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Vertex Hopes Two Cystic Fibrosis Drugs Better than One

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CAMBRIDGE, Mass. (TheStreet) -- Vertex Pharmaceuticals (VRTX) is expected to report strong initial sales of its cystic fibrosis drug Kalydeco on Thursday as investors shift their attention away from the waning performance of the company's hepatitis C drug Incivek.

Soon after Vertex reports first-quarter earnings, investor attention moves to two, more important events that will have a far greater influence on the future direction of the company's stock price: 1) The first look at the potency of two new hepatitis C drugs; and 2) results from a mid-stage "combo" study of Kalydeco and the experimental drug VX-809 in cystic fibrosis patients with the most commonly occurring (and therefore most commercially lucrative) genetic mutation F508del.

Let's take a quick look at first-quarter earnings expectations before tackling the two important clinical catalysts:

Vertex will be reporting the first quarterly sales of its cystic fibrosis drug Kalydeco since the drug was approved on Jan. 31. Current Street consensus for Kalydeco sales is $6-7 million but most investors expect and want to see actual reported sales beat easily.

Meantime, first-quarter sales of the hepatitis C drug Incivek are expected to total $402 million, notably lower than fourth-quarter sales of $457 million. This means Incivek's growth has likely peaked just a year since the drug's launch as the focus of doctors and hepatitis C patients shifts to new but still emerging all-oral regimens that do not require weekly injections of interferon.

Vertex is expected to report first-quarter earnings of 57 cents per share on total revenue of $452 million, according to Thomson Reuters.

A look at Vertex's upcoming clinical catalysts -- again, potentially more stock moving than earnings:

1. Hepatitis C-focused investors are gaga for the emerging class of direct-acting antivirals known as nucleotide (or nucleoside) polymerase inhibitors, which have the potential to become the backbone of new, all-oral combination regimens. The current superstar of the "nuc" drug class is Gilead Sciences' (GILD) GS-7977, but Bristol-Myers Squibb (BMY) and Idenix Pharmaceuticals (IDIX) are also developing their own nucs.

Vertex has nucs, too -- ALS-2200 and ALS-2158 both licensed from privately held Alios Biopharma. The Vertex nucs have remained largely off investors' radar because 1) efficacy and safety data have yet to be released publicly; and 2) the drugs are far behind other, competing nucs in terms of clinical testing.

The first anti-viral efficacy data from the Vertex nucs are expected this summer. These are just initial proof-of-concept studies, with hepatitis C patients treated with single doses of ALS-2220 and ALS-2158 for seven days.

Viral load reductions of about 3 log after three days and 4 log at seven days in a once-per-day dose less than 500 mg should be enough to get investors excited about Vertex's nuc program, says Brean Murray Carret analyst Brian Skorney.

2. Turning to Vertex's increasingly important cystic fibrosis program, the company hopes to build on the clinical success of Kalydeco with combination therapies to greatly expand the number of CF patients who can be functionally cured by correcting the underlying genetic cause of the respiratory disease.

The near-term focus of Vertex's CF research is a phase II study combining Kalydeco with an experimental drug VX-809 in patients with the F508del mutation. Results from this study are expected this summer. If the data are positive (and we'll define success below) Vertex is expected to move the Kalydeco-VX-809 combination into phase III studies.

First, some background information: Kalydeco is the first drug approved which repairs the so-called G551D mutation affecting about 4% of the estimated 70,000 CF patients worldwide.

A combination of Kalydeco and VX-809 to repair the F508del mutation, on the other hand, could conceivably address between 39% and 48% of the CF patient population worldwide.

Cystic fibrosis is caused by genetic mutations that result in a malfunctioning or missing protein known as CFTR required for the regulation of sweat production, mucus and certain aspects of digestion. Defective or missing CFTR proteins in lung cells results in the formation of thick, sticky mucus that leads to restricted airflow, chronic infections and lung damage.

Patients with the G551D mutation have sufficient CFTR proteins on the surface of cells but the proteins are damaged and don't work correctly. Kalydeco is a "potentiator" designed to improve the function of the damaged CFTR proteins.

Patients with the more common F508del mutation have missing or insufficient CFTR protein on the surface of cells so merely improving the function of these proteins is not enough to reverse the course of the disease. VX-809 is therefore designed as a "corrector" drug that increases the amount of CFTR protein on the cell surface.

Vertex's experimental combination therapy for CF patients with the F508del mutation is designed to work this way: Four weeks of treatment with VX-809 alone to increase the amount of CFTR protein, followed by another four weeks VX-809 combined with Kalydeco to improve the function of the new CFTR protein. Multiple doses of VX-809 are being studied along with a higher dose of Kalydeco.

Success in the phase II VX-809-Kalydeco combination trial will likely be defined as a statistically significant, 15-20% reduction in sweat chloride levels with a corresponding improvement (not necessarily statistically significant) in lung function as measured by FEV1.

Reduction of sweat chloride is a laboratory marker of improved CFTR protein function that is correlated with improved lung function -- the most important outcome for CF patients and the endpoint upon which FDA approves new drugs.

An initial study of the VX-808-Kalydeco combination therapy in June 2011 yielded small improvements in sweat chloride levels. Vertex is hoping for better results this time around with higher dosing and longer treatment.

Vertex shares closed Monday at $36.67.

--Written by Adam Feuerstein in Boston.



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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.

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