Market Overview

PropThink: Vertex Earnings Demonstrate Incivek's Short-Lived Stardom


By Jake King

Hepatitis C drug developers have been swiftly moving towards interferon-free, oral regimens, and while Vertex's (NASDAQ: VRTX) Incivek was briefly the lead treatment in the field, it may soon be relegated to the graveyard of once-blockbuster drugs. Shares of Vertex Pharmaceuticals dropped Friday following the company's disappointing 3Q earnings report. Incivek sales, which analysts have been expecting to decrease, were off almost 25% from the previous quarter to $254.3 million, a 40% decline year-over-year. Sales of the recently approved cystic fibrosis treatment Kalydeco gained 8% over the last quarter. VRTX reported a non-GAAP income of $28.2 million, or $0.13 per diluted share, short of the $0.34 Capital IQ consensus estimate, with a GAAP-adjusted net loss of $57.5M, or $0.27 per diluted share. Revenues for the third quarter were $336M, down from $418.3M in the second quarter.

Incivek's falling sales are attributable in-part to the numerous clinical trials for all-oral regimens from companies like Gilead (NASDAQ: GILD) and Abbot (NYSE: ABT), which constitute a dramatically changing environment. In anticipation of the new landscape, however, Vertex is attempting to join the move towards new treatment options. Just before reporting its earnings on Thursday, Vertex announced collaborative efforts with GlaxoSmithKline (NYSE: GSK) and Jannsen (of J&J [NYSE:JN]) to make headway with combined all-oral regimens utilizing its developmental nucleotide analog VX-135. Despite these efforts, the vast number of all-oral regimens already in development may make Vertex's products too little too late. The market will have a tough time getting excited about treatments that are already further along in development elsewhere. Additionally, the market for hepatitis C drugs could be much smaller than some are predicting, limited in particular by so many potential players. PropThink's latest report analyzes the segment as a whole. It is worth noting that Vertex still guides for Incivek sales of more than $1.1B this year.

Analysts have been closely monitoring Vertex's Kalydeco launch, a treatment for cystic fibrosis patients with the G551D mutation, since its approval in January. Kalydeco sales of $49.2M demonstrate slight growth from the previous quarter, in which sales totaled $45.5M, but the company expects more in the long run. Vertex is pursuing a broader label through multiple ongoing late-stage studies of combination treatments, and the product's launch across Europe should help drive revenue. Kalydeco is currently limited by its small indication (rare mutation), and until the company can broaden the potential patient base, growth will be slow; some analysts opine that the product has already reached peak sales domestically. Investors should be paying close attention as further cystic fibrosis trials begin showing results in the next two years. Kalydeco's market opportunity is large if it can break into a wider patient population.

VRTX is up 36% YTD, but is well off of its highs as initial Kalydeco and Incivek excitement dissipated in the second half of the year. In the near-term, price action will be ruled by sales numbers, which don't look promising, with potential catalysts further out as Vertex's clinical trials wrap-up. The company's cystic fibrosis treatments (Kalydeco/ VX-809/VX-661 combinations) still have blockbuster potential, but not without broader labeling. Shares climbed 5% on Thursday with the collaboration news, but are down 12% Friday to $44.

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