Editor

In June, when Vertex Pharmaceuticals Inc. pulled down a handsome $152.8 million in gross proceeds from the sale of 11.75 million shares of stock - the second highest amount from a biotech follow-on or initial public offering yet in the year - observers easily pegged what might be one of the stronger reasons for the success of the financing.

It was only early stage data, but results from a Phase Ib trial with VX-950, Vertex's protease inhibitor for hepatitis C virus, made Wall Street's eyes (and wallets) open wide. Not that Vertex is hurting for a pipeline other than VX-950. Outside viral disease, the company has three products for inflammatory and autoimmune conditions. VX-765 is in Phase II for psoriasis and other autoimmune diseases, and two other products, VX-702 and pralnacasan (VX-740), are in Phase II for rheumatoid arthritis and other diseases.

The Phase II trial of VX-702 began in May and will include about 300 patients with moderate to severe rheumatoid arthritis who will be treated for three months. The product is partnered in the Far East with Kissei Pharmaceutical Co. Ltd. Vertex holds worldwide rights to VX-765 and VX-740.

In oncology, Vertex has three programs. VX-680 and VX-944 are in Phase I trials, while VX-322 is at the preclinical stage. Worldwide rights to those programs belong to Merck & Co. Inc., Avalon Pharmaceuticals Inc., and Novartis Pharma AG, respectively.

The deal with Merck, signed last summer, is potentially worth $384 million. Vertex formed the $73 million deal with Avalon earlier this year, and Vertex has had an ongoing relationship with Novartis since 2000, when it signed a deal with a total value of $800 million to find targets in the protein kinase gene family.

But VX-950 is center stage for the company now.

"Physicians are generally pretty excited about this [protease inhibitor] class of drugs," Aaron Woolsey, analyst with Decision Resources, told BioWorld Financial Watch. Existing therapies are "generally broad-spectrum antivirals or immunomodulators, and [VX-950] has "shown pretty impressive results for Phase Ib. It's a little early to say, because the trials they've done have only been 14 days of treatment. They have to do more long-term trials."

"Spectacular" and "historic" was how Andrew McDonald, analyst with ThinkEquity Partners, described the VX-950 results disclosed at the Digestive Disease Week meeting in May, showing that patients given the drug for three days had a median reduction in HCV RNA of at least 1,000-fold in all three dose groups. He initiated coverage of Vertex with a "buy" rating and a $29 price target.

Specifically, the 14-day study enrolled 34 patients with chronic genotype 1 HCV - the most difficult strain to treat - who were given either placebo or one of three dose regimens of VX-950. Those who got 750 mg of VX-950 every eight hours achieved a median reduction in HCV-RNA of greater than 4 log10, which is equivalent to a more than 10,000-fold decrease in viral levels, at the end of the period.

Investigators saw a median reduction in HCV-RNA of greater than 2 log10 in each of the other two VX-950 dose groups, and every patient given VX-950 achieved greater than a 2 log10 reduction within the first three days.

McDonald predicted in a research note that VX-950 "will transform HCV genotype-1 therapy and achieve blockbuster status" if it reaches the market. The drug is expected to enter Phase II trials by the end of the year.

But there's competition. The strongest likely will be Schering-Plough Corp.'s protease inhibitor, SCH7, which McDonald estimates is about six months ahead of VX-950, though he believes Vertex could close the gap. McDonald models 30 percent of market share for VX-950 by 2010. The Phase Ib results with SCH7 are likely to prove "stunning" late this year, McDonald wrote, adding that "any weakness in Vertex stock represents a buying opportunity, in our opinion."

More HCV players are coming down the pike. At the upcoming November meeting of the American Society for the Study of Liver Diseases in San Francisco, Idenix Pharmaceuticals Inc. is expected to unveil positive Phase IIb data for its nucleoside polymerase inhibitor NM283. The firm lately made headlines with top-line Phase III data with telbivudine, its drug for chronic hepatitis B.

Also at the AASLD meeting, Bristol-Myers Squibb Co. likely will provide data from research with its non-nucleoside polymerase inhibitor, which has not been disclosed. HCV drugs headed for the clinic include Gilead Sciences Inc.'s protease inhibitor, expected to start trials in the second half of 2005 and InterMune Inc.'s compound in the same class, which is forecast to begin work next year.

"The HCV race is on, and the market will likely bear multiple products, many of which will be used in combination therapy" with interferon, according to McDonald. "We think investors should remain long on the group until products are differentiable and further in development." But protease inhibitors "should be the backbone of future therapy," he said.

The exact shape of such therapy has yet to be known, he added, though "in vitro data strongly suggest that the combination of [interferon plus protease inhibitors] should be remarkably synergistic." Most patients become negative within two weeks when tested by way of polymerase chain reaction. Yet to be determined is the optimal dosage of interferon, the possibility of an all-oral treatment and whether a third drug might best be added to the HCV regimen.

"The gold standard is pegylated interferons with ribavarin, and I think that regimen will remain the gold standard until the end of the decade," Woolsey said, though new drugs may be added as they enter the market.

"It looks like the regimen will probably shift toward all orals," he added.

John Lebbos, director of the infectious-diseases group for Decision Resources, noted that, although HCV may be less virulent than other infection, the disease burden is increasing as the population ages. More drugs could mean more diagnoses, too.

"There's a huge undiagnosed population out there, and that's part of the attraction of this market," he said. n

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