It has been about a month since the last earnings report for Vertex Pharmaceuticals (VRTX). Shares have lost about 8.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Vertex due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Q3 Earnings and Revenues Beat Estimates, 2024 Sales Guidance Raised
Vertex reported adjusted earnings of $4.38 per share for the third quarter of 2024, surpassing the Zacks Consensus Estimate of $4.13. Earnings rose 7.4% as higher product revenues were partially offset by higher costs.
The company reported total revenues of $2.77 billion in the third quarter, comprising cystic fibrosis (CF) product revenues. The figure beat the Zacks Consensus Estimate of $2.67 billion. Total revenues rose 12% year over year, primarily driven by higher sales of Trikafta/Kaftrio (marketed as Kaftrio in Europe) in younger age groups.
Quarter in Detail
The company currently markets four CF products — Trikafta/Kaftrio, Symdeko (marketed as Symkevi in Europe), Orkambi and Kalydeco.
CF product sales rose 10% year over year in the United States to $1.71 billion, while sales outside the United States increased 14% to $1.06 billion.
Trikafta generated sales worth $2.59 billion, up 13.7% year over year. Trikafta sales beat the Zacks Consensus Estimate and our model estimate of $2.48 billion and $2.45 billion, respectively.
Trikafta sales were driven by strong demand in both the United States and outside the U.S. markets, including in younger age groups. Higher pricing in the United States also benefited revenues.
Sales from other CF products declined 10.6% year over year to $186.9 million. Sales of these drugs were hurt by patients switching to Trikafta.
VRTX’s product revenues in the quarter included $2 million from Casgevy revenues from the first patient infused with the medicine. On the earnings call, the company mentioned that Casgevy has seen a strong launch so far. To meet the increasing demand for the product, Vertex is investing in additional manufacturing capacity. In September, it gained approval for a third manufacturing facility for Casgevy with partner Lonza.
On the conference call, Vertex said that it now has more than 45 activated authorized treatment centers or ATCs in all regions where the therapy is approved, up from 35 at the end of the second quarter. Multiple patients have initiated cell collection. Vertex expects to activate approximately 75 total ATCs globally.
Costs Rise
Adjusted R&D expenses were up 5.2% year over year to $764 million to support the development of the company’s programs that have advanced to phase III recently.
Adjusted selling, general and administrative (SG&A) expenses increased 39.1% to $300.1 million in the reported quarter due to expenses for the commercial launch of Casgevy and pre-launch activities for suzetrigine.
During the reported quarter, Vertex recorded acquired in-process research and development (IPR&D) costs of $15 million compared with $52 million reported in the year-ago quarter.
Adjusted operating income was $1.31 billion in the quarter, reflecting an increase of 11.4% year over year.
2024 Guidance
Based on a strong performance year to date and an optimistic outlook for the fourth quarter, Vertex raised its total product sales guidance from a range of $10.65-$10.85 billion to $10.80-$10.90 billion for 2024. The revenue range indicates growth of 10% at the midpoint, driven by continued CF franchise growth and launch of Casgevy in additional approved geographies and indications.
The combined adjusted R&D and SG&A expense guidance was maintained in the range of $4.2 billion to $4.3 billion. Adjusted AIPR&D charges are expected to be approximately $4.6 billion for 2024, including Alpine acquisition costs of $4.4 billion recorded in the second quarter of 2024.
The adjusted tax rate is expected to be approximately 90% in 2024 compared to approximately 100% expected previously. Excluding the impact of the non-deductible Alpine IPR&D charge, adjusted tax rate is expected to be in the range of 20% to 21% in the fourth quarter as well as in 2024.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -5.27% due to these changes.
VGM Scores
Currently, Vertex has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Vertex has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Vertex is part of the Zacks Medical - Biomedical and Genetics industry. Over the past month, Bristol Myers Squibb (BMY), a stock from the same industry, has gained 4.9%. The company reported its results for the quarter ended September 2024 more than a month ago.
Bristol Myers reported revenues of $11.89 billion in the last reported quarter, representing a year-over-year change of +8.4%. EPS of $1.80 for the same period compares with $2 a year ago.
For the current quarter, Bristol Myers is expected to post earnings of $1.48 per share, indicating a change of -12.9% from the year-ago quarter. The Zacks Consensus Estimate has changed -2.4% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Bristol Myers. Also, the stock has a VGM Score of A.
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