Vertex's 'cautious but reasonable' 2017 guidance hits below Wall Street forecasts

Growth of Vertex’s cystic fibrosis combo Orkambi took a hit last year, prompting the company to revise guidance downward for the med in September. And for this year, projections are coming in below where analysts thought they’d be.

The Massachusetts biotech expects to see its key player rack up between $1.1. billion and $1.3 billion for 2017, it said Sunday. The midpoint of that guidance “appears ~17% lower than sell-side expectations,” which came in at $1.45 billion, though it’s “likely closer to buy-side expectations,” Evercore ISI analyst John Scotti wrote in a note to clients. 

While the 2017 range includes room for reimbursement progress to boost sales in Europe (Vertex will receive “a bolus of revenues” from France once price negotiations wrap up, Scotti noted), the company isn’t expecting to see any changes fast. It said in a statement that Q1 revenue would mirror Q4 2016’s haul, “indicating that the reimbursement situation is unlikely to improve in the early part of the year,” Leerink Partners analyst Geoffrey Porges—who called Vertex’s guidance “cautious but reasonable”—wrote in his own research note.

Reimbursement roadblocks have so far hampered Orkambi’s uptake, and an additional sales slowdown last summer prompted execs to drop 2016 projections for the med to between $950 million to $990 million from the $1 billion to $1.1 billion they had earlier forecast.

But the $979 million Vertex expects Orkambi to wind up netting for 2016 “suggests some strengthening ... in the U.S.” thanks to an added indication from late last year in children 6 through 11 with two copies of the F508del mutation, Porges wrote. And “this effect is likely to continue in 2017.”

The way Jefferies analyst Brian Abrahams sees it, Vertex may be keeping the upper end of its 2017 Orkambi guidance range—which Wall Street had pegged at $1.4 billion—“in check” in order to hang onto negotiating leverage for EU reimbursement, he wrote.

Meanwhile, Vertex also predicted lower 2017 sales of Orkambi component therapy Kalydeco than analysts did. Though the med should hit its marks for 2016, totaling $703 million in revenue, Vertex offered up a 2017 range of $690 million to $710 million that hit below the Street’s $734 benchmark.

If all goes according to plan for Vertex, the Cambridge-based drugmaker should see between $1.79 billion and $2.01 billion for the year. As Porges figures, Vertex has a shot to surpass those figures, though “its recent guidance history has not been very positive,” he cautioned.

“For most companies, achieving a final result that is ~5% higher than the upper end of the range of their initial revenue guidance would not be a stretch ... We are hopeful that the company has taken the lessons of those experiences to heart and has started the year with conservative and beatable top-line guidance,” he wrote.

On the bright side, Vertex expects Q4 2016 sales to come in in line with analyst expectations, with Orkambi just beating out estimates. Sales for the quarter reflected “cost discipline,” setting up “a better bottom line,” Barclays analyst Geoff Meacham wrote to clients.