Vertex Looks To Target 10% Of Cystic Fibrosis Population Not Yet Achieved By Its Current CFTR Modulators – Seeking Alpha

Vertex Pharmaceuticals (VRTX) has done well to help many patients in the cystic fibrosis (CF) community. The problem is that it has more patients to cover and to potentially improve treatment upon. Well, it has generated another partnership with Moderna (MRNA) for developing a potential gene editing therapy for the treatment of patients with cystic fibrosis. This is the second collaboration that provides an additional shot on goal. I believe this is a good move for Vertex as it looks to expand its presence in the CF space. It is imperative that Vertex moves to do this to address the patients that don't respond to its current therapies. Since Vertex's CFTR modulators only target those CF patients who produce the CFTR protein, about 10% don't respond to its drugs. A mode of action of developing a gene-edited therapy to address this issue is plausible. That's why I believe Vertex has the potential to eventually expand its market with this latest deal. There was another deal made with Moderna years earlier that is also progressing as well. This is why I think it's worth a look as a speculative investment.

Vertex Pharmaceuticals and Moderna Pharmaceuticals made an agreement, whereby Moderna would use its lipid nanoparticle (LNP) technology to develop gene-edited therapies to treat patients with cystic fibrosis. This is not a bad agreement at all. That's because Vertex is only paying $75 million upfront for this collaboration and then up to $380 million in additional milestone payments. This means Moderna will be responsible for starting off research activities of its LNP technologies to hopefully make something suitable to bring into the clinic in human testing. Vertex will help a little bit in the research by providing gene editing that is supposed to be incorporated into the LNPs being developed. This isn't the only deal that Vertex made to advance another potential CF drug. Back in 2016, Vertex made another deal, whereby Moderna would use its mRNA technology to deliver a gene-edited therapy for the treatment of patients with CF. This other deal was a multi-year agreement with a $20 million upfront payment and then $20 million in a Moderna convertible note that was to be converted to equity. From there, it would be about $275 million in milestone payments. The bottom line here is that there are two delivery approaches being made to deliver gene-edited therapies. Both LNP and mRNA have the potential to deliver the gene that CF patients need to develop the CFTR protein. As I noted in the beginning, despite several CFTR modulators that Vertex markets, there are 10% of patients who don't benefit at all from them. That means these gene-edited therapies may potentially allow these nonresponder patients to respond.

According to the 10-Q SEC Filing, Vertex Pharmaceuticals had cash, cash equivalents, and marketable securities of $5.5 billion as of June 30, 2020. It has a huge cash runway to fund its pipeline and meet its commitments. Not only that, but I don't foresee the need to also do a major cash raise. The reason why is that, if necessary, it can tap into a revolving credit facility that was done in 2019. That is, it can borrow up to $500 million according to this agreement. There are several benefits here with this agreement that are also a huge plus. This includes the ability to repay and reborrow without penalty. In addition, if it is ultimately needed, Vertex can ask the borrowing capacity to be increased by another $500 million. That would bring the possible borrowing power to $1 billion. Of course, that's only an option if Vertex really needs additional cash. However, Vertex is already producing substantial amounts of revenue. For its Q2 of 2020 earnings, it reported product revenues of $1.52 billion. That's substantial because that is a 62% increase compared to the same time period in 2019. That is not the only thing that should give investors confidence. Another positive development is that the company raised its full-year 2020 guidance higher. It originally was expecting full-year 2020 CF revenues of $5.3-5.6 billion. However, with increasing sales, it is now guiding its full-year 2020 CF revenues to be $5.7-5.9 billion.

The latest collaboration agreement between Vertex and Moderna is still risky. That's because this is only starting off in the research phase and where preclinical studies must be done first in animal testing. There is no guarantee that any candidate/s will make it to human clinical testing. If that happens, then it's possible that either the first or second collaboration agreement could be terminated. The good news is that there are two routes that will be attempted. One route is to use LNPs to deliver gene-edited CFTR protein and then the other one will use messenger RNA (mRNA) delivery technology instead. As long as one delivery tech candidate is successful, that will be good news for both patients and investors. On the flip side, as I have shown, Vertex is already producing substantial revenues from its currently marketed CFTR modulator drugs. A second risk could be an eventual slowdown in revenues because of the situation with Covid-19; however, that hasn't had a dramatic impact on sales as of yet.

Vertex Pharmaceuticals is a good buy based on its recent performance in sales. As noted above, sales year over year in Q2 2020 increased by 62% to $1.52 billion. Not only that but guidance was also increased as well. The recent deal with Moderna, plus the one made several years ago, has the potential to help the company expand its presence in the CF space. While many benefit from Vertex's CFTR modulator drugs currently available, there are many who still don't. Even then, the company is also expanding its current CFTR modulator therapies to other subpopulation of patients. For example, it recently received FDA approval of KALYDECO for use in CF patients who are aged 4 to less than 6 months that have at least 1 mutation in their CFTR gene. KALYDECO was already approved for use in the U.S. and EU in CF patients, however, that was for patients aged 6 months and older. This latest regulatory approval will allow Vertex to treat an additional group of patients it couldn't target before. For all these reasons, that's why I think Vertex is worth a look as a speculative buy.

This article is published by Terry Chrisomalis, who runs the Biotech Analysis Central pharmaceutical service on Seeking Alpha Marketplace. If you like what you read here and would like to subscribe to, I'm currently offering a two-week free trial period for subscribers to take advantage of. My service offers a deep-dive analysis of many pharmaceutical companies. The Biotech Analysis Central SA marketplace is $49 per month, but for those who sign up for the yearly plan will be able to take advantage of a 33.50% discount price of $399 per year.

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Vertex Looks To Target 10% Of Cystic Fibrosis Population Not Yet Achieved By Its Current CFTR Modulators - Seeking Alpha