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Why Is Vertex (VRTX) Down 0.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for Vertex Pharmaceuticals (VRTX - Free Report) . Shares have lost about 0.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Vertex 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 drivers.

Vertex Q4 Earnings Beat on Solid CF Products Sales

Vertex reported fourth-quarter 2018 earnings per share of $1.30, which beat the Zacks Consensus Estimate of $1.05. Moreover, the figure came ahead of the year-ago earnings of 61 cents driven by higher revenues.

Vertex’s revenues logged $870.1 million in the fourth quarter, surpassing the Zacks Consensus Estimate of $822 million. The company’s sales surged 33.5% year over year, driven by strong CF product sales.

CF Franchise Sales Strong

Vertex’s fourth-quarter revenues consisted of sales from its CF products such as Kalydeco, Orkambi and Symdeko and collaborative and royalty revenues of $1.9 million.

Total CF product revenues were $868.2 million in the quarter, up 39.8% year over year, mainly driven by the rapid uptake of Symdeko in the United States.

Kalydeco sales rose 1.2% to $259 million due to increase in number of eligible patient population driven by continued label expansions.

Orkambi sales declined 13.7% year over year to $315 million due to a switch in patient base to Symdeko from Orkambi as patients are discontinuing Orkambi to start treatment with Symdeko.

Symdeko generated sales of $294 in the reported quarter, reflecting an increase of 15.3% sequentially as new patients initiated treatment. The company said that Symdeko demand came from all eligible groups of patients including the treatment-naïve F508del homozygous patients, those who have discontinued Orkambi treatment and also patients switching from Orkambi or Kalydeco to Symdeko.

Costs Rise

Adjusted research and development (R&D) expenses increased 10.4% to $275 million in the fourth quarter, primarily due to the advancement of the company's portfolio of triple combination regimens for CF.

Adjusted selling, general and administrative (SG&A) expenses escalated 17.9% to $125 million in the reported quarter due to investments made in supporting CF patients’ treatment, globally.

2018 Results

Adjusted earnings per share rose 109% to $4.08 per share in 2018. Total revenues rose 22.5% to $3.05 billion in 2018.

Full-year 2018 CF product revenues of $3.04 billion rose 40%.

2019 Revenue Guidance

Vertex provided 2019 outlook for CF products and combined operating costs.

The company expects total full-year revenues for CF products to be in the range of $3.45-$3.55 billion, indicating year-over-year growth of approximately 15%. The full-year impact of Symdeko’s launch, ex-US reimbursement agreements and label expansions of the CF drugs are expected to drive CF product revenue growth in 2019.

However, a channel inventory build of approximately $10 million that occurred at the end of 2018 is expected to hurt first-quarter revenues. First-quarter CF product revenues could therefore be sequentially lower than the fourth quarter of 2018 as potential growth from new patients is expected to be offset by channel inventory dynamics.

Combined adjusted research and development (R&D) plus selling, general and administrative (SG&A) expenses in 2019 are anticipated in the range of $1.65-$1.70 billion.

The increase in operating expense was due to estimated costs related to the development and the potential launch of triple combinations regimen and expansion of early-stage non-CF pipeline.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Vertex has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Vertex has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.




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