Vertex’s $ 950 million bet that could pay off big for investors

If you know Vertex Pharmaceutical (NASDAQ: VRTX), probably the first thing that comes to mind when you think of great biotechnology is cystic fibrosis (CF). This is understandable, given that Vertex’s huge success so far is due to its CF franchise.

However, Vertex is also working to broaden its horizons well beyond cystic fibrosis. The company’s pipeline programs target several other rare genetic diseases as well as pain. Perhaps the most intriguing area of ​​interest right now, however, is Vertex’s type 1 diabetes program. Vertex has made a $ 950 million bet that it can actually cure type 1 diabetes. And it’s a bet that could pay off big for investors.

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The path to a cure

Vertex announced in September 2019 that it was acquisition of the private company Semma Therapeutics for $ 950 million in liquid. Semma was co-founded in 2014 by Harvard University professor Douglas Melton, who had conducted research demonstrating the potential for converting pluripotent stem cells into insulin-producing pancreatic beta cells.

This approach seemed to be ideal for type 1 diabetes (T1D). With T1D, the body’s immune system attacks the beta cells in the pancreas. As a result, the body does not make enough insulin, a hormone that regulates blood sugar.

Semma’s scientific team knew that pluripotent stem cells have the ability to develop into any cell type. They proposed a process based on Melton’s initial research to produce islets (cells that release hormones) from pluripotent stem cells. Semma’s stem cell islets function like the natural islets of a human pancreas, monitoring blood sugar levels and releasing insulin in precise amounts needed to control levels. The ultimate goal of this approach is to effectively cure T1D.

At first, Semma encountered problems making enough beta cells. However, the company’s researchers have found a way to overcome these problems and can now create what Semma calls “an almost unlimited number of islets derived from high-quality stem cells.” The Semma team not only succeeded in this process in the lab; they used bioreactors to achieve large-scale production.

Preclinical tests are very promising. Islets derived from Semma stem cells have been transplanted into animals, including non-human primates and pigs, and safely controlled blood sugar.

Vertex CEO Jeff Leiden said on his company’s third quarter conference call that Vertex has observed over the past two or three years of companies making strides in solving some of the biggest problems with islet transplantation for the treatment of T1D. He said Vertex believed Semma had solved these problems and saw small biotech as “an ideal solution” to acquire.

A huge opportunity

Over 1.5 million people in the United States have T1D. The number of new patients diagnosed with T1D worldwide has increased over the past decades. These patients must currently receive insulin and constantly monitor their blood sugar. Failure to do so can lead to serious health complications and even death.

Insulin costs in the United States have skyrocketed in recent years with an average monthly price of around $ 450 per patient. More than $ 8 billion is spent annually in the United States on insulin for patients with T1D.

Insulin is not as expensive outside of the United States. However, there are many more patients with T1D in all the other countries of the world combined than there are in the United States. This all adds up to a huge opportunity for Vertex if it succeeds in developing a cure for T1D.

No warranty

There is no guarantee, however, that success is on the way. Vertex has not even started clinical testing of Semma’s investigational T1D therapy yet. Assuming it advances the therapy into clinical studies in humans, the odds of a drug targeting endocrine disease gaining FDA approval is only around 13% based on historical results compiled. by the Biotechnology Innovation Organization.

But invest in biotechnology stocks is to take the risk that an untested drug is safe and effective enough to make a lot of money. Vertex didn’t shell out nearly $ 1 billion to buy Semma on a whim. If the company’s optimism about Semma’s approach to curing T1D comes to fruition, investors who buy Vertex now will see a huge payoff down the road.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

About Mary Moser

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