Vertex Pharmaceuticals Inc.'s Q4 Revenues Surge on New Drug

Vertex Pharmaceuticals (VRTX 1.43%) released fourth-quarter earnings last week, although its product revenue numbers were already known since the preliminary numbers were released last month ahead of the JP Morgan Healthcare Conference.

Here's a rundown of how the biotech fared.

Vertex Pharmaceuticals results: The raw numbers

What happened with Vertex Pharmaceuticals this quarter?

• In its first full quarter on the market, Vertex's new cystic fibrosis drug, Orkambi, registered sales of $220 million, surpassing Kalydeco's $181 million.
• While it's now playing second fiddle its smaller potential market size, Kalydeco is still growing. Sales were up 45% year over year in the fourth quarter, thanks to approvals in additional patient populations and additional reimbursements increasing the number of patients with cystic fibrosis that are eligible for treatment.
• Orkambi is currently approved to treat patients 12 years and older, but Vertex is looking to expand the potential market, recently releasing data in children ages six to 11 showing that Orkambi is safe in that population and improved lung function.

SOURCE: VERTEX PHARMACEUTICALS.

What management had to say
"More than 1,500 patients" started Orkambi in the fourth quarter, which is a slowdown from the "more than 3,000 people" who started the therapy in the third quarter, according to CFO Ian Smith. "We expect this trend to continue through the end of 2016, by which time we expect the vast majority of the 8,500 eligible patients in the U.S. to have initiated treatment with Orkambi," he explained.

"These four factors -- the compliance rate, the rate at which patients begin treatment, the total number of patients who initiate treatment, and the persistence rate -- all are important in considering our guidance for Orkambi," Smith said. Unfortunately, patients haven't been on the drug long enough for management to accurately guess the compliance rate -- how often patients take their drug as prescribed -- and the persistence rate -- how long patients stay on the drug before going off it. Vertex has some control of the other two, with its sales force trying to capture the remaining patients not currently on the drug.

Looking forward
Management gave 2016 guidance predicting sales for Kalydeco in the $670 million to $690 million range, which is actually below the fourth-quarter run rate. The discrepancy can be explained by the approximately 200 patients who will be in a phase 3 trial testing a new combination therapy this year, and therefore won't have to pay for the medication.

But sales of Kalydeco could increase substantially from here since the drug is up for an FDA approval to treat an additional 1,500 people ages two and older in the U.S. with cystic fibrosis who have certain residual function mutations. Kalydeco is currently approved to treat 4,000 patients worldwide, so the additional approval could keep Kalydeco's sales growth chugging along.

Management decided not to offer sales guidance for Orkambi, which seems reasonable given the uncertainties noted above. Germany will be the only country in Europe where Vertex will see significant sales in 2016, so there should be plenty of accelerated growth in 2017 as Vertex finalizes reimbursement in the other European countries.

There's also the possibility of increasing the number of patients able to be treated with Orkambi stateside. The aforementioned data in children ages six to 11 will be submitted to the FDA in the second quarter of this year. In Europe, an ongoing phase 3 trial will be required to get Orkambi approved for this age group.