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Incivek Catalyst at Play for Vertex

Zacks Equity Research

Vertex Pharmaceuticals Inc. (NasdaqGS:VRTX - News) posted fourth quarter 2011 earnings (including stock-based compensation expense) of 72 cents per share, missing the Zacks Consensus Estimate of 75 cents. However, fourth quarter earnings represented a huge turn around from the year-ago loss of 85 cents.

The 2011 loss per share of 49 cents missed the Zacks Consensus Earnings Estimate of 10 cents, but was narrower than the year-ago loss of $3.48 per share. Excluding the impact of stock-based compensation expense, the company reported 2011 earnings of 8 cents per share, well above the year ago loss of $3.02 per share.

Increased revenues thanks to the strong performance of hepatitis C virus (:HCV) treatment, Incivek (telaprevir), led to the improvement in earnings.

Revenues for the reported quarter came in at $563.3 million, significantly above the year-ago figure of $65.5 million. Annual revenues totaled $1.4 billion, compared with the year-ago figure of $143.4 million. Both figures comfortably beat the Zacks Consensus Estimate of $525 million and $1.3 billion, respectively.

Vertex Pharma recorded such unprecedented growth in revenues riding on strong sales of Incivek, which was launched in the second quarter of 2011.


Vertex Pharma’s fourth quarter revenues consisted of revenue earned from the sale of Incivek ($456.8 million), royalty revenue (up 202.4% to $25.4 million) and collaborative revenue (up 42.2% to $81.2 million).

Collaborative revenue for the quarter included $65 million received from partner Mitsubishi Tanabeon the approval of Telavic (telaprevir) in Japan.

Vertex Pharma has exclusive US commercialization rights to Incivek and has joined hands with Johnson & Johnson (NYSE:JNJ - News) and Mitsubishi Tanabe Pharma for the commercialization of the drug outside the US. 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.

While Incivek gained European approval under the trade name Incivo during the third quarter 2011, the product is marketed in Japan as Telavic.

Vertex Pharma also receives royalties from GlaxoSmithKline (NYSE:GSK - News) on sales of Lexiva, a HIV protease inhibitor.

Other Details

Research and development (R&D) expenses for the quarter increased 9.3% to $184.6 million, mainly due to continued investment in the pipeline.

Fourth quarter selling, general and administrative (SG&A) expenses shot up 93.0% to $120.6 million, as a result of increased overheads related to the launch of Incivek and expansion activities related to the company's commercial organization to support both Incivek and Kalydeco.


Vertex Pharma expects Incivek revenues in the range of $1.5 - $1.7 billion in 2012. Further, the company expects operating expenses (excluding stock-based compensation expense and expenses related to the agreement with Alios BioPharma Inc.) to amount $1.03 - $1.13 billion.

While R&D expenses are forecasted to be between $690 and $760 million, SG&A expenses are expected in the range of $340 - $370 million.

Our View

We currently have a Neutral recommendation on Vertex Pharma. The stock carries a Zacks #3 Rank (Hold rating) in the short-run. We are pleased with the company’s performance and believe that with the worldwide availability of Incivek, Vertex Pharma will continue to post strong results.

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