Will Vertex (VRTX) Surprise with a Lower Loss in Q4? - Analyst Blog

Biotech company, Vertex Pharmaceuticals (VRTX), will be reporting fourth quarter and full year 2014 results on Jan 28, after the market closes.

Vertex’s track record has not been good in the first nine months of 2014 with the company posting a wider-than-expected loss in two of the last three quarters. The average earnings surprise over the last four quarters is -11%.

Kalydeco Q4 Revenues to Decline Sequentially?

Vertex, which had a strong presence in the hepatitis C virus (HCV) market earlier, is now entirely focused on the cystic fibrosis (CF) market. The company’s flagship product, Kalydeco, a cystic fibrosis transmembrane conductance regulatory (CFTR) potentiator, is approved for the treatment of CF in patients ≥6 years who have one of the following mutations in the CFTR gene - G551D, G1244E, G1349D, G178R, G551S, S1251N, S1255P, S549N, or S549R. Kalydeco is also approved for the R117H mutation in the U.S.

Kalydeco sales are expected to come in at $460 million in 2014 with fourth quarter sales of about $120 million. The sequential decline in fourth quarter Kalydeco revenues reflects the impact of some inventory stocking in the third quarter as well as delayed access to patients in Australia (an issue that has since been resolved).

Vertex has already provided its outlook for 2015 when Kalydeco revenues are expected to increase to $560 - $580 million. R&D and SG&A expenses will also go up as the company gears up for the potential launch of its Kalydeco-lumacaftor combination (FDA action date: Jul 5) and a phase III program evaluating VX-661+Kalydeco.

Vertex, which started 2014 with more than 2,200 people eligible for Kalydeco in North America, Europe and Australia, ended the year with more than 3,100 people eligible for the same. This number is expected to go up to 3,700 in 2015 as the company continues to work on expanding the label.

What Our Model Indicates

Our proven model shows that Vertex is likely to beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or better for increasing the odds of an earnings surprise. This is the case as elaborated below.

Zacks ESP: The Earnings ESP for Vertex is +3.28%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are a loss of 59 cents and 61 cents per share, respectively.

Zacks Rank: VRTX’s Zacks Rank #3 increases the predictive power of ESP.

Stocks That Warrant a Look

Here are a few health care stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

AbbVie (ABBV) has an Earnings ESP of +1.18% and carries a Zacks Rank #2 (Buy). It is scheduled to report results on Jan 30.

Acorda Therapeutics, Inc. (ACOR) has an Earnings ESP of +200% and a Zacks Rank #3. The company is scheduled to release results on Feb 12.

The Earnings ESP for Actavis (ACT) is +4.7% and it carries a Zacks Rank #3. The company is scheduled to release results on Feb 18.

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