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Is a Beat in Store for Vertex (VRTX) This Earnings Season?

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We expect Vertex Pharmaceuticals, Inc. (VRTX - Free Report) to beat on earnings when it reports third-quarter 2018 results on Oct 24, after the market closes.

Shares of Vertex have increased 17.3% so far this year against the industry’s14.4% decrease.


 

The company’s track record has been impressive so far. It delivered a positive surprise in each of the last four quarters. The average trailing four-quarter beat is 27.50%. In the second quarter, Vertex came up with an earnings surprise of 30.56%.

Let’s see, how things are shaping up for this quarter.

Factors at Play

Vertex’s cystic fibrosis (CF) drug portfolio has been performing well so far in 2018 with year-over-year sales improvement registered in the second quarter. This upside was mainly driven by the rapid uptake and strong demand for the company’s newest CF medicine, Symdeko, a combination of tezacaftor and ivacaftor. Symdeko is off to a flying start in the United States and is expected to be a significant contributor to sales during the third quarter. On second-quarter conference call, management stated that Symdeko gained a broad reimbursement and coverage from private and public payers.

The company pointed out that demand for Symdeko has been particularly strong among the treatment-naïve F508del homozygous patients as well as those who have discontinued taking Orkambi medication. Management expects Symdeko revenues to consistently rise as additional patients start receiving the treatment.

Approval in the EU for Symdeko is awaited in the second half of 2018. However, even if approved in the EU during the second half, management does not anticipate to recognize significant Symdeko revenues outside the United States in 2018.

Meanwhile, continued label expansions and a resultant increase in patient population continues to drive sales for Vertex’s first CF medicine, Kalydeco. In August 2018, Vertex gained an FDA approval to expand the label of Kalydeco for its use among children aged 12 months to two years. This can further boost additional sales. A similar application is under review in the EU.

In August, Vertex’s another CF medicine — Orkambi was approved by the FDA to treat CF in 2-5 yearold children. A similar application is under assessment in the EU. Meanwhile, a phase III study of Orkambi on children with CF aged 12 months and above is planned to commence in the second half of 2018. However, sales of Orkambi declined in the second quarter due to a switch in patient base to Symdeko.

During second-quarter conference call, Vertex suggested that Orkambi revenues might be persistently hurt by patient switch to Symdeko. This certainly does not bode well for Orkambi’s sales, which are anticipated to decline again in the third quarter.

Vertex is evaluating two next-generation CFTR correctors (VX-659 and VX-445) in phase III evaluations as part of a triple combination with tezacaftor and ivacaftor. The Enrollment in the VX-659 phase III analyses were completed in third-quarter 2018 with top-line data expected to be presented in the fourth quarter.  Enrollment in the VX-445 phase III programs is estimated to be wrapped up in the current quarter with top-line data likely to be presented in the first quarter of 2019. A regulatory submission for either of the two regimes is planned for mid-2019. An update is expected at the investor call.

If the triple-combo therapies are successful, Vertex can address a significantly larger CF patient population — almost 90% of patients with CF — in the future.

Vertex formed a partnership with CRISPR Therapeutics (CRSP - Free Report) to evaluate an investigational gene editing treatment, CTX001, in two devastating diseases, namely sickle cell disease and thalassemia. A phase I/II study of CTX001 for addressing adult transfusion-dependent b-thalassemia is currently enrolling patients in Europe.

Earlier this month, Vertex and CRISPR Therapeutics announced that the FDA has lifted the clinical hold, which it had placed on the companies’ investigational new drug application to start a phase I/II study on CTX001 in sickle cell disease in the United States. Accordingly, the study is likely to begin by the end of 2018. An update on the same is awaited on third-quarter conference call.

Why a Likely Positive Surprise?

Our proven model indicates that Vertex is likely to beat on earnings this quarter to be reported. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Vertex has an Earnings ESP of +3.01%, representing the percentage difference between the Most Accurate Estimate ($1.03) and the Zacks Consensus Estimate ($1). A positive ESP indicates a likely earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Vertex has a Zacks Rank #3, which increases the predictive power of ESP. Such an ideal combination makes us reasonably confident of an earnings beat for the company.

Conversely, we caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

Here are some other biotech stocks that you may also want to consider as our model shows that these too have the right combination of elements to beat estimates this reporting cycle.

Amgen Inc. (AMGN - Free Report) is scheduled to release earnings results on Oct 30. The company has an Earnings ESP of +0.56% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Curis, Inc. is expected to report financial numbers on Nov 6. The company has an Earnings ESP of +17.02% and a Zacks Rank of 1.

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