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Vertex Pharma: Five Reasons to Worry About Telaprevir
  By Adam Feuerstein 05/26/10
CAMBRIDGE, Mass. (TheStreet) -- Vertex Pharmaceuticals(VRTX): Sell the telaprevir news?
That's what investors appear to be doing Wednesday following Vertex's announcement of positive results from a late-stage study of the company's hepatitis C drug telaprevir.
Vertex shares are up 5% to $35.80 in recent Wednesday trading but the stock opened at $37.70 and was even above $38 in Tuesday's after-hours session following the release of the telaprevir study results.
At this point, it doesn't look as if investors are much interested in pushing Vertex back to the $44 plateau reached in the weeks running up to the release of the phase III study results. At least not yet.
Let's be clear, the telaprevir data are very strong. The headline number -- a 75% cure rate for hepatitis C patients treated with a telaprevir-containing regimen over 24 weeks -- sets a new and exciting treatment standard in hepatitis C. But investors were largely expecting a viral cure rate in the mid-70% range, so the actual telaprevir result wasn't a surprise.
Five additional reasons why Vertex shares aren't reaching the moon today:
* Is telaprevir better than Merck's(MRK) boceprevir? We won't know until Merck announces results from the phase III studies of boceprevir later this year. Vertex definitely set the clinical efficacy bar very high with the telaprevir results.
The 75% viral cure rate for telaprevir in the phase III study matches the best viral cure rate for Merck's boceprevir observed in the drug's phase II studies (albeit achieved with 48 weeks of total treatment, much longer than Vertex's 24-week treatment course.)
It's not impossible for Merck's boceprevir to produce a clinically superior viral cure rate compared to telaprevir. The odds, however, are not in Merck's favor.
* How many telaprevir patients are actually cured after just 24 weeks of treatment? Vertex is being a bit cagey, saying only that 70% of the 75% of viral cures were in patients treated for 24 weeks.
Bank of America/Merrill Lynch analyst Rachel McMinn estimates that this translates in 55% of telaprevir patients overall achieving viral cure with a 24-week treatment regimen. That's lower than what was observed in the previous phase II studies of telaprevir. Vertex says more advanced, difficult-to-treat hepatitis C patients enrolled in the phase III study compared to previous studies explains the difference.
This metric is important because cutting treatment time for hepatitis C in half (from one year to six months) is one of the key selling points that Vertex will use to market telaprevir -- and potentially differentiate the drug from Merck's boceprevir which will likely require longer treatment.
That message is diluted a bit, however, if the study results show that only about half of hepatitis C patients treated with telaprevir will be cured at 24 weeks (the rest needing 48 weeks of treatment.) Half is still better than none, which is what happens today, but half isn't as good as it could be, either.
* Will the FDA (and later, hepatitis C doctors and patients) be worried about that one telaprevir-treated patient in the phase III study diagnosed with Stevens-Johnson syndrome?
Stevens-Johnson Syndrome (SJS) is a rare, life-threatening rash. Vertex disclosed that a single patients treated in the eight-week telaprevir arm was diagnosed with SJS, albeit 11 weeks after telaprevir dosing had ended. For that reason, Vertex says study safety monitors ruled out telaprevir as the cause for the case of SJS. The patient was hospitalized and made a full recovery.
Telaprevir-treated patients discontinued from the study due to rash at a surprisingly low (and positive) rate of just 1.4%. Still, telaprevir can cause rash, so the disclosure of even a single case of SJS puts the drug's safety profile under further scrutiny.
* One telaprevir study is in the books, but there are two more to come in the third quarter. One of these still-undisclosed phase III studies (the Illuminate study) will answer a key question: Is it better to treat hepatitis C patients for 24 weeks or 48 weeks? Vertex doesn't think longer is better, but if the company is wrong, telaprevir's marketing message and competitive advantage gets muddled.
The other remaining phase III study tests telaprevir in patients who previously failed or relapsed after treatment with current hepatitis C drugs. Based on previous data, this study, dubbed Realize, is where telaprevir should really shine and provide a big competitive advantage over Merck's boceprevir.
* Telaprevir works. Tell us something we don't know, like whether the drug can work without the current standard of care? Hepatitis C investors think ahead -- way ahead. At a market value of $7-$8 billion, Vertex is already pricing in telaprevir's approval and a bucket-loads of telaprevir sales.
The next, next thing in hepatitis C already on Wall Street's radar screen is a phase II study of telaprevir in combination with Vertex's other hepatitis C drug VX-222. The importance of this study is that it eliminates treatment with the current standard of care -- long-acting interferon and ribavirin. If successful, hepatitis C patients might be treated with pills only that directly kill the virus -- the holy grail of hepatitis C.
Other companies, including Roche (with Pharmasset(VRUS) and InterMune(ITMN)) and Bristol-Myers Squibb(BMY) and are already working on combination studies of experimental oral drugs to treat hepatitis C without interferons and ribavirin. Vertex needs the combination of telaprevire and VX-222 to work in order to remain competitive.
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