Vertex (VRTX) Q1 Earnings Top, CF Products Sales Strong – Zacks.com

Vertex Pharmaceuticals Incorporated (VRTX - Free Report) reported first-quarter 2017 earnings per share of 13 cents (including the impact of stock-based compensation expense), which beat the Zacks Consensus Estimate of 4 cents. Notably, the company had posted a loss of 13 cents in the year-ago quarter. Strong product revenues and cost control led to higher profits in the quarter.

Excluding stock-based compensation expense, first-quarter adjusted earnings were 41 cents per share compared with the year-ago figure of 9 cents.

Including upfront revenues of $230 million received from German phama company, Merck KGaA for the out-licensing of four oncology programs; restructuring costs and other adjustments, reported earnings were 99 cents per share.

Vertex reported revenues of $714.7 million in the first quarter, up 79.5% year over year gaining from the upfront payment from Merck KGaA. Excluding the upfront revenues, adjusted total revenue was $482.3 million, which surpassed the Zacks Consensus Estimate of $459.1 million by 5.3%.

This year so far, Vertexs shares have risen 61.5%, outperforming an increase of 4.8% for the Zacks classified Large-Cap Pharma industry.

CF Franchise Sales Rise

Vertexs first-quarter revenues consisted of sales from cystic fibrosis (CF) products Kalydeco and Orkambi, collaborative ($232.6 million) and royalty revenues ($1.5 million). CF product revenues were $481 million in the first quarter, up 22% year over year.

The company reported a 9% increase in Kalydeco sales to $186 million. Kalydeco sales gained from one-time adjustments mainly related to European reimbursement agreements.

Orkambi (lumacaftor/ivacaftor) delivered sales of $295.0 million, up 32% year over year. On a sequential basis, Orkambi sales rose around 7% in the first quarter supported by rapid uptake in the pediatric indication for which approval was received in Sep 2016.

Cost Discussion

Adjusted (including stock-based compensation expenses) research and development expenses increased 5.9% to $271.4 million in the first quarter due to higher costs related to progress on the CF pipeline. Adjusted (including stock-based compensation expenses) selling, general and administrative (SG&A) expenses increased 5.5% to $110.5 million due to increased investment to support the global launch of Orkambi.

Maintains 2017 Guidance

Vertex maintained its 2017 guidance for Orkambi revenues, which was provided in early Jan 2017, while raising the same for Kalydeco. Orkambi revenues are expected in the range of $1.1$1.3 billion while Kalydeco revenues are estimated in the range of $710 to $730 million, higher than $690$710 million guided previously. Management said the uptick in guidance was the result of a one-time gain received this quarter as well as strong demand trends for the product.

Management continues to believe that Orkambi sales growth will be dependent on reimbursement discussions in Europe in 2017. Vertex has faced many challenges with respect to commercialization of Orkambi in ex-U.S. markets due to re-imbursement hurdles, discontinuations by patients who had previously initiated treatment with Orkambi and a slower-than-anticipated launch in Germany.

Combined adjusted research and development (R&D) and selling, general and administrative (SG&A) expenses in 2017 are anticipated in the range of $1.25$1.30 billion. Costs are expected to be higher than 2016 levels due to increased costs related to CF pipeline development and increased commercial investment to support Orkambi and Kalydeco.

Our Take

Vertexs first-quarter results were strong with the company beating expectations for both earnings and revenues as sales of its CF drugs rose.

Meanwhile, Vertexs CF pipeline is quite strong with a broad portfolio of next-generation CF correctors. Investor focus will now be on the triple combination CF regimens, which are crucial for long-term growth at Vertex. Data from three triple combination regimes in CF patients are expected in the second half of this year. We remind investors that last month, Vertex announced positive data from two phase III studies evaluating Kalydeco in combination with VX-661 (tezacaftor) in patients suffering from CF aged 12 years and above with two copies of the F508del mutation. Both studies EVOLVE and EXPAND met their primary endpoints and demonstrated statistically significant improvements in lung function in patients with CF.Based on positive outcome from the studies, the company is planning to submit regulatory applications in the U.S. and EU in the third quarter of 2017.

Meanwhile, the company is also looking to buy CF candidates, which can be combined with its tezacaftor (VX-661) and Kalydeco to create triple combinations.

Just last month, Vertex announced a definitive deal to buy the worldwide development and commercialization rights of Concert Pharmaceuticals (CNCE - Free Report) CF pipeline candidate, CTP-656 for an upfront payment of $160 million in cash.

Vertex plans to develop CTP-656 for potential use in future once-daily regimens in combination with its other pipeline drugs to treat the underlying cause of CF.

Undoubtedly, the CF market has been attracting the interest of several companies like AbbVie, Pfizer, Inc. (PFE - Free Report) and Sanofi (SNY - Free Report) . These companies are pursuing the development of CFTR potentiators, CFTR correctors and candidates with other mechanisms of action that can address the underlying cause of CF.

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Vertex (VRTX) Q1 Earnings Top, CF Products Sales Strong - Zacks.com