BOSTON (TheStreet) -- Vertex Pharmaceuticals (VRTX) - Get Vertex Pharmaceuticals Incorporated Report set the price of its newly approved cystic fibrosis drug Orkambi at $259,000 per year, on the upper end of investor predictions.
The U.S. Food and Drug Administration approved Orkambi Thursday. The Vertex pill, taken twice per day, is targeted at a genetic defect found in almost half of cystic fibrosis patients. Orkambi sales are expected to transform Vertex into a sustainably profitable company for the first time since its founding in 1989.
In approving Orkambi, the FDA concurred with the positive recommendation from a panel of outside experts who voted 12-1 in May that two large clinical trials conducted by Vertex provided sufficient evidence to support the efficacy and safety of the drug. European drug regulators are also reviewing Orkambi with an approval decision expected in the fourth quarter.
Vertex shares were halted at $130.95 ahead of the Orkambi announcement.
The $259,000 annual price for Okrambi is slightly higher than the predicted Orkambi gross price (before negotiated insurance discounts) in the range of $230,000 to $250,000 per year, according to a survey of investors conducted by Evercore ISI analyst Mark Schoenebaum. The actual or net price of Orkambi will be lower depending on the discounts and rebates offered to insurance companies. Between 35-40% of cystic fibrosis patients eligible for Orkambi today are insured by Medicaid.
Kalydeco, Vertex's other cystic fibrosis drug, is priced at $312,000 per year but with discounts, the net price is around $220,000 per year.
The Orkambi commercial launch will be closely watched for any reimbursement pushback or protests about the Orkambi price from insurance companies and pharmacy benefit managers.
Vertex is one of the biotech sector's largest companies by market cap but is still not profitable. Orkambi is supposed to stop Vertex's money-burning ways quickly. Current analyst consensus has Vertex losing $1.12 per share this year but earning $4.54 per share in 2016, according to S&P CapitalIQ.
Total Vertex revenue in 2015 will total $982 million and grow to $2.7 billion in 2016, according to consensus estimates compiled by S&P CapitalIQ. Vertex revenue will come from Orkambi and Kalydeco, the company's currently approved cystic fibrosis drug.
Orkambi is a single pill which combines ivacaftor, the active ingredient in Kalydeco, with a second drug, lumacaftor. The drug is designed to work against the underlying genetic defect found in about half of the 70,000 cystic fibrosis patients worldwide. The initial approval for Orkambi will cover patients 12 years or older, which includes about 8,500 patients in the U.S. Eventually, Vertex expects to broaden Orkambi's label to include younger patients.
The efficacy of Orkambi was demonstrated in two phase III studies in which lung function improved by about three percentage points over placebo. At the FDA advisory committee meeting held in May, some experts criticized Orkambi for offering only modest improvement in lung function. The FDA also raised concerns that the phase III studies might have failed if Orkambi had been compared against Kalydeco alone instead of a placebo.
Vertex and cystic fibrosis patients argued that even a small improvement in lung function was clinically meaningful. Orkambi also reduced the number of damaging lung exacerbations experienced by cystic fibrosis patients and helped them gain weight.
"More than 15 years ago, our scientists set out to discover and develop medicines to treat the underlying cause of cystic fibrosis. Today, the approval of Orkambi represents a fundamental change in the treatment of the most common form of CF, marking significant progress for us and for the entire CF community," said Vertex CEO Jeff Leiden, in a statement. "While we celebrate this important step forward, we also recognize that two out of three patients in the U.S. still do not have a medicine to treat the underlying cause of their disease. We share their urgency and are committed to continuing our significant investment in research and development to discover new medicines for them and to improve upon what we offer patients today."
"We applaud the FDA for its swift approval of Orkambi... It is our hope that everyone who is prescribed this drug will have immediate access to it so they can begin to live longer, healthier lives," said Cystic Fibrosis Foundation CEO Robert Beall, in a statement. The CF Foundation contributed to the development of ivacaftor and lumacaftor.
Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.