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Vertex Pharmaceuticals (VRTX) Down 5.2% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Vertex Pharmaceuticals Incorporated (VRTX - Free Report) . Shares have lost about 5.2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Vertex Q2 Earnings and Sales Top on Strong CF Sales

Vertex reported second-quarter 2017 adjusted earnings per share of 39 cents which beat the Zacks Consensus Estimate of 35 cents. Meanwhile, earnings rose 63% year over year.  Strong product revenues led to higher profits in the quarter.

Vertex reported revenues of $544.1 million in the second quarter, up 26.1% year over year driven by strong product revenues. Revenues also beat the Zacks Consensus Estimate of $487.9 million by 11.5%.

CF Franchise Sales Strong

Vertex’s second-quarter revenues consisted of sales from cystic fibrosis (CF) products — Kalydeco and Orkambi, collaborative ($27.3 million) and royalty revenues ($2.9 million). CF product revenues were $514 million in the second quarter, up 21% year over year.

Kalydeco sales rose 5% to $190 million, gaining from inventory stocking of $5 million ahead of the Jul 4 holiday.

Orkambi (lumacaftor/ivacaftor) delivered sales of $324.0 million, up 32% year over year. On a sequential basis, Orkambi sales rose almost 10% in the second quarter, supported by continued uptake globally and further uptake in the pediatric indication for which approval was received in Sep 2016. Meanwhile, pharmacy orders of approximately $10 million ahead of the Jul 4 holiday also benefited sales in the second quarter. This inventory stocking and a seasonal summer slowdown may hurt revenues in the third quarter.

Costs Rise

Adjusted (including stock-based compensation expenses) research and development expenses increased 10% to $284.3 million in the second quarter due to higher costs related to development of triple combination CF regimens. Adjusted (including stock-based compensation expenses) selling, general and administrative (SG&A) expenses increased 10.7% to $121.7 million due to increased investment to support the global launch of Orkambi.

Maintains 2017 Guidance

Vertex maintained its 2017 guidance for Orkambi and Kalydeco sales but raised its guidance for combined operating costs.

Orkambi revenues are expected in the range of $1.1–$1.3 billion while Kalydeco revenues are estimated in the range of $740 million - $770 million. Total CF product revenues are expected in the range of $1.84 billion to $2.07 billion in 2017.

Management continues to believe that Orkambi 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. Meanwhile, reimbursement discussions are ongoing with other countries, including France, the Netherlands and the United Kingdom. Specifically, the company has mentioned that if it gains reimbursement in France this year, it will contribute significantly to revenue growth.

Combined adjusted research and development (R&D) and selling, general and administrative (SG&A) expenses in 2017 are anticipated in the range of $1.33 to $1.36 billion, higher than $1.25–$1.30 billion expected previously.

Costs are expected to be higher due to accelerated development of the triple combination CF pipeline and investment to develop CTP-656.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimate have trended upward during the past month. There has been five revisions higher for the current quarter.

Vertex Pharmaceuticals Incorporated Price and Consensus

 

VGM Scores

At this time, the stock has a great Growth Score of A, though it is lagging a lot on the momentum front with an F. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.




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