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Vertex stock sinks as firm concedes errors

When Vertex Pharmaceuticals Inc. reported promising clinical trial data for an experimental cystic fibrosis treatment on May 7, its stock price vaulted more than 55 percent — the largest one-day jump since the Cambridge biotech went public 22 years ago.

But three weeks later, after five executives and two directors took advantage of the dramatic surge and sold off shares worth millions of dollars, Vertex said Tuesday that the report had overstated the trial’s interim findings.

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The about-face — a rarity in an industry where doctors and investors pore over such clinical data — was an embarrassment for the company. Its shares tumbled $7.05, or 10.8 percent, to $57.80 on the Nasdaq stock exchange Tuesday, though they remain comfortably above the pre-May 7 price.

Vertex, which has emerged as one of the nation’s fastest growing biotechnology firms, has won Food and Drug Administration approval for two drugs in the past year, and its new headquarters is under construction on the South Boston Waterfront.

“This mistake is very disappointing, unacceptable to us,” chief executive Jeffrey Leiden told analysts. “It’s not how we do business here at Vertex. We’re a high science company and we pride ourselves in getting the science right and the numbers right.”

Company officials said most of the stock sales by executives and directors in the days following the disclosure of the encouraging clinical study results stemmed from preexisting plans — known as 10b5-1’s — that allow them to automatically exercise options and sell certain shares at regular intervals or set prices. In some cases, sales were triggered by the share price hitting a specific level. Other sales were conventional open-market stock transactions, they said.

Following Tuesday’s disclosure that the trial results were not as stunning as initially reported, investors were left scrambling to recalibrate their expectations for the much-anticipated cystic fibrosis treatment.

The rare and often fatal genetic disease causes mucus to build up and block the passage of air to the lungs. The company is working on a cocktail that combines Kalydeco, a drug approved in January for a small subset of cystic fibrosis patients, with an experimental treatment called “the corrector.” Vertex has been using the combination to treat a broader set of cystic fibrosis patients, roughly half, in its clinical trial.

If successful, the new therapy might eventually be applied to still more patients and become a so-called blockbuster treatment, generating sales of more than $1 billion a year. But the trial-report error makes it more difficult for analysts to assess its prospects.

“It’s unusual,” said biotechnology analyst Howard Liang, managing director at Boston health care investment bank Leerink Swann. “I can’t remember another case like this, where a key piece of information is flat-out wrong. Certainly it’s not a positive for Vertex.”

Correcting its earlier report on an ongoing midstage clinical study of 48 patients, Vertex said the preliminary data showed relative improvements in breathing for patients taking the drug in the clinical trial, not absolute improvements as the company previously said. Although some patients did show absolute improvements, they were not as widespread as reported.

The error resulted from “a misinterpretation between Vertex and our outside statistical vendor” on the type of analysis performed in the clinical trial, said a company spokesman, Zachary Barber. Vertex officials would not identify the vendor, but insisted that they were taking steps to make sure such an error would not be repeated.

Although industry contractors sometimes bungle data, such errors are typically caught in reviews by companies before they are made public, said Lauren C. Costantini, a strategy consultant and a former Harvard Medical School researcher who is now principal at LLC Consulting in Boulder, Colo.

“The biotechnology industry is constantly using contract research organizations to provide this kind of data,” Costantini said. “But the responsibility rests on the sponsor company, in this case Vertex, to really go through all the data with a fine-toothed comb before the press release goes out. You can’t just receive the data and assume it’s correct.”

Liang said Vertex’s stock price did not collapse Tuesday because the interim clinical data remain strong — just not as strong as it had seemed.

“It’s a difference in magnitude of benefit,” he said.

For instance, Vertex said Tuesday that 35 percent of cystic fibrosis patients taking the drug combination in the clinical trial experienced an absolute improvement in lung function. That was less than the 46 percent first reported. Vertex also released fresh data Tuesday indicating an 8.5 percent improvement in lung function for patients taking the combination treatment compared with patients who had treated with a placebo.

Several Vertex insiders took the opportunity to exercise stock options and sell their holdings in the days following the stock’s jump.

Among them was Nancy Wysenski, an executive vice president and chief commercial officer, who sold 185,704 shares on May 7 and May 8, at prices as high as $63.52. She then sold another slug of 180,000 shares a week later, fetching as much as $65 per share. Based on the average of the prices at which she exercised and sold the shares, Wysenski netted an estimated $8.8 million in the transactions.

Peter Mueller, executive vice president of global research and development sold 79,500 shares on May 7, the day the news first came out, at prices ranging from $52 to $55. He sold another 6,500 a week later near the peak, when the price was $65.50. Based on average prices, Mueller reaped about $3.4 million.

Amit Sachdev, senior vice president of corporate affairs and public policy, sold 58,750 shares on May 7 at $52.13 a share. Paul Silva, senior vice president and corporate controller, sold 56,295 shares on May 9 at prices ranging from $60.85 to $61.08. Lisa Kelly-Croswell, senior vice president of human resources, sold 37,726 shares on May 7 at prices ranging from $52.13 to $57.70.

Joshua Boger, Vertex’s founder who is still a company director, sold 3,314 shares on May 9 at prices ranging from $60.59 to $61.31. Boger sold an additional 4,000 shares on May 16 at prices around $63.

Elaine Ullian, another director and a former Boston Medical Center president, sold 20,000 Vertex shares on May 9 at $60.58.

The Vertex spokesman, Barber, said the company’s policy is not to comment on individual stock sales.

The Securities and Exchange Commission declined to say whether it is reviewing the Vertex trades.

Among large investors, it is difficult to know which firms traded on the news.

Vertex’s biggest institutional investors as of the end of the first quarter were Boston-based Fidelity Investments, which held 13.7 million shares, or 6.5 percent of the outstanding stock (and had sold 5.3 million shares during the first three months of the year); Jennison Associates, with 11.6 million shares; and Capital World Investors, with 10.5 million shares. Big mutual fund families like Janus and Vanguard also were large holders that could have benefited from the stock jump.

Robert Weisman can be reached at weisman@globe.com, Beth Healy at BHealy@globe.com. Steve Syre of the Globe staff contributed to this report.
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