As Vertex buys Viacyte, is that good news for people with type 1 diabetes?

For 20 years I’ve been rooting for Viacyte, the pioneering startup in growing insulin-producing cells for transplant into people with type 1 diabetes.

Founded in 1999 as Novocell, the San Diego company began its research with human embryonic stems cells rather than the not-yet-discovered induced pluripotent stem cells (the cells re-engineered from adult cells that quickly became the most likely source of stem cell therapies).

Viacyte launched its first clinical trial in 2014 and has doggedly moved ahead in many attempts to optimize its cells and the enscapsulation devices designed to hold the cells. Last month, one patient in a trial finally showed clear clinical benefit, although on immunosuppression drugs.

This month, though, Viacyte announced it will merge with Vertex Pharmaceuticals, its major rival, in a $320 million cash deal.

Based in Boston’s Seaport (above), Vertex is a very different biotech, selling $7 billion of cystic fibrosis drugs each year. In 2021, Vertex’s net income was 31% of revenues and the company was sitting on $7.5 billion in cash.

Vertex broke into the diabetes field with the $950 million acquisition in 2019 of Semma Therapeutics. Semma was a well-funded startup built on research by Doug Melton, Harvard superstar of stem cell research. Melton, who joined Vertex this spring, told me back then that the problem of churning out functional insulin-producing cells in volume had been solved. Melton also was impressed with a “very clever and effective” encapsulation device that Semma was quietly polishing.

Viacyte holds many patents but its encapsulation devices have never lived up to our hopes, and Vertex already owns the world’s most advanced technologies to churn out insulin-producing cells. So it seems that Viacyte’s highest technology card probably is progress in genetically modifying insulin-producing cells to dodge attacks from the immune system, done in partnership with CRISPR Therapeutics.

In February, the two companies announced that a volunteer in a clinical trial had received such genetically redesigned cells. This was a “historic, first-in-human transplant of gene-edited, stem cell-derived pancreatic cells for the treatment of diabetes designed to eliminate the need for immune suppression,” commented James Shapiro of the University of Alberta, an investigator in the trial and world expert on such matters.

Melton has been working on such immune-dodging-cell techniques for years, and Vertex was an early investor in CRISPR Therapeutics. But knowledge gained from the Viacyte/CRISPR trial can only help.

However, my guess is that Vertex mostly bought the smaller firm to take out its leading competitor, and that this move eventually will bring higher pricing for patients.

Case in point, Vertex’s lead cystic fibrosis combo costs almost $300,000 a year.

In 2020 the Institute for Clinical and Economic Review (ICER), a well-respected Boston non-profit that analyzes cost-effectiveness for prescription drugs, took a look at Vertex’s suite of cystic fibrosis products. Among ICER’s findings:

“Despite being transformative therapies, the prices set by the manufacturer – costing many millions of dollars over the lifetime of an average patient – are out of proportion to their substantial benefits. When a manufacturer has a monopoly on treatments and is aware that insurers will be unable to refuse coverage, the lack of usual counterbalancing forces can lead to excessive prices. Patients who receive the treatments will benefit, but unaligned prices will cause significant negative health consequences for many unseen individuals.”

That’s Vertex’s current economic model. That’s my worry.

True, diabetes unlike cystic fibrosis is not a rare disease. Something like 1.9 million people in the U.S. have type 1 diabetes, which makes it more than 50 times as common as cystic fibrosis. And most insulin actually goes to people with type 2 diabetes that can’t be managed well by other medications, who would also be candidates for cell treatment.

So, given this widespread need, would diabetes be different? The sad story of insulin, which people with type 1 need to stay alive, says not.

Insulin has been available around the world for decades and costs maybe $3/vial to manufacture. But about one in four people dependent on insulin in the U.S. go through periods when they can’t afford the surprising high pricetags for the drug, whose lack immediately puts those folks at truly serious risk. A small number of them die.

Lilly, Novo Nordisk and Sanofi see that situation as a minor public relations problem. And despite an ever-expanding public chorus of cries for cheaper insulin, insulin provisions magically disappeared last week from the pending Senate bill on medications.

Moreover, in a problem extending far beyond the realm of diabetes, nobody knows what limits will be set on costs for cell therapies, those shiny super-powered new kids on the block.

Partly the charges for these treatments will be based on actual effectiveness and value, as per ICER analyses. Beyond that, we might expect biotechs to follow the classic pricing strategy here: charge as much as you can while keeping a straight face. In preliminary public discussions of pricing, cell treatments often are lumped together with the gene therapies that generally seem to cost more than a million bucks.

My guess is that Vertex will create successful cell therapies for type 1 diabetes in my lifetime. My hope is that everyone who desperately needs these therapies can afford them. I’m a little less hopeful now.