Vertex Pharmaceuticals Inc. VRTX posted a loss of 40 cents per share (including stock-based compensation expense) in the third quarter of 2015, narrower than the year-ago loss of 56 cents and the Zacks Consensus Estimate of a loss of 60 cents. Excluding the impact of stock-based compensation expense, third-quarter 2015 loss was 13 cents per share as against the year-ago loss of 37 cents per share.

Vertex reported revenues of $309.8 million in the third quarter of 2015, beating the Zacks Consensus Estimate of $231 million and up 73.1% from the year-ago period.

Kalydeco Drives Revenues, Orkambi Off to a Strong Start

Vertex’s third-quarter revenues consisted of sales from cystic fibrosis (CF) products Kalydeco ($165.9 million), Orkambi ($130.8 million), collaborative ($1.5 million) and royalty revenues ($5.8 million).

The company reported a 31% increase in Kalydeco sales in the third quarter of 2015 from the year-ago period and a sequential improvement of 7.1%. Sales benefited from additional use in the U.S. as well as ex-U.S. markets. While U.S. sales were $95 million, ex-U.S. sales were $71 million. 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 boosted Kalydeco’s performance.

Vertex is currently seeking FDA approval for the use of Kalydeco in people (2 years and older) with one of 23 residual function mutations – more than 1,500 CF patients in the U.S. fall in this category. A response should be out by Feb 6.

Meanwhile, the company is evaluating a combination of Kalydeco (ivacaftor) and VX-661 and is advancing two next-generation correctors, VX-152 and VX-440, into clinical development.

Recently launched Orkambi (lumacaftor/ivacaftor), approved for the treatment of CF in people ages 12 and older with two copies of the F508del mutation, delivered sales of $130.8 million, including inventory stocking of about $15 million - $20 million. The company said that more than 3,000 people out of the 8,500 eligible patients in the U.S. started treatment with Orkambi.

EU approval for Orkambi should come by year end. Orkambi is also being evaluated in phase III studies in children (6 - 11 years old) – positive results would allow the company to file for label expansion in the first half of 2016. About 5,500 children with CF in the U.S. and Europe fall in this category.

Adjusted (including stock-based compensation expense) research and development (R&D) expenses increased 30.6% to $246.3 million. Third-quarter 2015 adjusted (including stock-based compensation expense) selling, general and administrative (SG&A) expenses increased 38.7% to $97.2 million.

Ups Kalydeco Outlook

Vertex raised its 2015 guidance for Kalydeco revenues. The company now expects Kalydeco revenues of $605 million - $620 million, up from the previous range of $575 million - $590 million. Vertex noted that growth rate in patients on Kalydeco could be tempered by enrollment in the VX-661 program.

The company expects operating expenses (excluding stock-based compensation expense) in the middle of its guidance range of $1.05 billion - $1.10 billion.

Our Take

Vertex’s third quarter results were strong with the company posting a narrower-than-expected loss and revenues coming in well above expectations. Importantly, Kalydeco continued to improve and Vertex raised its Kalydeco sales outlook yet again. Vertex is working on expanding the product’s label. Orkambi is also off to a good start.

Meanwhile, Vertex continues to progress with its pipeline. Vertex is a Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the health care sector include Actelion Ltd. ALIOF, AMAG Pharmaceuticals, Inc. AMAG and Acorda Therapeutics, Inc. ACOR. While Actelion and AMAG are Zacks Rank #1 (Strong Buy) stocks, Acorda is a Zacks Rank #2 (Buy) stock.

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