Maybe There Will Be Some Hep C Patients Left

There's no doubt that the next generation of hepatitis C drugs will be better than the current offerings. While Vertex Pharmaceuticals' (NAS: VRTX) Incivek and Merck's (NYS: MRK) Victrelis add incremental efficacy to Roche's Pegasys and Merck's PegIntron, the next generation is likely to have cure rates well above the 79% that Incivek can produce without the need for Pegasys or PegIntron, which have nasty side effects.

But promising drugs from Gilead Sciences (NAS: GILD) , Bristol-Myers Squibb (NYS: BMY) , Abbott Labs (NYS: ABT) , and others are still years away. Until then, Merck and Vertex can treat as many patients as they can, leaving the 30% that aren't cured and the dwindling numbers of newly diagnosed patients for the next generation of drugs.

Unless, of course, the patients wait for the better medications that don't have those nasty side effects. Hepatitis C is a slow-acting disease. Infection can cause liver cancer and other liver problems, but it usually occurs years after patients become chronically infected. Doctors warehoused patients waiting for Incivek and Victrelis, which helped Incivek become an instant blockbuster.

Now it appears sales are slowing substantially.


Q2 2011 (in Millions)

Q3 2011 (in Millions)

Q4 2011 (in Millions)

Q1 2012 (in Millions)











Source: Company releases.
*U.S. sales only.
**Global sales.

Merck sold just $67 million stateside, so while it may appear that Victrelis is cutting into Incivek sales, the take-home message is that sales have peaked.

Vertex says doctors aren't warehousing patients waiting for new treatments, but it seems pretty clear that they're not moving quickly to get patients treated, either. That's good news for drugmakers with hepatitis C drugs in the pipeline.

Is this bad news for Vertex? In the short term, absolutely. The difference between selling $1.5 billion per year of the drug and $1 billion or less is a big deal.

But since Incivek seems destined to be overtaken in the next few years, lower sales now aren't the end of the world. The company is sticking with its guidance of Incivek sales between $1.5 billion and $1.7 billion, which it's just barely on target to do when you factor in a $22 million decrease in wholesalers' inventory. And even if volume comes in a little short, a 7% price increase instituted April 1 should help.

In the longer term, the value of Vertex will be more about its cystic fibrosis pipeline than Incivek. And, like everyone else, it's developing next-generation hepatitis C drugs, so if it doesn't capture the patients now, perhaps there will be an option to pick them up later.

Vertex is beating the market by 234% since David Gardner and his team first recommended the stock in 2005. You can see his latest health-care find in the Fool's new free report, "Discover the Next Rule-Breaking Multibagger." Get your copy for free.

At the time thisarticle was published Fool contributorBrian Orelliholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Abbott Laboratories.Motley Fool newsletter serviceshave recommended buying shares of Gilead Sciences and Vertex Pharmaceuticals. The Motley Fool has adisclosure policy. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.