(VRTX) Vertex Pharmaceuticals Loss Reduced by Incivek

Vertex Pharmaceuticals Inc. (VRTX) posted second quarter 2011 loss (including stock-based compensation expense) of 82 cents per share, narrower than the Zacks Consensus Estimate of 93 cents and the year-ago loss of 83 cents. Increased revenues from the sale of hepatitis C virus (HCV) candidate, Incivek (telaprevir) helped reduce the loss.


Riding on the strong sales of Incivek, which was launched during the quarter, total revenue soared 262% to $114.4 million, surpassing the Zacks Consensus Estimate of $54 million.

Vertex Pharma’s first quarter revenues consisted of revenue earned from the sale of Incivek ($74.5 million), royalty revenue (up 37.8% to $10.0 million) and collaborative revenue (up 22.7% to $30.0 million).

The company receives royalty from GlaxoSmithKline plc (GSK) on sales of Lexiva, a HIV protease inhibitor.

Collaborative revenue consists of reimbursements received by Vertex Pharma under its agreements with Johnson & Johnson (JNJ) and Mitsubishi Tanabe.

Other Details

Adjusted research and development (R&D) expenses for the quarter increased 11.4% to $172.8 million, mainly due to continued investment in the pipeline.

Second quarter adjusted selling, general and administrative (SG&A) expenses shot up 138.4% to $97.5 million, as a result of an increase in head count and certain overheads related to the launch of Incivek.


Vertex Pharma increased its operating expense guidance range for 2011 to $960 – $980 million from the earlier range of $890 – $930 million. The hike primarily resulted from expansion activities in the European Union (EU) to support the potential launch of VX-770 for cystic fibrosis (CF) and development expenses associated with the Alios collaboration.

Operating expenses comprises mainly of R&D and SG&A expenses, and excludes stock-based compensation expenses.

Further, the company expects to post positive earnings by 2012.

Pipeline Update

During the second quarter of 2011, the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) recommended the approval of Incivek in the EU as a treatment for HCV. Vertex Pharma’s partner, Johnson & Johnson, anticipates a response from the European regulatory body in the third quarter of 2011. Following the approval, Incivek will be marketed in the EU and certain other territories under the brand name Incivo.

On the CF front, Vertex Pharma plans to submit the New Drug Application (NDA) to the US Food and Drug Administration (FDA) and the Marketing Authorization Application (MAA) to the EMA, for VX-770 in October 2011. The company is seeking approval of VX-770 in patients who are six years of age and older and who have at least one copy of the G551D mutation in the CFTR gene.

Our View

We currently have a Neutral recommendation on Vertex Pharma. The stock carries a Zacks #3 Rank (Hold rating) in the short-run. Despite the losses incurred during 2010 and the first half of 2011, we believe that Incivek will help Vertex Pharma post positive earnings.

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