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Vertex Pharmaceuticals Shares Drop on Drug Study Snafu


The biotech company says its treatment Kalydeco with another drug still improved lung function of cystic fibrosis patients in a study but results announced in early May were overstated. The mixup is embarrassing for new CEO Leiden.

Shares of Vertex Pharmaceuticals (VRTX) are dropping after the company said previously announced results of a study treating cystic fibrosis patients overstated the benefits of a drug combination.

Earlier this month, Vertex said almost half the patients in a mid-stage company study (46%) showed a statistically significant improvement in lung function after taking the already approved drug Kalydeco and an experimental medicine. Shares of the company surged 50% on the news. (See Vertex Pharmaceuticals Soars on Cystic Fibrosis Drug Study.)

On Tuesday, Vertex said that 35% -- not the previously stated 46% -- of patients actually showed at least a 5% improvement in lung function. The company also said a smaller number of patients than previously reported showed a more robust improvement to lung function.

"This is a downward revision, but is still good data," ISI Group analyst Mark Schoenebaum says.

That's the argument that Vertex executives made Tuesday morning on a conference call. The company still plans to move the treatment combination into the last of three phases of study usually required for US market approval.

Yet the disclosure is an embarrassing misstep for new CEO Jeffrey Leiden, the former Abbott Laboratories (ABT) exec.

"We take the accuracy of our science and our disclosures very, very seriously," Leiden said on a conference call. "This is an unacceptable error and we're taking steps to make sure it doesn't happen again."

The excuse given is that there was some sort of miscommunication between the company and an outside vendor analyzing the data.

"It's not how we do business here," Leiden says.

The mistake sours Leiden's honeymoon with investors. Leiden, who most recently ran a venture capital firm and sat on Vertex's board, became CEO February 1. He succeeded Matthew Emmens, now chairman, who steered the company through two drug approvals, Kalydeco and hepatitis C treatment Incivek.

Shares of Vertex fell 18% to $53.06 in morning trading Tuesday, representing a loss of about $2.5 billion in the company's market value.

Vertex's hepatitis C program is the near-term revenue driver for the company and was the primary focus for investors until the encouraging results for Kalydeco in early May highlighted that medicine. Kalydeco was approved in January to treat a small population of cystic fibrosis patients. The company is testing the drug to treat a larger group of patients. Approved last year, Incivek is on pace to become a blockbuster product, reporting $357 million in sales in the first quarter this year.

Like hepatitis C, cystic fibrosis presents an opportunity to serve an unmet market need with a better treatment. Around 30,000 people in the US and 70,000 worldwide have the life-threatening, inherited disease. People with cystic fibrosis experience a thick mucus that builds up in the lungs and the digestive track. The average life expectancy of a patient is about 38 years, according to Vertex.

Earlier in the month, Leiden said treating a disease like cystic fibrosis exemplified Vertex's mission of focusing on unmet medical needs. On Tuesday, he didn't back down from his assertion that Kalydeco is potentially a valuable drug despite the less impressive research data.

"Our conclusions haven't changed -- nor have our plans," he said.

Twitter: @brettchase

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