Vertex: Recent Clinical Setback Underscores The Need To Expand The Pipeline


By ONeil Trader, SeekingAlpha


  • The market overreacted last week to the early-stage clinical program setback, the discontinuation of VX-814 due to toxicity problems.
  • However, last week's reaction underscores the need to expand the pipeline.
  • Vertex is attractively valued at current levels based on the cystic fibrosis franchise alone, but there is a limit to value creation from the franchise.
  • The company will likely use its growing cash balance to address the problem in the following quarters and years.
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Shares of Vertex (VRTX) declined 20% last week after the company announced the discontinuation of VX-814, the company’s candidate for alpha-1 antitrypsin deficiency. The decline seems disproportionate to the perceived value of this program, but it underscores Vertex’s main weakness - its relatively early-stage and unproven pipeline outside of cystic fibrosis (CF). The stock looks attractively valued today based on growth estimates, but there is a limit to value creation coming from the CF franchise, and the company should be more aggressive with pipeline building in the following quarters and years.

VX-814 was not worth anywhere near $13 billion, but the clinical setback has impacted investor perception of the company’s pipeline

Vertex’s valuation was cut by approximately $13 billion when the company announced the discontinuation of the VX-814 program for alpha-1 antitrypsin deficiency (AATD). The company was running a phase 2 trial to determine the safety and pharmacokinetics of VX-814, and it observed elevated liver enzymes in several patients. In four patients, across different doses, elevations greater than 8 times the upper limit of normal were noted, and the analysis of the PK data indicated that exposures achieved were too low and that it is not feasible to safely reach targeted exposure levels to meaningfully increase AAT levels (AAT is the deficient protein).

But all is not lost in AATD, as Vertex has a second candidate in development, VX-864, which is also in a phase 2, proof-of-concept study. The study was initiated in July 2020, and initial results are expected in 1H 2021.

There is no way to claim this program was valued anywhere near $13 billion (especially considering the lack of positive clinical proof-of-concept data), but the failure underscores the company’s main weakness - its reliance on the CF franchise and the lack of meaningful pipeline behind it.


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