Vertex Q1 Results Worse Than 2012, but Better Than Expected

Vertex reports lower revenue and a loss in Q1, but the situation really doesn't look bad for this biotech.

Keith Speights
Keith Speights
May 1, 2013 at 9:09PM
Health Care

Vertex Pharmaceuticals (NASDAQ:VRTX) reported its first quarter results after the market closed on Tuesday. Those results were generally better than expected, but investors appeared to yawn as shares hovered around the closing price. Here are the highlights from Vertex's announcement.

By the numbers
Non-GAAP earnings for the quarter came in at $5.7 million, or $0.03 per diluted share. That's a big decrease from non-GAAP earnings of $118.6 million, or $0.55 per diluted share, recorded in the first quarter of 2012. However, analysts were expecting a loss of $0.19 per share, so Vertex surprised on the upside.

The biotech reported a first quarter GAAP net loss of $308 million, or $1.43 per share. This result compares unfavorably against the same period last year, when Vertex achieved positive earnings of $91.6 million, or $0.43 per diluted share.

Revenue for the quarter totaled $328.4 million. That beat the average analysts' estimate of $308 million. However, revenue was down significantly from the $437.7 recorded in the first quarter of last year.

Vertex reported $1.24 billion in cash, cash equivalents, and marketable securities at the end of the first quarter. That figure reflects only a slight decrease from the $1.32 billion on hand at the end of 2012.

Behind the numbers
The slippage in both the top and bottom lines for Vertex stems largely from the fiercely competitive hepatitis C market, in which the company's lead drug, Incivek, battles. Incivek started out strong, as it went head-to-head against Merck's Victrelis. However, the landscape for hep C drugs continually shifts.

Patients appear to have pushed off on starting treatment with Incivek and Victrelis to a lesser extent as they await a new all-oral hepatitis C drug from Gilead Sciences (NASDAQ:GILD). Gilead submitted a request to the Food and Drug Administration for marketing approval for sofosbuvir in early April. In the meantime, sales for Incivek have suffered.

However, growing sales for cystic fibrosis drug Kalydeco helped offset some of the slowdown with Incivek. Sales for the first quarter totaled $62 million, up from $58.5 million in the fourth quarter.

Vertex's other source of revenue came from its collaboration with Johnson & Johnson's (NYSE:JNJ) Janssen unit. J&J paid Vertex $39 million in royalties for hepatitis C drug Incivo. That figure is up from $32.9 million in the first quarter of 2012, as J&J expanded availability of Incivo in international markets.

Looking ahead
With Incivek sales tapering off, and Kalydeco sales growing but not by leaps and bounds, what does the future look like for Vertex? I would say it looks quite bright -- with some help from other drugs.

Vertex's future success depends upon some promising drugs in the pipeline. The company has enrollment under way for a phase 3 study of VX-809 in combination with Kalydeco in treating cystic fibrosis. It also recently announced great news from a phase 2 study for VX-661 in combination with Kalydeco.

The biotech also hasn't relinquished a claim on the hep C market to Gilead and others. Vertex has several studies in process for an all-oral regimen that include experimental drug VX-135. The first data from these studies is expected to be released in the second half of this year.

Results from a phase 2b study of VX-509 should also be announced later this year. VX-509, a JAK inhibitor, is being evaluated for treatment of patients with with moderate to severe rheumatoid arthritis.

It won't surprise me if Vertex continues to pull back some from the high point the stock hit after the recent good news for VX-661. However, I think the company and its stock have solid potential over the longer term.