Yahoo Finance Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) Q1 2024 Earnings Call Transcript
Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) Q1 2024 Earnings Call Transcript May 6, 2024
Vertex Pharmaceuticals Incorporated beats earnings expectations. Reported EPS is $4.76, expectations were $4.07. Vertex Pharmaceuticals Incorporated isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the Vertex Pharmaceuticals First Quarter 2024 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Ms. Susie Lisa. Please go ahead.
Susie Lisa: Good evening all. My name is Susie Lisa, and as the Senior Vice President of Investor Relations. It is my pleasure to welcome you to our first quarter 2024 financial results conference call. On tonight's call, making prepared remarks, we have Dr. Reshma Kewalramani, Vertex's CEO and President; Stuart Arbuckle, Chief Operating Officer; and Charlie Wagner, Chief Financial Officer. We recommend that you access the webcast slides as you listen to this call. The call is being recorded, and a replay will be available on our website. We will make forward-looking statements on this call that are subject to the risks and uncertainties discussed in detail in today's press release and in our filings with the Securities and Exchange Commission.
These statements, including, without limitation, those regarding Vertex's marketed medicines for cystic fibrosis, sickle cell disease and beta-thalassemia, our pipeline Vertex' anticipated acquisition of Alpine Immune Sciences and Vertex's future financial performance are based on management's current assumptions. Actual outcomes and events could differ materially. I would also note that select financial results and guidance that we will review on the call this evening are presented on a non-GAAP basis. In addition, the impact of foreign exchange is presented inclusive of our foreign exchange risk management program. I will now turn the call over to Reshma.
Reshma Kewalramani: Thanks, Susie. Good evening all, and thank you for joining us on the call today, continuing our strong momentum from 2023, we've kicked off '24 with another quarter of excellent performance across the board. Vertex continued to reach more CF patients, delivering $2.7 billion in revenue in Q1, representing 13% growth versus the prior year period. We also began our journey of revenue diversification with the launch of CASGEVY in both sickle cell disease and beta thalassemia in multiple regions. In our late stage pipeline, we continue to drive programs into Phase III and towards regulatory approval, creating multiple opportunities for both revenue growth and diversification, including: one, completing our regulatory submissions for the vanzacaftor triple in patients with cystic fibrosis 6 years and older in both the U.S. and the EU, initiating the rolling NDA submission for VX-548 or suzetrigine in moderate-to-severe acute pain; three, advancing inaxaplin into the Phase III portion of its pivotal trial in APOL1-mediated kidney disease and expanding the eligible patient population down to age 10.
And four, following the successful completion of the end of Phase II regulatory meeting with the FDA, we are on track to initiate the Phase III trial of suzetrigine in painful diabetic peripheral neuropathy in the second half of this year, and milestones in our early and mid-stage pipeline matched this pace of progress as we resumed the VX-880 trial in type 1 diabetes, initiated clinical development of VX-407 in polycystic kidney disease, and three, achieve regulatory clearances in multiple regions, including the U.S., and initiated the Phase I/II clinical trial of VX-670 in patients with myotonic dystrophy type 1. And of course, we are very excited to expand the Vertex portfolio and team with our definitive agreement to acquire Alpine Immune Sciences announced on April 10.
Alpine's lead asset, povetacicept or pove, is a potential best-in-class Phase III-ready molecule for IgA nephropathy or IgAN, a disease with high unmet need. Pove is also a molecule that holds a pipeline in a product potential in a number of other serious autoimmune renal diseases and cytopenias in Phase II development. We see the acquisition as just the right fit with just the right assets at just the right phase of development, where Vertex's capabilities can accelerate pove's development in IgAN and other indications. And lastly, Alpine will add protein engineering and immunotherapy expertise to Vertex' capabilities with particular relevance for our development programs in gentler conditioning for CASGEVY and immune evasion for type 1 diabetes cell therapies.
We are excited to begin working with the Alpine team and together advanced pove into Phase III in IgAN later this year. With that overview, let me now turn to a more detailed pipeline review. This quarter, I'll limit my comments to the programs with the most significant recent updates, cystic fibrosis, pain, type 1 diabetes and the pending Alpine acquisition. Starting with CF. We are very pleased with the Phase III results of the vanza triple we announced in early February as we continue to advance towards our ultimate goal of bringing all eligible patients to carrier levels of sweat chloride. Results from the vanza pivotal program met our high expectations, and we're an important milestone in our progress towards this aspiration. Results from the 2 randomized studies in patients 12 and above demonstrated vanza was non-inferior to TRIKAFTA on lung function and superior to TRIKAFTA on sweat chloride including, as measured by the proportion of patients achieving sweat chloride levels below the diagnostic threshold of 60 millimoles per liter and below the carrier level or normal levels of sweat chloride of less than 30 millimoles per liter.
Included in the pivotal program was the RIDGELINE study in patients 6 to 11 years of age to underscore the potential impact of vanzacaftor consider 95% of patients age 6 to 11 in this study achieved sweat chloride levels below the level of diagnosis for cystic fibrosis, and more than half reached sweat chloride levels considered to be in the normal or carrier level range of sweat chloride. We believe these results indicate that Vanda could set a new standard in the treatment of CF. To round out the profile of the vanzacaftor triple, it's important to note that the therapy also offers the convenience of once-daily dosing and a substantially lower royalty burden. With these results in hand, we've been working rapidly to compile the regulatory marketing applications, and I am pleased to share that we have completed submissions in the U.S. and EU for patients ages 6 years and older ahead of our midyear goal.
In the U.S., we use one of our priority review vouchers, which if the filing is accepted, provides an expedited 6-month review versus the standard 10-month review time line. We're also on track to complete submission in the U.K., Canada, Australia, New Zealand and Switzerland by midyear. I'll close on CF with VX-522, our CFTR mRNA therapy in development with our partners at Moderna for the treatment of the more than 5,000 people with CF, who do not make any CFTR protein and therefore, cannot benefit from CFTR modulators. We continue to enroll portion of the study and expect data late in 2024 or early 2025. Moving to the pain program, and seceptrogene, our novel, highly selective NaV1.8 pain signal inhibitor. Suzetrigine offers a compelling combination of both strong safety and strong efficacy with the potential to treat moderate to severe pain across multiple settings of care.
In acute pain, suzetrigine has secured fast track and breakthrough therapy designations, and we were very pleased that the FDA granted us a rolling NDA submission. I'm also pleased to share that multiple modules have already been submitted and we are on track to complete the submission this quarter. Consistent with our serial innovation strategy, the next asset in our Acute Pain pipeline is VX-993. We recently received IND clearance for the intravenous formulation of VX-993 and have already started the Phase I trial. We're also planning a VX-993 oral formulation Phase II study in acute pain, which we expect to initiate later this year. Beyond suzetrigine and VX-993, we continue to innovate in the NAV 1.8 space and are also making strong progress preclinically with our NAV1.7 Pain Signal inhibition program, that may be used alone or in combination with suzetrigine or other NAV1.8 inhibitors.
In peripheral neuropathic pain or PMP, we are very pleased with the outcomes from the recently completed end of Phase II meeting with the FDA and and are excited to begin the pivotal program for suzetrigine in painful diabetic peripheral neuropathy, or DPN, in the second half of this year. The program will consist of 2 randomized sister studies of approximately 1,000 patients each with 3 arms in each study. Suzetrigine 70-milligram arm once daily, a placebo arm and a pregabalin or Lyrica arm. The efficacy endpoints are based on the change from baseline to week 12. The primary endpoint is the comparison of suzetrigine versus placebo in the weekly average of the daily pain intensity score or NPRS. The first key secondary endpoint will test for non-inferiority of suzetrigine to pregabalin on the same NPRS pain score, and if successful, we will test for superiority.
And finally, the second key secondary is quality of life measures versus placebo. In order to evaluate the long-term safety and effectiveness of suzetrigine, a subset of patients completing the 12-week study will have the opportunity to roll into a 52-week open-label extension study. Our goal continues to be a broad peripheral neuropathic pain label. And in support of this goal, we're also studying suzetrigine in lumbosacral radiculopathy or LSR, a PNP condition for which there are no specifically indicated or approved treatments. LSR accounts for approximately 40% of all PNP patients and together with DPN make up more than 60% of the PNP segment. We are continuing to enroll and dose our Phase II study of suzetrigine in LSR, and I'm pleased to share that the study is on track to complete enrollment by the end of this year.
Just as we transform the treatment of CF, we believe we have the potential to transform the treatment of pain, both acute and neuropathic and look forward to helping address the unmet need of the tens of millions of Americans suffering with these conditions. Turning now to type 1 diabetes. VX-880 is a stem cell-derived, fully differentiated iLet cell therapy for patients with T1D and impaired hypoglycemic awareness who suffered from severe hypoglycemic events. I'm pleased to share that after data review by the independent data monitoring committee, the VX-880 study has resumed Parts A, B and C of the global 17 patient study are fully enrolled, and we expect to complete dosing soon. We look forward to sharing updated data this June at the American Diabetes Association Annual Meeting.
VX-264, the next asset in our T1D program is our self plus device program. using the same VX-880 cells, which have already demonstrated efficacy VX-264 is designed to eliminate the need for immunosuppression by shielding the cells from the immune system in the proprietary device. This Phase I/II study has completed Part A and Part B is underway. Lastly, our Hyperimmune program, which aims to evade the immune system by introducing certain edits into the same VX-880 cells is yet another approach to avoiding the use of immunosuppressive. This program continues to advance in preclinical development. I'll conclude with a few comments on povetacicept, the lead asset from our pending acquisition of Alpine Immune Sciences. We are excited about the potential of povetacicept across multiple dimensions, including preclinically with its high affinity and potency against both APRIL and BAFF pathways in preclinical assays and as well as high efficacy in cell and animal models of B cell-driven diseases, clinically with patient data in IgAN through Phase II that look potentially best-in-class in proteinuria in hematuria, GFR and clinical remission, better drug-like properties with direct patient benefit, including once every 4-week dosing, subcutaneously with low injection volume, a good safety and tolerability profile, the broadest development plan in the field and a robust IP portfolio.
Important upcoming pove milestones in the second half of this year include initiation of the Phase III study in IgAN, and readouts from the ongoing RUBY03 and RUBY-4 basket studies in autoimmune renal diseases and cytopenias, respectively. With that, I'll turn it over to Stuart for a commercial overview.
Stuart Arbuckle: Thanks, Reshma. I'll first discuss CF. And then as we're entering a new era of commercial diversification provides some highlights of the ongoing CASGEVI launch and the outlook for suzetrigine in acute pain. As Reshma noted, we once again delivered strong results in CF as we continue to grow the number of eligible patients receiving our CFTR modulators. First quarter year-over-year U.S. growth was driven by continued strong performance of TRIKAFTA, including in patients ages 2 to 5 years old following the approval in this patient population in April of last year. Outside the U.S., we also saw growth this quarter, driven by the rollout of KAFTRIO in the EU in patients ages 2 to 5, following approval in this age group in November 2023, and we will continue to drive access and uptake in more EU countries over the course of the year.
Our outlook in CF is bright in the short, medium and long term. We will drive growth in the near term by reaching more eligible patients, including younger age groups and additional geographies. For example, we recently received EU approval of KALYDECO in patients between the ages of 1 month up to 4 months old. We also expect regulatory approvals for additional rare genotypes for KAFTRIO in the EU and TRIKAFTA in the U.S. and Canada later this year. And Brazil is a good example of a new geography. Up to now, some patients in Brazil have been able to benefit from our CFTR modulators through named patient sales. We recently secured government reimbursement for TRIKAFTA in ages 6 and are in the process of launching TRIKAFTA for all eligible patients there.
We will then look to drive further CF growth over the medium term with the vanzacafta triple combination launch, as many existing TRIKAFTA patients may seek to achieve even greater levels of CFTR function with the added convenience of once-daily dosing. And there are also more than 6,000 patients who have discontinued one of our current CFTR modulators, who may be interested in a new treatment option. Furthermore, there are some additional rare mutations, not previously respond to our other CFTR modulators that are responsive to the vanzacafta triple. Our launch preparations are well underway, including pre-approval information exchange with payers, and we are both encouraged by our interactions to date and excited by the opportunity to launch our fifth medicine in CF.
Longer term, we expect continued growth in CF from our mRNA program, VX-522 for the more than 5,000 people with CF, who do not respond to CFTR modulators. Now turning to CASGEVY and our launches in sickle cell disease and beta thalassemia. We are making strong progress with ATC activation, physician and patient engagement and payer conversations. Enthusiasm from stakeholders is high in all regions, and our teams are working to translate this historic scientific achievement into meaningful patient benefit in the real world. Let me provide some insights on the launch with 2 key metrics we are sharing externally as important markers of our early launch progress, the number of activated authorized treatment centers or ATCs, and patient cell collections.
Recall that Vertex will recognize revenue for CASGEVY near the end of the patient journey at infusion. Starting with ATC activation. You may recall, we are prioritizing approximately 75 ATCs globally and already had 9 ATCs activated at launch, even ahead of knowing the final label or pricing for CASGEVY. We are pleased with our progress as we now have more than 25 activated centers including centers in all regions where CASGEVY is approved. Even more important than the number of ATCs activated is patient initiations and cell collections. Many patients have begun the treatment journey, and as of mid-April, 5 patients already had cells collected. This is excellent progress given the short time frame since approval and the complexity and length of the patient journey.
These sales collections have occurred across all regions where CASGEVY is approved, the U.S., Europe and the Middle East. We also continue to make great progress with payers, who recognize the transformative clinical benefits of CASGEVY and are moving quickly to provide rapid and equitable access. In the U.S. commercial market, we have contracts and/or published policies in place for over 200 million lives or nearly 65% of total lives. In the government Medicaid sector, we have policies in place or active contract negotiations ongoing with 18 states. And in the meantime, all states have confirmed their intent to provide case-by-case coverage. Outside the U.S., we are also making progress with reimbursement and access, either through formal reimbursement agreements or early access programs.
In Europe, we see strong traction in France with a reimbursed early access program in TDT. We're particularly pleased with our progress in the Middle East, which is a new region for Vertex and especially important for CASGEVY given the high prevalence of sickle cell disease and the government's clear focus on elevating the health of their citizens. Since receiving regulatory approvals from KSA and Bahrain, we have worked with local health care authorities and refined our epidemiology estimates for the region. Our work indicates that the eligible 12-plus sickle cell disease and beta-thalassemia population in KSA and Bahrain that we could serve is in excess of 23,000 patients, a potentially larger opportunity than even the U.S. These regions have the infrastructure to administer medicines like CASGEVY given the prevalence of the diseases and relatively high volume of allogeneic stem cell transplants performed annually.
And importantly, we have already secured reimbursement agreements in KSA and Bahrain, allowing certain eligible patients to access CASGEVY for both sickle cell disease and transfusion-dependent thalassemia. In addition to having activated ATCs and collected cells from our first patients in the Middle East, we continue to work with local health care professionals to increase the number of ATCs and expand patient access in the region. Shifting now to suzetrigine. We believe this highly selective NaV1.8 pain signal inhibitor has the potential to provide a transformative treatment option for the millions of patients suffering from acute and peripheral neuropathic pain. This quarter, I'm going to limit my commercial comments to the opportunity in acute pain.
Throughout its clinical trials to date, suzetrigine has shown a compelling combination of efficacy and safety with strong potential to be used across a range of moderate to severe acute pain conditions, both surgical and nonsurgical and across a range of settings. This profile will ideally address the clear unmet need among both patients and physicians, effective pain relief with a favorable safety and tolerability profile. On prior investor webcast, we provided details on this opportunity, including the magnitude, approximately 80 million patients are prescribed a medicine for moderate-to-severe acute pain each year in the U.S. and the high concentration with approximately 2/3 of patients being treated in the institutional setting. There is further concentration within that setting in approximately 2,000 institutions that roll up to around 150 IDNs. Accordingly, they can be served with a specialty commercial infrastructure.
We have also detailed the mix of settings for their over 1 billion calendar days of acute pain treatment, 15% are prescribed and dispensed in an institutional setting. 35% are prescribed discharge and 50% are prescribed in physicians' offices. This quarter, I'll provide you with some insights on our go-to-market strategy and an update on the legislative and payer landscape. We are focused on the institutional setting, given these approximately 2,000 institutions account for 50% of acute pain prescriptions. Extensive market research has also helped us identify an initial set of specific acute pain conditions and procedure types with high clinical fit, such as high-volume surgical procedures, pain conditions that typically require prescription pay medicines at discharge or where we can seek to replace or significantly reduce opioid utilization.
And the related physician specialties that are likely to adopt and champion suzetrigine. The key health care professionals we will be targeting include orthopedic, general and plastic surgeons, emergency department physicians anesthesiologists and pain medicine specialists. Given the dynamics for new medicines to be approved for use in institutions, we expect the earliest uptake of suzetrigine will occur at discharge. Recall, this discharge segment represents roughly 35% of the approximately 1.1 billion calendar days of acute pain treatment in the U.S. each year. The average prescription length in this setting is approximately 2 weeks. Treatment in this setting commonly includes opioids where prescription length is shorter 4 to 5 days due to side effect profile, addiction concerns and prescribing limits at the state and IDN and hospital level.
We are already engaging with key decision-makers across the formulary and access landscape, including pharmacists, PBMs, payers, IDNs and GPOs. We expect these stakeholders to make formulary and coverage decisions throughout the first year of the launch and thus plan to engage in contracting discussions in the second half of this year, ahead of launch to support the potential for accelerated formulary adoption. We've also made great progress in the build-out of our commercial team. Our field leadership team are now on board and fully trained and have engaged in the hiring of the field force until after the Phase III data we are now finalizing the hiring of 150 new customer-facing colleagues. Finally, we know the significance of policy in the world of pain treatment with important legislation like the No Pain Act already on track for implementation in 2025 and bills like the alternatives to Pain Act recently introduced.
Our long-standing efforts continue to help shape state and federal policy initiatives to: one, encourage consideration and use of non-opioid alternatives; and two, remove financial barriers to choosing a branded non-opioid. Overall, we plan for a high science, digitally enabled commercialization approach with a strong focus on population health decision makers. In addition, both patient advocacy and public policy efforts complement and supplement our commercial activities. In conclusion, it's an exciting time to be at Vertex. We continue to treat more CF patients around the world and are well advanced in planning for the launch of the vanzacafta triple combination. We are entering a new era of commercial diversification with the launch of CASGEVY in the U.S., Europe and the Middle East.
And our launch preparations for suzetrigine in acute pain are well underway as we seek to fundamentally redefine the treatment of pain and drive further diversified revenue growth. I'll now turn the call over to Charlie to review the financials.
Charles Wagner: Thanks, Stuart. Vertex's excellent start to the year demonstrates once again our consistent strong performance and attractive growth profile. First quarter 2024 revenue increased 13% year-over-year to $2.7 billion with solid growth of 8% in the U.S. and 21% outside the U.S. The drivers of this strong start were in line with our expectations with some outperformance due to channel inventory phasing in select international markets. First quarter U.S. growth was driven by continued strong performance of TRIKAFTA, including in patients ages 2 to 5 following the approval in this patient population in April of last year partially offset by the typical pattern of seasonally higher gross to net in the first quarter. Outside the U.S., growth was also driven by KAFTRIO '25 launch and a benefit from channel inventory phasing is expected to reverse in subsequent quarters, similar to the dynamics we saw in the first half of 2023.
We First quarter 2024 combined non-GAAP R&D acquired IP R&D and SG&A expenses were $1 billion compared to $1.2 billion in the first quarter of 2023. Included in Q1 '24 results, our $77 million of acquired IP R&D charges compared to $347 million of such charges in the first quarter of 2023. Non-GAAP R&D expenses in Q1 '24 were relatively flat year-over-year and reflect growing investment in the advancement of our broad earlier-stage R&D portfolio offset by reduced costs from the recent successful completion of multiple late-stage clinical trials for CASGEVY, vanzacaftor and suzetrigine as well as the associated transition of certain costs from R&D to COGS and inventory. The increase in non-GAAP SG&A costs versus Q1 '23 includes investment in the commercial organization and launch activities for CASGEVY and acute pain.
We anticipate the quarterly non-GAAP R&D and SG&A expenses will increase over the remainder of 2024 as we advance inaxaplin into Phase III development in AKD initiate the suzetrigine Phase III program in painful diabetic peripheral neuropathy and continue to invest in preparation for upcoming potential new commercial launches, including the further build-out of our suzetrigine team. First quarter 2024 non-GAAP operating income was $1.3 billion, a 48% increase compared to $902 million in non-GAAP operating income in the first quarter of 2023. We First quarter 2024 non-GAAP effective tax rate of 17.4% compares to 21.3% in Q1 '23 and includes a benefit from a discrete adjustment to Vertex's income tax reserves. First quarter 2024 non-GAAP earnings per share were $4.76 and including benefits from revenue and expense phasing as well as a lower tax rate compared to $3.05 in the first quarter of 2023.
We ended the quarter with $14.6 billion in cash and investments. We will use a portion of this cash on hand to fund the $4.9 billion acquisition of Alpine Immune Sciences, which is expected to close this quarter, subject to certain customary conditions. Alpine is a prime example of our priority for capital deployment, to invest in innovation, including external innovation via business development. We see multibillion-dollar potential for Phase III-ready povetacicept given the transformative and best-in-class potential in IgAN, a disease area with high unmet need. We also look forward to exploring pove's full potential in other serious diseases. Additionally, we deployed over $140 million of cash in the first quarter to repurchase 336,000 shares.
Now switching to guidance. There is no change to our 2024 total product revenue guidance range of $10.55 billion to $10.75 billion, representing revenue growth of 8% at the midpoint at current exchange rates. We have high visibility into this revenue outlook. We expect continued growth in CF as we continue to reach more patients, including younger ones, in core markets and select other countries as well as contribution in the second half of the year from the commercial launch of CASGEVY in approved indications and geographies. For total Vertex operating expenses, we continue to project $4.3 billion to $4.4 billion in full year 2024 combined non-GAAP SG&A, R&D and acquired IP R&D. This operating expense range continues to include approximately $125 million in currently anticipated IP R&D charges.
Upon the close of the Alpine acquisition, we expect Alpine's projected non-GAAP operating expenses for the remainder of 2024 to be absorbed within this guidance range but note the potential impacts of transaction accounting, including any potential acquired IPR&D charges will be determined at the time of closing. There's also no change to our full year 2024 non-GAAP effective tax rate guidance range of 20% to 21%. In closing, Vertex posted excellent results yet again to start off the year as we delivered strong revenue growth, regulatory approvals and commercial launches. We also strengthened our capabilities in preparation for additional near-term launches, progressed our mid- and earlier-stage pipeline and entered the clinic in our 10th disease area of ADPKD.
Importantly, we also announced the anticipated acquisition of Alpine Immune Sciences, a compelling fit with Vertex's strategy. Post close, we aim to leverage Vertex's clinical, regulatory and commercial capabilities to accelerate development and commercialization of pove. We are targeting approval in IgAN in 2027 and and contribution to Vertex's revenue growth and diversification beginning in 2028, leveraging a specialty market approach with attractive margins. As we move through 2024, we anticipate further important milestones as detailed on Slide 18 to mark our continued progress in multiple disease areas. Please note that this pipeline slide will not reflect programs from Alpine Immune Sciences until post transaction close. We look forward to updating you on our progress on future calls, and I'll now ask Susie to begin the Q&A period.
Operator: [Operator Instructions] Go ahead, Ms. Susie.
Susie Lisa: No. That's great.
Operator: [Operator Instructions]. And the first question will come from Geoff Meacham with Bank of America.
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