Monday, April 16, 2007

Color on data: Vertex Pharma (NASDAQ:VRTX)

Several firms comment on Vertex (NASDAQ:VRTX) after the co presented additional efficacy and safety data from the ongoing ph.IIb PROVE 1 study of telaprevir in hepatitis C (HCV), including SVR20 data from a 12-week treatment arm of telaprevir plus standard of care (Peg-IFN/RBV).

- CIBC notes that among 17 "intent to treat" pts in the 12-wk telaprevir/Peg-IFN/RBV arm, 6
achieved SVR20 (35%). Firm believes these are solid but not spectacular results; they would caution against over-interpreting this data due to the potential for statistical variability from the very small sample size.

They believe the rate of rapid virologic response for pts on telaprevir was impressive (79% vs. 11% for placebo), suggesting an additional 12 wks of Peg- IFN/RBV may be sufficient to suppress rebound and improve SVR. Importantly, there were no unexpected safety issues vs. prior data.

CIBC would expect some downside in VRTX, given inflated expectations for the 12-wk treatment arm at EASL. However, they continue to believe the totality of the ph.IIb data will support telaprevir's strong clinical profile and $2B mkt potential. Firm would use any weakness as a buying opportunity. Maintains Sector Outperformer and $42 tgt.

- Morgan Stanley says the data continue to suggest VX-950 is a potent drug that, when added to current drugs, improves patient outcomes and - at least until a better tolerated, more potent, or more convenient drug comes along - has a place treating hepatitis C. However, these data do not live up to investors and managements' aggressive assumptions, and timelines and revenue numbers are likely slipping across the Street as a longer treatment duration (six months) shrinks growth in the addressable population and pushes time to market further away (a randomized, controlled trial for Phase III looks increasingly likely). Firm is delaying their expected launch of VX-950 until 2010, which is significant given the company's current burn, and lowering long-term revenue estimates.

Even after Friday's leak of the data and sell-off, they expect further weakness as investors digest longer timelines and a longer treatment duration. Bigger picture, the firm continues to view VX-950 as a meaningful advance in HCV care, and the protease inhibitor class will ultimately change the HCV treatment paradigm (but continues to fear VX-950 could be Crixivan).

- Prudential says complete analysis of the entire set of data and the confirmation that there is no major side effect related to telaprevir treatment led them to conclude that telaprevir is still on track to enter the market as the first HCV protease inhibitor. Firm believes, based on available data, that the 24 weeks (12 weeks of telaprevir plus standard of care followed by 12 weeks of standard of care) of treatment should result in efficacy better than standard of care. The improved efficacy and the shortened treatment duration still make this new combination a game changer, although slightly less robust than they previously thought.

Although the number of patients available for evaluation was small in Arm D, the SVR12 data was highly anticipated by the Street and they think the stock is likely to react to the consensus interpretation of the data. On the most bearish side, one can argue that the response was only 35%, significantly lower than the number of 75% some hoped for long before PROVE 1 was started. Firm thinks the Street's expectation going into EASL was lowered, probably to the 50% range. If that were true, then the number would still be below expectation and they think the stock would be under pressure in the near term.

However, they think the most informative calculation is that 46% of patients in Arm D achieved a SVR12 after only 12 weeks of treatment with telaprevir and the standard of care. If the patient that withdrew with consent was taken out of the calculation, the SVR12 rate would be 6/12, or 50%, in line with the Street's expectation before EASL. If the consensus view would take this number, then the stock should not move too much as EASL. They are particularly relieved that no serious side effects were seen in the complete safety analysis.

Prudential believes the stock has passed its most speculative phase and recommends investors to accumulate shares. Maintain Overweight and $45 tgt.

Notablecalls: Expect to see downside in VRTX today. If MSCO's right, timelines will be pushed back in a major way, plus there will be no new data coming until Nov. On the other hand, there is very little doubt regarding the efficiency. Once launched, telaprevir will surely be part of the standard treatment for HCV, with $1-$2 billion market potential. Aggessive trading accounts may see buying opportunity around the -10% level today.

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