Biotech company, Vertex Pharmaceuticals VRTX, will be reporting first quarter 2015 earnings results on Apr 29, after the market closes.
Vertex’s track record has not been that great in 2014 with the company posting a wider-than-expected loss in three of the last four quarters and reporting in-line results in the remaining quarter. The average earnings surprise over the last four quarters is -11.97%.
Will Kalydeco Q1 Revenues Improve Sequentially?
Vertex, which had a strong presence in the hepatitis C virus (HCV) market earlier, is now entirely focused on the cystic fibrosis (CF) market. The company’s flagship product, Kalydeco, a cystic fibrosis transmembrane conductance regulatory (CFTR) potentiator, is approved for the treatment of CF in patients (of certain age groups) who have specific genetic mutations in their CFTR gene.
During the fourth quarter of 2014, Vertex had reported a 13.7% increase in Kalydeco sales from the year-ago period. Kalydeco revenues were, however, down slightly (1.9%) on a sequential basis reflecting the impact of inventory stocking in the third quarter 2014 as well as delayed access to patients in Australia (an issue that has since been resolved).
So, the first quarter of 2015 should see a sequential improvement in Kalydeco sales which are expected in the range of $560 to $580 million in 2015. There should be rapid uptake in Australia where more than 200 children and adults with CF are expected to be eligible for treatment.
Kalydeco first quarter 2015 sales should also benefit from the late 2014 FDA approval of Kalydeco for use in CF patients with the R117H mutation – patients have already started treatment.
Moreover, sales should pick up with the completion of reimbursement discussions for gating mutations in certain European countries.
Vertex expects the number of patients eligible for Kalydeco to increase from 3,100 to more than 3,700 by year end.
Meanwhile, Vertex has a very important regulatory event coming up with the FDA expected to decide on the approval status of the company’s Kalydeco-lumacaftor combination. An FDA advisory panel will be meeting on May 12 to discuss the new drug application for the combination.
R&D and SG&A expenses will go up as the company gears up for the potential launch of its Kalydeco-lumacaftor combination (FDA action date: Jul 5) and late-stage development programs.
What Our Model Indicates
Our proven model shows that Vertex is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Earnings Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +17.33%.. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.
The combination of Vertex’s Zacks Rank #3 and +17.33% ESP makes us confident in looking for a positive earnings beat on Apr 29.
Stocks That Warrant a Look
Here are a few health care stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.
Teva TEVA has an Earnings ESP of +0.79% and carries a Zacks Rank #3. It is scheduled to report results on Apr 30.
Exelixis, Inc. EXEL has an Earnings ESP of +4.35% and a Zacks Rank #2 (Buy). The company is also scheduled to release results on Apr 30.
The Earnings ESP for Actavis ACT is +1.04% and it carries a Zacks Rank #2. The company is scheduled to release results on May 11.
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