Why Is Vertex (VRTX) Up 10.4% Since Last Earnings Report?

A month has gone by since the last earnings report for Vertex Pharmaceuticals (VRTX). Shares have added about 10.4% in that time frame, outperforming the S&P 500.

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

Vertex Q1 Earnings & Sales Beat

Vertex’s first-quarter 2020 earnings per share of $2.56 beat the Zacks Consensus Estimate of $1.83. Moreover, earnings rose 125% year over year driven by higher product sales.

Revenues of $1.52 billion also surpassed the Zacks Consensus Estimate of $1.3 billion. Total revenues soared 77% year over year, driven by the rapid uptake of Trikafta, in the United States. Meanwhile, higher international revenues due to strong patient uptake of Orkambi and Symkevi following completion of reimbursement arrangements in key ex-U.S. countries like England and France in 2019 also boosted revenues.

Despite the COVID-19 pandemic, Vertex said its business continued to grow and thousands of patients initiated treatment with its medicines globally. Meanwhile, the coronavirus outbreak had no impact on its supply chain and it will be able to continue to supply its medicines.

CF Franchise Sales Strong

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

Trikafta, in its first full quarter since launch, generated sales of $895 million, gaining from rapid new patient adoption and patient switching from other medicines - Orkambi, Kalydeco and Symdeko/Symkevi. Regarding Trikafta’s launch, the company said that majority of the approximately 18,000 eligible patients have now initiated treatment with the medicine.

First-quarter sales of Trikafta benefited from some early refills by patients and advanced purchasing by some ex-U.S. governments due to Covid-19 disruptions. This will reverse over the course of the year. Meanwhile, the pace of new patient initiations of Trikafta has slowed as a high percentage of currently eligible patients are already on Trikafta. These factors could result in slower growth of Trikafta for the rest of 2020.

Symdeko/ Symkevi registered sales of $173 million in the first quarter, declining 45.9% year over year.

Kalydeco recorded sales of $213 million in the quarter, down 12.7% year over year. Orkambi generated sales of $234 million in the reported quarter, down 20.1% year over year. Sales of Kalydeco, Symdeko/ Symkevi and Orkambi may have been hurt by patient switching to Trikafta.

Costs Rise

Adjusted operating income rose 133% to $877 million in the quarter driven by higher revenues and disciplined spending.

Adjusted research and development (R&D) expenses rose 23.4% to $337 million in the first quarter due to expansion of CF and non-CF pipeline.

Adjusted selling, general and administrative (SG&A) expenses increased 22.8% to $140 million in the reported quarter due to investments made to support CF patients’ treatment, globally.

2020 Outlook

Based on Trikafta’s strong performance in first-quarter 2020, Vertex raised its revenue guidance for the year.

The company now expects total revenues for CF products in the range of $5.3-$5.6 billion compared with the previous range of $5.1-$5.3 billion. The new guidance, at the midpoint, reflects approximately 36% growth over 2019.

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

Vertex has paused enrollment in a phase II study on VX-814 in AATD due to COVID-19.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 12.26% due to these changes.

VGM Scores

At this time, Vertex has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Vertex has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Vertex Pharmaceuticals Incorporated (VRTX) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.