Watch for More Volatility at Vertex

The stock's recent rocky ride may signal more bumps.
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BOSTON -- Another nugget of positive clinical data came out last week from

Vertex Pharmaceuticals

(VRTX) - Get Report

and its experimental hepatitis C drug, but it has been a bit overshadowed by some downward volatility in the company's stock.

At a meeting of infectious-disease researchers in Chicago, investigators reported that some patients who prematurely discontinued treatment with Vertex's drug telaprevir were still able to clear the hepatitis C virus completely from their system.

"This speaks to the potency of telaprevir," says Cowen biotech analyst Rachel McMinn, who covers Vertex. "These patients received a short course of therapy with telaprevir

less than the 12 weeks they were supposed to receive, but they still were able to achieve a sustained virologic response." McMinn has an outperform rating on Vertex, and Cowen doesn't do banking for the company.

While bullish on Vertex and telaprevir, McMinn was also responsible (albeit inadvertently) for raising some worries about the drug that caused the stock to take a midweek swoon.

In a short note to clients last Wednesday, McMinn lowered her prediction for the percentage of patients in the ongoing telaprevir U.S. phase II study who would achieve a sustained virologic response, or SVR. (In layman's terms, these patients are cured of hepatitis C.)

McMinn lowered her projected SVR range to 59% to 61% from her previous estimate of 61% to 65%. The actual data on telaprevir and its SVR rate will be made public in early November at a liver disease meeting being held in Boston.

Vertex shares were trading around $40 Wednesday when McMinn's note hit trading desks. The stock quickly fell about 7% to an intraday low of $37.33. The stock has only partially recovered, closing Friday at $38.24.

In a postnote interview late last week, McMinn said that she adjusted her estimate based on the data presented at this week's infectious disease meeting, but that she didn't intend to send a negative signal.

"Our earlier projections

for a telaprevir cure rate were a little too high, but there was nothing negative fundamentally to take away from the data presented," she said.

To put these numbers in perspective, a hepatitis C cure rate of 59% to 61% for telaprevir would represent a significant improvement over the current standard of care, which only succeeds in eliminating the hepatitis C virus from about 40% of U.S. patients.

Telaprevir is a pill designed to attack hepatitis C by inhibiting the protease enzyme, one of the key enzymes the virus uses to copy itself. This "direct antiviral" approach

differs from current hepatitis C drugs, which boost the immune system's ability to tamp down and eliminate the virus.

The current standard of care for hepatitis C patients is a weekly injection of long-acting alpha interferon combined with daily oral doses of a generic drug, ribavirin. A normal treatment course for Type 1 hepatitis C (the most prevalent form) takes 48 weeks to complete, and many patients find the side effects, such as flulike symptoms, anemia and depression, difficult to tolerate.

Telaprevir is being combined with interferon and ribavirin to create a more potent and less time-consuming hepatitis C treatment regimen. Three large phase II studies are underway, investigating various treatment schedules. The most promising combination so far treats hepatitis C patients for 12 weeks with the triple combination (telaprevir, interferon and ribavirin), followed by 12 weeks of interferon and ribavirin on their own.

That's 24 weeks of total treatment -- half the current standard of care.

At the infectious disease meeting held last week, investigators from the U.S.-based phase II telaprevir study, known as Prove 1, reported new details on a group of 27 patients enrolled in two arms of the study. These patients didn't receive the full 12 weeks of telaprevir for various reasons.

However, investigators were able to follow up on 19 of these 27 patients to determine whether even a shortened course of telaprevir would be effective enough to result in a cure. Of these 19 patients, 7 of them, or 37%, achieved an SVR, or cure. The other 12 patients relapsed.

It was entirely possible to assume that these hepatitis C patients who weren't able to complete their treatment would have relapsed or otherwise not have been able clear the virus from their system. Instead, at least some of them were cured, which suggests that telaprevir is a very potent drug, McMinn says.

Although data collected and presented on telaprevir have been promising so far, it's the results not yet made public that will inform the ultimate verdict on the drug. The most important telaprevir data to date will be presented Nov. 2-6 at the annual meeting of the American Association for the Study of Liver Disease.

Vertex shares have been on a monster run since late June, when shares had dipped to around $26. This week's volatility may be a precursor of more to come, as some investors choose to take profits instead of risking gains before new data are released in November.

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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