Shares of profitless drug developers rise or fall based on how their drug candidates perform in the clinic. By looking at the 40% rise in shares of Vertex Pharmaceuticals (NASDAQ:VRTX) so far this year, and the strong performance of the other small biotechs, like InterMune (NASDAQ:ITMN), developing protease inhibitors as a treatment for Hepatitis C, you know it's been a year of positive clinical trial results for these companies.

In the first quarter, Vertex started the year off on a good note by releasing very strong phase 1 trial results for its lead Hepatitis C (HCV) drug, telaprevir. Vertex then started and completed a small 12-person proof-of-concept phase 2 trial for the drug, also showing good efficacy and safety results (albeit in a short period of dosing).

Also during the quarter, Vertex extended a research and collaboration agreement with the Cystic Fibrosis Foundation and agreed to enter a drug, VX-770, into clinical trials for this indication in exchange for $13 million.

The second quarter was another solid one for Vertex's HCV program, as more positive clinical trial results were revealed for telaprevir and two large phase 2 trials were initiated with the drug.

The most positive development, though, was the signing of a large commercialization agreement for telaprevir with a subsidiary of Johnson & Johnson (NYSE:JNJ). The deal gave Vertex $165 million up front and is worth up to $545 million in milestone payments, as well as royalties on sales of the drug. Even better, Vertex gets half of telaprevir's development costs paid for, and it retains all rights to the drug in the U.S., as the deal covers only sales outside the U.S.

The big event of Vertex's third quarter was its raising of $330 million in a dilutive stock offering, bringing its cash levels to more than $750 million. This should be more than enough cash to last until telaprevir potentially comes to market. Vertex also completed enrollment in its U.S. phase 2 trial for the drug in September.

The fourth quarter has been a fairly quiet one for Vertex so far, but with two large phase 2 clinical trials of telaprevir under way, enrolling nearly 600 patients worldwide, it's really only the calm before the storm at the moment. Positive interim results from one of the phase 2 trials came out earlier this month, with more expected in 2007.

Before 2006, Vertex was a biopharmaceutical company with tantalizing science and a modestly successful approved drug to treat HIV. Now that it has proved itself multiple times with the early-stage telaprevir trial results, it is closer to taking the next steps toward becoming a member of the select few profitable biotechs.

Here's how our Motley Fool CAPS community rates Vertex's prospects in the coming years. Surprisingly, the company has a weak two-star rating (out of five). However, notice that 44 out of 50 All-Star players have the stock rated "outperform."

CAPS player Hukphinn sums up Vertex's prospects very succinctly in his pitch: "VX-950 for HCV has tremendous promise. Share price will probably see a fair amount of volatility, so I'd accumulate on substantial dips and hold for the long-term."

With more telaprevir data expected in 2007, next year has the potential to be an even better year for Vertex than 2006. Vertex has been one of our best Rule Breakers picks and has shown how biotech can power a portfolio, with the stock up more than 300% since being picked for the newsletter back in 2005. If you'd like to see what other companies have been recommended by the Rule Breakers newsletter, come take a free trial subscription today.

Check out the other companies featured in "The Motley Fool's 2006 in Review and 2007 Preview" special.

Fool contributor Brian Lawler owns shares of InterMune, but no other company mentioned in this article. Vertex Pharmaceuticals and InterMune are Motley Fool Rule Breakers recommendations. Johnson & Johnson isa Motley Fool Income Investor recommendation. The Fool has adisclosure policy.