Vertex Vexed by FDA Deal

The stock falls as investors now see a long wait for positive data on hepatitis C drug telaprevir.
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Vertex Pharmaceuticals

(VRTX) - Get Report

said Wednesday that it received the OK from regulators to start phase III studies of its hepatitis C drug telaprevir.

The positive development couldn't stop the stock from falling, however, as many institutional investors now see a paucity of news flow from the telaprevir program for the next two years.

Vertex has also said that it plans to raise money, in part, to pay for the new clinical trials.

Vertex shares were down more than 10% in Wednesday trading to $20.

The agreement reached between Vertex and the Food and Drug Administration to move telaprevir ahead into late-stage studies is a positive milestone anxiously anticipated by investors. One of the reasons for Vertex's recent stock slide has been the concern that a significant delay in telaprevir might allow competing hepatitis C drugs that were further behind in development to catch up.

Vertex said Wednesday that it will conduct two phase III trials to satisfy FDA regulatory requirements. The first study, enrolling 1,050 patients with newly diagnosed hepatitis C, will evaluate two different telaprevir regimens, each totaling 24 weeks in length. These patients will be compared against an arm of patients treated with the current standard of care for 48 weeks.

The primary endpoint, or goal, of the study will be to show that 24-week treatment with telaprevir results in a higher sustained virologic response, or "cure rate," than current standard of care.

The second, smaller study will test a telaprevir-containing regimen that lasts 48 weeks, again compared to a 48-week standard of care. This study will enroll between 400 and 500 newly diagnosed hepatitis C patients.

Both studies will run concurrently, with enrollment forecast to be completed by the end of the year. Vertex said it expects results from both studies should be ready for release in the middle of 2010. If positive, Vertex could seek FDA approval of telaprevir by the end of 2010, with an approval decision likely in mid-2011.

The two-year wait for data from these pivotal telaprevir studies is a big reason for the decline in Vertex shares on Wednesday.

"The fact that Vertex got the signoff from the FDA to start the phase III trials removes an overhang that weighed on the stock, but now we have to wait two years for data and Vertex needs to raise money, so why do I want to own this stock now?" one hedge fund manager with no position in Vertex told me. (Other institutional investors echoed similar comments.)

But Vertex spokesman Michael Partridge takes issue with this shortsighted view. There will be new and important clinical data from a phase II study of telaprevir in patients with treatment-resistant hepatitis C out in the next few months, he says. The company and partner

Johnson & Johnson

(JNJ) - Get Report

are also conducting telaprevir studies looking at a less frequent dosing schedule in patients with other forms of hepatitis C.

As to the financing issue, Partridge says Vertex will raise money, but the company is looking at various ways of doing so to avoid issuing all new equity at these price levels.

Cowen biotech analyst Rachel McMinn, in a research note to clients Wednesday morning, said the design of the telaprevir phase III trials was in line with her expectations, but at the same time, the two studies "leave open the question of whether telaprevir will ultimately be dosed in a 24 week or a 48 week regimen," she writes. McMinn had a neutral rating on Vertex and her firm has no banking ties to the company.

The big selling points of telaprevir are that the drug has the potential to significantly increase the number of hepatitis C patients who are cured, but also do so by cutting treatment times down to six months (24 weeks) compared to current regimens requiring 48 weeks.

The second phase III study announced by Vertex on Wednesday -- with dosing of a telaprevir-based regimen that extends to 48 weeks -- raises the possibility that it may prove to be more effective than shorter-duration dosing. If true, the potential commercial appeal of telaprevir could be significantly handicapped, especially if competitive hepatitis C drugs are approved later with better safety, efficacy or dosing profiles.

The threat of competitive hepatitis C drugs from the likes of

Schering-Plough

(SGP)

,

InterMune

(ITMN)

, Johnson & Johnson and privately held Boehringer Ingelheim is another factor in the weakness of Vertex's stock price recently.

On its conference call Wednesday, Vertex Chief Medical Officer John Alam insisted that the FDA is not at all stuck in a "48-week treatment mindset," and that phase II data clearly shows that telaprevir can significantly improve hepatitis C cure rates when used in a six-month treatment regimen.

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 flu-like 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.

In the larger of the two phase III studies, two dosing schedules will be tested: In one arm, patients will be given telaprevir for 12 weeks in combination with interferon and ribavirin, followed by another 12 weeks of interferon and ribavirin on their own. In a second arm, patients will receive telaprevir, interferon and ribavirin for eight weeks, followed by 16 weeks of interferon and ribavirin. Both arms will receive 24 weeks of total treatment.

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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