Vertex (VRTX) Q1 Earnings Beat On Strong CF Products Sales

Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) reported first-quarter 2018 earnings per share of 76 cents, which beat the Zacks Consensus Estimate of 58 cents and came ahead of the year-ago earnings of 41 cents. Strong product revenues led to higher profits in the quarter.

Vertex reported revenues of $640.8 million in the first quarter, beating the Zacks Consensus Estimate of $617.56 million. However, sales were down 10.3% year over year due to significantly lower collaborative revenues.

The company had received an upfront payment of $230 million from Germany-based Merck (NYSE:MRK) KGaA in the year-ago period for out-licensing of four oncology programs.

CF Drugs Sales Remain Strong

Vertex’s first-quarter revenues consisted of sales from cystic fibrosis (“CF”) products — Kalydeco, Orkambi and Symdeko, collaborative ($1.7 million) and royalty revenues ($1.4 million). CF product revenues were $637.7 million in the first quarter, up 33% year over year due to continuous expansion of patient population.

Kalydeco sales surged 34.4% to $250 million while Orkambi (lumacaftor/ivacaftor) delivered sales of $354 million, up 20% year over year.

The growth was supported by continued approvals in expanded population and uptake globally.

During the quarter, Vertex received approval for its third CF drug, Symdeko, in the United States. The drug has contributed $34 million to the top line.

Costs Rise

Adjusted research and development (R&D) expenses increased 14.7% to $260 million in the first quarter due to higher costs related to phase III development of triple combination CF regimens. Adjusted selling, general and administrative (SG&A) expenses increased 15.4% to $99.6 million mainly driven by worldwide investments to support the treatment of CF patients.

2018 Revenue Guidance

Vertex provided guidance for 2018 revenues, primarily driven by CF drugs sales. The company expects revenues to be in the range of $2.65 to $2.8 billion.

Guidance for combined adjusted research and development (R&D) and selling, general and administrative (SG&A) expenses in 2018 was maintained in the range of $1.50 to $1.55 billion.

Pipeline & Regulatory Updates

Vertex remained focused on developing its triple combination regimens for treatment of CF. The company has advanced two next-generation CFTR correctors – VX-659 and VX-445 – to phase III stage.

In February 2018, the FDA approved Symdeko for the treatment of CF patients aged 12 and older who have two copies of the F508del mutation or who have at least one mutation that is responsive to Symdeko. The drug is under review in the EU for a similar indication.

An ongoing phase III study is evaluating Symdeko in children aged 6 through 11 years with similar mutations.

A label expansion of Kalydeco to include patients aged 2 to 12 years is under review in the United States as well as Europe. A decision from the FDA is expected in August. Meanwhile, Vertex is also evaluating the drug in a phase II study for the treatment of infants below 12 months.

Similarly, Vertex is also seeking approval of Orkambi in patients aged two to five years. Regulatory applications are under review in the United States and Europe with a decision expected in August in the United States. A phase III study will be initiated in the second half of 2018 to evaluate the drug in patients aged between 12 months and less than 24 months.

Moreover, in January 2018, the European Commission approved a line extension for Orkambi to include use in children with CF aged between six and 11 years and who have two copies of the F508del mutation.

Apart from CF, Vertex is also developing treatments for sickle cell disease, thalassemia, influenza and pain management. During the first quarter, Vertex announced positive data from a Phase II proof-of-concept study evaluating its pain candidate, VX-150, for acute pain following bunionectomy surgery. Two other phase II studies are evaluating the candidate in neuropathic pain and pain from osteoarthritis of the knee. A phase III study on pimodivir in combination with standard-of-care treatment in patients with influenza is being conducted in collaboration with Janssen Pharmaceuticals, a subsidiary of Johnson & Johnson (NYSE:JNJ) .

Our Take

Vertex’s first-quarter results reflect strong performance of its CF products, which helped it to beat estimates on both counts.

Shares rose almost 2% in after-hours trading in response to the strong quarterly results. After a robust increase in share price last year, Vertex’s share price has increased 5.9% so far this year against a decrease of 10.1% for the industry.

Vertex’s CF pipeline is quite strong with a broad portfolio of next-generation CF correctors. The approval of Symdeko further strengthens the franchise. 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 expressing interest in CF.

Zacks Rank and Key Picks

Vertex carries a Zacks Rank #2 (Buy).

A couple of better top-ranked stocks from the biotech sector are Ligand Pharmaceuticals (NASDAQ:LGND) and Protagonist Therapeutics (NASDAQ:PTGX) . Both the companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ligand’s earnings per share estimates moved up from $4.15 to $4.43 for 2018 over the last 60 days. The company delivered a positive earnings surprise in three of the trailing four quarters, with an average beat of 24.88%. The company’s shares have rallied 13% year to date.

Protagonist Therapeutics’ loss estimates narrowed from $1.68 to 66 cents for 2018 and from $2.43 to $1.26 for 2019, over the last 60 days. The company delivered a positive earnings surprise in three of the trailing four quarters, with an average beat of 24.95%.

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