Vertex Posts Wider Loss

Vertex Pharmaceuticals (VRTX - Snapshot Report) posted a loss of 83 cents per share in the third quarter, 3 cents wider than the Zacks Consensus Estimate of a loss of 80 cents. The company posted a loss of 92 cents per share in the year ago period. The wider than expected loss was mainly due to a significant increase in costs and lower revenues.

Revenues declined to $24.9 million in the reported quarter from $31.6 million in the year ago period. Revenues consist of royalty revenues and collaborative and other research and development revenues. Lower revenues were primarily due to a decrease in collaborative revenues.

Expenses increased mainly due to the increased size of the company’s workforce, increased spending on late-stage clinical programs and increased stock-based compensation expenses. Research and development (R&D) expenses increased to $132.1 million, up from $131.7 million in the year-ago period, mainly due to investments supporting the company’s hepatitis C virus (HCV) and cystic fibrosis development programs and new product development.

Sales, general and administrative (SG&A) expenses for the reported quarter were $36.6 million, compared to $25.4 million for the third quarter of 2008. The significant increase in SG&A spend reflects the company’s investments in support of the potential launch of telaprevir.

The company reiterated its guidance for 2009 year-end cash, cash equivalents and marketable securities of approximately $800 million. Vertex also maintained its guidance for 2009 loss of more than $535 million.

We expect investor focus to remain on the presentation of data on lead pipeline candidate, telaprevir, at the upcoming meeting of the American Association for the Study of Liver Diseases (AASLD). Telaprevir, an oral protease inhibitor, is being developed in collaboration with Johnson & Johnson (JNJ - Analyst Report) for the treatment of hepatitis C virus (HCV) infection. The company announced that it is on track to file for approval of telaprevir in the second half of 2010. Vertex is also looking to commence a combination study with telaprevir and another HCV candidate, VX-222, by year end.

Although we believe that telaprevir has blockbuster sales potential, we note that any delay in the development and approval of telaprevir would weigh heavily on the stock. Moreover, the HCV market is highly competitive with several companies like Schering-Plough (SGP), Merck (MRK - Analyst Report), and Boehringer Ingelheim working on the development of treatments for HCV. We currently have a neutral recommendation on Vertex.

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