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Vertex Pharma Issues Disappointing 2017 Orkambi Outlook

Zacks Equity Research
Updated

Vertex Pharmaceuticals Incorporated VRTX announced preliminary financial results for 2016 and issued a financial outlook for 2017 on Jan 8, ahead of a Jan 9 presentation at the JP Morgan healthcare conference in San Francisco.

Vertex’s main therapeutic area of focus is cystic fibrosis (CF). Presently, the company markets two medicines for this disease – Kalydeco and Orkambi.

Vertex has had a rough run last year. It recorded negative earnings surprises twice in the three reported quarters. In the last reported quarter – the third quarter of 2016 – Vertex’s loss was wider than estimates and its revenues fell short of expectations. Orkambi put up a weaker-than-expected performance in the quarter, which was due to slower-than-anticipated launch in Germany, close-to-peak penetration for the approved indication in the U.S., and lower-than-expected refills in the months of July and August. However, for 2017, things do not appear that dismal for Vertex.

The company’s share price tanked 41.5% in 2016, underperforming a decline of 27.1% for the Zacks-classified Biomedical-Genetics industry.

However, so far this year, Vertex’s shares have gained 7.7%, higher than the 4.4% improvement witnessed by the broader industry.

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2017 Guidance

In 2017, Kalydeco revenues are expected to be in the range of $690–$710 million. Orkambi revenues are projected in the range of $1.1 billion to $1.3 billion. Management expects Orkambi revenues to be driven by the label expansion in the pediatric population (aged 6–11 years) in the U.S., and pricing and reimbursement in the European countries. In September last year, Orkambi’s label was expanded to include children (6–11 years old) — this gave the drug access to about 2,400 CF patients in the U.S.

However, Orkambi’s 2017 guidance fell slightly short of market expectations. First-quarter 2017 revenues are expected to be in line with the fourth-quarter 2016 levels.

Combined adjusted R&D and SG&A expenses in 2017 are anticipated to be in the range of $1.25–$1.30 billion due to higher costs related to CF pipeline development, and increased commercial investment to support Orkambi and Kalydeco.

Preliminary Results for 2016

Kalydeco revenues are expected to be $703 million in 2016, within the guidance range of $685–$705 million provided earlier. Orkambi revenues are expected to be $979 million, again within the company’s guidance range of $950–$990 million. Total revenue from the CF drugs are expected to be $1.68 billion in 2016, higher than $983 million recorded in 2015.

In the fourth quarter, Kalydeco is expected to record sales of $177 million, while Orkambi revenues are expected to be $276 million, better than $234 million in the third quarter. At the second-quarter conference call, management had said that Orkambi revenues will improve sequentiallyin the fourth quarter due to the pediatric label expansion.

Vertex expects to report fourth-quarter 2016 and full-year results on Jan 25, after the market closes.

Vertex has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other favorably placed stocks in the health care sector include Epizyme, Inc. EPZM, Arena Pharmaceuticals, Inc. ARNA and Anika Therapeutics Inc. ANIK.  While Epizyme sports a Zacks Rank #1 (Strong Buy), Anika and Arena Pharma have the same rank as Vertex.

Epizyme’s loss estimates narrowed 2.3% for 2017 over the last 60 days. The company posted lower-than-expected losses in each of the four trailing quarters, with an average positive surprise of 14.03%.

Arena’s loss estimates narrowed 3% over the last 60 days. The company posted a positive earnings surprise in three of the four trailing quarters, with an average beat of 11.43%.

Anika’s earnings estimates for 2017 were up 3.9% in the last 60 days. The company has recorded a positive earnings surprise in each of the last four quarters, the average being 33.14%. Its share price gained 28.3% in 2016.

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Vertex Pharmaceuticals Incorporated (VRTX): Free Stock Analysis Report
 
Arena Pharmaceuticals, Inc. (ARNA): Free Stock Analysis Report
 
Anika Therapeutics Inc. (ANIK): Free Stock Analysis Report
 
Epizyme, Inc. (EPZM): Free Stock Analysis Report
 
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