UPDATED: Bernstein analyst predicts a likely flop for Vertex's crucial CF combo study

Geoffrey Porges

There's no mistaking Geoffrey Porges' opinion on Vertex's chances of success with its combo study of VX-809 and Kalydeco. After spending the weekend at the European Cystic Fibrosis Society meeting in Sweden, the prominent Bernstein analyst came away even more soured on the experimental CF drug's potential, with pivotal data for the combo looming on the horizon.

"The probability of failure in this trial is high, and is underappreciated by the investment community," Porges wrote in a note to investors this morning. "More than ever there seems to be a disconnect between the assumptions and expectations of the investor community and that of the medical community involved in the trial."

That's not what Vertex ($VRTX) wants to hear right now. After developing a new standard of care for hepatitis C, Incivek, Vertex has bowed out to new arrivals in that market and has a huge amount riding on its next big step in developing franchise drugs for cystic fibrosis. A failure here, says Porges, would not only take down the biotech's stock, it would also likely affect the whole biotech sector.

Shares of Vertex slid more than 7% on Monday morning as investors reacted to the bearish assessment.

Porges and his colleague Wen Shi haven't been shy about their bear position on Vertex. They downgraded the stock months ago, and today the analysts lay out their case against the combo, noting that a failure here would probably finish the drug and push back the prospect of a combo in CF by 2 or 3 years.

"First, it now appears that Vx770 (Kalydeco) shifts the temperature stability curve for DelF508 CFTR downwards (counteracting positive effect of Vx809). Second, with prolonged exposure to Vx770 in cell culture the stability of CFTR corrected by Vx809 appears to erode," notes Porges. "Third, as previously described in the literature, indeed Vx809 appears to be a so-called class II corrector, binding at the interface of the NBD1 and MSD1/MSD2 domains of the protein. This has limitations; stabilizing the protein at this site has relatively modest activity in isolation, and the addition of a second corrector to either stabilize the NBD1 domain directly, or to act as a pharmacological chaperone, appears to be necessary to restore clinically relevant levels of CFTR function."

The Bernstein analysts have other problems with the drug and the company. VX-809 may make lung function worse, for example. The endpoint in the study may not be good enough to warrant reimbursement outside of the U.S. A failure for 809 would likely delay a pivotal study for the backup program for VX-661. And they wonder why there aren't any anecdotal stories about its success making the rounds.

The timing on announcing the outcome of the study is also likely to be delayed, he adds, from the expected mid- to late-June time frame into July.

So far Vertex has enjoyed a considerable amount of market sentiment in its favor on this study. When the biotech announced recently that it was ending work on an experimental hep C drug, analysts barely paid attention. Right now, the company's future rides on its success in cystic fibrosis.

Underscoring the bullish sentiment in Vertex's favor, Cowen's Eric Schmidt noted his bet that the drug will likely succeed. Schmidt wrote: "The imminent release of results from VX-809's Ph. III trials has the potential to be one of the biggest binary events in biotech during 2014. We think that there is a 60% chance the trials succeed, and a 40% chance they fail (or have mixed results). We expect VRTX's stock to go to $100+ on success, but $40 on failure. We continue to think that VRTX is fairly valued, and remain at Market Perform."

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