Vertex’s track record has not been that great with the company posting a wider-than-expected loss in three of the last four quarters and reporting in-line results in the remaining quarter. The average earnings surprise over the last four quarters is -10.28%. Will Kalydeco Boost Results? 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 (of certain age groups) who have specific genetic mutations in their CFTR gene. Vertex reported a 31% increase in Kalydeco sales in the first quarter of 2015 from the year-ago period. Sales benefited from additional use in the U.S. as well as ex-U.S. markets. Rapid uptake in patients in Australia following the completion of reimbursement discussions in late 2014 as well as uptake among patients with the R117H mutation should continue to drive Kalydeco sales. Vertex expects Kalydeco revenues of $560 - $580 million in 2015. There should be rapid uptake in Australia where more than 200 children and adults with CF are eligible for treatment. The guidance also assumes the completion of reimbursement discussions for gating mutations in certain European countries. Sales should also benefit from Kalydeco’s label expansion in the U.S. for the 2 – 5 years age group. Vertex expects the number of patients eligible for Kalydeco to increase to about 3,900 by year end. Meanwhile, operating expenses will go up as the company works on the launch of Orkambi (the Kalydeco-lumacaftor combination) which gained approval in Jul 2015. Orkambi’s approval is a major boost for the company and will remain a key focus area on the second quarter call. Orkambi’s approval provides the company with access to a huge number of eligible patients and should boost CF franchise sales significantly. What Our Model Indicates Our proven model does not conclusively show that Vertex is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to be able to beat earnings. That is not the case here as you will see below. Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00% since the Most Accurate estimate is in line with the Zacks Consensus Estimate of a loss of 76 cents per share. Zacks Rank: Vertex carries a Zacks Rank #2. Vertex’s Zacks Rank #2 when combined with an ESP of 0.00% makes surprise prediction difficult. We caution against stocks with a Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions. 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. The Medicines Company MDCO has an Earnings ESP of +125% and carries a Zacks Rank #2. It is scheduled to report second quarter results on Jul 29. The Earnings ESP for BioMarin Pharmaceutical Inc. BMRN is +13.21% and it carries a Zacks Rank #3. The company is scheduled to release second quarter results on Aug 3. The Earnings ESP for Mallinckrodt plc MNK is +0.55% and it carries a Zacks Rank #3. The company is scheduled to report third quarter earnings on Aug 4. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >> Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report VERTEX PHARM (VRTX): Free Stock Analysis Report MEDICINES CO (MDCO): Free Stock Analysis Report BIOMARIN PHARMA (BMRN): Free Stock Analysis Report MALLINCKRODT PL (MNK): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research
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