Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) reported consolidated financial results for the quarter ended March 31, 2017. Vertex also reiterated guidance for total 2017 ORKAMBI® (lumacaftor/ivacaftor) revenues and combined GAAP and non-GAAP R&D and SG&A expenses, and increased its total 2017 guidance for KALYDECO® (ivacaftor) revenues.

“During the quarter, our progress toward treating more people with CF was marked by several important milestones, including expanding the number of people being treated with our approved medicines and developing potential new medicines to treat all people with CF in the future,” said Jeffrey Leiden, M.D., Ph.D., Chairman, President and Chief Executive Officer of Vertex. “We saw continued uptake of ORKAMBI in eligible children ages 6 to 11 in the U.S. and completed an MAA submission for the same group of patients in Europe. Additionally, we reported positive data from two Phase 3 studies of the tezacaftor/ivacaftor combination, which we believe will bring us closer to treating more people with the disease. We remain focused on advancing key CF programs, including our triple combination regimens, to support our goal of providing treatments for all people with CF.”

Financial Highlights

Revenues:

  • Total CF product revenues were $480.6 million compared to $393.6 million for the first quarter of 2016.
  • Net product revenues from ORKAMBI were $294.9 million compared to $223.1 million for the first quarter of 2016.
  • Net product revenues from KALYDECO were $185.7 million, compared to $170.5 million for the first quarter of 2016. Approximately $9.0 million of the first quarter 2017 revenues was attributable to one-time adjustments mainly related to reimbursement agreements in Europe.
  • Collaborative revenues were $232.5 million, compared to $0.1 million for the first quarter of 2016. First-quarter 2017 collaborative revenues include $230.0 million in upfront revenue from the out-licensing of four oncology programs to Merck KGaA, Darmstadt, Germany.

Expenses:

  • Combined GAAP R&D and SG&A expenses were $386.9 million compared to $361.1 million for the first quarter of 2016. Combined non-GAAP R&D and SG&A expenses were $312.9 million compared to $305.7 million for the first quarter of 2016.
  • GAAP R&D expenses were $273.6 million compared to $255.9 million for the first quarter of 2016. Non-GAAP R&D expenses were $226.6 million compared to $222.0 million for the first quarter of 2016.
  • GAAP SG&A expenses were $113.3 million compared to $105.2 million for the first quarter of 2016. Non-GAAP SG&A expenses were $86.3 million compared to $83.7 million for the first quarter of 2016.

Net Income (Loss) Attributable to Vertex:

  • GAAP net income was $247.8 million, or $0.99 per diluted share, compared to a net loss of $(41.6) million, or $(0.17) per diluted share, for the first quarter of 2016. First-quarter 2017 GAAP net income includes $230.0 million in upfront revenue from the out-licensing of four oncology programs to Merck KGaA, Darmstadt, Germany. Non-GAAP net income was $101.4 million, or $0.41 per diluted share, compared to $22.4 million, or $0.09 per diluted share, for the first quarter of 2016. First-quarter 2017 non-GAAP net income growth was driven by increased product revenues.

Cash Position:

  • As of March 31, 2017, Vertex had $1.41 billion in cash, cash equivalents and marketable securities compared to $1.43 billion in cash, cash equivalents and marketable securities as of December 31, 2016.
  • On January 11, 2017, Vertex entered into a licensing agreement with Merck KGaA, Darmstadt, Germany for four clinical and pre-clinical oncology programs. Vertex received the majority of the upfront payment related to the agreement in the first quarter of 2017. The company expects to receive the remaining portion of the upfront payment, which was remitted to the German tax authorities, by the end of 2017.
  • As of December 31, 2016, Vertex had $300 million outstanding under its senior secured revolving credit facility, which was repaid in full in the first quarter of 2017. The facility remains in place and provides the company with access to approximately $800 million in borrowing capacity, subject to the lender’s approval.

2017 Financial Guidance:

Vertex today reiterated its 2017 guidance for ORKAMBI revenues and combined GAAP and non-GAAP R&D and SG&A expenses, and increased its 2017 revenue guidance for KALYDECO:

  • ORKAMBI: The company continues to expect total 2017 product revenues for ORKAMBI of $1.1 to $1.3 billion. This range includes an estimate of potential additional European revenues in 2017 that is largely dependent on which European countries complete reimbursement agreements in 2017 and when these agreements become effective.
  • KALYDECO: The company today increased its total 2017 product revenue guidance for KALYDECO to $710 to $730 million. The increase was based on one-time reimbursement adjustments recognized in the first quarter and the strong underlying demand for the medicine. The prior range, first provided on January 8, 2017, was for total 2017 KALYDECO product revenues of $690 to $710 million.
  • Combined GAAP and Non-GAAP R&D and SG&A Expenses: Vertex continues to expect that its total 2017 combined GAAP R&D and SG&A expenses will be in the range of $1.55 to $1.70 billion and non-GAAP R&D and SG&A expenses will be in the range of $1.25 to $1.30 billion.

CF Medicines and Pipeline Update

Vertex today provided the following updates on its CF program:

ORKAMBI

Submission for approval to treat children ages 6 through 11 in Europe: In March 2017, Vertex completed the submission of a Marketing Authorization Application (MAA) line extension to the European Medicines Agency (EMA) for approval of ORKAMBI in children ages 6 through 11 with two copies of the F508del mutation. There are approximately 3,400 children ages 6 through 11 who have two copies of the F508del mutation in Europe.

TEZACAFTOR/IVACAFTOR

Positive Phase 3 data support regulatory submissions in Q3 2017: On March 28, 2017, Vertex announced positive data from two Phase 3 studies of the investigational tezacaftor/ivacaftor combination in people with CF ages 12 and older who have two copies of the F508del mutation and people who have one mutation that results in residual CFTR function and one F508del mutation. Based on these results, Vertex plans to submit a New Drug Application (NDA) to the FDA and an MAA to the EMA in the third quarter of 2017.

Phase 3 study in people with one copy of the F508del mutation and a second mutation that results in a gating defect: In the first half of 2017, Vertex expects to complete enrollment in a study evaluating the investigational tezacaftor/ivacaftor combination in people with CF ages 12 and older with one copy of the F508del mutation and a second mutation that results in a gating defect in the CFTR protein that has been shown to be responsive to ivacaftor alone. Data from this study are not expected to be part of the initial regulatory submissions planned for the tezacaftor/ivacaftor combination.

Phase 3 study in children ages 6 to 11 in the U.S.: A Phase 3 study of the investigational tezacaftor/ivacaftor combination in children with CF ages 6 through 11 in the U.S. is proceeding as planned. The study is evaluating the pharmacokinetics, safety and tolerability of the tezacaftor/ivacaftor combination in people with CF ages 6 through 11 with either two copies of the F508del mutation or those with one copy of the F508del mutation and one residual function or gating mutation.

TRIPLE COMBINATION REGIMENS

Vertex is currently evaluating four different next-generation correctors to be included in an investigational triple combination regimen with tezacaftor and ivacaftor.

VX-152: Vertex announced today that the second cohort of patients with two copies of the F508del mutation in the Phase 2 study of VX-152 in combination with tezacaftor and ivacaftor is being amended to evaluate four weeks of triple combination dosing. The study had initially planned to evaluate two weeks of dosing. The company expects to have data from this study in the second half of 2017.

VX-440: The Phase 2 study of VX-440 in people with CF is progressing as planned and the company expects to have data from this study in the second half of 2017.

VX-659: The Phase 1 study of VX-659 in healthy volunteers and people with CF is progressing as planned and the company expects to have data from this study in the second half of 2017.

VX-445: Dosing is underway in a Phase 1 study of VX-445 to evaluate single ascending doses, multiple ascending doses for 10 days and triple combination dosing with the tezacaftor/ivacaftor combination for 14 days in healthy volunteers. Vertex also plans to evaluate triple combination dosing with VX-445 in people with CF who have one copy of the F508del mutation and one copy of a mutation that results in minimal CFTR function. The company expects to have data from this study in early 2018.

OTHER BUSINESS

CTP-656 for potential use in future combination regimens: On March 6, 2017, Vertex signed an asset purchase agreement to acquire CTP-656 from Concert Pharmaceuticals. CTP-656 is an investigational CFTR potentiator that has the potential to be used as part of future once-daily combination regimens of CFTR modulators that treat the underlying cause of CF. As part of the agreement, Vertex will pay Concert at closing $160 million in cash for all worldwide development and commercialization rights to CTP-656. If CTP-656 is approved as part of a combination regimen to treat CF, Concert could receive up to an additional $90 million in milestones based on regulatory approval in the U.S. and reimbursement in the UK, Germany or France. The agreement is subject to approval by Concert’s shareholders and clearance under the Hart-Scott-Rodino Antitrust Improvements Act, neither of which has been obtained yet.

Licensing agreement with Merck KGaA, Darmstadt, Germany for oncology assets: In the first quarter of 2017, the previously announced transaction to out-license four programs for the treatment of cancer to Merck KGaA, Darmstadt, Germany was completed. As part of the agreement announced on January 11, 2017, Merck KGaA, Darmstadt, Germany licensed two clinical-stage programs comprised of the compounds VX-970, VX-803 and VX-984, targeting DNA damage and repair, along with two additional novel research programs that include one immuno-oncology program and a program against a novel target. During the first quarter of 2017, Vertex received the majority of the upfront payment related to the agreement.

Shares of Vertex closed today at $117.42, up  $1.08 or 0.93%. VRTX has a 1-year high of $118.79 and a 1-year low of $71.46. The stock’s 50-day moving average is $104.27 and its 200-day moving average is $88.35.

On the ratings front, Vertex has been the subject of a number of recent research reports. In a report issued on April 21, Barclays analyst Geoff Meacham maintained a Hold rating on VRTX, with a price target of $100, which implies a downside of 14% from current levels. Separately, on April 11, Cowen’s Phil Nadeau reiterated a Hold rating on the stock and has a price target of $75.

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Geoff Meacham and Phil Nadeau have a yearly average return of 11.3% and 7.1% respectively. Meacham has a success rate of 58% and is ranked #551 out of 4571 analysts, while Nadeau has a success rate of 50% and is ranked #682.

Overall, 5 research analysts have assigned a Hold rating and 6 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $100.50 which is -13.4% under where the stock opened today.

Vertex Pharmaceuticals, Inc. engages in the business of discovering, developing, manufacturing and commercializing small molecule drugs for patients with serious diseases. It focuses on development and commercializing therapies for the treatment of cystic fibrosis; infectious diseases, including viral infections, such as influenza, and bacterial infections; autoimmune diseases, such as rheumatoid arthritis; cancer, inflammatory bowel disease; and neurological disorders, including pain, Huntington’s disease and multiple sclerosis.