Vertex Optimistic on Hepatitis C Drug

There has been a bit of coverage of Vertex Pharmaceuticals (VRTX) lately, including an article at thestreet.com about the gamble the shares represent right now, and I thought I'd try to catch up a little on this high-risk, high reward company.

Vertex is a development stage biotech, famously created over a decade ago to hunt for the elusive AIDS cure (chronicled by the book The Billion Dollar Molecule by Barry Werth), and in the years since, has been subject to some serious volatility as the initial euphoria faded and clinical trials brought both the promise of success and the threat of failure.

Telaprevir: A Cure for Hepatitis C?
They've recently come to investors' attention again thanks to the extremely promising drug VX-950, now called Telaprevir, a protease inhibitor for Hepatitis C. In the year and a half or so since Vertex released its initial clinical trial results for this drug, the shares have roughly tripled, and while the company has a decent pipeline of other drugs (one for rheumatoid arthritis should go into phase III trials soon, and one for cystic fibrosis into phase II), they have also made clear that they are throwing the company's full resources behind the fast-track approval process for this potential blockbuster.

I bought shares before the first results came out for VX-950, and they were easily available for under $12... if the drug fails, which the consensus of course believes is quite unlikely, I would not be surprised if the shares fell by 60-80%. So what does "unlikely" mean?

The expectations are really remarkably high, and for good reason. For a while, at least, this was looking more like a miracle than just a plain blockbuster; initial reports and investor chatter had Telaprevir curing HCV in 12 weeks without significant side effects, whereas the existing treatment regimen with Interferon and Ribavarin generally takes at least a year, only works in about half the patients, and has sometimes debilitating side effects that cause many patients to drop treatment.

But as biotech investors have learned time and time again, potential blockbusters and miracle drugs are legion, while actual blockbusters are quite a bit more rare. What kind of confidence can we have that Telaprevir will actually make it through the approval process without significant delays, and be as popular as hoped? After all, Vertex has a bit of a lead in this space, but they're far from the only ones developing a protease inhibitor in the fight against Hepatitis C. Even if their drug does get approved on schedule, there will be competition in fairly short order.

Finding Valuable Information
Official data about the clinical trials is not released all that often, and when it is it tends to be accompanied by fairly optimistic commentary from the company, so sometimes it's valuable to look to other places for information to see if any more intelligence can be gained about the drug's prospects.

For Hepatitis C, there are a lot of sources, even for non-scientists like me. There are some blogs from the folks on the science side that cover biotech development in general, including an always interesting one called In the Pipeline that has a recent note on Vertex and the huge bet the company is placing on Telaprevir. Sources like this can give you a little bit of perspective, since they're not focused on the investment side, and in this case you can read between the lines and see the skepticism and almost feel the tension that must be running through the labs at Vertex right now.

Other science-oriented blogs and HCV-focused bloggers can also help illuminate the actual results for us non-scientific folks, including this one from November that looked in some detail at the problems with Telaprevir monotherapy that I don't think most investors were expecting.

And another interesting source that you can review for a new perspective are the legion of bulletin boards and blogs by and for Hepatitis C sufferers: HepCNet, the Hepatitis Forum at medhelp.org and the Hepatitis C Forum are a few that I've perused from time to time. At these sites you can sometimes see comments from people who are part of these clinical trials (or so they say, at least), and hear how they're tolerating the drugs (a couple of examples here and here). From these sources you can get a little color on the results - so while the official press release will explain some of the side effects, the potential (and current) patients can often be counted on to really examine those side effects.

And of course, you can see lots of comments on the other side, from people in the trial who are elated at their results (even if they don't actually know for sure whether they're getting Telaprevir or the control), or really hoping for a chance to get into a Vertex trial because of the hope this drug offers.

Along those lines, you really get a sense from these forums of the incredible frustration that those inflicted with the disease have with the existing treatments, including some terrible hard luck stories from the many people who've been forced to suspend treatment because of adverse effects or are waiting for donor livers.

These kinds of sources exist for many diseases, especially the big ones, so you might also have read, for example, the multiple sclerosis bulletin boards a couple years ago and seen that the demand was so strong for Tysabri, Elan's (ELN) new drug for MS, that patients wanted the FDA to approve it even though there was a concern that it might come at some increased risk of a rare, deadly brain disease.

And of course, you can get an idea of all the developments in treating this disease by reading the news sites that are put together by people with the strongest possible interest in seeing new treatments develop. There's a good Hepatitis C Information Center, for example, with a feed of all the HCV news you could possibly want.

That's not to say, of course, that all these sources are infallible, or that we should use them for investment decisions, any more than you should take every note you read on the Yahoo stock message boards as an actionable fact.

Estimating Value
Every drug has side effects and problems, and every disease has vocal sufferers who push for treatment at any cost. Focusing too much on those can cause you to lose sight of the important thing for biotech investors: is the disease worse than the cure, is the drug on average better or safer than existing therapies, and is there a market for it?

I continue to be an owner of Vertex shares, though I took some profits last year and have not bought any additional shares since it got out of the teens. I'm convinced enough of the promise of Telaprevir in this potentially $10 billion market that I'm willing to keep my bet on the table, but I am fully aware that, especially with the company focused primarily on this drug and already carrying a $4 billion market cap, this is far from a sure thing.

For the many people who suffer from Hepatitis C and who are not helped by the existing treatments, I certainly hope that Telaprevir is at least as successful as Wall Street is predicting. For more about my comments on the financials of the company, and my notes from when I bought and sold shares in the past, just click here for a link to all of my posts on the subject.

Disclosure: I own shares of Vertex Pharmaceuticals and do not plan to buy or sell in the near future.

VRTX 1-yr chart