Markets

Why Vertex Pharmaceuticals Incorporated Stock Dipped 11% in March

VRTX Chart
VRTX Chart

Vertex began 2016 with a string of unsettling announcements, including an annual sales estimate for Kalydeco less optimistic than Wall Street's. News in February that the FDA would require more than the hodgepodge of data submitted in an application to expand Kalydeco amidst a general biotech sell-off was also ill-timed.

So what: Vertex began 2016 with a string of unsettling announcements, including an annual sales estimate for Kalydeco less optimistic than Wall Street's. News in February that the FDA would require more than the hodgepodge of data submitted in an application to expand Kalydeco amidst a general biotech sell-off was also ill-timed.

However, the single biggest reason for Vertex's slump last month occurred on March 23, when the U.K.'s healthcare spending watchdog announced it would not recommend Orkambi. The National Institute for Health and Care Excellence reasoned that even at a price of about $147,000 -- far less than the $259,000-per-year U.S. list price -- Orkambi didn't "represent good value" despite acknowledging it's the only drug available to delay worsening of symptoms for about 2,750 British cystic fibrosis patients.

Now what: It isn't the first time NICE has issued a draft guidance that doesn't recommend an expensive drug. On the other hand, the institute is also famous for changing its recommendation following further negotiations.

Given the already steep discount to the U.S. list price, investors should be concerned about the knock-on effect NICE's position will have on negotiations with other members of the Eurozone. Unlike the U.S., once a drug earns marketing approval from the European Commission, it can take years to hammer out reimbursement agreements one by one throughout each EU nation.

Image source: Vertex Pharmaceuticals Incorporated.

The response shouldn't have been surprising. Vertex expected lengthy European negotiations after Orkambi earned marketing approval last November. Management clearly stated that it expected Orkambi sales to remain limited to the U.S. and Germany throughout 2016, when it reported fourth-quarter earnings.

Last year, the company more than doubled its product revenue from $488 million to over $1 billion. While you might expect such a leap in the top line to lead to a profit, it didn't. The Vertex mission to treat as many of the estimated 75,000 cystic fibrosis patients in North America, Europe, and Australia, as quickly as possible is as expensive as it is bold. Last year the company lost another $558 million.

Image source: Vertex Pharmaceuticals Incorporated.

What the market needs to know is what kind of contribution Vertex can expect from Orkambi in the quarters ahead. Soon the company should announce the FDA's acceptance, or refusal, of an application that would expand Orkambi's label from patients over 12 years old, to children between ages 6 and 11 with the same genetic markers already indicated on the label. If eventually approved, this would expand the number of eligible patients in the U.S. from 8,500 to about 10,900.

From its launch last July through the end of 2015, Orkambi sales figures disappointed the market. When Vertex reports first-quarter earnings -- likely near the end of April -- all eyes will be looking for hints of increasing Orkambi uptake. You can expect the stock to bounce accordingly.

A secret billion-dollar stock opportunity

The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .

The article Why Vertex Pharmaceuticals Incorporated Stock Dipped 11% in March originally appeared on Fool.com.

Cory Renauer has no position in any stocks mentioned. The Motley Fool recommends Vertex Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

Copyright © 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .

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.

In This Story

VRTX

Other Topics

Stocks

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More