Invest in Biotechs Going After Unmet Needs

Wow!

Is there really any other way to describe the launch of Vertex Pharmaceuticals' (NAS: VRTX) hepatitis C drug Incivek?

We got a first peek at the launch in the second quarter, but that was only six weeks ago. The third quarter offered the first look at a full quarter of revenue. And what a quarter it was: $420 million in net sales of its new hepatitis C drug. Assuming nothing surprising pops up, Incivek will reach the magic $1 billion blockbuster status in its first 12 months on the market. That's easily the most successful launch in recent memory. Dendreon (NAS: DNDN) , Acorda Therapeutics (NAS: ACOR) , and Avanir Pharmaceuticals (NAS: AVNR) could learn a thing or two.

The unmet need of hepatitis C patients is a big reason for the successful launch of Incivek. The current treatments -- Roche's Pegasys and Merck's (NYS: MRK) PegIntron -- only cure about half of the patients they treat. Adding Incivek increases that number substantially and allows for a shorter duration of Pegasys or PegIntron, which is helpful given nasty side effects of those drugs.

Keep in mind that unmet need may be necessary for a launch this successful, but it isn't sufficient to get you there. Incivek still had to post better cure rates than Merck's second-generation drug, Victrelis; if their efficacy had been similar, I'm not sure we'd be drooling over Incivek sales right now. Just look at Human Genome Sciences' (NAS: HGSI) Benlysta; it's the first new lupus treatment in 50 years, but sales last quarter were just $18.8 million, partially because doctors aren't convinced by the efficacy.

At a market cap topping $8.5 billion, there are still a lot of Incivek sales built in to Vertex's valuation. To grow further, Vertex has to keep growing sales of Incivek and gain approval for its cystic fibrosis drug Kalydeco next. A successful launch of that product would certainly help. But would you expect anything less? Cystic fibrosis is another unmet medical need.

At the time thisarticle was published Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Dendreon. Motley Fool newsletter services have recommended buying shares of Vertex Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

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