Vertex Pharmaceuticals Inc. (VRTX) posted a loss of 21 cents per share (including stock-based compensation expense) in the second quarter of 2013, well below the year-ago earnings of 32 cents per share. Second quarter 2013 loss was, however, in line with the Zacks Consensus Estimate.
Excluding the impact of stock-based compensation expense, second quarter 2013 loss was 3 cents per share, well below the year-ago earnings of 46 cents per share.
Revenues for the reported quarter fell 25.7% to $310.8 million. Revenues were however above the Zacks Consensus Estimate of $307 million.
The Quarter in Detail
Vertex Pharma’s second quarter revenues consisted of revenues earned from the sale of Incivek ($155.8 million), Kalydeco ($99.0 million), royalty revenue ($49.1 million) and collaborative revenues ($6.8 million).
Incivek (hepatitis C virus) revenues declined 52.5% year over year and 24.2% on a sequential basis. Revenues continued to be affected by a fewer number of new patients seeking treatment. Management expects Incivek revenues to continue to decline throughout the rest of the year.
Royalty revenues for the quarter consisted of revenues received from partner Johnson & Johnson (JNJ) on Incivo (ex-U.S. trade name of Incivek) sales in international markets. Incivo’s performance was strong primarily in Latin America.
Vertex Pharma has exclusive U.S. commercialization rights to Incivek and has agreements with Johnson & Johnson and Mitsubishi Tanabe Pharma for the commercialization of the drug outside the U.S. While Johnson & Johnson is responsible for the commercialization of Incivek outside North America and the Far East, Mitsubishi Pharma markets it in certain areas of the Far East including Japan (brand name: Telavic).
Kalydeco (cystic fibrosis) continued to perform well with Vertex Pharma reporting rapid uptake among eligible patients in the U.S. While U.S. sales were $55 million, ex-U.S. sales were about $44 million in the second quarter of 2013. Ex-U.S. sales should continue to improve with Vertex Pharma achieving reimbursement approval in major European countries.
We note that Kalydeco was approved in Australia earlier this month, which is apparently the third largest market for Kalydeco after the U.S. and England.
Research and development (R&D) expenses for the quarter increased 10.4% to $191.2 million, mainly due to continued investment in development activities.
Second quarter 2013 selling, general and administrative (SG&A) expenses declined 17.3% to $169.3 million.
Meanwhile, the U.S. Food and Drug Administration (FDA) recently placed a partial hold on Vertex Pharma’s phase II study on its hepatitis C virus (HCV) candidate, VX-135. The FDA has asked Vertex Pharma to submit additional clinical, preclinical and pharmacokinetic data in the fourth quarter this year. The company mentioned in its second quarter conference call that it will provide the required complete data set by year end.
Revenues Outlook Raised
Apart from releasing the second quarter 2013 financial results, Vertex Pharma also raised its 2013 total revenues and Kalydeco outlook. Total revenues for 2013 are now expected in the range of $1.10 billion to $1.2 billion (previous range: $1.10 to $1.25 billion). Total revenues for 2013 as per the Zacks Consensus Estimate, of $1.2 billion are at the higher end of the company’s guidance.
Vertex Pharma also raised its Kalydeco revenues outlook to $345−$360 million from the previous range of $300−$340 million.
The company however maintained its guidance for operating expenses (excluding stock-based compensation expense and Alios expenses) in the range of $1.09 billion to $1.15 billion. This includes R&D expenses of $750 million to $790 million and SG&A spend of $340 million to $360 million.
This implies higher R&D expenses and lower SG&A expenses in 2013 compared to 2012.
Our View
Vertex Pharma’s second quarter results were encouraging. However, we expect Incivek revenues to continue to be affected by warehousing and a slowdown in new patient additions. Meanwhile, Kalydeco revenues should pick up with additional launches ongoing in the EU.
Vertex Pharma is also working on expanding Kalydeco’s label and strengthening its hepatitis C virus (HCV) portfolio. The company has a series of pipeline related events lined up in the coming quarters and we expect investor focus to remain on its pipeline progress.
Vertex Pharma presently carries a Zacks Rank #2 (Buy). Other companies that currently look well-positioned include Medivation, Inc. (MDVN) and Jazz Pharmaceuticals (JAZZ). Both are Zacks Rank #1 (Strong Buy) stocks.
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