Vertex Pharmaceuticals Inc.’s (VRTX) fourth-quarter 2014 loss came in at 73 cents per share (including stock-based compensation expense), much wider than the year-ago loss of 66 cents and the Zacks Consensus Estimate of a loss of 61 cents.
Excluding the impact of stock-based compensation expense, fourth quarter 2014 loss was 55 cents per share as against the year-ago loss of 56 cents per share.
Vertex Pharma reported revenues of $140.6 million in the fourth quarter of 2014 (excluding hepatitis C virus/HCV revenues and royalties). Revenues were above the Zacks Consensus Estimate of $138 million but below the year-ago revenues of $168.8 million.
Full year loss was $2.93 per share, well above the year-ago loss of $1.47 per share. Meanwhile, revenues declined 47.9% to $535.8 million.
Kalydeco Driving Revenues
Vertex’s fourth-quarter revenues consisted of sales from cystic fibrosis (CF) product Kalydeco ($124.4 million) and royalties and collaborative revenues ($16.2 million).
Vertex reported a 13.7% increase in Kalydeco sales in the fourth quarter of 2014 from the year-ago period. Sales benefited from use for additional mutations in the U.S. and increased revenues from ex-U.S. markets. Kalydeco revenues were, however, down slightly (1.9%) on a sequential basis. The sequential decline was expected as there was some inventory stocking in the third quarter as well as delayed access to patients in Australia (an issue that has since been resolved).
Adjusted (including stock-based compensation expense) research and development (R&D) expenses decreased 10.6% to $201.4 million. Fourth-quarter 2014 adjusted (including stock-based compensation expense) selling, general and administrative (SG&A) expenses increased 7.6% to $77 million.
Affirms 2015 Outlook
Vertex confirmed its guidance for 2015. The company expects Kalydeco revenues of $560 to $580 million. This takes into account the assumption that eligible patients in Australia will use Kalydeco now that reimbursement discussions have been completed. There should be rapid uptake in Australia in the first half of 2015 where more than 200 children and adults with CF are expected to be eligible for treatment.
Moreover, the guidance includes the impact of the late 2014 FDA approval of Kalydeco for use in CF patients with the R117H mutation – patients have already started treatment and there should be continued uptake in the coming months. The guidance also assumes the completion of reimbursement discussions for gating mutations in certain European countries. Vertex has also taken into consideration the use of Kalydeco in children with CF ages 2 to 5 with the G551D or other gating mutations in the U.S., assuming potential approval by Mar 17, 2015. Approval for this indication should drive Kalydeco growth in the second half of the year.
Vertex expects the number of patients eligible for Kalydeco to increase from the current level of 3,100 to more than 3,700 by year end.
Operating expenses will go up as the company gears up for the potential launch of its Kalydeco-lumacaftor combination (FDA action date: Jul 5; EU approval could come in the fourth quarter) and a phase III program evaluating VX-661+Kalydeco. The company expects operating expenses (excluding stock-based compensation expense) in the range of $1.05 billion to $1.10 billion (R&D: $770 – $800 million and SG&A: $280 – $300 million).
Our Take
Vertex’s fourth quarter results were mixed with the company posting a wider-than-expected loss but beating top-line estimates. CF drug, Kalydeco, is doing very well and Vertex is working on expanding the product’s label. Approval for the Kalydeco – lumacaftor combination would provide access to a huge number of eligible patients. However, we remain concerned about Vertex’s dependence on just the CF franchise for growth.
Vertex is a Zacks Rank #5 (Strong Sell) stock. Some better-ranked biotech stocks include Alexion Pharmaceuticals, Inc. (ALXN), Celgene Corp. (CELG) and Biogen Idec (BIIB). While Alexion and Celgene are Zacks Rank #1 (Strong Buy) stocks, Biogen is a Zacks Rank #2 (Buy) stock.
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