Vertex Poised to Become Profitable Following Expected FDA Approval of Orkambi

Vertex Poised to Become Profitable Following Expected FDA Approval of Orkambi
June 30, 2015
By Alex Keown and Riley McDermid, Breaking News Staff

BOSTON – Vertex Pharmaceuticals is anxiously waiting for regulatory approval of its newest cystic fibrosis medication Orkambi, a treatment which is widely expected to have a broad impact on the cystic fibrosis market – and a treatment widely expected to sharply boost revenues.

The U.S. Food and Drug Administration (FDA) is expected to approve the medication for market later this week. The regulatory body has until July 5 to issue its ruling on the drug, which is expected to earn $5 billion by 2018.

Vertex stock was ticking up this morning in anticipation of approval, trading at $124.13, up from a low of $123.25 per share.

Orkambi, which had Breakthrough Therapy designation from the FDA, will build upon the success of Vertex’s other blockbuster cystic fibrosis drug Kalydeco, which is expected to see earnings increase to between $560 and $580 million this year, an increase from the $464 million it earned in 2014. Despite these earnings, Vertex has yet to turn a profit, annual reports show.

Analysts predict Orkambi will push the company to profitability, in large part because of the reach the drug is expected to have to cystic fibrosis patients. Kalydeco is expected to reach about 3,900 patients by the end of this year, while Orkambi is expected to be able to treat more than 20,500 patients in the United States and the European Union, if European regulators approve the drug.

European regulators are expected to rule on the drug later this year. Orkambi’s reach could be increased if the drug is further approved for younger patients. If that occurs, it’s estimated Orkambi could reach another 5,000 patients.

Orkambi is the combination of Kalydeco and lumacaftor, which will be used to treat patients with the with the F508del mutation of cystic fibrosis, a mutation the lead drug cannot treat on its own. The F508del mutation is the most common genetic mutation in cystic fibrosis.

Late stage clinical trials showed the combination drug was safely tolerated by patients and lowered the rate of pulmonary exacerbations.

An FDA advisory panel did offer some criticisms of the drug, including only modest improvement in lung function and whether or not the drug would have failed if Orkambi had been compared against Kalydeco alone instead of a placebo, The Street noted.

While Vertex will likely have two very strong drug performers in the cystic fibrosis market, the company is continuing to develop other cystic fibrosis drugs for its pipeline, including VX-661. In May the company reported the benefits to lung function in the 39-patient trial seemed to decline slightly over time.

Earlier this year Kalydeco, the first drug designed to counter the genetic cause of cystic fibrosis, was touted by the White House during the State of the Union Address. During his talk to the nation, President Barack Obama pointed out a guest of the first lady who is taking Kalydeco. Kalydeco was approved in 2012 and is aimed at a “select few” of the genetic mutations that can cause cystic fibrosis.

Additionally the administration has pointed to the drug being an example of the kinds of medication that will allow researchers to examine the cause of cancers and other illnesses on a genetic level in order to provide targeted therapies for individual care. Delving into disease at a genetic level will give researchers more confidence in developing those new medications, Jeffrey Leiden, Vertex’s chief executive officer said in news reports.

In early May, news that the FDA's Pulmonary Allergy Drugs Advisory Committee had released its briefing notes ahead of an approval meeting about Orkambi may have initially spooked the market, but the company roared back as Wall Street agreed the document was an overall positive.

When parsed thoroughly the documents showed the FDA believes that there is a statistically significant benefit over placebo in FEV1 but has questions about the small treatment effect and the lack of ivacaftor monotherapy and lumacaftor monotherapy controls in the Phase III trials, said analysts.

The lead biotech analyst at Citigroup, Yaron Werber, said a closer look at the FDA’s notes show the regulator is generally open to the idea of approving Orkambi.

“Given that Orkambi has Breakthrough designation, which provides for enhanced interaction, FDA notes that they and European Medicines Agency (EMA) agreed with the study designs and continuously provided constructive guidance,” wrote Werber.

“As such we believe that FDA needs to raise this question for discussion but is supportive of the trial design. The key question is whether the benefit is clinically meaningful. We believe that the AdCom will vote positively for approval of Orkambi given the lack of alternative treatment options for cystic fibrosis patients homozygous for the F508del mutation in the CFTR gene.”

In the documents, the FDA agrees that Orkambi shows statistically significant benefit over placebo in FEV1, regardless of the dose—but still had questions about whether the 2.6 percent and 3 percent FEV1 benefit over placebo is clinically meaningful. The regulator is also questioning the additional benefit provided by lumacaftor given the similarity of the treatment effects seen in the 150mg ivacaftor monotherapy study and Orkambi's pivotal trials.

As part of that, Vertex has faced a barrage of theoretical situations, including the FDA asking a hypothetical question about whether an ivacaftor monotherapy trial might show similar improvements in lung function and reductions in CF pulmonary exacerbations to those seen by Orkambi. But those questions shouldn’t spook investors, said ISI Evercore analyst Mark Schoenebaum.

“Bottom line: despite the questions raised by the FDA in the briefing documents, we believe that the preponderance of evidence will push the clinicians on the panel (and the FDA) to not withhold Orkambi from F508del patients (nuanced statistical arguments unlikely to sway a panel of clinicians, in our view),” wrote Schoenebaum.

“On the question of benefit the double pill over Kalydeco alone, a post-marketing study if deemed necessary would also be sufficient to resolve this issue,” he said. “Therefore, we believe the risk of regulatory non-approval is still low (not zero!) but that we should all bear in mind that some of the questions raised in the document could make reimbursement discussions outside the U.S. more difficult.”

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