By How Much Did Vertex’s Revenue and Earnings Miss in 1Q16?
Why Vertex's 1Q16 Earnings Were a Disappointment
Vertex missed revenue by 9.6% in 1Q16
Vertex Pharmaceuticals (VRTX) reported its 1Q16 earnings on April 27, 2016. Wall Street analysts expected revenue for the period to be ~$440.2 million. Vertex reported revenue of $398.1 million.
This -9.6% revenue surprise was taken negatively by the Market during after-hours, and Vertex’s shares fell by 1.8%. However, strong fundamentals supported Vertex, and the next day, its shares rose by 2.7%.
Historically, Vertex has beaten and exceeded consensus estimates on most occasions. Its 1Q16 revenue rose by a robust 187%.
Such strong growth came from sales of Orkambi, which generated $223 million during the first three months of the quarter. The second-largest revenue contributor was Kalydeco, which earned $170.5 million during the same period.
Vertex’s earnings were off by 66.8% in 1Q16
Wall Street analysts projected that Vertex would report earnings per share (or EPS) of $0.27 in 1Q16. The company reported non-GAAP (generally accepted accounting principles) EPS of $0.09.
The above table demonstrates Vertex’s non-GAAP actual earnings.
The earnings surprise of -66.8% for 1Q16 was probably on account of higher-than-expected R&D (research and development) and SG&A (selling, general, and administrative) expenses. With the advancement of its CF (cystic fibrosis) portfolio, Vertex incurred higher R&D, and Orkambi’s global launch drove SG&A expenses for the period. This impacted overall earnings, causing them to miss analysts’ estimates.
Any direct investment into a stock can be risky. To mitigate this risk, you can choose to invest in funds such as the PowerShares QQQ Trust, Series 1 ETF (QQQ). QQQ offers 7.6% exposure to the biotechnology sector. QQQ holds 2.6% and 2.4% in Gilead Sciences (GILD) and Amgen (AMGN), respectively.
Celgene (CELG) makes up 1.6% of QQQ’s total assets, whereas Vertex accounts for 0.39% of its total holdings.
In the next part of the series, we’ll have a look at other analysts’ recommendations on Vertex’s share price.
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