Vertex (VRTX) to Report Q4 Earnings: What’s in the Cards?

Vertex Pharmaceuticals, Inc. VRTX is scheduled to report its fourth-quarter 2017 results on Jan 31, after the market closes.

Vertex’s shares have soared 100.5% in the past year while the industry has recorded an increase of 11.8%.

Vertex’s track record has been impressive so far. The company delivered positive earnings surprises in each of the last four quarters. The average positive earnings surprise for the last four quarters is 32.67%. In the last reported quarter, Vertex came up with a positive surprise of 43.24%.

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

Factors at Play

Vertex’s cystic fibrosis ("CF") drugs — Kalydeco & Orkambi — performed consistently in the first three quarters of 2017. We expect this positive trend to be reflected in the results of the soon-to-be reported quarter.

Approval of two line extensions for Kalydeco in the United States has increased the eligible patient population for the drug. In May 2017, Kalydeco was approved for use in patients 2 and older who have one of 23 residual function mutations in the CFTR gene. This was followed by approval in people who have mutations responsive to Kalydeco, including one of five "splice" mutations, in August 2017. The expansion of patient population will certainly boost sales of the drug. The Zacks Consensus Estimate for Kalydeco for the fourth quarter is $224 million. For 2017, Vertex expects Kalydeco revenues to be in the range of $810-$830 million.

In December 2017, Vertex announced that Kalydeco met endpoints in a phase III study in patients aged one to two years who have one of 10 mutations in the CFTR gene. Regulatory applications for label expansion are planned to be filed in the first quarter of 2018. We also note that regulatory applications for another label expansion of Kalydeco are under review. The applications seek approval of Kalydeco+tezacaftor in patients aged 12 and older who have two copies of the F508del mutation or one F508del mutation and one residual function mutation. We expect Vertex to provide updateson the earnings call.

Although, the company has not been so successful with agreements in Europe related to Orkambi, the drug has done well so far this year. In June and July, Vertex struck re-imbursement agreements in Ireland and Italy, respectively. The consensus estimate for Orkambi for the fourth quarter is $361 million.

In January 2018, Vertex announced that an extension of the marketing application for Orkambi was approved in Europe. With the approval, Orkambi’s marketing label in EU will now include use in children with CF aged between six and 11 years and have two copies of the F508del mutation, expanding patient population by about 3,400.

Investor focus on the call will be on these triple combination CF regimens, which are crucial for long-term growth of Vertex.

However, operating expenses are likely to be on the higher side with Vertex expanding its pipeline and conducting multiple studies to evaluate candidates.

What Our Model Indicates

Our proven model does not conclusively show that Vertex is likely to beat on earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate (earnings of 55 cents) and the Zacks Consensus Estimate (earnings of 58 cents), stands at -4%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Vertex’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some biotech 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.

Alexion Pharmaceuticals, Inc. ALXN is scheduled to release its results on Feb 8. The company has an Earnings ESP of +3.45% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Anthera Pharmaceuticals, Inc. ANTH is expected to release its results on Feb26. The company has an Earnings ESP of +20.47% and a Zacks Rank #2.

Exelixis, Inc. EXEL, which is expected to release results on Feb 26, has an Earnings ESP of +7.23% and a Zacks Rank #1.

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