Vertex Shareholders Stay Vexed

The stock slides further as traders await crucial hepatitis C drug data.
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New clinical data from

Vertex Pharmaceuticals

(VRTX) - Get Report

regarding its hepatitis C drug telaprevir, expected at a medical meeting next month, seem to have investors on edge.

Shares of the Cambridge, Mass.-based biotech firm continue show weakness on worries that telaprevir won't live up to expectations when new phase II data are presented at the European Association for the Study of Liver Disease meeting on April 11-15.

I last

wrote about telaprevir in early February with Vertex shares at $35, at the time down from a recent high of $44. On Tuesday, the stock closed up 20 cents at $27.85.

Like then, there doesn't seem to be a specific nugget of negative information about telaprevir forcing Vertex lower (at least not that I've been able to pick up). Instead, there's a general uneasiness -- even confusion -- about the telaprevir data that Vertex will bring to the EASL meeting and how it will be interpreted by hepatitis C experts and investors.

At the risk of coming off a bit too wonky, I want to preview Vertex's upcoming EASL presentation. It may not dispel any fears, but with any hope it will make interpreting next month's data easier.

The most highly anticipated news will come from what is known as "Arm D" of Vertex's Prove 1 study. In this arm, 20 treatment-naive hepatitis C patients (those who have never taken anti-hepatitis C drugs) were given a triple combination of telaprevir plus interferon alpha and ribavirin (the latter two drugs representing the current, standard hepatitis C treatment.) Patients in this arm of the study were treated with all three drugs for 12 weeks, then all treatment was stopped.

Twelve weeks after stopping treatment, patients are being analyzed to see whether the hepatitis C virus in their system remains at undetectable levels. In hepatitis C circles, this is what's known as a "sustained virologic response," or SVR. Since SVR, in this case, is being measured 12 weeks after treatment ends, the data that Vertex will share at the EASL meeting will be SVR12 (from Arm D of the Prove 1 trial, to be exact.)

"This will be the first time in a clinical trial that any

hepatitis C infected patient will have systematically been stopped at 12 weeks to see whether or not they can achieve SVR or not," explained Vertex's Chief Medical Officer John Alam at an investor conference last week.

What makes these data so intriguing is that they represent Vertex's home-run strategy with regard to telaprevir, because 12 weeks on a drug would be the shortest treatment ever conceived for hepatitis C patients. Currently, hep C patients, like those enrolled in Prove 1, need to be treated for 48 weeks with interferon and ribavirin before they can be cured.

Naturally, an aggressive stab at a 12-week treatment schedule is a risky strategy for Vertex, so the other arms of the study are exploring different treatment regimens: all dose telaprevir for 12 weeks like in Arm D, but they also extend interferon-ribavirin treatment for longer periods.

Believe it or not, that's the easy part of understanding the upcoming data. Now, we get to the complexities.

If all 20 patients in Arm D of the study were to make it through 12 weeks of treatment and 12 weeks of observation, interpreting the SVR12 data would be relatively easy. We'd just take the number of patients with undetectable virus and divide by 20 to come up with an answer.

Unfortunately, it's very possible (and probably likely) that not all 20 patients in Arm D make it through 12 weeks of treatment. (And remember, these patients are getting telaprevir, interferon alpha and ribavirin.)

According to criteria built into the Prove 1 study design, Arm D patients have to achieve undetectable levels of virus at four weeks

and

10 weeks of treatment in order to stop treatment altogether at 12 weeks. If a patient doesn't meet this interim efficacy hurdle, doctors will order patients to continue receiving interferon and ribavirin for an extended period beyond 12 weeks.

Since these "nonresponding" patients will still be receiving treatment for their hepatitis C, Vertex won't be able to analyze them for SVR12 response. The denominator for the Arm D analysis, therefore, will be something less than 20 patients.

And this is where investors will have to pay close attention to how Vertex reports the data. Here's why:

Let's assume that Vertex tells us that 13 patients in Arm D achieved an SVR 12 weeks after stopping treatment with telaprevir, interferon and ribavirin. Furthermore, Vertex tells us that four patients were deemed "nonresponders" and are therefore still being treated with interferon-ribavirin beyond 12 weeks.

What's the SVR12 result for Arm D of the study? Using the most generous analysis, the SVR12 would be a robust 81% (13/16 patients). But using a stricter calculus, the SVR12 would be a less rosy 65% (13/20 patients).

For this reason, pay attention to both the numerator and the denominator used to analyze the upcoming telaprevir data. There are pros and cons for using either calculation, which go a long way toward explaining why there's so much uncertainty about the upcoming presentation. (And I did warn you that this column would get wonky.)

Other things to keep in mind about the upcoming data:

Pay attention to the side-effect profile of telaprevir and the reporting of any toxicities or adverse events that might have caused patients to discontinue treatment.

The SVR12 data will be a good measure of telaprevir's efficacy, but it's not enough. For a hepatitis C drug to receive FDA approval, patients must have undetectable virus for 24 weeks, or six months, following the end of treatment. Generally speaking, about 50% of treatment-naive hepatitis C patients are cured (achieve SVR24) on the currently marketed drugs.

If Vertex doesn't succeed with its home-run strategy of treating patients for only three months, the game is far from over. As I said above, the majority of patients in the Prove 1 study are being treated with three months of telaprevir in combination with either 24 or 48 weeks of interferon and ribavirin.

Adam Feuerstein writes regularly for RealMoney.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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