Bernstein analyst Geoff Porges hung out with doctors and cystic fibrosis experts at the just-concluded European Cystic Fibrosis Society conference in Sweden and returned home even more bearish on Vertex Pharmaceuticals (VRTX). In a research note Monday, Porges lays out reasons why the super-important combination studies of Kalydeco and VX-809 -- TRAFFIC and TRANPORT -- are more likely to fail.
Our conclusion from the many conversations with basic scientists, clinicians and investigators is the same as the one that led to our downgrade of Vertex's stock 7 months ago. The probability of failure in this trial is high, and is underappreciated by the investment community. More than ever there seems to be a disconnect between the assumptions and expectations of the investor community and that of the medical community involved in the trial.
Healthcare investors, not to mention the cystic fibrosis community, are waiting anxiously for Vertex to disclose the results from the TRAFFIC and TRANSPORT studies. Wall Street sentiment has been cautious, but generally speaking, more inclined to believe the Kalydeco VX-809 studies will be positive, based on investor surveys. I've explained the bull case for TRAFFIC and TRANSPORT already.
A good portion of Porges' Monday note highlights some basic science, or mechanistic, problems for VX-809, suggesting the drug may not correct protein mis-folding well enough. He believes Wall Street may be under-estimating the complexity of treating cystic fibrosis patients homozygous for the F508del mutation.
As we sat through the basic science presentations at the conference, and then talked to many of the same scientists presenting this research, our conviction about the under-appreciated complexity of correction was increased. Much of the justification for clinical trial decisions and designs in CF came from cell culture systems, which then transitioned to relatively small "proof of concept" clinical trials. It appears that the success of Kalydeco's transition from cell culture to small trials, then to larger trials and approval, was so positive, that the sponsor (Vertex) and the partner (CF Foundation) and the CF clinical research community may have been lulled into a sense of overconfidence about the ability to make this speedy transition again with the much more complex two-drug combination. However, fully functioning humans, and diseases, tend to have much more complexity than isolated cells and even organoids, and some experts we met in Sweden suggested that this complexity may have been under-appreciated in the rush to pivotal trials to expand the treatable patient population for Vertex's drugs.
Porges is also concerned about the lack of positive, anecdotal reports from patients enrolled in the TRAFFIC and TRANSPORT studies, and says CF experts were surprisingly cautious when speaking about the outlook for the studies at this weekend's meeting. In terms of timing, Porges believes Vertex is more likely to announce TRAFFIC and TRANSPORT results in mid to late July, in part because Vertex is taking extra caution in validating and analyzing the trials' data.
"Overall this meeting reinforced our cautious view about the probability of success for what is looming as not just a major binary event for Vertex, but as a key event for investor sentiment about the whole biotech sector," Porges concludes.
The Vertex bear has spoken.