually leads to fibrosis or scarring of the lung tissue, which leads to more inflammation in a viscous cycle. Resunab aims to disrupt the cycle, allowing the mucus to clear more easily. While shutting down inflammation may sound potentially immunosuppressive, preclinical trials for Resunab have shown that mouse models were able to fight off lung infections easier while on the drug.

Another key reason why Vertex's results, even had they been terrible, should have little bearing on Corbus is that Vertex's drugs are tailored to very specific forms of CFTR mutations. This is also the case with ProQR and Nivalis. Not every CF sufferer has the same type of mutation, which means that Vertex's drugs cannot address the entire CF market. Getting approval for each mutation type involves a separate battle with the FDA. Resunab, on the other hand, would potentially address the entire CF population as all of them suffer from the inflammation and fibrosis that gradually makes breathing impossible.

As for the cost issue, it is unlikely that Resunab will be in a similarly high price range as Kalydeco and Orkambi. Since Resunab is derived from a naturally occurring molecule, the cost of manufacture should be much cheaper. This would allow patients to potentially take both drugs simultaneously, whereas CFTR-targeting drugs would more likely be mutually exclusive to one another, both for biological as well as economic reasons.

Finally, Resunab's phase 2 study is currently underway with data, including clinical benefits, scheduled for release by the end of 2016. It is also developing the same drug at phase 2 for two other inflammatory conditions, dermatomyositis and systemic sclerosis, further differentiating it from Vertex and its other CF-focused peers.

All said, ProQR, Nivalis, and Corbus shares seemed to have overreacted in knee-jerk fashion to what was initially perceived as a negative earnings report from Vertex. Vertex shareholders quickly came to their senses yesterday after realizing that earnings were not half bad and declines immediately reversed, while ProQR, Nivalis, and Corbus are still down on the news. The discount may not last long.

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