Loss Widens at Vertex, Guidance Disappoints - Analyst Blog


Vertex Pharmaceuticals Inc. 's ( VRTX ) fourth quarter 2013 loss came in at 64 cents per share (including stock-based compensation expense), well wider than the loss of 9 cents reported in the year-ago quarter. Fourth quarter 2013 loss was wider than the Zacks Consensus Estimate of a loss of 57 cents.

Excluding the impact of stock-based compensation expense, fourth quarter 2013 loss was 56 cents per share, well below the year-ago earnings of 4 cents per share.

Revenues for the reported quarter increased 5.1% to $351.2 million. Revenues were above the Zacks Consensus Estimate of $232 million. Despite a significant fall in product revenues, the fourth quarter revenues rose on the back of a cash payment of $152 million from Johnson & Johnson ( JNJ ). In Nov 2013, Vertex Pharma sold its product royalty rights to its hepatitis C virus (HCV) treatment, Incivo (U.S. trade name: Incivek), to Janssen Pharmaceutica N.V., a Johnson & Johnson company.

Full year loss (including stock-based compensation expense) was $1.47 per share compared to year-ago earnings of 67 cents per share. The Zacks Consensus Estimate was at a loss of $2.66 per share. Excluding the impact of stock-based compensation expense, 2013 loss was 90 cents, well below the year-ago earnings of $1.18. Revenues decreased 20.6% to $1.2 billion in 2013. Revenues were above the Zacks Consensus Estimate of $1.1 billion.

The Quarter in Detail

Vertex Pharma's fourth quarter revenues consisted of sales from Incivek ($19.3 million), Kalydeco ($109.5 million), royalty revenues ($36.9 million) and collaborative revenues ($185.4 million).

Incivek revenues declined 91.3% year over year and 77.5% on a sequential basis. Revenues continued to be affected by a fewer number of new patients seeking treatment. Other factors affecting Incivek revenues included channel inventory reduction and a reduced realized price due to changes in the payer mix.

Royalty revenues for the quarter consisted of revenues received from partner Johnson & Johnson on Incivo sales in international markets. Vertex Pharma will not receive any Incivo royalties from the first quarter of 2014.  

As far as Kalydeco (cystic fibrosis) sales are concerned, Vertex Pharma reported an increase of 87.2% in the fourth quarter 2013 from the year-ago period. Rapid uptake among eligible patients in Europe where reimbursement discussions concluded drove revenues. Additional growth should materialize with the conclusion of reimbursement discussions in Australia and Canada.

Adjusted (including stock-based compensation expense) research and development (R&D) expenses for the quarter increased 8.8% to $226.6 million. Fourth quarter 2013 adjusted (including stock-based compensation expense) selling, general and administrative (SG&A) expenses declined 34.6% to $71.6 million.

Pipeline Update

Apart from the fourth quarter and full year 2013 results, Vertex Pharma provided an update on its pipeline. The company announced that VX-661 in combination with Kalydeco has received Breakthrough Therapy designation by the U.S. Food and Drug Administration (FDA). The VX-661-Kalydeco combination is being developed for the treatment of patients suffering from cystic fibrosis, who have two copies of the F508del mutation. The company is currently finalizing the design for a phase II study, which is expected to begin in the first half of 2014.

Vertex Pharma also announced encouraging top-line, 24-week results from a phase IIb study evaluating VX-509 in moderate-to-severe rheumatoid arthritis (RA) patients who continued to receive stable doses of methotrexate during the study.

Meanwhile, the company is also working on expanding Kalydeco label. The company is looking to get Kalydeco approved for non-G551D gating mutation (decision expected by Mar 27, 2014). Data from two phase III studies (TRAFFIC and TRANSPORT) evaluating Kalydeco plus VX-809 for cystic fibrosis patients with two copies of the F508del mutation, are expected in mid-2014.

Disappointing Revenue Guidance

Vertex Pharma expects total revenues for 2014 in the range of $570 million to $600 million. Pre-earnings, the Zacks Consensus Estimate for 2014 was $619 million, above the company's guidance range.

Vertex Pharma expects Kalydeco revenues in the range of $470 million to $500 million in 2014, much higher than the $371.3 million recorded in 2013.

The company continues to expect operating expenses (excluding stock-based compensation expense) in the range of $900 million to $950 million. Both R&D and SG&A expenses are expected to decline in 2014 from 2013 levels. R&D expenses (excluding stock-based compensation expense) are expected to lie in the range of $665 million to $695 million, while SG&A expenses (excluding stock-based compensation expense) are expected in the range of $235 million to $255 million. First quarter 2014 operating expenses are expected to be lower than the sequentially preceding quarter.

Our View

Vertex Pharma's fourth quarter results were disappointing with the company posting a wider loss. Revenues were entirely driven by a one-time payment and are expected to slide significantly in the future given the plummeting Incivek revenues and the discontinuation of Incivo royalties. The 2014 revenue guidance is below our expectations.

Meanwhile, Kalydeco revenues should keep growing with launches in Australia and Canada and expansion into additional patient populations. Vertex Pharma has a series of pipeline related events lined up in the coming quarters and we expect investor focus to remain on pipeline progress.

Vertex Pharma carries a Zacks Rank #2 (Buy). Other stocks which look attractive at current levels include Actelion Ltd. ( ALIOF ) and Gentium ( GENT ). Both carry a Zacks Rank #1 (Strong Buy).


GENTIUM SPA-ADR (GENT): Free Stock Analysis Report

JOHNSON & JOHNS (JNJ): Free Stock Analysis Report

VERTEX PHARM (VRTX): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: ALIOF , GENT , JNJ , VRTX



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