The team responsible for commercializing Vertex Pharmaceuticals' (VRTX -0.53%) Incivek must be frustrated. The drug, approved by the FDA in the summer of 2011, ushered in a new era for hepatitis C treatment.

Leading up to Incivek's launch, excitement was so great that doctors pushed out treatment, creating pent-up demand that -- coupled with a large unmet need for new therapies -- made Incivek among the fastest drugs to ever achieve the blockbuster status of a billion in annual sales.

How quickly things change
But that was then and this is now, and Vertex finds Incivek serving as a bridge to upcoming high profile oral treatment launches from Gilead Sciences (GILD -2.53%) and Johnson & Johnson (JNJ -0.94%).

As a result, sales of Incivek have continued to slide this year as doctors again push back treatment ahead of Gilead's and J&J's promising new therapies. That resulted in Incivek sales falling 52% year-over-year to $155.8 million in the second quarter and dropping to just $86 million from $254 million last year in the third quarter.

As you would expect, the steep drop in sales has weighed heavily on earnings as the company's cost cutting plans lag. Vertex posted a loss of $0.32 and a loss of $0.26 per share in the past two quarters, respectively.

Those sales and earnings will likely decline further in the coming year as Gilead and J&J both won support from a key FDA advisory panel ahead of the FDA's official decision expected in November.  While the FDA doesn't have to follow the panel's advice, it almost always does.

A shifting in strategy
To stem the slide, Vertex is rationalizing costs tied to Incivek, eliminating approximately 370 positions from their workforce in a bid to reduce their operating expense by $150-$200 million a year starting in 2014.

The company is also focusing more on its cystic fibrosis drug Kalydeco, which gained FDA approval in January 2012. Unlike Incivek, that drug continues to grow and gain market share, generating sales of $101 million in Q3, up from $49 million a year ago.

Vertex thinks Kalydeco has more room to run given that 1,000 new cases of cystic fibrosis are diagnosed annually and the median age of survival is just the late 30's. Roughly 30,000 people in the U.S. and 70,000 worldwide are diagnosed with the condition.

Currently, Kalydeco is approved as a treatment for just 4%, or 2,000, of cystic fibrosis patients -- those with the G551D mutation. In those patients, Kalydeco helps the protein made by the cystic fibrosis regulating gene work more effectively. However, despite the narrow nature of the addressable market, Kalydeco's impact is big given other treatments focus on symptoms, rather than the condition itself.

As a result, the company has filed or plans to file for supplementary approval for a variety of other CF patients. The company filed a sNDA in September that would broaden Kalydeco's market to the 400 patients with at least one non-G551D gating mutation. And a phase 3 extension study is evaluating Kalydeco in patients with one copy of the R117H mutation. Data from that trial is expected by year end and could further expand the Kalydeco market by 1,100 patients. Overall, Vertex believes as many as 8,000 CF patients may benefit from Kalydeco.

"KALYDECO was the first medicine to treat the underlying cause of CF, and we believe that KALYDECO is just the first step of our work in CF," said Robert Kauffman, M.D., Ph.D., senior vice president and chief medical officer at Vertex. "Our goal in CF is to help many more people with this disease and to evaluate multiple combinations of CFTR modulators aimed at providing further benefit for people with CF."

While the label expansion will offer new hope to many more CF patients, the majority -- those with two copies of the F508 mutation -- will have to wait and see if Vertex's VX-809, used in combination with Kalydeco, succeeds in late-stage phase 3 trials.

Vertex announced it had completed enrolling patients in those trials earlier this month. Data from them may come as early as the middle of next year. And if that data comes through as hoped, Vertex plans to file for the combination drug in both the U.S. and Europe in the second half of 2014. If successful, that would add another 28,000 patients to Vertex's addressable market.

The Foolish final take
Vertex has a lot of headwinds facing it tied to the emergence of Gilead and J&J's oral hepatitis C treatments. Those new drugs will significantly erode remaining sales of Incivek, increasing pressure on the company to cut costs while still spending enough on promising pipeline opportunities in cystic fibrosis.

While the addressable market of cystic fibrosis patients for Kalydeco is small, it may see considerable expansion over the coming year as Kalydeco applies for additional indications. Most importantly, you'll need to pay attention to the far bigger opportunity presented by the VX-809 phase 3 study of patients with two copies of the F508 mutation. If that goes well, Invicek's headaches may end up simply being a short term headwind to the company's long term growth.