Vertex Investors Balk at New Study Plans

Plans for another phase III study of telaprevir dampen investor hopes for a speedy FDA approval of the Hep C drug.
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A speedier-than-expected regulatory filing for Vertex Pharmaceuticals' (VRTX) - Get Report hepatitis C drug appears less likely after the company disclosed plans Monday for a new phase III study of the drug.

Investors have been hoping that Vertex and partner

Johnson & Johnson

(JNJ) - Get Report

could seek regulatory approval for telaprevir in 2009 based on data from existing clinical trials in treatment-resistant patients.

However, the companies posted details of a new phase III study of telaprevir in treatment-resistant hepatitis C patients on the

ClinicalTrials.gov

Web site Monday. The disclosure dampened investor outlook for a quick telaprevir filing.

If Vertex cannot file telaprevir with the U.S. Food and Drug Administration in 2009, the filing will likely come in the second half of 2010 after studies of the drug in treatment-naïve hepatitis C patients are completed.

Vertex shares fell 5% to $31.66 Monday as a result.

"We have learned that telaprevir's phase III study in treatment experienced hepatitis C patients is different from PROVE 3 and study 107, which in our view decreases the chances of an early filing," wrote Citibank analyst Yaron Werber in a note to clients Monday evening.

PROVE 3

and

study 107

refer to the existing telaprevir studies in treatment-resistant patients.

Werber has a hold rating on Vertex, and perhaps echoing the sentiment of his momentum and catalyst-driven hedge fund clients, he added that, "We are no longer warming up to the stock and believe the momentum has cooled off as we believe that the chances for an early approval on PROVE 3 and 107 are low."

The New Phase III Study

Vertex spokesman Michael Partridge says Monday's disclosure of a new phase III telaprevir study is in line with the company's previous guidance and "not closely connected to a possible

FDA filing based on PROVE 3 results."

Partridge added that Vertex and the FDA are still discussing the previously disclosed PROVE 3 data, but that "initiation of a new phase III study is a natural extension of the PROVE 3 results which we would have started no matter the path to a filing."

The new phase III study disclosed Monday will test two different regimens of telaprevir in patients who previously did not respond to conventional hepatitis C treatment with pegylated interferon and ribavirin.

The study differs from previous studies in that patients will be treated with two regimens of telaprevir for a full 48 weeks instead of the accelerated 24-week treatment cycle used for treatment-naïve patients.

In addition, one of the arms of the new study will see whether a "lead-in" treatment with interferon and ribavirin alone before dosing of telaprevir may improve overall cure rates.

The design of the new study is sufficiently different from the previous PROVE 3 and study 107 trials to suggest that regulators want more and different data on telaprevir's effect on treatment-resistant patients before considering the drug for approval.

Cowen & Co. analyst Rachel McMinn views Monday's selloff as an overreaction to expected news. She reiterated her outperform raring on Vertex.

"We believe that yesterday's

Vertex sell off was driven by an over-reaction to two-week old information. Timelines for commercial launch of ... telaprevir (late 2010/early 2010) are unchanged, and we see 50% upside relative to the market on the basis of this timeframe. While probability of an early 2009 FDA approval is low, we see 100% upside relative to the market under this scenario over the next 6-12 months."

Schering-Plough

(SGP)

recently announced the start of phase III studies for its competing hepatitis C drug.

Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

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