Why This Key Analyst Has a Mixed View of Vertex’s Win

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Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) shares jumped after the firm released results from two Phase 3 studies in the treatment of cystic fibrosis in ages 12 and older. Ultimately they each achieved their respective primary endpoints and helped to confirm superiority over Orkambi. The results also drew attention from analysts as well.

The results were exceedingly positive, and one key analyst took this opportunity to weigh in on Vertex and where it stands to go from here. Janney Capital maintained a Neutral rating for a few reasons. First, with these positive results Vertex gained back a little mojo, but looking ahead there still are challenges for this triple combo.

For some brief background on the studies: the 24-week Evolve study evaluated the combination treatment in people who have two copies of the F508del mutation. This study met its primary endpoint with a mean absolute improvement in percent predicted forced expiratory volume (ppFEV1) in one second through 24 weeks of 4.0 percentage points from baseline compared to placebo.

The second study, Expand, met the primary endpoints of absolute change in ppFEV1 from baseline to the average of the Week 4 and Week 8 measurements, with the tezacaftor/ivacaftor combination treatment demonstrating a mean absolute improvement of 6.8 percentage points compared to placebo.

According to Janney Capital’s Debjit Chattopadhyay:

While a 3% to 5% improvement in absolute ppFEV1 was the base case expectation (70% POS in our model making it modestly better than Orkambi) in the homozygous F508del patients, the low respiratory adverse event rate was the compelling positive. Activity in F508del+residual CFTR patients was a welcome add as well. Both tezacaftor and ivacaftor are integral parts of the planned triple-combo program and hence, the robustness of the safety profile has broader significance. VRTX is expected to file an NDA during 3Q17, with potential approval during 1H18, by our estimates. The safety profile should mitigate some of the commercial concerns surrounding Orkambi, which suggests potential upside to FY18/19 estimates. VRTX is also enrolling patients with one copy of the F508del mutation and a second mutation resulting in a gating defect in the CFTR (likely to be responsive to ivacaftor). Enrollment to the last study is expected to be complete during the 1H17, and data from this program will not be included in the initial NDA submission. With tezacaftor in the rearview, the focus now shifts to tougher triple-combo-related challenges. With the stock trading at a premium to peers, mid-stage readouts from the triple-combo program [VX-440 and VX-152 (during 2H17)] and healthy volunteer/CF patient phase 1 study with VX-659 remain the key levers for additional upside.

Janney also pointed to Vertex’s triple-combo data that is due out in the second half of 2017. Currently the dosing is underway in two Phase 2 studies evaluating VX-440 and VX-152 in triple combinations with tezacaftor and ivacaftor. However Janney believes that there could be safety/tolerability issues that could manifest post-Phase 2.

For VX-152, signs of gastrointestinal intolerance (including nausea and vomiting) at higher doses in healthy volunteers, the planned Phase 2 is just a two-week study at significantly lower doses than tested in Phase 1. Also, teratogenicity associated with VX-440 prevents enrollment of pregnant patients and mandates the use of non-hormonal birth control for female patients of child-bearing age.

Finally, Vertex plans to submit a New Drug Application (NDA) to the FDA and a Marketing Authorization Application (MAA) to the European Medicines Agency in the third quarter of 2017 for the tezacaftor/ivacaftor combination.

Shares of Vertex were last seen up 22% at $109.92 on Wednesday, with a consensus analyst price target of $100.25 and a 52-week trading range of $71.46 to $111.88.