Although Orkambi is priced lower than its predecessor Kalydeco, Vertex Pharmaceuticals Inc. may have made a very smart move by somewhat sidestepping the current controversy over expensive specialty drug costs while banking on volume to still grow its revenues.

When Kalydeco (ivacaftor) launched in 2012 as the first cystic fibrosis drug to address the underlying cause of the disease, Vertex set a WAC of $294,000, which has since increased to $312,000 Also see "Vertex Gets Quick FDA Approval Of Kalydeco; Prices New CF Drug At $294,000 Per Year" - Pink Sheet, 31 January, 2012.. With Orkambi, it set the initial wholesale acquisition cost lower than both of those price points, at $259,000 a year.

“We anticipate a robust launch of Orkambi due to high physician and patient interest and a large identified patient population despite the possibility that some payers may use a pay-for-performance scheme to limit long-term use to responders,” Leerink analyst Liang said.

Orkambi combines ivacaftor with lumacaftor, a second compound addressing mutations of the cystic fibrosis transmembrane conductance regulator (CFTR) gene. The drug combination cleared FDA July 2 to treat cystic fibrosis patients ages 12 and older who are homozygous for the F508del mutation of the CFTR gene.

Wall Street’s projections for the price of Orkambi varied significantly, ranging from a low of $150,000 a year to as high as $317,000, according to JMP Securities analyst Liisa Bayko.

In her July 6 note on Orkambi, Bayko said the drug was priced well below her own estimate of $307,000 and asserted that the pricing would push the company’s move to profitability into 2016. Several other analyst notes predicted quick uptake of the drug, taking Vertex into profitability later this year ([A#14150702004]).

But BTIG Research analyst Hartaj Singh pointed out in a July 6 note that Orkambi is historic as the first combination drug priced below that of one of its component parts. And while most analysts were bullish on both Orkambi and the future prospects of Vertex’s CF portfolio, analyst Andrew Fein of H.C. Wainwright & Co. took an outlier’s stance, saying the price reflected the questionable value of lumacaftor, a CFTR corrector, in CF therapy.

Ivacaftor is a CFTR potentiator; lumacaftor corrects a CFTR mutation, essentially priming patients for ivacaftor’s mechanism to work.

In a July 6 note, Fein alluded to issues discussed by FDA’s Pulmonary-Allergy Drugs Advisory Committee, including whether the product meets requirements of the combination rule requiring both components to contribute to the effect ([A#14150512002]). Although some of the panelists conceded that the role of lumacaftor in producing improved lung function in a pair of pivotal Phase III trials was unclear, the committee still recommended approval because both studies met their primary endpoint in placebo-controlled testing, as was recommended by the agency.

The addition of lumacaftor to ivacaftor will significantly increase the market size for Vertex. The global patient base for ivacaftor stands at approximately 1,950 people, or approximately 4% of the total CF patient population of 70,000 worldwide and 30,000 in the U.S. Lumacaftor addresses the most common CFTR mutation found in CF patients, and Vertex has estimated the July 2 approval will enable it to treat about 8,500 U.S. patients.

FDA’s reviewers raised concerns because the Phase III data showed that Orkambi produced a 3% improvement in forced expiratory volume at one second (FEV1), a much smaller improvement than the 12% improvement seen in clinical trials with ivacaftor. However, the Orkambi Phase III data still met statistical significance compared to placebo.

Wainwright analyst Fein said the approval of Orkambi runs counter to the current desire to approve “precision medicines” because it offers significant benefit to some patients, but little or no benefit to others.

Calling lumacaftor “a mediocre drug,” he argued that the FDA approval language makes Orkambi “exactly the opposite of precision medicine; you have to take Orkambi to find out if it works.”

Orkambi Price May Factor Out Lumacaftor

The analyst also said the pricing of Orkambi suggests that lumacaftor brings no value to the combination therapy and recommended that the label should “carry an asterisk” as to whether the FEV1 benefit seen with the combo is due entirely to ivacaftor.

“We … find it ironic that Orkambi has been priced to account exactly for the amount of Kalydeco component that it contains, as if the lumacaftor component is worthless at the moment,” Fein said. The 300 mg dose of ivacaftor in Kalydeco costs $312,000, so with only 250 mg of ivacaftor included in Orkambi, the $259,000 WAC is virtually the same as a prorated price for Kalydeco ($260,000), he pointed out.

He nonetheless projects that Orkambi will realize U.S. sales of $2.2 billion per year, of which up to $880 million will be directly subsidized by U.S. taxpayers because an estimated 35%-40% of patients with the F508del mutation are covered by Medicaid.

Fein’s is a distinctly minority viewpoint on the prospects for Orkambi. Stefan Quenneville of Morningstar wrote July 6 that Kalydeco, Orkambi and other CF candidates in Vertex’s pipeline – including a second CFTR corrector, VX-661, which might offer better efficacy than lumacaftor – leave the company positioned to “create a dominant franchise” in CF. He predicted that Orkambi will experience a quick ramp-up in sales, and peak at about $5 billion annually.

Leerink Partners’ Howard Liang said Vertex got as clean a label as it could have hoped for, with the combination rule discussions from the advisory committee not even mentioned in the label. He noted that FDA included data from Phase III on reduction of exacerbations, a secondary endpoint, even though Orkambi did not meet statistical significance in the trials. His July 6 note, however, did echo some of Fein’s questions about lumacaftor’s efficacy.

“We anticipate a robust launch of Orkambi due to high physician and patient interest and a large identified patient population despite the possibility that some payers may use a pay-for-performance scheme to limit long-term use to responders,” Liang said. But the analyst countered some of the concern about lumacaftor’s effect by noting that historical data suggest, and Vertex’s Phase III trials for Orkambi confirm, that “even modest levels of restoration of CFTR function can lead to significant benefit.”

One negative for Vertex is the potential for elevated liver enzymes with both Kalydeco and Orkambi, though the warning on the Orkambi label “appears stronger,” Liang said. There are similar recommendations for monitoring transaminases, but serious adverse reactions and elevated serum bilirubin levels were seen with Orkambi so more frequent testing is advised for patients with histories of elevated ALT, AST or bilirubin levels.

Deutsche Bank analyst Robyn Karnauskas noted July 2 that while the Orkambi price was much higher than her projection of about $200,000 a year, discounting will be greater on Orkambi because about 35% of CF patients with the F508del mutation are covered by government insurance, whereas an estimated 20% of Kalydeco patients are not under private insurance. Kalydeco discounting for public payers ranges from 12%-15%, she wrote, while the discounting for Orkambi is now estimated at 18%.

Still, Karnauskas says Orkambi stands to increase Vertex’s earnings exponentially, growing from about $540 million in 2014 to a projected $5.5 billion in 2018. Other factors, including whether Vertex will be able to add patients heterozygous for the F508del mutation to the Orkambi label and whether the development of VX-661 will lead to a new double- or triple-combination therapy offering greater efficacy and/or a broader patient base, will determine the upward boundaries for Vertex’s CF franchise, she stated.

Beyond VX-661, Vertex also has second-generation CFTR correctors in preclinical development, with the first of these to enter the clinic later this year. The company’s ongoing strategy remains to provide therapeutic options that address the disease’s underlying cause to as many CF patients as possible, President and CEO Jeffrey Leiden said during a July 2 call on the approval.

Vertex is working toward extending Orkambi’s label to ages 6 to 11, as it did successfully for Kalydeco, with a study for U.S. filing underway and European trials starting soon, with filings in 2016. Initial approvals of Orkambi in the EU, Canada and Australia are anticipated before the end of 2015; pricing will be determined with the appropriate authorities, Chief Commercial Officer Stewart Arbuckle told the call. Leerink’s Liang noted that he expects a slow ramp-up in Europe due to payer concerns.

Vertex Focusing On Patient Access

Vertex played its cards close to the vest during the call, talking about efforts to add 6- to 11-year-old patients to Orkambi’s label and cautioning the markets to expect a slower ramp-up than was seen with Kalydeco.

Arbuckle outlined three main priorities for the Orkambi launch: educating clinicians about the drug’s benefits, ensuring access to therapy for all eligible patients and making sure patients understand the importance of complying with the dosing regimen. The drug enjoys the benefit of broad physician awareness, as well as the fact that most patients are clustered in about 275 treatment centers nationwide, he said.

Perhaps anticipating payer pushback, due to the general controversy around drug pricing or to the concerns about lack of response in some patients or the possibilities of pay-for-performance models, Arbuckle also talked about the importance of Orkambi being available to all patients who meet its treatment criteria. The company has detailed 16 therapeutic specialists around the U.S. to explain the products to clinicians, and has added staff to its product support and financial assistance program, Vertex GPS, in anticipation of the approval.

“While we expect interest in starting Orkambi to be high with both physicians and patients, the precise timing for when eligible patients may actually receive Orkambi will depend to a large degree on the time it takes for each patient to secure reimbursement approval from their payer,” he told the call. “We believe that all eligible patients with CF should have access to Orkambi.”

Vertex also is offering copayment assistance for patients who qualify, as well as free drug therapy for uninsured patients who fall within income parameters, Arbuckle said.

Why Pricing Orkambi Below Kalydeco Is A Savvy Strategy For Vertex

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