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VRTX > SEC Filings for VRTX > Form 10-Q on 31-Jul-2014All Recent SEC Filings

Show all filings for VERTEX PHARMACEUTICALS INC / MA

Form 10-Q for VERTEX PHARMACEUTICALS INC / MA


31-Jul-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
We are in the business of discovering, developing, manufacturing and commercializing small molecule drugs. We invest in scientific innovation to create transformative medicines for patients with serious diseases in specialty markets. Our business is focused on developing and commercializing therapies for the treatment of cystic fibrosis, or CF, and advancing our other research and early-stage development programs, while maintaining our financial strength. We have marketed KALYDECO (ivacaftor) in the United States, European Union and Canada since it was approved in 2012 for the treatment of patients six years of age and older with CF who have specific genetic mutations in their cystic fibrosis transmembrane conductance regulator, or CFTR, gene. In June 2014, we announced positive data from two Phase 3 clinical trials, referred to as TRAFFIC and TRANSPORT, of lumacaftor, a CFTR corrector compound, in combination with ivacaftor, a CFTR potentiator compound. In TRAFFIC and TRANSPORT, we evaluated the combination regimen in patients 12 years of age and older with CF who have two copies (homozygous) of the F508del mutation in their CFTR gene, which is the most prevalent form of CF. We plan to submit a New Drug Application, or NDA, to United States Food and Drug Administration, or FDA, and a Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMA, for lumacaftor in combination with ivacaftor in the fourth quarter of 2014. Cystic Fibrosis
Our plan is to (i) increase the number of patients eligible for treatment with ivacaftor, (ii) seek marketing approval for lumacaftor in combination with ivacaftor for the treatment of patients with CF who have two copies of the F508del mutation in their CFTR gene and (iii) research and develop earlier-stage compounds for the treatment of CF.
Ivacaftor
KALYDECO was approved in 2012 in the United States, European Union and Canada as a treatment for patients with CF six years of age and older who have the G551D mutation in their CFTR gene. We believe that most patients with CF six years of age and older who have the G551D mutation in the United States and Europe are being treated with KALYDECO. In June 2014, we signed a letter of intent with the pan-Canadian Pricing Alliance to enable the public reimbursement of KALYDECO for the treatment of eligible Canadians with CF six years of age and older who have the G551D mutation in their CFTR gene. Patients in the Canadian provinces of Ontario and Alberta are now able to receive KALYDECO under public reimbursement programs, and discussions are ongoing in the remaining Canadian provinces and territories. KALYDECO also is approved in Australia for the treatment of patients with CF six years of age and older who have the G551D mutation in their CFTR gene, and we are in discussions with Australia's Therapeutic Goods Administration regarding public reimbursement of KALYDECO. In February 2014, the FDA approved KALYDECO for the treatment of patients with CF six years of age and older who have one of eight other mutations in their CFTR gene, which were studied in our first Phase 3 label-expansion clinical trial for ivacaftor. In July 2014, the European Commission approved KALYDECO for this patient group. In Canada, we also recently received approval for KALYDECO for the treatment of this patient group and patients with CF who have the G970R mutation in their CFTR gene.
We are seeking to further expand the number of patients eligible for treatment with ivacaftor by (i) evaluating ivacaftor as a potential treatment for patients with CF who have residual CFTR function, including patients with CF who have the R117H mutation in their CFTR gene and (ii) evaluating ivacaftor as a potential treatment for patients with CF two to five years of age with specific mutations in their CFTR gene.
Our Phase 3 clinical trial to evaluate ivacaftor in patients with the R117H mutation in their CFTR gene did not meet its primary endpoint of a statistically significant absolute change from baseline in percent predicted forced expiratory volume in one second, or ppFEV1. However, a pre-specified subgroup analysis demonstrated a statistically significant clinical benefit in patients with CF 18 years of age and older who have the R117H mutation on at least one allele. Based on these data, we submitted a supplemental New Drug Application, or sNDA, to the FDA in June 2014 and an MAA variation to the EMA in July 2014 seeking approval of KALYDECO in patients with CF 18 years of age and older who have the R117H mutation on at least one allele in their CFTR gene. We believe there are approximately 700 patients with CF 18 years of age or older who have the R117H mutation in their CFTR gene in North America, Europe and Australia. Our Phase 3 clinical trial to evaluate ivacaftor as a treatment for children with CF two to five years of age with specific gating mutations in their CFTR gene, including the G551D mutation, is complete, and we expect data from this clinical trial in the third quarter of 2014. The primary endpoint of this clinical trial is safety, and secondary endpoints


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include pharmacokinetics, change in sweat chloride and change in weight. If this clinical trial is successful, we plan to submit an NDA and an MAA variation based on this clinical trial in the fourth quarter of 2014. We believe there are approximately 300 children with CF two to five years of age who have the mutations evaluated in this clinical trial in North America, Europe and Australia.
In the second quarter of 2014, we announced data from a two-part proof-of-concept clinical trial of ivacaftor in 24 patients with CF who have a residual function mutation. This clinical trial was the first to evaluate the use of ivacaftor in multiple residual function mutations in their CFTR gene. Based on the data from the clinical trial, we plan to initiate a larger Phase 3 clinical trial in patients with residual function mutations that will evaluate longer-duration treatment with ivacaftor, subject to discussions with regulatory authorities. In North America, Europe and Australia, more than 3,000 patients with CF six years of age and older have non-R117H mutations that result in residual function.
Lumacaftor in Combination with Ivacaftor We are evaluating combinations of lumacaftor and ivacaftor, our most advanced investigational CFTR corrector compound. In the second quarter of 2014, we completed TRAFFIC and TRANSPORT, which were Phase 3 randomized, double-blind, placebo-controlled clinical trials of lumacaftor in combination with ivacaftor. Based on the data from TRAFFIC and TRANSPORT, we plan to submit an NDA to the FDA and an MAA to the EMA for lumacaftor in combination with ivacaftor in patients with CF 12 years of age and older who have two copies (homozygous) of the F508del mutation in their CFTR gene in the fourth quarter of 2014. In June 2014, the FDA granted the combination of lumacaftor and ivacaftor Orphan Drug Designation. The combination of lumacaftor and ivacaftor also recently received Orphan designation in Europe. We believe that there are more than 22,000 patients with CF 12 years of age and older who have two copies of the F508del mutation in North America, Europe and Australia.
TRAFFTIC and TRANSPORT
TRAFFIC and TRANSPORT evaluated patients with CF 12 years of age and older who have two copies (homozygous) of the F508del mutation in their CFTR gene and included two combination treatment groups and one placebo group. The combination treatment groups evaluated lumacaftor dosed at either 600 mg once daily or 400 mg every 12 hours (q12h) in combination with ivacaftor dosed at 250 mg q12h. 1,108 patients enrolled and received at least one dose of study drug in the two clinical trials. The primary endpoint of TRAFFIC and TRANSPORT was the mean absolute change from baseline in ppFEV1 at the end of the 24-week treatment period as assessed by the average change in lung function at Week 16 and at Week 24.
All four treatment arms within TRAFFIC and TRANSPORT met their primary endpoint. Additionally, statistically significant mean absolute and relative improvements in lung function were observed for all four treatment groups, both within group and versus placebo, at all time points within the clinical trials (Weeks 2, 4, 8, 16 and 24). As patients in the clinical trials continued to be treated with their standard CF medicines, improvements observed for patients in the combination treatment arms were in addition to any benefits experienced with the use of other CF medicines. The mean baseline lung function of patients was approximately 61 ppFEV1 for patients who received the combination regimen and for patients who received placebo. Detailed data from each arm of TRAFFIC and TRANSPORT are provided below:

                                    TRAFFIC Trial                          TRANSPORT Trial
                                       Lumacaftor  Lumacaftor                  Lumacaftor  Lumacaftor
                                         (600 mg     (400 mg                     (600 mg     (400 mg
   Change in ppFEV1                    once daily)   q12h) +                   once daily)   q12h) +
                       Placebo (n=184) + Ivacaftor  Ivacaftor  Placebo (n=187) + Ivacaftor  Ivacaftor
                                         (250 mg     (250 mg                     (250 mg     (250 mg
                                          q12h)       q12h)                       q12h)       q12h)
                                         (n=183)     (n=182)                     (n=185)     (n=187)
   Mean     Treatment                      4.0         2.6                                     3.0
 Absolute   Difference       N/A       (p<0.0001)  (p=0.0003)        N/A           2.6     (p<0.0001)
  Change                                                                       (p=0.0004)
(percentage   Within
  points)     Group         -0.44          3.6         2.2          -0.15          2.5         2.9
                         (p=0.4002)    (p<0.0001)  (p<0.0001)    (p=0.7744)    (p<0.0001)  (p<0.0001)
   Mean     Treatment        N/A          6.7%        4.3%           N/A          4.4%        5.3%
 Relative   Difference                 (p<0.0001)  (p=0.0006)                  (p=0.0007)  (p<0.0001)
  Change      Within       -0.34%         6.4%        4.0%          0.0%          4.4%        5.3%
    (%)       Group      (p=0.7113)    (p<0.0001)  (p<0.0001)    (p=0.9983)    (p<0.0001)  (p<0.0001)

Within TRAFFIC and TRANSPORT, patients who received the combination regimens experienced a 28 to 43 percent decrease in the rate of pulmonary exacerbations (events of worsening signs and symptoms of the disease requiring


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treatment with antibiotics) over the 24-week treatment period compared to placebo. Detailed data for all key secondary endpoints from each arm of the clinical trials are provided below:

                                     TRAFFIC Trial                        TRANSPORT Trial
                                         Lumacaftor Lumacaftor                 Lumacaftor
                                          (600 mg    (400 mg                    (600 mg   Lumacaftor
                                            once     q12h) +                      once     (400 mg
Key Secondary Endpoints  Placebo (n=184)  daily) +  Ivacaftor  Placebo (n=187)  daily) +   q12h) +
                                         Ivacaftor   (250 mg                   Ivacaftor  Ivacaftor
                                          (250 mg     q12h)                     (250 mg    (250 mg
                                           q12h)     (n=182)                     q12h)      q12h)
                                          (n=183)                               (n=185)    (n=187)
  Change in   Treatment        N/A         +0.16      +0.13          N/A         +0.41      +0.36
  Body Mass   Difference                 (p=0.1122) (p=0.1938)                 (p<0.0001) (p=0.0001)
    Index       Within        +0.19        +0.35      +0.32         +0.07        +0.48      +0.43
                Group      (p=0.0065)    (p<0.0001) (p<0.0001)   (p=0.2892)    (p<0.0001) (p<0.0001)
              Treatment        N/A          +3.9       +1.5          N/A          +2.2       +2.9
  Change in   Difference                 (p=0.0168) (p=0.3569)                 (p=0.1651) (p=0.0736)
    CFQ-R       Within        +1.1          +5.0       +2.6         +2.8          +5.0       +5.7
                Group      (p=0.3423)    (p<0.0001) (p=0.0295)   (p=0.0152)    (p<0.0001) (p<0.0001)
Patients with     %            22%          46%        37%           23%          46%        41%
5% or Greater
  Relative
 Improvement  Odds Ratio       N/A          2.94       2.06          N/A          2.96
  in ppFEV1                              (p<0.0001) (p=0.0023)                 (p<0.0001)    2.38
                                                                                          (p=0.0001)
              Number of
  Number of     Events     112 (1.07)    79 (0.77)  73 (0.71)    139 (1.18)    94 (0.82)  79 (0.67)
  Pulmonary   (rate per

Exacerbations 48 weeks)
Rate Ratio N/A 0.72 0.66 N/A 0.69 0.57
(p=0.0491) (p=0.0169) (p=0.0116) (p=0.0002)

The combination regimens were generally well tolerated. The most common adverse events, regardless of treatment group, were infective pulmonary exacerbation, cough, headache and increased sputum, and adverse events that occurred more frequently in patients who received the combination regimens than those who received placebo were generally respiratory in nature and included dyspnea and respiration abnormal. 4.2 percent of all patients who received combination therapy, regardless of dosing group, discontinued treatment because of adverse events compared to 1.6 percent of those who received placebo. Across TRAFFIC and TRANSPORT, elevated liver enzymes (greater than three times the upper limit of normal) were observed in 5.2 percent of patients who received combination therapy compared to 5.1 percent of those who received placebo. Seven patients who received combination therapy experienced serious adverse events related to abnormal liver function tests, compared to zero patients who received placebo. Following discontinuation or interruption of the combination treatment, liver function tests returned to baseline for six of the seven patients and the seventh patient's liver function tests improved substantially.
Exploratory Clinical Trial in Patients Heterozygous for the F508del Mutation In the third quarter of 2014, we completed a Phase 2, 8-week exploratory clinical trial of lumacaftor in combination with ivacaftor in 125 patients with CF 18 years of age and older who have one copy (heterozygous) of the F508del mutation and a second mutation in their CFTR gene that is not expected to respond to either ivacaftor or VX-809 alone.
The clinical trial evaluated a twice daily (q12h) combination of VX-809 (400mg) and ivacaftor (250mg) compared to placebo. The primary endpoints were safety, tolerability and mean absolute change in ppFEV1 from baseline at Day 56, and key secondary endpoints included absolute change in body mass index (BMI), absolute change in patient-reported respiratory symptoms as reported in the CF questionnaire-revised (CFQ-R) and absolute change in sweat chloride, among others.
In the clinical trial, the within-group mean absolute change in ppFEV1 for the patients who received the combination regimen was -0.62 percentage points (p=0.4550) compared to -1.23 percentage points (p=0.1287) for those who received placebo. The mean absolute treatment difference was 0.61 percentage points (p=0.5978) at day 56. The clinical trial did not meet its primary efficacy endpoint. For patients who received the combination, the mean absolute improvement in CFQ-R at day 56 was +6.48 points (p=0.0131) versus placebo. Additionally, there was a -11.03 mmol/L (p < 0.0001) decrease in sweat chloride at day 56 for those who received the combination compared to those who received placebo. There was no increase observed in body mass index, or BMI.


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Safety results from this clinical trial were consistent with the Phase 3 TRAFFIC and TRANSPORT clinical trials in patients with two copies of the F508del mutation. The combination regimen was generally well tolerated. The most common adverse events, regardless of treatment group, were respiration abnormal, infective pulmonary exacerbation, cough, increased sputum and headache, and adverse events that occurred more frequently in patients who received the combination regimen than those who received placebo were generally respiratory in nature and included dyspnea and respiration abnormal, as well as gastroesophagael reflux. 6.5 percent of patients who received combination therapy discontinued treatment because of adverse events compared to 0.0 percent of those who received placebo.
Ivacaftor in Combination with VX-661
We are evaluating VX-661, a second investigational CFTR corrector, in combination with ivacaftor, in Phase 2 clinical development. VX-661 was granted Orphan Drug Designation by the FDA in 2014.
In May 2014, we announced data from a Phase 2 double-blind clinical trial evaluating VX-661 in combination with KALYDECO in patients with CF 12 years of age and older who have one copy of the G551D mutation and one copy of the F508del mutation in their CFTR gene. In this clinical trial, VX-661 was generally well-tolerated when dosed in combination with KALYDECO, and all 18 patients completed the clinical trial. The most common adverse events in the treatment group were cough, pulmonary exacerbation, headache and upper respiratory tract infection. One serious adverse event of arthritis occurred in the VX-661 treatment arm and was deemed unrelated to VX-661 or KALYDECO. The baseline lung function and sweat chloride levels for patients who were randomized to receive VX-661 and KALYDECO were 59.1 ppFEV1 and 52.9 mmol/L, respectively. A summary of the lung function and sweat chloride data for patients who received VX-661 in combination with KALYDECO is provided below:

     VX-661 + KALYDECO         Day 0 Through Day 28         Day 28 to Day 56
    (Within-Group; n=14)    (End of VX-661 Treatment)  (4 Weeks Following the End
                                                          of VX-661 Treatment)
  Mean Absolute Change in     +4.6 percentage points     -3.4 percentage points
  Lung Function (ppFEV1)            (p=0.012)                  (p=0.010)
  Mean Relative Change in        +7.3% (p=0.012)            -5.4% (p=0.008)
  Lung Function (ppFEV1)
      Sweat Chloride          -7.02 mmol/L (p=0.053)    +12.26 mmol/L (p=0.001)

Additional clinical trials of longer duration and with additional patients will be required to further validate the results of this clinical trial in patients with CF who have the G551D mutation in their CFTR gene.
We are dosing patients in a 12-week clinical trial of VX-661 in combination with ivacaftor in patients with CF who are homozygous for the F508del mutation in their CFTR gene. This clinical trial is designed to evaluate safety, efficacy and pharmacokinetics to characterize VX-661 for further development. Based on the data from the clinical trial evaluating VX-661 in combination with KALYDECO in patients who have the G551D mutation in their CFTR gene and pending data from the ongoing 12-week clinical trial in patients homozygous for the F508del mutation and discussions with regulatory authorities, we plan to evaluate multiple development pathways for VX-661 in combination with ivacaftor, including the potential evaluation of this combination in patients with one copy of the F508del mutation and one copy of a mutation in their CFTR gene known to respond to ivacaftor and in patients with CF who have two copies of the F508del mutation. Additionally, VX-661 and ivacaftor may be evaluated in combination with, or without, a next-generation corrector in patients with one copy of the F508del mutation and a mutation that is not expected to respond to ivacaftor or a first-generation corrector alone.

Next-generation CFTR Corrector Compounds We also are seeking to identify and develop next-generation CFTR corrector compounds that could be evaluated in regimens combining ivacaftor with two CFTR corrector compounds. We have multiple next-generation correctors in the lead-optimization stage of research and expect to begin clinical development of a next-generation corrector in 2015.
HCV Infection
In 2012 and 2013, we recognized most of our product revenues based on INCIVEK sales and focused a large portion of our resources on commercializing INCIVEK and seeking to develop other drug candidates for the treatment of HCV infection. Our INCIVEK net product revenues declined rapidly over the course of 2013 and represented approximately 8% of our net product revenues in the second quarter of 2014. In 2013, in response to declining sales of INCIVEK and increased competition, we reduced our focus on marketing INCIVEK, eliminating the U.S. field-based sales force that had


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been promoting INCIVEK. In addition, in the first quarter of 2013 and fourth quarter of 2013, we incurred intangible asset impairment charges of $412.9 million and $250.6 million, respectively, related to drug candidates for the treatment of HCV infection. In April 2014, we amended our collaboration with Alios BioPharma, Inc., or Alios, and following this amendment, we have no further obligations to continue development of VX-135. We do not plan to further develop VX-135 independently and are seeking to outlicense our rights to VX-135. Research and Early-Stage Development
We are engaged in a number of other research and early-stage development programs, including programs in the areas of oncology, multiple sclerosis and other serious and rare diseases. We plan to continue investing in our research programs as well as our early-stage development programs and fostering scientific innovation in order to identify and develop transformative medicines. We believe that pursuing research in diverse areas allows us to balance the risks inherent in drug development and may provide drug candidates that will form our pipeline in future years.
Drug Discovery and Development
Discovery and development of a new pharmaceutical product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise and can take 10 to 15 years or more. Potential drug candidates are subjected to rigorous evaluations, driven in part by stringent regulatory considerations, designed to generate information concerning efficacy, side-effects, proper dosage levels and a variety of other physical and chemical characteristics that are important in determining whether a drug candidate should be approved for marketing as a pharmaceutical product. Most chemical compounds that are investigated as potential drug candidates never progress into development, and most drug candidates that do advance into development never receive marketing approval. Because our investments in drug candidates are subject to considerable risks, we closely monitor the results of our discovery research, clinical trials and nonclinical studies and frequently evaluate our drug development programs in light of new data and scientific, business and commercial insights, with the objective of balancing risk and potential. This process can result in abrupt changes in focus and priority as new information becomes available and we gain additional understanding of our ongoing programs and potential new programs as well as those of our competitors. If we believe that data from a completed registration program support approval of a drug candidate, we submit an NDA to the FDA requesting approval to market the drug candidate in the United States and seek analogous approvals from comparable regulatory authorities in foreign jurisdictions. To obtain approval, we must, among other things, demonstrate with evidence gathered in nonclinical studies and well-controlled clinical trials that the drug candidate is safe and effective for the disease it is intended to treat and that the manufacturing facilities, processes and controls for the manufacture of the drug candidate are adequate. The FDA and foreign regulatory authorities have substantial discretion in deciding whether or not a drug candidate should be granted approval based on the benefits and risks of the drug candidate in the treatment of a particular disease, and could delay, limit or deny regulatory approval. If regulatory delays are significant or regulatory approval is limited or denied altogether, our financial results and the commercial prospects for the drug candidate involved will be harmed.
Regulatory Compliance
Our marketing of pharmaceutical products is subject to extensive and complex laws and regulations. We have a corporate compliance program designed to actively identify, prevent and mitigate risk through the implementation of compliance policies and systems and the promotion of a culture of compliance. Among other laws, regulations and standards, we are subject to various U.S. federal and state and comparable foreign laws pertaining to health care fraud and abuse, including anti-kickback and false claims statutes, and laws prohibiting the promotion of drugs for unapproved, or off-label, uses. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. False claims laws prohibit anyone from presenting for payment to third-party payors, including Medicare and Medicaid, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed or claims for medically unnecessary items or services. We expect to continue to devote substantial resources to maintain, administer and expand these compliance programs globally. Recent Financing and Business Development Activities Business Development
In June 2014, we entered into a license, development and commercialization agreement with Janssen Pharmaceuticals, Inc., or Janssen Inc., pursuant to which we granted Janssen Inc. an exclusive worldwide license to develop and commercialize VX-787 and a backup compound referred to as VX-353, for the treatment of influenza.


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Pursuant to this agreement, Janssen Inc. paid us an up-front payment of $30.0 million in the third quarter of 2014. In addition, we have the potential to receive development and commercial milestone payments as well as royalties on any future product sales. Janssen Inc. is responsible for costs related to the development and commercialization of the compounds.
We are seeking to license or acquire drugs, drug candidates and other technologies that have the potential to add to our pipeline, enhance research and development programs or to provide us with new commercial opportunities. We also are planning to seek to outlicense our rights to VX-135 and VX-509, our JAK3 inhibitor, which we have evaluated as a potential treatment for patients with rheumatoid arthritis in a Phase 2 clinical trial. Credit Agreement
In July 2014, we entered into a credit agreement that provides for a $300.0 million senior secured term loan. The credit agreement also provides that, subject to satisfaction of certain conditions, we may request that the lenders establish an incremental senior secured term loan facility in an aggregate amount not to exceed $200.0 million. The loan initially bears interest at a rate . . .

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