Why Vertex Pharmaceuticals Stock Is Slumping Today

What happened

Shares of rare-disease specialist Vertex Pharmaceuticals (NASDAQ: VRTX) fell by as much as 15.7% in pre-market trading Thursday morning. The biotech's stock is under pressure today due to a worrying safety signal observed in a midstage trial for the small-molecule drug VX-814 as a potential treatment for alpha-1 antitrypsin deficiency (AATD).

Specifically, the drug's development is reportedly being discontinued after several patients in the study exhibited elevated liver enzymes. AATD is a genetically based condition associated with an increased risk of lung and liver disease.

Falling stock chart superimposed over columns of blue numbers

Image source: Getty Images.

So what

If this double-digit drop in pre-market trading holds, Vertex will lose approximately $10 billion in market capitalization today. While VX-814 stood to be a decent revenue generator for the company, the truth is that this drug would have likely faced stiff competition as an AATD treatment.

Biotechs like Arrowhead Pharmaceuticals, Alnylam Pharmaceuticals, and Dicerna Pharmaceuticals are developing rival AATD therapies, after all. Vertex's sharp pullback today, in turn, seems to be more about shareholders' concerns about the company's non-cystic fibrosis assets -- a market where it sports a virtual monopoly -- than it is about this rare clinical setback.

Now what

Vertex isn't throwing in the towel on AATD, however. The biotech announced in the same press release that its other midstage candidate, VX-864, remains on track to produce top-line data sometime in the first half of 2021. What's important to understand is that VX-864 is structurally distinct from VX-814 -- meaning that this clinical failure shouldn't be taken as a preview of things to come for VX-864.

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George Budwell has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alnylam Pharmaceuticals. The Motley Fool recommends Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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