Vertex (VRTX) Beats on Q3 Earnings & Sales, Raises 2017 View

Vertex Pharmaceuticals IncorporatedVRTX reported third-quarter 2017 earnings per share of 53 cents, which beat the Zacks Consensus Estimate of 37 cents and came ahead of the year-ago earnings of 17 cents. Strong product revenues led to higher profits in the quarter.

Vertex reported revenues of $578.2 million in the third quarter, up almost 40% year over year driven by strong product revenues. Revenues also beat the Zacks Consensus Estimate of $518.45 million.

CF Franchise Sales Strong

Vertex's third-quarter revenues consisted of sales from cystic fibrosis ("CF") products - Kalydeco and Orkambi, collaborative ($26.3 million) and royalty revenues ($2.2 million). CF product revenues were $549.6 million in the third quarter, up 34% year over year.

Kalydeco sales rose 22% to $213 million following approvals to treat an expanded population.

In May, Kalydeco was approved for use in CF patients 2 years and older who have one of 23 residual function mutations in the CFTR gene. More than 900 people in the United States have one of these mutations. The expanded indication should boost sales of the drug in future quarters. In August, Kalydeco was approved in CF patients (2 years and older) who have one of the five residual function mutations that result in a splicing defect in the CFTR gene, which occurs in more than 600 patients.

Orkambi (lumacaftor/ivacaftor) delivered sales of $336.2 million, up 43.7% year over year. The growth was supported by continued uptake in pediatric patients in the United States and additional revenues from European countries where Vertex has signed reimbursement agreements.

Costs Rise

Adjusted research and development expenses increased 15.3% to $243.2 million in the third quarter due to higher costs related to development of triple combination CF regimens. Adjusted selling, general and administrative (SG&A) expenses increased 7.9% to $90.6 million due to increased investment to support the global commercialization of Orkambi and Kalydeco.

2017 Guidance Raised

Vertex increased its 2017 guidance for Orkambi and Kalydeco sales. However, it maintained its guidance for combined operating costs.

Orkambi revenues are expected in the range of $1.29-$1.32 billion (previously $1.1-$1.3 billion), while Kalydeco revenues are estimated in the range of $810 million - $830 million (previously $770 million - $800 million). Total CF product revenues are expected in the range of $2.1 billion to $2.15 billion in 2017.

We note that the increase in Orkambi sales projection is based on strong demands seen so far this year. Projections for Kalydeco were increased following strong demand in newly approved indications.

Combined adjusted research and development (R&D) and selling, general and administrative (SG&A) expenses in 2017 are still anticipated in the range of $1.33 to $1.36 billion.

Focus on Next Generation CF Regimens

Vertex's tezacaftor/ivacaftor combination for treating CF patients is under review in the United States and Europe. The company is seeking approval in people with CF aged 12 and older who have two copies of the F508del mutation or one F508del mutation and one residual function mutation. A decision is expected in February next year in the United States, while approval in Europe is expected in the second half of 2018.

Concurrent with the press release, the company announced data from a phase III study evaluating the combination in CF patients with one copy of the F508del mutation and one copy of a gating mutation. The study has failed to meet its primary endpoint of absolute change in percent predicted forced expiratory volume in one second (ppFEV1), a measure of lung function.

Vertex is also evaluating some next-generation CFTR correctors (VX-152, VX-440, VX-659 and VX-445) as part of a triple combination with VX-661 (tezacaftor) and ivacaftor. Following discussions with regulatory agencies, Vertex will initiate pivotal phase III studies on two of the four triple combination regimens in the first half of 2018.

Other CF Pipeline Update

Vertex's epithelial sodium channel (ENaC) inhibitor candidate, VX-371, is being evaluated in a phase II study in CF patients who are being treated with Orkambi. Per the press release, the study did not meet its primary endpoint of change in ppFEV1.

Another phase II study is developing VX-371 for treating patients with primary ciliary dyskinesia.

Our Take

Vertex's third-quarter results were encouraging. The company beat estimates on both counts as sales of both its CF drugs rose.

Shares declined slightly in after-hours trading probably due to failure of the pivotal tezacaftor/ivacaftor study. However, so far this year, Vertex's share price is up a massive 99.3%, comparing favorably with an increase of 6.9% for the industry .

Vertex's CF pipeline is quite strong with a broad portfolio of next-generation CF correctors. Its triple combination CF regimens are considered crucial for long-term growth. If the triple-combo regimes are successful, Vertex can address a significantly larger CF patient population - almost 90% of the patients - in the future.

However, competition is increasing as several major companies are developing interest in CF. Belgian company Galapagos NV GLPG and AbbVie, Inc. ABBV are also developing triple CFTR combination therapy for CF, which may pose a threat to Vertex's triple combo regimens.

Vertex Pharmaceuticals Incorporated Price, Consensus and EPS Surprise

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

Vertex carries a Zacks Rank #3 (Hold).

A better-ranked stock in the health care sector is Adaptimmune Therapeutics PLC ADAP , which carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Adaptimmune's loss estimates narrowed from $1.03 to 95 cents for 2017 and from 95 cents to 90 for 2018 over the last 60 days. The company delivered positive earnings surprises in two of the four trailing quarters with an average beat of 2.56%. The company's shares are up 72.1% so far this year.

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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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