There was no shortage of uncertainty and controversy around Vertex's (NASDAQ:VRTX) phase 3 trials for its cystic fibrosis (or CF) combo therapy. Bernstein analyst Geoffrey Porges was perhaps the most visible bear recently, asserting on June 16 that "the probability of failure in this trial is high". Now that Vertex has actually released the data, the bears are licking their wounds – the results of the TRAFFIC and TRANSPORT studies were not perfect, but a "B+" ought to be more than enough to get FDA approval, leading to upwards of $5 billion in incremental revenue.

Maybe not "great", but very, very good
The TRAFFIC and TRANSPORT studies enrolled a total of 1,108 patients to explore the use of Kalydeco (Vertex's already-approved CTFR potentiator for CF) in combination with lumacaftor a CTFR corrector that is thought to work synergisticly with Kalydeco. These studies, both independently and in combination, showed statistically significant improvements in lung function (FEV1), pulmonary exacerbations, and weight gain.

Together, the pooled data show a 3.3% absolute improvement in lung function. That wasn't as high as the bulls hoped (with some hoping for a 5% or 6% absolute improvement), and that is the biggest reason I refer to the results as "B+" instead of "A+". Almost any sustained improvement in lung function is invaluable to CF patients, and while a greater improvement would certainly have been welcomed, "good enough" is indeed good enough. Importantly, the benefit in lung function does appear to be sustained, as long-term curves didn't suggest a waning benefit.

It wasn't just the primary endpoint that was positive. Both studies hit their secondary endpoints of lower pulmonary exacerbations versus placebo (30% and 39%) and improved weight gain. Adding a little more color, the treatment groups saw a good improvement in their time to first pulmonary exacerbation and both groups saw meaningful reductions in events requiring hospitalization or antibiotics.

Last and not least, Vertex management reported a 90% rollover rate into the open-label portion of the trial, suggesting that patients and clinicians saw/felt an ongoing benefit from the therapy.

The problems seem manageable
A few negative points do seem relevant in relation to these data. First, there was no significant dose response. While that is often a warning sign with drug trials, it may be that there is a threshold level of response beyond which more lumacaftor doesn't lead to further clinical benefit. It also appears that the placebo groups in the phase 3 studies experienced more stable FEV1 lung function (versus a sharper drop in phase 2), and that may raise some questions about the comparability of the patients and how reflective they are of typical homozygous F508del CF patients.

There are also some marketing considerations to ponder. The general expectation seems to be that Vertex will price this drug around $160,000 a year – not really a bad price compared to other rare/orphan disease drugs, but still enough to grab headlines. It's also worth noting that this combo still does not address the full market – about 50% of U.S. patients over age 12 are homozygous F508del patients that can benefit from this drug.

Opportunities and competition
These results were not the strongest bulls could have hoped for, but the shortfalls don't appear to be enough to seriously impair the odds of approval or market acceptance. Looking further down the line, Vertex will be pursuing clinical studies of "triple therapy" (Kalydeco and two correctors) that could address heterozygous F508del CF patients and lead to Vertex marketing treatments addressing a very large percentage of CF patients.

In terms of competition, investors should keep an eye on AbbVie and Galapagos, but Galapagos does not expect to begin studies of the potentiator (similar to Kalydeco) until late 2015 and the corrector in 2016.

The bottom line
Investors will of course want to pay attention to Vertex's progress with its FDA submission and its launch/marketing plans for combo therapy. There is still a chance that this combination will run afoul of the FDA and/or fail to see significant market acceptance, but these data go a long way toward reestablishing the bull thesis that Vertex has developed a significant step forward in the treatment of cystic fibrosis and one that can continue to support higher prices for the shares.