Vertex Pharmaceuticals Inc.
) first-quarter 2014 loss came in at 85 cents per share
(including stock-based compensation expense), much wider than the
loss of 12 cents reported in the year-ago quarter. First quarter
2014 loss was also wider than the Zacks Consensus Estimate of a
loss of 70 cents. Investors reacted negatively to the news with
the stock falling 3.74%.
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Excluding the impact of stock-based compensation expense, first
quarter 2014 loss was 65 cents per share as against the year-ago
earnings of 3 cents per share.
Vertex Pharma reported revenues of $108.2 million for the first
quarter of 2014 (excluding hepatitis C virus/HCV revenues and
royalties). Revenues were below the Zacks Consensus Estimate of
We remind investors that in Nov 2013, Vertex Pharma sold its
product royalty rights to its HCV treatment, Incivo (U.S. trade
name: Incivek), to Janssen Pharmaceutica N.V., a
Johnson & Johnson
) company. Meanwhile, the company also announced that it has
amended the terms of its agreement with Alios BioPharma regarding
the development and commercialization of VX-135 for HCV. As per
the amended agreement, Vertex plans to out-license VX-135 and
cease further investment in its HCV pipeline.
The Quarter in Detail
Vertex Pharma's first quarter revenues consisted of sales from
Kalydeco ($99.5 million) and collaborative revenues ($8.7
Vertex Pharma reported an increase of 61% in Kalydeco (cystic
fibrosis) sales in the first quarter 2014 from the year-ago
period. Rapid uptake among eligible patients in Europe and
continued growth in the U.S. drove Kalydeco sales in the reported
quarter. Additional growth should materialize with the conclusion
of reimbursement discussions in Australia and Canada for eligible
patients with the G551D mutation. Kalydeco revenues should also
benefit from Vertex Pharma's label expansion efforts.
In Feb 2014, Kalydeco was approved for treating patients
suffering from cystic fibrosis who have one of eight additional
mutations in the cystic fibrosis transmembrane conductance
regulator (CFTR) gene.
However, we note that Kalydeco revenues declined 8.7%
sequentially as the fourth quarter of 2013 benefited from the
favorable impact of stocking and other nonrecurring business
Adjusted (including stock-based compensation expense) research
and development (R&D) expenses for the quarter increased 0.2%
to $214.4 million. First quarter 2014 adjusted (including
stock-based compensation expense) selling, general and
administrative (SG&A) expenses declined 27.9% to $66.1
Apart from the first quarter 2014 results, Vertex Pharma provided
an update on its pipeline. The company announced data from a
28-day phase II study evaluating VX-661 in combination with
Kalydeco for the treatment of patients suffering from cystic
fibrosis, who have both the F508del mutation and G551D mutation.
The data revealed that the addition of VX-661 to Kalydeco
resulted in statistically significant improvements in lung
function in patients with both the F508del mutation and G551D
mutation and who were already on Kalydeco.
A 12-week study of VX-661 plus Kalydeco is ongoing in patients
with two copies of the F508del mutation.
Meanwhile, the company is also working on expanding Kalydeco's
label. The company plans to get Kalydeco approved for cystic
fibrosis patients with at least one copy of the R117H mutation.
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. The
company also plans to submit regulatory applications in the U.S.
and EU later in 2014, subject to favorable data.
Vertex Pharma reduced its 2014 total revenue guidance. The
company now expects revenues in the range of $520 million to $550
million (previous guidance: $570 million to $600 million).
Pre-earnings, the Zacks Consensus Estimate for 2014 was $563
million, above the company's guidance range.
Vertex Pharma continues to expect Kalydeco revenues in the range
of $470 million to $500 million in 2014. The guidance assumes the
conclusion of reimbursement discussions in Australia and Canada
and potential label expansion of
The company lowered its guidance for operating expenses
(excluding stock-based compensation expense) to the range of $890
million to $930 million from the prior range of $900 million to
$950 million. The anticipated decrease in operating expenses is
primarily due to the termination of further investment in the HCV
Vertex Pharma's first quarter results were disappointing with the
company posting a wider loss. Revenues were also impacted by the
discontinuation of Incivo royalties.
We believe the termination of development activities related to
the HCV pipeline is a strategic move by Vertex Pharma to cut its
losses considering the fact that significant advancements have
been made in HCV treatment with introduction of new oral
We note that HCV is a highly crowded market led by
) oral drug Sovaldi, which reported whopping revenues of
approximately $2.3 billion in the first quarter of 2014. This is
impressive considering that it was the first full quarter for
Sovaldi, which was launched in Dec 2013. Moreover, Gilead is
seeking approval for its once-daily fixed-dose HCV cocktail
treatment, ledipasvir plus Sovaldi. Other companies such as
Bristol-Myers Squibb Company
) are also looking to get their all-oral combinations approved.
For Vertex, Kalydeco revenues should keep growing with launches
in Australia and Canada and expansion into additional patient
populations. Vertex Pharma has a series of Kalydeco related
events lined up in the coming quarters and we expect investor
focus to remain on pipeline progress.
Vertex Pharma carries a Zacks Rank #3 (Hold). Gilead is a
better-ranked stock with a Zacks Rank #1 (Strong Buy).