Is A Beat In The Cards For Vertex (VRTX) In Q3 Earnings?

We expect Vertex Pharmaceuticals, Inc. (NASDAQ:VRTX) to beat expectations when it reports its third-quarter 2017 results on Oct 25, after the market closes.

Year to date, Vertex’s shares have soared 109.9% while the industry has recorded an increase of 12.1%.

Vertex’s track record has been impressive so far. The company delivered positive earnings surprises in three of the last four quarters and missed expectations in one. The average positive earnings surprise in the last four quarters is 17.91%. In the last reported quarter, Vertex came up with a positive surprise of 11.43%.

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

Factors at Play

Vertex’s cystic fibrosis ("CF") drugs — Kalydeco & Orkambi — did well in the second quarter. We expect this positive trend to continue in the second as well.

In May 2017, Kalydeco gained FDA approval for use in patients 2 years and older who have one of 23 residual function mutations in the cystic fibrosis transmembrane conductance regulator ("CFTR") gene. Over 900 people in the United States have one of these mutations. In August, Kalydeco received approval for CF patients who have one of five residual function mutation, which causes splicing defect in the CFTR gene. Over 600 people in the United States have one of these mutations. Following these approvals for label expansion, Vertex upped its Kalydeco 2017 revenue guidance to $770-$800 million. The Zacks Consensus Estimate for Kalydeco for the third quarter is $197 million.

Orkambi’s sales growth will be dependent on reimbursement discussions in Europe in 2017. In June and July this year, Vertex struck re-imbursement agreements in Ireland and Italy, respectively, for Orkambi, thereby making the medicine more accessible in the countries. The expanded accessibility is expected to bring in more sales for the drug.

In the first quarter, the company had also mentioned that if it gains reimbursement in France this year, it would contribute significantly to revenue growth. However, the company is yet to sign the agreement. The consensus estimate for Orkambi for the third quarter is $322 million.

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 tezacaftor and ivacaftor. Investor focus at the call will be on these triple combination CF regimens, which are crucial for long-term growth of Vertex.

However, operating expenses are likely to shoot up as Vertex expands its pipeline.

What Our Model Indicates

Our proven model shows that Vertex is likely to beat estimates this quarter because it has the right combination of two key ingredients. 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 (earnings of 39 cents) and the Zacks Consensus Estimate (earnings of 37 cents), stands at +7.24%. 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 currently has a Zacks Rank #2. 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 That Warrant a Look

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.

Clovis Oncology, Inc. (NASDAQ:CLVS) is expected to release its results on Nov 2. The company has an Earnings ESP of +2.01% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Celgene Corp. (NASDAQ:CELG) is scheduled to release its results on Oct 26. The company has an Earnings ESP of +0.93% and a Zacks Rank #3.

Trevena, Inc. (NASDAQ:TRVN) , which is expected to release results on Nov 2, has an Earnings ESP of +25.93% and a Zacks Rank #2.

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