Vertex In The "Vortex" Over Hepatitis C Test Results


There's a flurry of selling going on this morning in shares of the biopharma Vertex Pharmaceuticals . Overnight the embargo lifted on the long awaited results of the company's mid-stage test on a new type of Hepatitis C drug. Two studies show that six months out 60% and 65% of patients had no detectable virus in their blood.

That beats the treatments currently available which make a lot of patients feel like they have the flu and don't work in about half of them.

Hepatitis C doesn't get a lot of mainstream news media coverage. But it is a huge, burgeoning drug market. Geoffrey Porges at Bernstein forecasts that the Hep C drug market will grow from about $2.5 billion this year to $11 billion in 2012. That's a tremendous amount of potential growth in a short amount of time.

So, as you might guess, a whole bunch of biotech and big pharmas are racing to develop drugs for it. An estimated four million people are infected in the U.S., but that pales in comparison to the 170 million patients worldwide.

While the efficacy seen in the Vertex studies is unprecedented, there were side effects. As many as 18% of people dropped out of one of the clinical trials. The most common problem was a rash. You can hear what Vertex CEO Joshua Boger had to say about that and the move in his stock in this interview I did with him this morning on "Squawk on the Street". Just before, during and after his appearance the stock trimmed about half of its losses in early trading.

While I'm at it, take a look at the Vertex website . They recently revamped it and I have to say it ranks as one of the coolest biotech sites I've ever surfed. For example, check out the link to the Boger's bio where you can dress him up or dress him down. And I like the personal touch with his own mission statement versus the usual, dry curriculum vitae you find on most corporate web sites.

Boger also writes his own blog on the company's intranet. He's not unique in doing that, but I think all this goes to the more media savvy vibe I find at biotechs--especially smaller ones--compared to the big, stodgy, buttoned-down pharma corporate culture.

So, back to the drug. The stock could also be under pressure because a privately-held company, Romark Laboratories, came out of nowhere at the scientific conference called, "The Liver Meeting", (yes, that's really its name) with positive data on its diarrhea drug, Alinia, for Hep C. Patients in a small Egyptian study had a 79% cure rate on a different, easier-to-treat form of Hep C than the one Vertex is targeting. Schering-Plough also recently announced good mid-stage results on a Hep C drug similar to the Vertex drug.

Most analysts, though, think there's enough of a market here for everyone to share and that the Vertex drug could eventually become at least a billion-dollar blockbuster. But, in the meantime, investors are a bit spooked.

Wachovia analyst George Farmer writes in a research note to clients this morning, "…we are alarmed by the seemingly high overall discontinuation rate (18% in one study, 14% in the other) versus 3% and 6% (on currently marketed drugs)….We await more details to be presented at the Liver Meeting Monday and Tuesday to gain more visibility into the side effect profile of this agent, which we believe remains an overhang on the stock." Wachovia makes a market in VRTX shares.

Questions? Comments?