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Why Vertex Pharmaceuticals' Solid Q4 Results Weren't Good Enough

By Keith Speights - Feb 2, 2021 at 6:03AM

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The biotech simply didn't perform well enough to please Wall Street, but better news could be on the way.

What's it going to take for Vertex Pharmaceuticals (VRTX 4.31%) to regain its mojo? Shares of the big biotech have a long way to go to recapture the highs set last year before Vertex reported disappointing clinical results for one of its alpha-1 antitrypsin deficiency (AATD) programs.

Unfortunately, any new mojo will probably be a no-go, at least for now. Vertex announced its fourth-quarter results after the market closed on Monday and there wasn't enough good news to excite investors. Here are the highlights from Vertex's Q4 update.

Pharmacist filling capsules with a dropper.

Image Source: Getty Images.

By the numbers

Vertex reported revenue in the fourth quarter of $1.6 billion. This reflected a 14% increase from the prior-year period revenue total of $1.4 billion. It also narrowly beat the Wall Street consensus estimate of $1.58 billion.

The biotech announced net income in the fourth quarter of $604 million, or $2.30 per share, based on generally accepted accounting principles (GAAP). In the same period of 2019, Vertex generated GAAP earnings of $583 million, or $2.23 per share.

On a non-GAAP adjusted basis, Vertex's net income in the fourth quarter totaled $660 million, or $2.51 per share. The good news is that this was significantly higher than the company's adjusted earnings of $444 million, or $1.70 per share, posted in the prior-year period. The bad news is that Vertex's result came in lower than the average analyst adjusted earnings estimate of $2.59 per share.

Behind the numbers

If you only looked at Vertex's three cystic fibrosis (CF) blockbusters of the past, you'd think something was badly wrong. Sales of Orkambi sank 20% year over year to $215 million in Q4. Kalydeco generated revenue of $193 million, down 18% from the prior-year period. Symdeko/Symkevi was the biggest loser, with sales plunging 61% to $128 million.

However, Vertex's newest CF drug more than made up for those declines. Trikafta/Kaftrio raked in sales of nearly $1.1 billion in the fourth quarter. That reflects a year-over-year gain of 160%.

The biotech's research and development costs fell nearly 3% year over year. However, Vertex's sales, general, and administrative costs rose more than 8%, more than offsetting the lower R&D expenses.

Looking ahead

Vertex projects product revenue of between $6.7 billion and $6.9 billion for full-year 2021. This range reflects nearly 10% year-over-year growth at the midpoint. Much of this growth will likely stem from increased sales for Kaftrio in Europe.

What about the opening question as to what it will take for the biotech stock to regain its mojo? One key will be to secure more reimbursement deals for Kaftrio. However, the real opportunities for catalysts will come from Vertex's pipeline.

The company hopes to win U.S. Food and Drug Administration (FDA) approval for Trikafta in treating children with CF ages 6 to 11 who have specified genetic mutations by June 8, 2021. It expects to announce results from a phase 2 study of VX-864 in treating genetic disease AATD in the first half of this year. Data from a phase 2 study evaluating VX-147 in treating another rare genetic disease, APOL1-mediated focal segmental glomerulosclerosis, is also anticipated this year. Vertex also plans to kick off a phase 1/2 study of VX-880 in treating type 1 diabetes in the first half of 2021.

The clinical updates especially hold the potential to spark Vertex's share price. But smart investors won't focus too much on one quarterly update or a temporary spike for the stock. Vertex is the kind of stock to hold for the next decade or longer. The best mojo is the long-term mojo.

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