A Hep C Breakdown Will Test Investors' Love For Vertex Pharma

CAMBRIDGE, Mass. ( TheStreet) -- We're about to test the thesis that investors are only interested in Vertex Pharmaceuticals ( VRTX) for its blockbuster cystic fibrosis drug program and care little for anything the company does in hepatitis C.

After Thursday's close, Vertex announced a U.S. Food and Drug Administration partial clinical hold on its lead hepatitis C drug candidate VX-135 due to liver toxicity seen in patients treated at higher doses.

VX-135 is Vertex's nucleotide "nuc" polymerase inhibitor which is playing catch-up to other more advanced nucs in development for the treatment of hepatitis C, most notably Gilead Sciences' ( GILD) sofosbuvir.

Either by luck, smarts or a combination of both, Gilead has managed to avoid liver toxicity issues with its nuc (obtained from Pharmasset in the famous $11 billion acquisition at the end of 2012) that have dogged other companies. Today, it's Vertex in trouble, but Idenix Pharmaceuticals ( IDIX) and most famously, Bristol-Myers Squibb ( BMY), have also landed in hot water.

"God really loves Gilead," quipped ISI Group analyst Mark Schoenebaum, in an email to investor clients following the Vertex announcement.

Vertex shares are down 10 percent to $78.77 on news of the VX-135 partial clinical hold, suggesting that, indeed, investors were hoping the company might resurrect its hepatitis C drug business. Today's unfortunate casts a cloud over that idea.

Of course, most of Vertex's $19 billion valuation is centered on the cystic fibrosis drug program, and rightly so.

Gilead shares are up 5 percent to $63.98 in after-hours trading on the Vertex setback plus a strong second-quarter earnings report.

The FDA placed a partial clinical hold on VX-135 because of elevated liver enzymes reported in patients treated with a 400 mg dose of the drug in a phase II study conducted in Europe. These patients stopped taking VX-135 and their liver enzymes returned to normal, the company said.

FDA reacted by barring Vertex from treating any new patients with doses of VX-135 higher than 200 mg in the U.S. Studies involving 100 mg doses of VX-135 continue, the company said.

Hepatitis C studies involving 100 mg and 200 mg doses of VX-135 in Europe are also continuing.

-- Reported by Adam Feuerstein in Boston.

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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