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Is a Beat in Store for Vertex (VRTX) This Earnings Season?

Zacks Equity Research

We expect Vertex Pharmaceuticals, Inc. VRTX to beat on earnings when it reports fourth-quarter 2018 and full-year results on Feb 5, 2019, after the market closes.

Shares of Vertex have increased 11.6% in the past year against the industry’s 22.2% decrease.

The company’s track record has been impressive so far, having delivered a positive surprise in each of the trailing four reported quarters, the average being 18.94%. In the last reported quarter, Vertex came up with an earnings surprise of 9%.

Let’s see, how things are shaping up for this quarter to be reported.

Factors at Play

Vertex’s cystic fibrosis (CF) drug portfolio has been performing well. Sales growth in the third quarter was driven by a rapid uptake of the company’s newest CF medicine, Symdeko, a combination of tezacaftor and ivacaftor and strong demand for the same. On third-quarter call, management had stated that Symdeko revenues will see a steady rise in the fourth quarter as additional patients start receiving treatment. However, management then did not anticipate a significant Symdeko revenue recognition in the ex U.S. markets for 2018.

Symdeko (marketed under the trade name of Symkevi) was approved in the EU last November and holds promise to reap sales benefit in the fourth quarter.

Meanwhile, continued label expansions and a resultant increase in patient population consistently drive sales for Vertex’s first CF medicine, Kalydeco (ivacaftor).

The drug was approved by the FDA and the European Commission for use in children aged 12 months to two years with at least one of specified nine mutations in the CFTR gene last August and November, respectively. This nod for an expanded patient population can boost the medicine’s sales in Q4.

Vertex’s another CF medicine — Orkambi — is approved in the United States and Europe for treating CF in patients aged six years or above, having two copies of the F508del mutation.

Last week, the European Commission (EC) granted an approval to a regulatory application seeking Orkambi’s label expansion for its use in 2-5 year-old children suffering CF, who have two copies of the F508del mutation. Orkambi was approved by the FDA for the same patient population last August.

However, Orkambi sales have been declining of late due to a shift in patient base to Symdeko from Orkambi and patients discontinuing Orkambi to undergo treatment with Symdeko. Orkambi revenues are projected to be hurt further in the future quarters.

Vertex is evaluating two next-generation CFTR correctors (VX-659 and VX-445) in phase III evaluations as part of a triple combination with tezacaftor and ivacaftor. During the reported quarter, two phase III studies evaluating VX-659 in combination with tezacaftor and Kalydeco met the primary endpoint of improvement in lung function amid patients afflicted with CF.

Enrollment in the VX-445 phase III studies is now complete with the top-line data predicted to be presented during the first quarter of 2019. A regulatory submission in the United States for one of the two regimes is planned for mid-2019. An update is awaited during the upcoming investor call.

If the triple-combo therapies are successful, Vertex can then address a significantly larger CF patient population — almost 90% of patients with CF — in the future.

Notably, Vertex has a partnership with CRISPR Therapeutics CRSP to evaluate an investigational gene editing treatment, CTX001, for two devastating diseases, namely sickle cell disease and thalassemia. Earlier this month, the FDA granted a Fast Track designation to CTX001 for the treatment of sickle cell disease, a severe hereditary form of anaemia. Also, a phase I/II study of CTX001 for adult transfusion-dependent b-thalassemia is currently enrolling patients in Europe.

Last December, Vertex announced positive results from a phase II study, evaluating its NaV1.8 inhibitor, VX-150, in patients suffering pain caused by small fiber neuropathy. The FDA granted a Breakthrough Therapy designation to VX-150 for treating moderate-to-severe acute pain.

Why a Likely Positive Surprise?

Our proven model indicates that Vertex is likely to beat on earnings this to-be-reported quarter. This is because 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.

Earnings ESP: Vertex has an Earnings ESP of +4.52%, representing the percentage difference between the Most Accurate Estimate ($1.10) and the Zacks Consensus Estimate ($1.05). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Vertex has a Zacks Rank #3, which increases the predictive power of ESP. Thus, the combination of a positive ESP and a favorable Zacks Rank makes us reasonably confident about a likely earnings surprise.

Conversely, we caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Vertex Pharmaceuticals Incorporated Price and EPS Surprise

Vertex Pharmaceuticals Incorporated Price and EPS Surprise | Vertex Pharmaceuticals Incorporated Quote

Other Stocks That Warrant a Look

Here are two other health care stocks worth considering as per our model, these too have the right mix of elements to beat estimates this reporting cycle.

ACADIA Pharmaceuticals Inc. ACAD has an Earnings ESP of +3.89% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Celgene Corporation CELG has a Zacks Rank of 1 and an Earnings ESP of +2.31%. The company is scheduled to release earnings results on Jan 31.

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