Vertex hepatitis C data fails to excite investors

(Updates with analyst comment, share price, details)

By Toni Clarke

BOSTON, Nov 2 (Reuters) - Vertex Pharmaceuticals Inc (VRTX.O) released data on Friday showing its experimental hepatitis C drug is more effective than existing treatments and works in half the time, but causes significantly more side effects.

The results disappointed investors who sent the stock down more than 10 percent in early trading.

Data to be presented at the Annual Meeting of the American Association of the Study of Liver Diseases, showed the drug, telaprevir, in combination with standard treatment, eradicated the hepatitis C virus in more than 60 percent of patients who took it as part of a 24-week treatment regime.

Typically, not more than 50 percent of patients taking standard treatments see their virus eradicated and the typical length of treatment is 48 weeks.

Still, some investors had hoped to see cure rates closer to 70 percent, and since telaprevir is Vertex's most important experimental product, the disappointment sent Vertex's shares plunging.

"From an expectations point of view this is negative, especially when you consider the competitive landscape," said Rachel McMinn, an analyst at Cowen & Co.

Hepatitis C is a blood-borne liver disease that can cause liver cancer and cirrhosis. It affects about 170 million people worldwide and many companies, including Roche Holding AG (ROG.VX) and Schering Plough Corp SGP.N, are developing promising drugs that could outshine telaprevir.

In a mid-stage trial conducted in the United States known as PROVE 1, 61 percent of 79 patients who took telaprevir in combination with the standard treatments, pegylated interferon and ribavirin, saw the virus fall to undetectable levels and remain undetectable six months after treatment was stopped.

But 13 percent of patients discontinued the trial in the first 12 weeks because of side effects. The most common side effect was rash.

"The takeaway here is that it looks like telaprevir is an approvable drug," said Jason Kolbert, an analyst at Susquehanna Financial. "It clearly has efficacy, but it also clearly has toxicity."

In a separate mid-stage trial known as PROVE 2, conducted in Europe, 65 percent of patients who took part in the 24-week treatment regime -- which consisted of 12 weeks of triple therapy followed by 12 weeks of standard treatment -- saw the virus eradicated and stay eradicated after three months.

Those results were below expectations.

"The expectation on the Street was 70 percent plus," said Ding Ding, an analyst at Maxim Group.

In the PROVE 1 trial, the relapse rate was 2 percent. In PROVE 2 it was 14 percent. Patients who take standard therapy typically relapse at a rate of 20 percent to 30 percent, Vertex said.

The difference in relapse rate between the two trials stemmed from the fact the PROVE 1 trial results were based only on patients who were least likely to relapse in the first place, based on the rapidity of their initial response to the drug.

In the PROVE 2 trial, which did not just measure patients who saw a quick drop in virus after starting therapy, 14 percent of patients relapsed.

Telaprevir is one of a new class of drugs that inhibits a hepatitis C protease, an enzyme essential for the virus to replicate. Vertex's partner on the drug is Tibotec Pharmaceuticals Ltd, a unit of Johnson & Johnson (JNJ.N) that is based in Ireland.

Shares of Vertex fell $3.64, or 11.5 percent, to $28.00 in early trading on the Nasdaq.

(Reporting by Toni Clarke, Bill Berkrot)

((Editing by Steve Orlofsky; Reuters Messaging, toni.clarke.reuters.com@reuters.net +1-617-367-4165)) Keywords: VERTEX/

(C) Reuters 2007. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nN02557986