Last week, drug maker and Motley Fool Rule Breakers pick Vertex Pharmaceuticals (NASDAQ:VRTX) announced its 2006 financial results and gave updated guidance for this year.

2006 was a great year for Vertex shareholders, with the stock up 35% during that time. Vertex signed a solid partnership agreement with a Johnson & Johnson (NYSE:JNJ) subsidiary and announced positive early- and mid-stage trial results for its hepatitis C drug, telaprevir. The positive telaprevir efficacy results were great, even if the compound was associated with some adverse effects.

In regards to telaprevir's development, 2006 can be considered the year that Vertex proved the drug works and that there will be at least some market for it. Considering the company's $4 billion market cap, and its expenses of more than $370 million last year in research and development costs alone, the future value of shares of Vertex is highly leveraged to the outcome of this drug in clinical development.

Since 2006 was all about proving that telaprevir worked, 2007 will be defined as the year that the market potential for the drug becomes much clearer. Vertex plans to begin the pivotal phase 3 studies of the drug later this year. The company also plans studies to test the drug among patients suffering from different types of HCV, expanding beyond just genotype 1 patients, as well as continued clinical trials of more convenient dosing regimes of the drug.

Drug development isn't cheap, and Vertex ended 2006 with $760 million in cash and equivalents. With an expected 2007 cash burn rate of $310 million, it will have at least another year and a half of money left in its coffers. And with more positive trial results, finding new sources of cash won't be a problem.

Based on the results of the telaprevir studies, some of which will be announced throughout the year, telaprevir's competitive profile and details about how doctors will use the drug in comparison to existing HCV treatments should become much more transparent. If the trial results are strong enough and discussions with the FDA are positive, Vertex may potentially file a marketing application for telaprevir by late 2008. The width of the patient population it will potentially reach will define the drug's success in the market -- and Vertex's future stock price -- so investors should pay attention to the clinical trial results coming out this year and next.

Vertex Pharmaceuticals is a Motley Fool Rule Breakers pick. You can find out why with a 30-day free trial of the newsletter.

Fool contributor Brian Lawler does not own shares of any company mentioned in this article. Johnson & Johnson is an Income Investor recommendation. The Fool has a disclosure policy.