Vertex Pharmaceuticals Inc.
(
VRTX
) posted break-even (including stock-based compensation expense)
results in the third quarter of 2012, well below the year-ago
earnings of 56 cents per share. Third quarter results missed the
Zacks Consensus Estimate of 19 cents. Excluding the impact of
stock-based compensation expense, third quarter 2012 earnings
were 13 cents, well below the year-ago earnings of 70 cents.
Revenues for the reported quarter fell 49% to $336 million.
Revenues were also significantly below the Zacks Consensus
Estimate of $375 million. However, we note that the year-ago
quarter included a $200 million milestone payment from Janssen, a
Johnson & Johnson
(
JNJ
) company.
Revenues
Vertex's third quarter revenues consisted of revenue earned
from the sale of Incivek ($254.3 million), Kalydeco ($49.2
million; launched in January 2012), royalty revenue (up 201.2% to
$25.6 million) and collaborative revenue (down 70.1% to $6.9
million).
While Incivek revenues declined 39.4% from the year-ago
quarter, revenues also declined (down 22.5%) on a sequential
basis. Sales 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.
Kalydeco gained US approval in January. Kalydeco is approved
for the treatment of cystic fibrosis (CF) in patients age 6 years
and older who have a certain mutation in their CF gene called the
G551D mutation.
Vertex is currently working on the EU launch of Kalydeco,
where it gained approval earlier this year. Kalydeco is currently
under review in Canada and Australia. The company expects
reimbursement coverage in each of the four major European
countries that account for 80% of the G551D patients in Europe in
2013.
Vertex reported that it is now treating most of the eligible
G551D patients in the US. The company is working on expanding
Kalydeco's label and is conducting monotherapy studies which
could expand the target population from the current 4% to
approximately 15% of CF patients. Vertex also remains on track to
commence pivotal studies in early 2013 with Kalydeco plus VX-809
in delta 508 homozygous patients. Vertex will be meeting with the
FDA this quarter.
Royalty revenue for the quarter included $20.0 million
received from partner Johnson & Johnson on sales of Incivo 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.
Other Details
Research and development (R&D) expenses for the quarter
increased 5.9% to $200.2 million, mainly due to continued
investment in development activities.
Third quarter 2012 selling, general and administrative
(SG&A) expenses declined 11.7% to $97.7 million.
Along with reporting third quarter results, Vertex announced
two non-exclusive agreements for its HCV candidate, VX-135. While
one agreement is with
GlaxoSmithKline
(
GSK
) for the evaluation of Vertex's nucleotide analogue hepatitis C
hepatitis C virus (HCV) polymerase inhibitor VX-135 plus Glaxo's
NS5A inhibitor GSK2336805 in a phase II proof-of-concept study,
the other agreement is with Johnson & Johnson's Janssen
Pharmaceuticals, Inc. Under the Janssen agreement, the companies
will conduct a phase II proof-of-concept study evaluating an
all-oral HCV treatment regimen consisting of VX-135 and Janssen's
protease inhibitor simeprevir (TMC435).
Incivek Guidance Maintained
Vertex maintained its 2012 Incivek revenue guidance of
$1.1-$1.25 billion. The company reiterated its operating expenses
guidance of $1.03-$1.13 billion.
Our View
Vertex's third quarter results were disappointing with both
earnings and revenues missing expectations. We expect Incivek
sales to continue being affected by warehousing and a slowdown in
new patient additions. Meanwhile, Kalydeco sales should pick up
from 2013 when additional launches take place in the EU. With the
company working on expanding Kalydeco's label and strengthening
its HCV portfolio, we expect investor focus to remain on pipeline
progress. We currently have a Neutral recommendation on Vertex,
which carries a Zacks #3 Rank (short-term 'Hold' rating).
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