Don't Count Vertex Out Just Yet

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Vertex Pharmaceuticals' (NAS: VRTX) Incivek isn't even in the coffin yet, but its obituary has been written by me and others. Sales have peaked -- or will soon -- as hepatitis C patients wait for new medications that don't have to be administered with Roche's Pegasys or Merck's (NYS: MRK) Pegintron, injectable drugs with unpleasant side effects.

Vertex is hoping that one of those all-oral drug combinations will still include Incivek, even if it has to develop the cocktail itself. Last week the company announced phase 2 data for a combination of Incivek, ribavirin -- an oral medication currently taken with Incivek and Pegasys/Pegintron -- and a new medication, VX-222.

A respectable 83% of patients had undetectable virus levels after taking the three-drug combination for 12 weeks. Some of those patients are going to rebound -- two of 11 patients who reached four weeks post-treatment have relapsed -- but the data is solid enough to justify moving into a larger phase 2b trial, which will help guide the design of a phase 3 trial. If that's positive, Vertex hopes for approval by early 2015.

The worry here is that Vertex might be throwing good money into useless clinical trials if Incivek becomes obsolete. The blockbuster is a protease inhibitor, but there are plenty of next-generation protease inhibitors in development: Bristol-Myers Squibb's (NYS: BMY) asunaprevir, Johnson & Johnson's (NYS: JNJ) TMC435, Achillion Pharmaceuticals' (NAS: ACHN) ACH-1625, and others. None is on the market -- they'll all have to prove themselves in the clinic -- but considering how many there are, it seems likely that one will be able to beat Incivek on the efficacy or safety front.

Going forward, though, drugs' efficacies won't be measured individually, but as part of a cocktail. For an all-Vertex cocktail to work, the company needs VX-222 and other drugs in its pipeline to make up for any shortcomings Incivek might have versus other protease inhibitors in other cocktails.

It could happen, for sure -- I wouldn't count Vertex out just yet -- but the company might be better off ditching Incivek and partnering up with others to help get its pipeline drugs into whatever standard-of-care cocktail is eventually developed.

Vertex was recommended twice by the Fool's Rule Breakers newsletter with both handily beating the S&P 500. To see what the analysts like right now, grab a copy of their new free report, "Discover the Next Rule-Breaking Multibagger." You can get your copy for free by clicking here.

At the time this article was published Fool contributorBrian Orelliholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Johnson & Johnson.Motley Fool newsletter serviceshave recommended buying shares of Vertex Pharmaceuticals and Johnson & Johnson and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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