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VERTEX (VRTX): At the Finish Line

Prohost Biotech - Monday, August 09, 2010

When an investigational drug proves it can eradicate a virus we call it a breakthrough. The nearest to approval of the expected breakthroughs is Vertex’ (VRTX) drug telaprevir, a specific hepatitis C virus protease inhibitor. The drug was a blessing for the infected victims who had it in clinical trials. It brought a miracle happy ending to what seemed to be an endless nightmare of acute liver inflammation, chronic liver inflammation, liver cirrhosis, liver transplant and possible liver cancer. We expected telaprevir to be greeted by the government and insurance companies, which spend ton of money on the HCV liver problems where treatments that do not work are, nevertheless, paid for.

More than anybody else, we expected they would cheer the news about the successful outcome of telaprevir in clearing the virus in large clinical trials. We were confident that they will not overlook Vertex’, drug importance, its huge market ad the fact that it is expected to be the first approved protease inhibitor, i.e., the first approved drug to that deals with the virus itself, not only its symptoms.  We thought they would rush to buy VRTX as undervalued as it is and as it has constantly been for the past three years. Surprisingly enough, investors seemed not interested in the $10 B market and, instead of buying the stock; they kept trading up and down, but to the negative side. The reason, as we see it, is that investors believe that the real influence on stock pricing comes not from the firms’ good news, or expected huge revenues and sales’ growth, but from emperors who dictate the prices of the publicly-traded firms.

To investors we say: Few firms have very effective weapons against HCV. Only two of them will get their drugs on the market in 2011. Vertex’ HCV drug telaprevir will be the first HCV specific protease inhibitor to offer a real hopes for hepatitis C cure. The virus has infected roughly four million Americans, most of them baby boomers, in addition to 170 million people worldwide. You can imagine how large is the market. About 12,000 Americans infected with HCV develop cirrhosis every year - a number that will continue to rise in the coming decade. Some negative traders perpetrate the fact that the number of newly diagnosed cases is dropping. This reality, though, would not affect the new drug sales, as hundreds of thousands of people who were infected decades ago are expected to begin experiencing the disagreeable complications and liver damage and are anxious to get the drug that would protect them from a miserable future with liver cirrhosis, possible liver failure, liver transplant and possible liver cancer.

Clinical trial results demonstrate that telaprevir has, indeed, cleared the virus from the bloodstream of infected patients and achieved a sustained viral response (SVR). Data from a late-stage clinical trial demonstrated that a combination telaprevir/ alpha interferon/ ribavirin was capable of effectively curing 75 percent of patients, compared with 44 percent of those treated with the same drugs but without telaprevir. According to an article written in New York Times, a doctor who works as a consultant to some pharmaceutical companies said that one-fifth of his patients were being “warehoused,” meaning they were forgoing treatment now to wait for the new drugs.  The number of infected patients as mentioned above might be misleading as it seems that 75% of the infected patients have no clue that they are infected, as they have never been tested for HCV. Now, drug companies and the government are doing a great job raising awareness about HCV infection. Recently, the FDA approved a rapid blood test developed by Orasure Technologies that can provide results in minutes.

The current treatment for hepatitis C consists of weekly injections of alpha interferon and ribavirin. While nobody knows how these drugs work, telaprevir is known to inhibit the protease enzyme required by HCV virus, similar to the HIV new drugs.

Following the approval of telaprevir, which is expected in early 2011, Merck’s drug, boceprevir, would probably be available a few months later. The market is huge and more drugs in this category are required to satisfy its needs. Around half a million people feel lucky as the drugs will save them after other drugs stopped helping them. People who had to take drugs derived from human plasma years ago are now facing the complications of HCV. They are in bad need for drug combination, which include protease inhibitors.

Vertex said it remains on track to complete the New Drug Application submission process for telaprevir later this year and to complete the build-out of its commercial function in advance of the potential launch of telaprevir.  A rolling application allows the company to submit pieces of data as they become available. Vertex says the application will be complete this year.

Data from two more phase 3 trials are expected in the next couple of months. Common sense dictates that these data must boost the stock, but reality on Wall Street tells us that people have eyes but do not see and ears that do not hear.  That’s why we have a plan B, which is to consider any selling of VRTX a unique opportunity to buy the stock at a bargain price.

Are you listening?

Other small biotech developing HCV drugs: Idenix (IDIX); Anadys (ANDS), Intermune (ITMN) And Dynavax (DVAX).

We long Vertex

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