Vertex Pharmaceuticals Inc. (VRTX, Financial) is one of the biotechnology space's biggest winners this week. The company is currently trading in and around all-time highs of $160 a share, having gained more than 20% in value alone over the last couple of days. For a development stage, small-cap biotechnology stock, 20% is all in a day's work.
Vertex is not a small-cap biotechnology stock, however. The company is a $50 billion-dollar health care behemoth, and to have tens of billions of dollars added to its market cap in a little over 24 hours is incredibly unusual.
So what is behind the action? More importantly, does the driver justify the move and, in turn, can the company continue to appreciate going forward as the implications of the most recent development materialize?
Let's take a look.
On July 19, Vertex published data from two clinical trials, both of which are rooted in the company's cystic fibrosis (CF) development program. Readers who are familiar with Vertex will likely be aware the company is dominant in this space. The company generated $703 million in revenues from Kalydeco and $979 million from Orkambi in 2016. Its cystic fibrosis portfolio as a whole brought in $1.68 billion across the period in question.
Despite these large numbers, however, the company's target population when looked at against a backdrop of the entire CF population in the U.S. is relatively small. There are somewhere in the region of 75,000 individuals with the disease in the U.S. right now. With the two already approved assets, Orkambi and Kalydeco, Vertex is able to target only 30,000 of these patients. There is an ongoing study investigating the potential impact of a drug called tezecaftor with Orkambi and – if it is successfully completed – the target population could increase to a little over 40,000. That is an improvement, but it still leaves a large portion of the market closed off to the company.
The reason certain drugs can only treat certain parts of the population is rooted in the type of mutation causing the CF. Some mutations are not affected by some drugs and some combinations of drugs will work in some combinations but not others. Physicians essentially have to try out a few combinations and see which works best. In this sense, it is similar, in concept at least, to HIV drugs.
To put this another way and to tie it in with the paragraph previous to the former, there is a little less than half of CF patients who have a form of the disease rooted in a mutation Vertex's drugs cannot treat.
So this brings us to the latest study data. The drugs in question are three experimental assets designed for use in combination with the company's already approved drugs in this space (Orkambi and the Kalydeco).
Specifically, both the phase I and the phase II investigated triple pill regimens, one looking at a drug called VX-152 in combination with tezecaftor and Kalydeco and another looking at VX-440 in combination with the already approved drugs.
The former, which was the phase II, improved lung function (as measured by what is called FEV-1) by 9.7%. For the trial to have been considered a success, the drug would have only needed to improve on FEV-1 by circa 2.5%. The other trial improved the metric by 12%. That is an incredible improvement in this population, especially given the patients the company was going after are very difficult to treat and currently do not have any viable long-term treatment options available to them.
The real driver behind the growth in market capitalization on the back of this news, then, is what the data means for the company in terms of now being able to address the parts of the population to which it was previously closed off. If the combinations are able to replicate the successful numbers in later stage trials and, on the back of said replication, pick up a regulatory green light from the Food and Drug Administration in the U.S., then it is going to increase the target CF population to just shy of 70,000 sufferers. That is a jump from little more than 20% to a close to 90% coverage.
That is why the company is running.
So what is next?
Now it is all about getting these results replicated in a larger patient population. The phase II trial, which is the one markets are getting really excited about, should be in a phase III study before the end of this year. Major near-term catalysts, then, derive from the initiation of this trial and its subsequent enrollment. Beyond that, top-line readout (which could hit press before the end of the third quarter next year) is a major upside driver if it hits press as indicative of clinical benefit to a degree we have just seen.
Disclosure: I have no positions in any of the stocks mentioned in the article and do not intend to open any positions near term.
