Vertex (VRTX) Posts Narrower Q2 Loss, Revenues Fall Short

Vertex Pharmaceuticals Inc. (NASDAQ:VRTX) posted a second-quarter 2016 loss of 1 cent per share (including the impact of stock-based compensation expense), narrower than the year-ago loss of 81 cents per share and the Zacks Consensus Estimate of a loss of 2 cents per share.

Excluding stock-based compensation expense, the company reported second quarter earnings of 24 cents per share, compared to the year-ago loss of 54 cents.

Vertex reported revenues of $431.6 million in the second quarter of 2016, slightly below the Zacks Consensus Estimate of $432.6 million but up 159.9% from the year-ago period.

CF Franchise Sales Grow Sequentially

Vertex’s second-quarter revenues consisted of sales from cystic fibrosis (CF) products Kalydeco ($180.2 million), Orkambi ($245.5 million), collaborative ($0.07 million) and royalty revenues ($5.3 million).

The company reported a 16% increase in Kalydeco sales in the second quarter of 2016 from the year-ago period.

Orkambi (lumacaftor/ivacaftor), approved for the treatment of CF in people aged 12 and older with two copies of the F508del mutation, delivered sales of $245.5 million (U.S.: $229 million, ex U.S.: $16 million), up 10% sequentially. As of Jun 30, 2016, the company estimates that about 6,000 patients in the U.S. have started treatment with Orkambi.

However, uptake in Germany continues to be slower than that observed in the U.S. As of Jun 30, about 380 of the 2,500 eligible patients in Germany had initiated treatment. Uptake in France was rapid and strong.

Vertex is currently looking to get Orkambi approved for use in children (6 - 11 years old) -- with the FDA granting priority review, a response should be out by Sep 30, 2016. About 2,400 children with CF in the U.S. fall in this category. A six-month phase III efficacy study in this patient population is currently ongoing to support EU approval where a regulatory application is slated to be submitted in the first half of 2017. About 3,400 children fall in this category in the EU. Orkambi is also in a late-stage study in children belonging to the 2-5 years age group.

Adjusted (including stock-based compensation expense) research and development (R&D) expenses increased 15.6% to $258.3 million. Second-quarter 2016 adjusted (including stock-based compensation expense) selling, general and administrative (SG&A) expenses increased 17.4% to $109.9 million.

Maintains Kalydeco and Orkambi Guidance

Vertex maintained its guidance for Kalydeco and Orkambi revenues. While Kalydeco revenues are expected in the range of $685 - $705 million, Orkambi revenues are expected in the range of $1 billion - $1.1 billion. The company estimates that about 70% - 80% of Orkambi patients will remain on treatment. Meanwhile, the overall compliance rate (reflects the number of pills actually taken by a patient in a given month), is expected to be 70% - 80%.

Orkambi guidance includes sales that may result from the potential label expansion of the drug in the U.S. for the 6 to 11 years age group, expected in the fourth quarter of 2016 and sales of Orkambi outside the U.S., primarily in Germany.

Given the slower than expected launch in Germany and the close to peak penetration for the approved indication in the U.S., Vertex expects further revenue growth for Orkambi to occur mainly in the fourth quarter provided its label is expanded.

Vertex continues to expect operating expenses to shoot up from approximately $1.06 billion in 2015 to $1.18 - $1.23 billion in 2016. In addition to working on expanding Kalydeco's and Orkambi’s labels, Vertex is developing VX-661, VX-371 and its next-generation correctors - VX-152 and VX-440.

Vertex is a Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the health care sector include Innoviva, Inc. (NASDAQ:INVA) , ANI Pharmaceuticals, Inc. (NASDAQ:ANIP) and Biogen Inc. (NASDAQ:BIIB) . While ANI and Innoviva are Zacks Rank #1 (Strong Buy) stocks, Biogen is a Zacks Rank #2 (Buy) stock.