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Vertex (VRTX) Down 2.4% Since Last Earnings Report: Can It Rebound?

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Zacks Equity Research
·4 min read
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It has been about a month since the last earnings report for Vertex Pharmaceuticals (VRTX). Shares have lost about 2.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Vertex due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Vertex Q4 Earnings Miss, Revenues Beat Estimates

Vertex reported fourth-quarter 2020 adjusted earnings per share of $2.51, which missed the Zacks Consensus Estimate of $2.65. However, earnings rose 48% year over year. Strong cystic fibrosis product revenues led to higher earnings.

Revenues of $1.63 billion surpassed the Zacks Consensus Estimate of $1.58 billion, comprising almost fully of CF product revenues. Total revenues rose 15% year over year.

The company recorded $0.9 million of collaborative revenues during the reported quarter. Product revenues rose 29% in the quarter driven by the rapid uptake of Trikafta in the United States as well in Europe. Moreover, higher international revenues due to the reimbursement approvals received for its CF drugs in some international markets also drove product revenues.

The fourth-quarter revenues included $1.21 billion in the United States and $421 million in revenues outside the United States.

CF Franchise Sales Strong

Trikafta generated sales worth $1.09 million, compared with $960 million in the third quarter of 2020. Trikafta was approved by the brand name of Kaftrio in Europe in August and saw substantial uptake across all European countries where the company secured reimbursement agreements, most importantly the large markets of Germany and England.

2020 was the first full year after Trikafta’s approval in the United States. By end of 2020, the vast majority of eligible patients, 12 years and older in the United States, had initiated treatment with the medicine. The company said that the compliance and persistence rates seen to date with the launch are high. These rates are expected to normalize in 2021. Majority of Trikafta’s growth in 2021 in the United States is expected to come from approvals in rare mutations and younger age groups.

Symdeko/Symkevi registered sales of $128 million in the quarter, down 61.4% year over year.

Kalydeco recorded sales of $193 million in the quarter, reflecting a 18.2% decrease year over year. Orkambi generated sales of $215 million in the reported quarter, down 20.3% year over year. Sales of Kalydeco, Symdeko/ Symkevi and Orkambi were hurt by patient switching to Trikafta.

Costs Rise

Adjusted operating income rose 50% to $887 million in the fourth quarter driven by higher revenues.

Adjusted research and development (R&D) expenses rose 8% to $364 million in the quarter due to expansion of CF and non-CF pipeline.

Adjusted selling, general and administrative (SG&A) expenses increased 10.1% to $175 million in the reported quarter due to investments made to support the expansion of the CF business.

Full-Year Results

For 2020, Vertex generated revenues of $6.2 billion, reflecting 49% growth year over year.

For the same period, the company reported earnings of $10.32 per share, up 94% year over year.

2021 Guidance

The company expects total revenues from CF products in the range of $6.7-$6.9 billion in 2021. The guidance, at the midpoint, reflects approximately 10% growth over 2020.

Combined adjusted R&D and SG&A expense for 2021 is expected in the band of $2.25 to $2.30 billion. Adjusted tax rate is expected in the range of 21.

On the conference call, the company said that with plenty of cash on its balance sheet, it was interested in investing in external innovation, including in mid-to-late stage assets that fit with its R&D strategy.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

Currently, Vertex has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Vertex has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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