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The Biggest Fear for Hep C Investors

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There's no doubt about it -- the hepatitis C market is huge. There are 3.2 million people in the U.S. alone infected with the virus, according to the Centers for Disease Control and Prevention.

But one of the reasons for the large number of patients could be the downfall for hepatitis C drugmakers.

Hepatitis C is a chronic disease that's slow to progress. It eventually causes liver problems including scarring of the liver or liver cancer, but that's often years after the initial infection. In fact, many of those 3.2 million Americans don't even know they're infected.

The slow progression of the disease allowed doctors to put off treatment, called warehousing, and wait for Merck's (NYSE: MRK  ) Victrelis and Vertex Pharmaceuticals' (Nasdaq: VRTX  ) Incivek to work their way through the drug-development process. The previous generation of treatment options -- Merck's PegIntron and Roche's Pegasys -- cure only around half of the patients and had nasty side effects that weren't all that appealing, considering the flip-of-a-coin chance at a cure.

Warehousing 2.0
Clearly, many doctors and their patients have decided that they've waited enough. Incivek is off to a blustering start, registering $420 million in sales during its first full quarter on the market.

But Incivek isn't perfect. It still requires patients to take PegIngron or Pegasys, albeit for a shorter duration of time than it was used when the drugs were taken on their own. Multiple companies are going after an interferon-free regimen that would be taken orally.

Pharmasset, which is being bought by Gilead Sciences (Nasdaq: GILD  ) , has a hepatitis C drug candidate, PSI-7977, which looks good so far as an interferon-free treatment. Gilead has other hepatitis C drug candidates it's developing that could be used in combination with PSI-7977 if it doesn't work on its own. And there are plenty of other drugmakers, including Achillion (Nasdaq: ACHN  ) , Inhibitex (Nasdaq: INHX  ) , Vertex, Merck, Johnson & Johnson, and Bristol-Myers Squibb (NYSE: BMY  ) , developing other hepatitis C drugs that they hope can be part of an interferon-free cocktail.

It seems entirely possible that doctors will continue warehousing all but the most-progressed patients until there's an interferon-free treatment regimen that works as well as or better than the current standard of care. If that occurs, the peak sales of Incivek would be substantially diminished.

And then ...
If patients are going to wait for all-oral interferon-free regimens, why not wait until the drugs become generic and save some money? Granted, it'll take a while to get to that stage; patients being seen by doctors right now aren't likely to be thinking that way, but it seems entirely possible that the effective patent life of hepatitis C drugs could be cut short by a few years as patients considering treatment within a few years of patent expiration might just elect to wait.

And of course, at some point, the hepatitis C market will begin to shrink. Unlike HIV drugs that aren't really a cure, hepatitis C drugs rid the patients of the virus, so as more patients are cured, the number of newly infected individuals should drop. How far in the future the drop begins will be dictated by how quickly patients get on medication, so the faster the ramp-up in sales, the sooner sales will drop off.

Far enough in the future?
That's what every hepatitis C investor has to ask: Can you capture the value now and get out before things eventually blow up?

At this point, investors seem to be ignoring the future -- Pharmasset is up more than 500% over the last year -- but that seems a little risky for long-term investors. If you're going to invest in the space for any reasonable length of time, consider a company that has its hand in more than one market. Vertex, for instance, is developing drugs for cystic fibrosis, and it's on sale.

And if you want to learn of a disruptive technology that isn't concerned about rapid obsolescence, download a copy of The Motley Fool's special free report, "The Next Trillion Dollar Revolution." Don't miss your chance to invest in the company at the heart of a massive paradigm shift.

Fool contributor Brian Orelli holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services have recommended buying shares of Vertex Pharmaceuticals, Gilead Sciences, and Johnson & Johnson and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 29, 2011, at 2:51 AM, nobiology wrote:

    don't know about your generic bit.

    but yeah, over time, the market will shrink. spoils go to the leader. But it'll last a while. Companies will find a way to increase diagnosis and get more pts onto treatment, esp. once you get a very clean, all oral therapy.

  • Report this Comment On November 29, 2011, at 11:41 AM, HepatitisCentral wrote:

    While this article was only posted yesterday, you are quite behind in your research. You indicated "The slow progression of the disease allowed doctors to put off treatment, called warehousing, and wait for Merck's Victrelis and Vertex Pharmaceuticals' Incivek to work their way through the drug-development process." These drugs were approved by the FDA in May and are already being prescribed. Please update your article with more factual information.

  • Report this Comment On November 29, 2011, at 9:43 PM, JRacker wrote:

    If you really want to look at the future and especially "warehousing" without side effects for HEP C; Look at Aethlon Medical AEMD.ob (winner of the U.S. DARPA award.)

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