The Most Important New Drug of 2012

Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Forbes recently crowned Vertex Pharmaceuticals' (NASDAQ: VRTX) Kalydeco the most important new drug of 2012. Forbes said that Kalydeco, used to treat cystic fibrosis, is a triumph of genetics and drug development and the first treatment to directly address the genetic defect that causes the disease.

Kalydeco will only help 4 percent of the 70,000 people who suffer from declining lung function, a damaged pancreas, and shortened lives due to cystic fibrosis worldwide. But it makes medical history for several reasons. It is a triumph for genomics because it is the first drug that could treat the defects caused by the mutation of the gene discovered 23 years ago.

Kalydeco's development was powered by a patient group which led to several notable disease foundations such as the Michael J. Fox Foundation and the Multiple Myeloma Research Foundation. Kalydeco, when administered alone, will only help a few thousand patients worldwide, and like other treatments for very rare diseases, it is very expensive at $294,000 per patient per year. Kalydeco has been a huge commercial successful so far, generating $113 million in sales in the first nine months of 2012.

Product Update

Vertex announced that Health Canada has approved Kalydeco (ivacaftor), the first medicine to treat the underlying cause of cystic fibrosis (CF), for people ages six and older who have at least one copy of the G551D mutation in the cystic fibrosis transmembrane conductance regulator (CFTR) gene. Cystic fibrosis is a rare genetic disease for which there is no cure. It is caused by a defective or missing CFTR protein resulting from mutations in the CFTR gene. It is a rare, life-shortening genetic disease which affects approximately 70,000 people worldwide, including 30,000 people in the U.S., 35,000 in Europe, 4,000 in Canada and nearly 3,000 in Australia. The ongoing global launch of Kalydeco continues, and the treatment is now approved in the U.S. and in all 27 EU countries. 

The Food and Drug Administration (FDA) approved Incivek in May 2011, which made it one of the first new hepatitis C drugs to reach the market in a long time. There were expectations that it would be a blockbuster with revenues in the billions of dollars.  However, sales have never really taken off. Instead, they are declining partly because research of hepatitis C drugs has moved forward rapidly and patients are waiting for newer drugs before they begin treatment.

Incivek is approved in combination with two standard drugs: Ribavirin, which is a pill, and Interferon, given by injection. Several companies are studying hepatitis C regimens that avoid Interferon because its side effects.  Vertex is maintaining its guidance of around $1.2 billion in sales for 2012, but it is obvious that the drug is not going to be a major growth catalyst, and the future lies in cystic fibrosis treatments. 

Meanwhile, Vertex updated the label on Incivek to include a boxed warning stating that fatal and non-fatal skin reactions have been reported in patients, taking Incivek combined with peginterferon alfa and ribavirin.  Though there was an earlier warning about serious skin reactions, there was no mention that it could be fatal.

The Competition and Hepatitis C

Gilead Sciences (NASDAQ: GILD) released extremely positive results for an experimental hepatitis C drug which has been described as the 'best-in-class' treatment. Gilead presented results from its combination of sofosbuvir and daclatasvir that cured between 98 and 100 percent of patients within 12 weeks.

Over three million people in the U.S. suffer from hepatitis C, a blood-borne disease which results in 12,000 U.S. deaths each year, and traditional two-drug treatment cures only about 40 percent of people but produces unpleasant side effects. Analyst said Gilead's single-pill treatment could be revolutionary for patients and doctors alike.

Deutsche Bank has given Idenix a buy recommendation, with a target price of $7 per share. Its drug IDX-184 is still in development and has been on clinical hold because a similar drug from Bristol-Myers Squibb that had extremely poor results.

Achillion (NASDAQ: ACHN) is another development stage biotech company that focuses on treating HCV by targeting NS5A and NS3 drug targets. It has several candidates in its HCV pipeline: sovaprevir (formerly ACH-1625), which is a NS3 protease inhibitor; ACH-2684, which is a pan-genotypic NS3 protease inhibitor; as well as ACH2928 and ACH3102, which are NS5A protein inhibitors. This biotech has as many as four HCV candidates in the pipeline, two of which are being evaluated in phase 2 studies. It ended the third quarter with cash and cash equivalents of approximately $90 million, enough to fund ongoing drug development.

Conclusion

Kalydeco has a very small potential market, only treating patients with a very specific gene mutation, and Incivek, which must be combined with an interferon injection (a drug that causes side effects) clearly cannot be a long time growth driver. The future success of Vertex lies in finding combinations for Kalydeco to treat the larger range of gene mutations for cystic fibrosis. I don't believe this is going to happen in the near future. I do not recommend buying at this point in time. I am placing a "Hold" rating on the stock. 


jordobivona has no position in any stocks mentioned. The Motley Fool recommends Gilead Sciences and 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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