By Joseph Walker
Vertex Pharmaceuticals Inc., one of biotechnology's most richly
valued companies, faces a big test Tuesday in proving it can become
consistently profitable and live up to its $30 billion market
capitalization.
A Food and Drug Administration advisory committee will consider
whether to recommend approval of Vertex's experimental
cystic-fibrosis drug, Orkambi, which analysts predict could help
the company earn more than $8 billion in net profit over the next
four years if it reaches the market.
Of the top 10 largest biotech companies by market value, Vertex
is the only one to not turn a profit last year. The company, which
was founded in 1989 and has one drug on the market, had lost an
accumulated $4.9 billion as of March 31.
But Vertex's share price has doubled over the past year, the
result of high expectations for Orkambi. If approved, J.P. Morgan
projects the drug will reach global sales of $1.6 billion next year
and $4.2 billion in 2020. Analysts widely expect the drug to
receive a positive recommendation on Tuesday, and final FDA
clearance by July.
The FDA meeting, to be held in Gaithersburg, Md., will be
closely watched by health insurers and pharmacy-benefit managers
who are concerned that Orkambi will be the latest high-priced
blockbuster to strain their budgets. Vertex hasn't announced a
price yet, but J.P. Morgan predicts the company will charge a
wholesale price of around $287,000 annually per patient. Express
Scripts Holding Co., the largest U.S. pharmacy benefits manager,
says that price will overwhelm employer health plans.
"We're really hoping this product comes out at a much more
affordable price, because the burden to payers is extraordinary,"
said Express Scripts Chief Medical Officer Steve Miller.
Vertex, based in Boston, Mass., already has a hit
cystic-fibrosis drug in Kalydeco, which has a wholesale annual
per-patient price of $311,000 in the U.S., and had $464 million in
global sales last year. But Kalydeco treats a relatively rare type
of cystic fibrosis, with a market of only 2,000 patients in the
U.S. Orkambi, which combines Kalydeco with another compound, could
be approved for 8,500 patients, or 28% of the 30,000 people in the
U.S. with the disease.
Vertex is seeking approval to sell Orkambi to patients ages 12
and older with the most common genetic mutation causing cystic
fibrosis, an inherited lung disease that kills many patients by
their 20s. Zachry Barber, a Vertex spokesman, said in an email that
Orkambi's effect in reducing patient hospitalizations and lung
infections is "very meaningful to patients." If the drug is
approved, it would be the only medicine to treat the underlying
cause of the disease for eligible patients, he said.
"The treatment of cystic fibrosis represents a tiny fraction of
overall spending on prescription medicines in the U.S.," Mr. Barber
said.
He added: "Not being profitable all but one year out of 26 isn't
sustainable, and our goal is to have a profitable company so we can
continue to develop medicines for patients with cystic
fibrosis."
The FDA isn't permitted to consider costs when evaluating
whether to approve new drugs, but health insurers in recent years
have become increasingly sensitive to high-priced treatments. In
Arkansas, Medicaid officials in 2012 expressed concerns in emails
about the potential costs of Orkambi to the state's pharmacy
budget, The Wall Street Journal has reported. Prime Therapeutics
LLC, a private pharmacy-benefits manager, has flagged Orkambi as
one of several potential blockbusters that insurers and large
employers should be prepared to pay for.
"The focus is going to shift to pricing, and the backlash that's
going to result from the price that they charge," said Brian
Skorney, an analyst with Robert W. Baird & Co.
The Week Ahead looks at coming corporate events.
Write to Joseph Walker at joseph.walker@wsj.com
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