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Biotech Stock Mailbag: Vertex Pharma

BOSTON ( TheStreet) -- Vertex Pharmaceuticals (VRTX - Get Report) will release results from the first phase III study of its experimental hepatitis C drug telaprevir sometime this quarter. I'm starting to get a bunch of email about expectations for the telaprevir data, including this message from Sanjin M., who asks:

" Any guesses on what to expect from Vertex Pharmaceuticals when it announces phase III hepatitis C test results? Will the stock go higher if the data are positive?"


I want to dive into this topic in more detail next week (assuming I'm not too late and Vertex announces top-line results), but just in case that happens, here's a quick cheat sheet on expectations for Vertex's telaprevir phase III studies in hepatitis C:

The first telaprevir data we're going to see comes from the phase III study known as ADVANCE, which enrolled treatment-naïve hepatitis C patients. Unlike most phase III studies, investors assume 100% that telaprevir works and that the ADVANCE study will be positive. The $8 billion question (Vertex's current market cap) is how well will telaprevir work? (i.e., by what magnitude will treatment with telaprevir improve the cure rate for hepatitis C patients?)

Right now, my best read on Street expectations is for telaprevir to demonstrate hepatitis C cure rates (the Hep C jargon is "SVR") in the 70-75% range compared to a cure rate in control patients in the mid-40% range.

Vertex's stock price in the low $40s basically bakes in a telaprevir cure rate of 70-75%, so I don't expect the stock to move higher if the actual result hits that range. In fact, a number in the low 70s may actually cause the stock to sell off a bit. Call it a "sell on the news" reaction.

A cure rate for telaprevir with a "6" in front will be a disaster, causing Vertex to sell off a lot.

A telaprevir cure rate in the high 70% range, perhaps even something with an "8" in front, will be viewed very positively. Vertex's stock price could move higher on that kind of data.

None of these predictions are set in stone and I should warn everyone that expectations for the telaprevir data are very high, so I may be totally underestimating the way investors will react.

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