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Coronations for New Drug Royalty

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Another day, another 18-0 positive recommendation from a Food and Drug Administration advisory panel. Vertex Pharmaceuticals (Nasdaq: VRTX  ) followed in Merck's (NYSE: MRK  ) footsteps yesterday gaining a unanimous recommendation to approve its hepatitis C treatment telaprevir.

If it sounds more like a coronation than an advisory panel, that's because they basically were. Getting past the panel of outside experts is easy for drugs with stellar efficacy and reasonable side effect profiles. For drugs with questionable efficacy like Cell Therapeutics's (Nasdaq: CTIC  ) pixantrone or potential side effects like obesity drugs from Arena Pharmaceuticals (Nasdaq: ARNA  ) and VIVUS (Nasdaq: VVUS  ) , the meetings can be considerably harder.

The current standards of care -- Roche's Pegasys or Merck's Pegintron -- cure less than half the patients treated with them, and they cause flu-like symptoms that make them challenging to take for the 48-week course required for the most common strain of hepatitis C.

Telaprevir has the advantage of not only nearly doubling the cure rate, but in patients that respond to the drug quickly, it allows patients to cut the time on Pegasys or Pegintron in half.

As I've said before, I love Vertex's science. It's pretty clear why the Rule Breakers team recommended the stock in 2005 and 2007. But the stock has run up quite a bit since then, and I question the lofty valuation. There are an awful lot of sales already priced into its $11 billion market cap. The upside seems limited when everyone already assumes it'll be a blockbuster; Vertex is trading flat today, despite the good news.

Sales of telaprevir in the billions don't seem out of the question given the number of patients that are waiting to be cured of their hepatitis C. But what happens when the next big thing that works even better comes along? Future coronations could have telaprevir being sent to live among the commoners.

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Vertex is a Motley Fool Rule Breakers selection. The newsletter is always on the hunt for hot drug stocks and other cutting-edge picks. Click here to see all of our latest discoveries with a free 30-day trial subscription.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Motley Fool has a disclosure policy.

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  • Report this Comment On May 03, 2011, at 4:23 AM, Blindnomore wrote:

    When will anyone do their DD as they constantly profess should be done? Anyone with any sense at all who has taken the time to do their DD on Arena would know the "side effects" brought up here are compleetely unfounded and without merrit. And truth be told, several doctors at the FDA need to be jailed for their underhanded and fraudulent actions concerning Arena's drug. Put bluntly the FDA knowingly and purposefully exposed thousands of human victims to the possibility of developing cancerous tumors in not just one trial but three trials knowing full well about those tumors. That is what they did if you believe any of the garbage brought up about the tumors. The FDA with full disclosure about the tumors in rats from Arena okay'ed not only phase 1 trials but phase 2 and phase 3. Plus on top of that, they then went on to approve injecting the tumor drug directly into the spinal column of several healthy adult humans after the big tumor garbage was used to unethically and ubtruthfully discredit Arena's drug. I mean come on. Use your damn head for Christ sake. do you really think any doctor ar the FDA would allow these tests to continue if the story the doctors running the panel made up was actually true? Is there a single analyst on the planet with anything more than rocks in their head for common sense? jeez man why not give intelligence a try for a change. The constant bashing of a company you have done absolutely zero DD on is a testament to the Fools level of sophistication. Idiots.

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