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Is a Beat in Store for Vertex (VRTX) This Earnings Season?

We expect Vertex Pharmaceuticals, Inc.VRTX to beat expectations when it reports first-quarter 2018 results on Apr 26, after market close.

Vertex's shares have increased 5.9% so far this year while the industry has recorded a decrease of 9%.

Vertex's track record has been impressive so far. The company delivered positive earnings surprises in each of the last four quarters. The average positive earnings surprise for the last four quarters is 25.31%. In the last reported quarter, Vertex came up with a positive surprise of 5.17%.

Let's see how things are shaping up for this quarter.

Factors at Play

Vertex's cystic fibrosis ("CF") drugs - Kalydeco & Orkambi - performed consistently in 2017, with sales rising almost 30%. We expect this positive trend to continue in the soon-to-be reported quarter.

However, the company announced on its last quarter earnings call that first-quarter revenues will be unfavorably impacted by higher gross to net revenue adjustments and buildup of channel inventory in the fourth quarter of 2017.

In January 2018, Vertex announced that an extension of the marketing application for Orkambi was approved in Europe. With the approval, Orkambi's marketing label in EU will now include use in children with CF aged between six and 11 years and have two copies of the F508del mutation, expanding patient population by about 3,400. The expanded patient population is expected to boost sales of the drug. The Zacks Consensus Estimate for Orkambi's sales in the first quarter is $368 million.

In 2017, Kalydeco received approval for two line extensions including in patients 2 years and older with certain residual mutations in CFTR gene. The drug generated significant sales last year due to rapid uptake in expanded patient population and we expect the trend to continue. The Zacks Consensus Estimate for first-quarter Kalydeco sales is pegged at $228 million

In a boost to Vertex's CF franchise, the FDA approved Vertex's third CF drug, Symdeko, which is a combination of tezacaftor and ivacaftor, in February 2018. The drug is under review in Europe. However, we expect the new drug to contribute minimally to first-quarter sales. We expect the company to provide update on Symdeko's commercialization plan and its initial uptake.

The company remains focused on development of its triple-combination regimens. During the quarter, Vertex advanced VX-659 and VX-445 for phase III development. Also, two phase III studies were initiated, evaluating VX-659 in combination with tezacaftor and Kalydeco (ivacaftor) in CF patients.

Investor focus on the call will be on these triple combination CF regimens, which are crucial for long-term growth of Vertex. The company is also likely to provide full year revenue guidance including Symdeko sales on the call.

However, operating expenses are likely to be on the higher side due to initiation of two pivotal studies and launch of Symdeko.

Why a Likely Positive Surprise?

Our proven model indicates that Vertex is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate (62 cents) and the Zacks Consensus Estimate (57 cents), stands at +8.28%. This is a leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Vertex has a Zacks Rank #3. The combination of a positive Earnings ESP and a favorable Zacks Rank makes us reasonably confident of an earnings beat.

Conversely, we caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Vertex Pharmaceuticals Incorporated Price and EPS Surprise

Vertex Pharmaceuticals Incorporated Price and EPS Surprise | Vertex Pharmaceuticals Incorporated Quote

Other Stocks to Consider

Here are some biotech stocks that you may also want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Celgene Corporation CELG is scheduled to release its results on May 4. The company has an Earnings ESP of +0.63% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .

Amgen Inc. AMGN is scheduled to release its results on Apr 26. The company has an Earnings ESP of +3.34% and a Zacks Rank #3.

Gilead Sciences, Inc. GILD is scheduled to release its results on May 1. The company has an Earnings ESP of +0.32% and a Zacks Rank #2.

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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 Nasdaq, Inc.


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

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