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Making The Call: Vertex's Cystic Fibrosis Trials Will Succeed. Here's Why.

BOSTON (TheStreet) -- Adam, let's talk about Vertex Pharmaceuticals (VRTX - Get Report) and the "TRAFFIC" and "TRANSPORT" phase III studies in cystic fibrosis.

You mean the biggest, baddest, most wild, stock-churning clinical trial event in 2014? Sure, let's talk about it. Vertex should be announcing results from these studies real soon. The official guidance is "mid year."

You expect Vertex shares to gyrate wildly based on the results from these studies?

Big time. I'm not so good at predicting stock movements with precision, but let's just say positive results from these two cystic fibrosis studies have the potential to propel Vertex over $100 per share, perhaps even double the market value of the company. If the studies fail, Vertex doesn't go to zero, but the stock could fall 25-50%. A lot depends on what the actual data from the studies look like. Vertex closed Wednesday at $67.15.

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How does a single clinical trial event have such an outsized effect on a stock?

Because this is biotech -- big risks, big rewards and vice versa. For Vertex, the jackpot at the end of the TRAFFIC and TRANSPORT studies is $4-7 billion in peak revenue added to their existing cystic fibrosis franchise, with the potential to add billions more in sales in the future. I'm not joking, this is a huge clinical catalyst. Vertex could be the next Gilead Sciences (GILD - Get Report).

Exciting! Help me understand the Vertex phase III studies better.

Okay. TRAFFIC and TRANSPORT carry identical designs. Each study enrolls 500 patients (1,000 total) with cystic fibrosis homozygous for the F508del mutation. This is the largest subgroup of cystic fibrosis patients (28,000-33,000 patients worldwide) so another reason why the studies are so important.

The patients are randomized to one of three treatment groups: 1) VX-809 600 mg + Kalydeco; 2) VX-809 400 mg + Kalydeco; or 3) placebo. Each arm of the study will be treated for 24 weeks. The primary endpoint is the absolute change in FEV1 compared to placebo. The secondary endpoints are relative change in FEV1, change in weight, pulmonary exacerbations and quality of life.

Vertex has said the studies are designed with 90% power to detect a 3% absolute and 5% relative improvement in FEV1, which is a measure of lung function defined as the amount of air forcibly exhaled from the lungs in 1 second.

A 3% absolute benefit in FEV1 doesn't seem like much of a challenge. Do we have old data on the VX-809-Kalydeco combination to help predict the outcome of TRAFFIC and TRANSPORT?

We do. Vertex conducted a randomized phase II study of VX-809-Kalydeco in homozygous F508del patients in 2012. The study design was a bit different in that patients were treated for 28 days with VX-809 alone and then Kalydeco was added to VX-809 for another 28 days.

At the 600 mg dose of VX-809, the absolute difference in FEV1 was 6.7% versus placebo from the start of the study to Day 56. Broken down, the VX-809-Kalydeco patients showed a 3.4% absolute improvement in FEV1 while placebo patients fell by 3.3%.

Here's how the graph of these data look:

This was a smaller phase II, enrolling 40 patients and treatment duration was only 56 days (just 28 days with the VX-809-Kalydeco combination), but the results are encouraging relative to the FEV1 improvement necessary for the TRAFFIC and TRANSPORT studies to win.

 Any more data to boost my confidence?

 Yes, VX-661 is another cystic fibrosis drug being developed by Vertex. VX-661 is similar, perhaps more potent, than VX-809. Vertex conducted a small phase II study, just 28 days, looking at the combination of VX-661 and Kalydeco in homozygous F508del patients. At the two highest VX-661 doses studied, the absolute change in FEV1 was 4.8% and 4.5% compared to placebo, respectively.

 Are you predicting success for TRAFFIC and TRANSPORT?

 I already did. It was No. 1 on my list of biotech stock predictions for 2014.

 Yet Vertex shares don't seem to reflect a tremendous amount of confidence in the studies today. Why is that?

 Because investors have a love-hate relationship with Vertex. There's drama and baggage which always seems to hang over the company, justified or not. Also consider the predecessor studies of the VX-809-Kalydeco and VX-661-Kalydeco combinations were small, which means results from the larger TRAFFIC and TRANSPORT studies may not deliver the same FEV1 benefit. There's also some concern about the durability of effect. All previous studies were short duration, but TRAFFIC and TRANSPORT treat patients for six months. We can be pretty confident that any positive effect on FEV1 will show up relatively quickly, but what happens if lung function diminishes over time?

There's also debate about what constitutes a clinically meaningful level of FEV1 improvement, with some investors believing 3% may not be enough to drive significant adoption of combination therapy, particularly relative to the expected high cost. People will be much more comfortable if the the two phase III studies succeed with an absolute FEV1 improvement greater than 3%. A 5% absolute improvement would be great. (No pressure, Vertex.)

 How significant are the secondary endpoints from the two phase III studies?

 They're important. At a minimum, folks want to see combination therapy show positive trends towards reducing pulmonary exacerbations, weight gain and quality of life.

 What happens if the TRAFFIC and TRANSPORT studies fail?

Other than crushing disappointment, misery and financial ruin? Oh, not much. Seriously, Vertex will be dealt a serious blow if the studies fail, but it also doesn't spell the end of the company's cystic fibrosis business. There's still VX-661 and other drugs being developed.

Follow Adam Feuerstein on Twitter.

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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