Vertex Shares Plunge After Biotech Drops Closely Watched Drug Prospect

By Joseph Walker 

The flop of a promising drug from Vertex Pharmaceuticals Inc. led to a sharp drop in the company's share price on Thursday as analysts questioned the biotech's ability to replicate its success in cystic fibrosis and diversify its revenue.

Boston-based Vertex disclosed late Wednesday it was stopping development of the experimental drug because of its potential for liver toxicity. The safety concerns arose in a Phase 2 trial for the treatment of a rare liver and lung disease called alpha-1 antitrypsin deficiency, or AATD.

Vertex shares fell 19.9% to $217.01 in afternoon trading on Thursday, shedding about $14 billion in market value. The stock had risen 24% so far this year before the setback.

The day's drop was a sizable tumble considering the drug, code-named VX-814, was still years away from coming on the market and wasn't expected to be a blockbuster. Yet the drug's development was closely watched by investors and analysts as a sign of Vertex's prospects for diversifying a lineup concentrated on cystic-fibrosis drugs.

"Vertex has a fraction of the R & D portfolio required to sustain an enterprise of their scale and value," and will now likely do more business development deals in the coming year to beef up its pipeline, said Geoffrey C. Porges, a SVB Leerink analyst, in a note to investors.

Vertex said it would continue testing another of its drugs for AATD, VX-864, and expects to report Phase 2 study results in the first half of 2021.

"We have a broad and deep pipeline of potential medicines across seven different diseases and multiple modalities...that we hope will one day transform the lives of people around the world with serious diseases, as we've done in cystic fibrosis," a Vertex spokeswoman said in an email.

Many on Wall Street considered VX-814 among the most promising in Vertex's pipeline and a primary driver of its market value outside of its core drug franchise for cystic fibrosis, analysts said.

Nearly all of the company's sales last year were derived from its treatments for the genetic lung disease. Analysts project total 2020 revenue to increase 50% to about $6 billion, according to FactSet. Analysts at RBC Capital Markets had projected combined sales of VX-814 and VX-864 to reach $99.3 million in 2024 and to increase to $568 million in 2029.

Vertex is in a period of leadership transition, while it is seeking to alleviate investors' concerns about diversification. In April, Reshma Kewalramani took over as chief executive, replacing longtime CEO Jeffrey Leiden, who helmed the company's success in cystic fibrosis. Dr. Leiden remains with the company as executive chairman.

To stock its pipeline and diversify its revenue, Vertex has looked to expand its research into other diseases and new technologies such as gene editing.

The failure of VX-814 underscored concerns about the near-term economic potential of the company's pipeline. "Public market investors are likely to apply a healthy degree of skepticism to the potential returns from such investments, at least until proven otherwise," Mr. Porges said.

Vertex stock has been among the best performing of larger biotechs in recent years thanks to its advances in treating cystic fibrosis. By targeting specific genetic mutations that cause the disease, the company's drugs have helped to dramatically improve life expectancy and quality of life for a disease that formerly killed many patients before adulthood.

Before Thursday, the company's share price had risen 134% over the past five years, compared with a 36% increase in the Nasdaq Biotechnology Index.

(END) Dow Jones Newswires

October 15, 2020 14:01 ET (18:01 GMT)

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