2023-04-14 10:45:01 ET
Summary
- ICER identifies a justifiable price point of up to $1.9 million for upcoming sickle cell disease treatments, Exa-cel and Lovo-cel.
- The ICER report offers valuable insights into the economic benefits, pricing ranges and eligible population for these gene therapies.
- ICER's suggested price point for Exa-cel and Lovo-cel treatments sheds light on the potential revenue generation for Vertex and CRISPR.
In examining the financial aspects of the forthcoming sickle cell disease treatments, exa-cel and lovo-cel, the Institute for Clinical and Economic Review (ICER) has determined that their cost-effectiveness could be justified at a price point of up to $1.9 million . The companies behind these therapies, Vertex Pharmaceuticals/CRISPR Therapeutics (VRTX)/(CRSP) for exa-cel, and bluebird bio (BLUE) for lovo-cel, are diligently working towards securing FDA approval for their respective products.
CRISPR/Vertex has recently wrapped up the rolling submission process for their marketing application concerning exa-cel. Concurrently, bluebird bio is preparing to request FDA's priority review for lovo-cel, with a marketing application submission anticipated later this year and a targeted launch in 2024.
What does this mean?
At this point we have to note that the Institute for Clinical and Economic Review (ICER) is an autonomous, non-profit research institution located in the United States, focusing on the assessment of clinical and cost-effectiveness of various medical treatments, tests, and procedures. By providing evidence-based data, ICER plays a vital role assisting in decision-making processes, particularly regarding pricing, coverage, and patient accessibility.
Although ICER's suggestions do not possess direct regulatory power, they frequently impact pricing determinations and policy development in the United States. Policymakers, healthcare payers, and other stakeholders refer to ICER's evidence-based evaluations when establishing suitable pricing, coverage, and patient access for new treatments.
As a result, it is likely that policymakers and payers will consider ICER's recommendations when negotiating with pharmaceutical firms to establish pricing ranges for gene therapies. ICER's identification of a $1.9 million price point as reasonable provides additional insight into the potential economic benefits stemming from the treatment.
The report also highlights that, in order to maintain treatment costs at a manageable level, estimated at $777 million per year in this case, the annual patient count would need to be capped at 385.
Impact on CRISPR
Assuming Exa-cel and Lovo-cel equally share the patient pool, with a $1.9 million price per treatment, the Exa-cel's annual revenue would amount to around $366 million. Taking into account the cost of goods sold (COGS) and other expenses, which remain uncertain, it is improbable that the program will generate over $180 million in operating profits, at least in the initial years. CRISPR, owning 40% of the program, can anticipate a cash-burn impact of less than $90 million. However, these are rough estimates based on the previous assumptions, and actual outcomes may differ significantly.
As I discussed in a previous article , CRISPR's cash burn reached $500 million in 2022, indicating that the cash-flow impact, though considerable, will not offset the cash burn. It feels underwhelming but it is part of scaling operations, and conservative estimations related to COGS are responsible for much of these results. Over time, a deeper understanding of the therapy and manufacturing processes may lead to cost reductions, improved gross margins, and an expanded eligible patient population.
It is crucial to note that the company is on the verge of possessing an asset generating recurring revenue, even if insufficient to cover its cash burn. If Exa-cel generates $366 million in yearly revenue and is valued at 20 times revenues, it would be worth nearly $7.3 billion, aligning with Vertex's last transaction with CRISPR for 10% of the program. This grants CRISPR an asset valued at $2.9 billion (40% of Exa-cel), close to the company market capitalization of $3.5 billion. This suggests that investors are essentially receiving the entire pipeline for $600 million. It also gives the company strategic options, in the form of a tangible asset that might be sold in the future if needed.
However, we must acknowledge the risks associated with the presented assumptions. There's a chance that the COGS may be higher than expected, or that the program's ramp-up doesn't gain traction among eligible patients. Also, the competition from Lovo-cel could potentially capture a larger market share, and there's always the risk of treatment complications or even fatalities associated with the program, as the report acknowledges.
Impact on Vertex
I've also wrote about Vertex before . At Vertex, the emphasis is on investing in scientific advancements to develop transformative treatments for individuals with severe illnesses in specialty markets. This approach has resulted in noteworthy achievements, as evidenced by the introduction of four cystic fibrosis medications. The Exa-cel program mirrors the cystic fibrosis narrative, and Vertex is working on several similar projects. Currently, the company's cystic fibrosis portfolio serves as a cash-flow generator to support other R&D endeavors. Out of all the pipeline therapies, Exa-cel is nearest to the commercial stage, which is timely, considering the decelerating revenue growth in the CF portfolio (still in the high teens).
However, potential revenue from the Exa-cel program may not significantly impact the company's overall financials. Assuming that Vertex only recognizes 60% of the projected $366 million per year from the program, it would represent a mere 2.5% increase in revenue compared to 2022 figures - not a substantial boost.
Nonetheless, Exa-cel contributes to Vertex's efforts to diversify its product portfolio beyond cystic fibrosis, which is likely to encounter challenges in the coming years from disruptive mRNA therapies. Moreover, as the company develops its first gene therapy, it gains greater exposure to the burgeoning field of cell therapy, where other programs are also in progress. Being an early player has its advantages, such as better understanding the manufacturing and therapy delivery economics, which can inform future strategic decisions.
The risks faced by Vertex are similar to those faced by other companies but carry varying degrees of importance. For Vertex, the immediate cash-flow generation from the Exa-cel program is not as crucial as the ability to establish a second franchise that diversifies away from the cystic fibrosis pipeline. This diversification is vital to mitigate medium-term risks (mentioned earlier) associated with potential CF competitors. Consequently, while a setback in the Exa-cel program may not be a make-or-break issue for Vertex, it could hinder the company's strategic execution.
Conclusion
The ICER report provides a reliable basis for refining earlier assumptions, although my previous writings might have exhibited a more optimistic outlook. The report suggests a price point in line with my earlier discussions, while the population expected to receive the therapy appears to be much smaller.
Despite this, the report serves as a valuable starting point and is consistent with the $7 billion valuation for the Exa-cel program. The publication of the report itself is an indication that the therapy is approaching its commercial stage, and this development is indeed encouraging news for both Vertex and CRISPR.
For further details see:
CRISPR And Vertex: ICER Sheds Light On The Future Of Sickle Cell Treatment