This Blockbuster Drug Is Losing Steam

In the following roundtable, our analysts discuss a blockbuster drug that's been losing steam fast. While this drug's losses will continue into 2013, at The Fool we've got something to make sure your portfolio doesn't follow suit.

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Brenton Flynn: Hey, Fools, I'm Brenton Flynn, here with David Williamson and Max Macaluso, two of our health-care analysts.

Guys, we're always talking stocks around the desks, but a lot of that stuff doesn't make it on video. We decided it was a good idea to come in and just have a discussion about the type of things we typically talk about around our desks, that don't make it on a lot of the content that we create here at the Fool.

We're talking about overhanging risks and stocks that have really significant risks that are either pressuring share prices or have the potential to in the future, so we're running through a few. David, you have one in particular that you'd like to talk about.

David Williamson: Yeah, absolutely. Vertex, a hepatitis C drug maker, but it has a serious overhang, and that's competition. Things are going well for it now.

Its drug Incivek really raised the standard of care for treating and curing hepatitis C. It soundly beat Merck's Victrelis in the market. It became a blockbuster. It sold $400 million in its first year, and essentially nearly a billion this year, but unfortunately sales have actually started to decline, quarter over quarter, because patients are now waiting for this next generation of treatments.

The next generation of treatments, they don't require interferon, which has a lot of nasty side effects. It's just an all-oral drug cocktail, and that's marketed by Gilead and Abbott Labs.

Now, Gilead is in front. They had a small trial that had a 100% cure rate, so it doesn't get any better than that. Abbott Labs had a larger trial. They had a 93% cure rate among null responders, which is really especially impressive because those are hard-to-treat patients that have failed other treatments.

It becomes tough, because obviously if you have hepatitis C you want it cured, but it's not something that needs to be cured immediately.

Brenton: I bet something like this doesn't help: I saw a press release come across my inbox today, saying that a black box warning was being placed on Incivek due to skin reactions. I can't imagine that's going to help this trend reverse course any time soon.

David: I saw that, too. It's just another reason why it's important for Vertex to take the money they're making from Incivek now, and really pour it into their R&D department, which really is about expanding their cystic fibrosis franchise.

They do have other hepatitis C drugs as well. They're actually working on an oral cocktail with Johnson & Johnson and GlaxoSmithKline. Johnson & Johnson sells Incivek as Incivo in Europe, so there is an existing relationship there, but it's all about the cystic fibrosis franchise, going forward. They have Kalydeco.

They actually countered that negative news with their own press release that the NHS would cover Kalydeco in Great Britain.

Brenton: Very strategically timed.

David: But 8,000 patients with cystic fibrosis and, because Kalydeco only works on about 4% of the CF population, you're only looking at a couple hundred. It's a hugely expensive drug, so they can make money, but it's only made $100 million so far in 2012, through three quarters, so it's not like it's a blockbuster yet.

They have VX-809 on the way, which should expand the amount of the population it can treat, so that's really going to help -- if it works -- propel Vertex into another level, and help combat declining Incivek sales that are probably going to just fall flat when Gilead and Abbott Labs' drugs, if approved, hit the market.

Brenton: Yeah. It sounds like hepatitis C, definitely going to be a downward trend there for quite a while. They might be a solid third or fourth player in the interferon-free approaches, although they are obviously behind Gilead and Abbott.

Essentially, it sounds to me like it's becoming more of your classic biotech story, right?

David: Yup. It's almost back to the development stage, but at least they have positive cash flow. They can take the money from their blockbuster drug, and at least apply it to developing their pipeline instead of just diluting investors along the way.

Brenton: Yeah. That's certainly the one thing to watch, just the additional inroads with the cystic fibrosis franchise.

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