Vertex Pharmaceuticals Inc.
) posted a loss of 9 cents per share (including stock-based
compensation expense) in the fourth quarter of 2012, well below
the year-ago earnings of 73 cents per share. Fourth quarter 2012
loss was, however, narrower than the Zacks Consensus Estimate of
a loss of 13 cents.
Excluding the impact of stock-based compensation expense,
fourth quarter 2012 earnings were 4 cents, well below the
year-ago earnings of 86 cents.
Revenues for the reported quarter fell 40.7% to $334 million.
Revenues were above the Zacks Consensus Estimate of $312 million.
We note that the year-ago quarter included a $65 million
milestone payment from Mitsubishi related to the approval and
launch of Telavic in Japan.
Full year earnings (including stock-based compensation
expense) were 64 cents per share compared to the year-ago loss of
48 cents. Excluding the impact of stock-based compensation
expense, 2012 earnings were $1.18, well above the year-ago
earnings of 8 cents. Revenues increased 8.3% to $1.5 billion in
2012. Revenues were in line with the Zacks Consensus
The Quarter in Details
Vertex' fourth quarter revenues consisted of revenues earned
from the sale of Incivek ($222.8 million), Kalydeco ($58.5
million), royalty revenue ($36.8 million) and collaborative
revenues ($15.9 million).
While Incivek revenues declined 51.2% from the year-ago
quarter, revenues declined 12.4% on a sequential basis. Revenues
continue to be affected by a fewer number of new patients seeking
treatment and the warehousing effect. Patients are basically
deferring treatment and waiting for new and more effective drugs
to become available.
Royalty revenues for the quarter consisted of revenues
received from partner
Johnson & Johnson
) on Incivo sales in Europe.
Vertex has exclusive US commercialization rights to Incivek
and has agreements with Johnson & Johnson and Mitsubishi
Tanabe Pharma for the commercialization of the drug outside the
US. While Johnson & Johnson is responsible for the
commercialization of Incivek outside North America and the Far
East, Mitsubishi Pharma markets it in certain areas of the Far
East including Japan.
While Incivek gained European approval under the trade name
Incivo during the third quarter of 2011, the product is marketed
in Japan as Telavic.
Research and development (R&D) expenses for the quarter
increased 14.3% to $213.1 million, mainly due to continued
investment in development activities.
Fourth quarter 2012 selling, general and administrative
(SG&A) expenses declined 9.4% to $110.5 million.
2013 Revenues Will Decline
Vertex expects 2013 revenues to decline to $1.10 - $1.25
billion. Guidance includes Kalydeco revenues of $280 - $320
million. Vertex said that Kalydeco growth depends on the
completion of reimbursement discussions in ex-US countries.
Vertex expects first quarter 2013 Kalydeco revenues to be
similar to fourth quarter 2012 Kalydeco revenues - Kalydeco
revenues should start growing from the second quarter with the
completion of reimbursement discussions in EU countries.
Meanwhile, combined Incivek revenues, Incivo royalties and
collaborative and other royalty revenues are expected in the
range of $820 million to $930 million. Incivek revenues will most
likely continue to decline sequentially. Vertex, which is seeing
treatment rates change in the hepatitis C virus (HCV) market,
expects a decline in the number of patients initiating treatment.
Incivo royalty is expected to increase slightly in 2013.
Operating expenses (excluding stock-based compensation expense
and Alios expenses) are expected in the range of $1.09 billion to
$1.15 billion. This includes R&D expenses of $750 million to
$790 million and SG&A spend of $340 million to $360
This implies higher R&D expenses and lower SG&A
expenses in 2013 compared to 2012. The lower SG&A spend
reflects reduced marketing expenses for Incivek and Kalydeco in
the US the impact of cost reduction initiatives.
Vertex' fourth quarter results were better-than-expected.
However, we expect Incivek revenues to continue being affected by
warehousing and a slowdown in new patient additions. Meanwhile,
Kalydeco revenues should pick up from 2013 when additional
launches take place in the EU.
With Vertex working on expanding Kalydeco's label and
strengthening its HCV portfolio, we expect investor focus to
remain on pipeline progress. The successful development of the
Kalydeco and VX-809 combination would expand the market for
Vertex currently carries a Zacks Rank #4 (Sell). Pharma
companies that currently look more attractive include
). Both are Zacks Rank #1 (Strong Buy) stocks.
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