AbbVie’s Failure Solidifies Vertex’s Cystic Fibrosis Lead (NASDAQ:VRTX)

The key overhang on Vertex Pharmaceuticals (NASDAQ:VRTX) was recently removed – competitor AbbVie (ABBV) said its phase 2 cystic fibrosis combination did not deliver the desired results and that they will not be advancing this combination to pivotal trials. And although AbbVie is not giving up on its cystic fibrosis program and is advancing two of the three candidates from this combination with a new C2 corrector, it is looking increasingly likely that Vertex will not have meaningful competition in cystic fibrosis anytime soon.

While I removed Vertex from the portfolio recently to redistribute the proceeds to other names that I find more attractive at current levels, I still see Vertex as well-positioned to deliver long-term value.

AbbVie failing but not giving up

AbbVie reported Q1 2022 earnings in late April and provided an update on its cystic fibrosis program. After an interim analysis of the phase 2 proof of concept trial, the company decided to discontinue the development of the triple combination of ABBV-119, galicaftor, and navocaftor as the results did not meet the prespecified criteria for advancing the triple combination to pivotal trials.

The C2 corrector ABBV-119 seems to be the problem as its addition to galicaftor and navocaftor did not provide a meaningful improvement in FEV1 or a reduction in sweat chloride concentration over the dual combination of galicaftor and navocaftor.

However, despite this failure, AbbVie is not giving up on its cystic fibrosis program. It is satisfied with the performance of galicaftor and navocaftor and will test this doublet with a new C2 corrector ABBV-576 which it says has a better PK profile and provides higher drug exposure, and that it has the potential to deliver better efficacy. A new phase 2 trial is expected to start in early 2023.

This is good news for Vertex’s cystic fibrosis franchise. At worst, this update adds at least two years (and probably closer to three years) to the market arrival of AbbVie’s cystic fibrosis combination.

Vertex has already set the bar for efficacy very high, and I believe it will be hard for AbbVie to come up with a triple combination that has similar efficacy, let alone better. And as mentioned in previous articles, Vertex has a new triple combination already in phase 3 trials with the potential to raise the bar for AbbVie even higher. By the time AbbVie starts its new phase 2 trial in early 2023, Vertex should complete enrollment in the phase 3 trial of its new triple combo – the guidance for completion of enrollment is late 2022 or early 2023.

Vertex now has even more time to advance its non-CF pipeline to try to reduce its reliance on the CF franchise.

The cystic fibrosis franchise did well in the first quarter

Commercial execution remains very strong. Product revenues grew 22% in Q1 to $2.1 billion, beating the analyst consensus by $30 million. Management reiterated the full-year guidance range of $8.4 billion to $8.6 billion and since the annualized run rate is already at the low end of the range, it is likely that 2022 product revenues will exceed the high end of the range.

U.S. sales grew 9% Y/Y to $1.37 billion, mainly driven by last year’s approval of Trikafta for children ages 6 to 11.

Ex-U.S. sales increased 55% to $729 million, driven by rapid uptake in countries where Vertex secured reimbursement.

There is more room for growth for the CF franchise and I still expect product revenues to reach or exceed $10 billion in 2024, though given the execution to date, this could happen in 2023. The U.S. market is largely done in terms of its growth potential, and the growth will be primarily driven by geographic expansion and continued penetration into the existing ex-U.S. markets.

Minor setback for the type 1 diabetes program

The VX-880 program for type 1 diabetes hit a roadblock in early May. The phase 1/2 trial was placed on clinical hold by the FDA due to a determination that there is insufficient information to support dose escalation with the candidate.

VX-880 generated promising data in two type 1 diabetes patients at half the target dose of cells in part A of the phase 1/2 trial. The first patient achieved insulin independence at day 270, good data were seen in the second patient too, and the third patient received a full target dose with the initiation of part B of the trial with the early data showing increasing fasting C-peptide and improving glycemic control through day 29.

This is not a program that has a lot of value assigned by the market, and there was no significant impact on Vertex’s valuation. It also seems that the issue can be addressed and that the program will resume.

Purchase of Catalyst Biosciences assets

In late May, Catalyst Biosciences (CBIO) announced the sale of its protease medicines that regulate complement to Vertex for $60 million in cash. This is not really a transaction that causes a lot of attention or that gets investors excited but marks the continued path this management team has taken – early-stage assets with little financial risk. This pipeline includes preclinical assets:

• CB2782-PEG which Catalyst out-licensed to Biogen (BIIB) in 2019, but Biogen recently gave the rights back to Catalyst. This is a novel C3 degrader in development for dry age-related macular degeneration.
• CB4332, an enhanced complement factor I, with the goal of restoring normal complement activity.
• A C4b degrader.
• Additional undisclosed programs.

Complement is an attractive area with clinically de-risked indications such as PNH, aHUS, generalized myasthenia gravis, NMOSD, and approved products like AstraZeneca’s (AZN) Soliris and Ultomiris with a combined annualized net sales run rate of $5.5 billion as of Q1 2022, and Apellis Pharmaceuticals’ (APLS) Empaveli, and many additional shots on goal across hematology, nephrology, neurology, and immunology.

But all of the mentioned assets are still preclinical, and it will take years to create shareholder value.

Conclusion

The setback of AbbVie’s cystic fibrosis clinical program further solidifies Vertex’s leadership position in cystic fibrosis. It is now up to the company to continue to grow product revenues and build the pipeline which still does not have the potential to come close to the sales potential of the CF franchise anytime soon.

All pipeline products have generated positive clinical data in the last few quarters – VX-880 in type 1 diabetes (with the program now put on hold by the FDA), VX-147 in APOL1-mediated FSGS (covered in last year’s article), and more recently, the company announced positive results from a phase 2 trial of VX-548 for the treatment of acute pain following abdominoplasty and bunionectomy surgery.

Vertex is in good shape and well-positioned to deliver long-term shareholder value.