Why Is Vertex (VRTX) Down 2.7% Since Last Earnings Report?

It has been about a month since the last earnings report for Vertex Pharmaceuticals (VRTX). Shares have lost about 2.7% in that time frame, outperforming 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 drivers.

Vertex Q4 Earnings & Sales Beat

Vertex’s fourth-quarter 2019 earnings per share of $1.70 beat the Zacks Consensus Estimate of $1.14. Moreover, earnings rose 31% year over year driven by higher product sales, which made up for higher costs and taxes.

Revenues of $1.4 billion rose 63% year over year and also surpassed the Zacks Consensus Estimate of $1 billion. Total revenues included $155.8 million of sales from Orkambi distributed through the early access program in France during the fourth quarter. Excluding this impact, the company’s sales surged 45% year over year to $1.26 billion, driven by the early launch of Trikafta in the United States and the global uptake of Symdeko/Symkevi.

CF Franchise Sales Strong

Vertex’s fourth-quarter revenues comprised only CF product revenues. The company did not record any collaborative and royalty revenues during the reported quarter.

Newly launched Trikafta was off to a strong start and generated sales of $420 million. Fourth-quarter revenues included launch-related stocking of approximately $100 million, which is not expected to repeat in 2020.

Symdeko/Symkevi registered sales of $322 million in the fourth quarter, reflecting a rise of 12.9% year over year. Kalydeco recorded sales of $236 million in the quarter, down 8.8% year over year. Orkambi generated sales of $270 million in the reported quarter, down 14.3% year over year. Sales of Kalydeco and Orkambi may have been hurt by patient switching to Trikafta.

On fourth-quarter conference call, management stated that a large proportion of patients currently on Kalydeco, Orkambi or Symdeko who are eligible for Trikafta will switch to Trikafta over time.

Costs Rise

Adjusted operating income rose 70% to $593 million in the quarter driven by higher revenues and disciplined spending.

Adjusted research and development (R&D) expenses rose 22.5% to $337 million in the fourth quarter due to expansion of CF and non-CF pipeline. Adjusted selling, general and administrative (SG&A) expenses increased 27.2% to $159 million in the reported quarter due to investments made in supporting CF patients’ treatment, globally.

Full-Year Results

For 2019, Vertex generated revenues of $4.2 billion, reflecting 37% growth year over year.

For the same period, the company reported earnings of $5.33 per share, up 31% year over year.

2020 Outlook

The company expects total revenues for CF products in the range of $5.1-$5.3 billion in 2020 which at the midpoint, reflects approximately 30% growth over 2019.
 
During fourth-quarter conference call, management stated that strong uptake of Trikafta and the recent reimbursement approvals in key countries like England and France for its CF drugs should lead to revenue growth in 2020

Moreover, combined adjusted R&D and SG&A expenses for 2020 are anticipated in the band of $1.95-$2 billion which is higher than 2019 due to Trikafta launch-related costs and the expansion of the R&D pipeline. Adjusted tax rate is expected in the range of 21.

How Have Estimates Been Moving Since Then?

Estimates review followed an upward path over the past two months. The consensus estimate has shifted 42.29% due to these changes.

VGM Scores

Currently, Vertex has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 #2 (Buy). We expect an above average return from the stock in the next few months.

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