What happened

Shares of Vertex Pharmaceuticals (NASDAQ:VRTX) fell 23.4% in October, according to data from S&P Global Market Intelligence after the biotech discontinued development of a drug for alpha-1 antitrypsin deficiency (AATD).

So what

Some patients in a midstage clinical trial of VX-814 developed elevated levels of liver enzymes, which is a sign that the drug is causing liver damage. The patients didn't have any symptoms, but Vertex would need to increase to dose further, which could cause real harm, so the biotech decided to discontinue development of VX-814.

Liver damage is one of the most common reasons companies stop development of drugs for safety concerns. It's a little surprising Vertex didn't discover the safety signal in the early sage clinical trial, but perhaps the first study wasn't large enough to discover the issue.

Doctor talking to a patient in an exam room

Image source: Getty Images.

Now what

Fortunately, Vertex was smart enough to have multiple shots on goal, which is a strategy that's worked very well for the biotech's development of drugs for cystic fibrosis. It's up to four approved drugs in that category.

In addition to VX-814, Vertex is also testing VX-864 in a midstage study in patients with AATD. Data from that study is expected in the first half of 2021.

Vertex is also researching additional back-up molecules for AATD. The biotech thinks it'll be able to advance at least one of them into development in 2021.

Stopping development of VX-814 is certainly disappointing, but October's decline seems like an overreaction, given how early in development the drug was. The reaction was more like what you'd expect from a late-stage clinical trial failure of a drug that had already produced solid midstage results.

While nothing is certain for VX-864, investors may end up looking back at this move as a rare opportunity to buy Vertex at a discount.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.