Maketwatch asks "Can Vertex Pharma shares stage a comeback?"

(Posted on Marketwatch 2/10/12). Quick speculative answer to the question, probably not in the near term. The remainder of Vertex's HCV portfolio either is in the latter stages of development and doesn't look like a contender for the 'interferon-free' Holy Grail, or in the case of their nucs, pretty far back in development and to say anything about them at this point would be grossly premature. Incivek sales have slowed more than forecasted for the current months in Q1 2012, although we've a month and a half to see another spike. The best bet for real value is their "ultra-orphan' CF drugs, which are impressive. I can't think of a disease state more deserving of better drugs. The population here is limited however, with the size of the disease state only being a fraction of what it is for HCV. Vertex may have taken this into consideration however, with a whopping price of $300,000 for a course of treatment.)



Can Vertex Pharma shares stage a comeback?




By Val Brickates Kennedy, MarketWatch
BOSTON (MarketWatch) — Can Vertex Pharmaceuticals Inc. shares stage a comeback?


That’s a nagging question for investors, who have watched Vertex’s once-bright star fade as the shares of rival hepatitis C-drug developers turn supernova. But Vertex shares could get a good stoking by mid-year, when the results of three key drug studies are due out.


Vertex’s stock had a banner 2011, its shares propelled to new heights by enthusiasm for its drug Incivek, a treatment for the hepatitis C virus, or HCV, a potentially deadly disease that attacks the liver. The drug belongs to a class of medications known as protease inhibitors that also includes Merck & Co. new HCV drug Victrelis.


In recent months, however, investor faith in Incivek’s long-term marketability has been deeply shaken by positive news about rival HCV drugs in development, particularly those in a class of drugs known as nucleotides, or “nukes.”


As a result, shares of Vertex swung from a 52-week peak of $58.87 in mid-May 2011, to a low of $26.50 by late November, when Gilead Sciences Inc. GILD +0.28%   announced it was buying nuke-drug developer Pharmasset Inc. for $11 billion, a move that further underscored the perceived value of nuke drugs. Read more on M&A among HCV drug makers.


Over the past couple of months, the stock has managed to climb back into the upper $30s, due largely to anticipation ahead of the expected approval of the company’s drug Kalydeco. A novel treatment for the genetic disease cystic fibrosis, or CF, Kalydeco won approval earlier this month.


What’s still haunting the stock, say analysts, is concern about how well Incivek sales will hold up when the first nuke drugs hit the market and how well Vertex will be able to build-out its HCV and CF franchises.


With key clinical data for both drug programs looming on the horizon, many analysts have taken a wait-and-see approach to the stock. According to FactSet, the average analyst rating currently for Vertex is overweight, with a price target of just over $46 a share.


Two upcoming events, however, could give the shares a needed jolt.


The first is the expected release of early clinical data for two HCV nuke drugs that Vertex is co-developing with Alios BioPharma. The data is expected in the second quarter.


“Vertex’s HCV franchise is quickly becoming obsolete; to stay in the race, Vertex has to develop all oral, pan-genotypic combinations as quickly as possible, and the Alios nukes are the key to such hope,” wrote William Blair analyst Katherine Xu in a recent note about the significance of the data.


Xu recently lowered her price target for Vertex to $44 from $45, citing slower than expected sales of Incivek, but maintained her buy rating on the stock.


The second set of data, which involves the company’s CF drugs, could be the real market mover, however.


“Positive results in CF could get the stock moving again,” said Needham & Co. analyst Alan Carr, who also has a hold rating on the stock.


The CF data will be from a Phase II trial that is testing Kalydeco, which is only approved for use in CF patients with a rare gene mutation called G551D, or about 4% of CF patients, with another experimental CF drug dubbed VX-809.


Vertex is banking that the Kalydeco/VX-809 combo can successfully treat patients with the F508del gene mutation, which is carried by up to 90% of all CF patients. The data is expected mid-year.


Kalydeco, by the way, isn’t cheap. At nearly $300,000 a year, it ranks as one of the most expensive drugs on the market. It’s high price is due in part to its regulatory status as an “ultra-orphan” drug. The regulatory designation is designed to encourage the development of drugs for life-threatening and extremely rare conditions by offering certain financial incentives, such as market exclusivity.


Carr said that even with its current narrow prescribing indication, Kalydeco could reach peak sales of $1 billion a year. Even if Vertex were forced to lower the price of the product, which would like happen if it were approved for a much larger patient population, sales could still be in the billions.


“According to our probability-adjusted net present value model, for every 10% increase in the probability of success for the combo, Vertex’s stock will have $4-$5 per share in upside, representing a powerful lever,” wrote Xu, of the CF drugs.


“We believe there is a good chance for the Phase II combo data to be successful, which may compensate for the decline of the HCV franchise and lead to the next leg of growth for Vertex,” Xu added.


That said, the Kalydeco data may also prove to be a bust. Data from an earlier segment of the Phase II trial showed the combination to be only modestly effective. Vertex is hoping that data from a second segment of the trial, which is administering VX-809 in higher doses over a longer period of time, yields more impressive results.


“People are getting pretty excited, but I’m just not there yet,” said JMP Securities analyst Liisa Bayko in a recent interview. Bayko currently has a hold rating on the stock. 


Val Brickates Kennedy is a reporter for MarketWatch in Boston.