(VRTX) Vertex Pharmaceuticals Riding High on Incivek Sales

Vertex Pharmaceuticals Inc. (VRTX) posted robust third quarter 2011 earnings (including stock-based compensation expense) of 56 cents per share, substantially above the Zacks Consensus Estimate of 19 cents and the year-ago loss of 99 cents. Increased revenues from the sale of hepatitis C virus (HCV) treatment, Incivek (telaprevir) helped record positive earnings.

Revenues

Riding on the strong sales of Incivek, which was launched in the second quarter of 2011, Vertex Pharma reported total revenue of $659.2 million, almost double the Zacks Consensus Estimate of $342 million and significantly above the year-ago figure of $23.8 million.

Vertex Pharma’s third quarter revenues consisted of revenue earned from the sale of Incivek ($419.6 million), royalty revenue (up 4.5% to $8.5 million) and collaborative revenue (up 137.9% to $231.1 million).

Collaborative revenue for the quarter includes $200 million received from partner Johnson & Johnson (JNJ) on the approval of Incivek in the European Union (EU). Incivek has been developed by Johnson & Johnson in collaboration with Vertex Pharma and Mitsubishi Tanabe Pharma. While Johnson & Johnson is responsible for the commercialization of Incivek outside North America and the Far East, Mitsubishi Pharma will market it in certain areas of the Far East including Japan.

While Incivek gained EU approval under the trade name Incivo during the third quarter, the product also gained approval in Japan, where it will be marketed as Telavic.

Vertex Pharma also receives royalty from GlaxoSmithKline (GSK) on sales of Lexiva, a HIV protease inhibitor.

Other Details

Research and development (R&D) expenses for the quarter increased 11.0% to $189.1 million, mainly due to continued investment in the pipeline.

Third quarter selling, general and administrative (SG&A) expenses shot up 126.4% to $110.7 million, as a result of increased overheads related to the launch of Incivek and expansion activities related to the company’s commercial organization to support both Incivek and Kalydeco.

Outlook Reaffirmed

Vertex Pharma reiterated its 2011 operating expense (excluding stock-based compensation expense) guidance range of $960 – $980 million.

Pipeline Update

Vertex Pharma submitted a new drug application (NDA) to the US Food and Drug Administration (FDA) and a marketing authorization application (MAA) to the European Medicines Agency (EMA), seeking approval to market Kalydeco (VX-770, ivacaftor). Upon approval, the drug will be used to treat patients (aged 6 years and above) suffering from cystic fibrosis (CF).The patients should have at least one copy of the G551D mutation in the cystic fibrosis transmembrane conductance regulator (CFTR) gene.

The company has requested the US regulatory body to review the application on a priority basis. We note that the EMA has agreed to conduct an accelerated assessment of Kalydeco.

Our View

We currently have a Neutral recommendation on Vertex Pharma. The stock carries a Zacks #3 Rank (Hold rating) in the short-run. We are pleased with the company’s performance and believe that with the approval/availability of Incivek worldwide, Vertex Pharma will continue to post strong results.

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