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Vertex Earnings: Incivek's Boffo Launch

Updated with new information from a conference call, stock price.

CAMBRIDGE, Mass. ( TheStreet) -- Vertex Pharmaceuticals (VRTX - Get Report) reported second quarter Incivek sales of $75 million, the first measure of the hepatitis C drug's commercial launch since receiving U.S. approval in late May.

The Incivek tally for the quarter, which includes wholesaler inventory, still far exceeded Wall Street's expectations of $31 million and even trounced the $40 million-plus "whisper number" bandied about in some investor circles that also included wholesale inventory.

Vertex shares closed Thursday $47.98, ahead of the release of second quarter results. The stock was trading at $49.80 in the after-market session.

On a conference call, Vertex executives said about half of the $75 million in Incivek sales remained in the distribution channel at quarter's end, but that a vast majority of that had already been sold through to patients and that sales in July were "strong."

More than 50% of the patients starting Incivek therapy are newly diagnosed with hepatitis C, while the rest are patients who sought treatment before Incivek was approved but were not cured, Vertex said on its call.

New revenue generated from Incivek helped Vertex narrow its second quarter loss even though expenses in the quarter were higher. The company posted a net loss of $174.1 million, or 85 cents a share from a net loss of $200 million, or $1 a share, one year ago.

On an adjusted basis, Vertex lost 67 cents a share in the quarter. Total revenue was $114 million, up from $31.6 million in the year-ago quarter.

Total operating expenses rose 39% in the quarter to $280 million from $201 million a year ago, including a big jump in sales and marketing expenses to $97.5 million from $41 million. The higher costs were largely related to the Incivek commercial launch.

U.S. regulators approved Vertex's Incivek and Merck's (MRK - Get Report) competing hepatitis C drug Victrelis in May just 10 days apart, and ever since, the two drugs have been battling for market share. Investors are closely following prescription data for both Incivek and Victrelis, which to date has shown a strong substantial advantage in Vertex's favor.

Vertex is counting on blockbuster sales of Incivek to help the company become profitable for the first time.

Vertex did not provide sales guidance for Incivek in its earnings announcement but said the company expects to be "significantly earnings positive" in 2012. The current consensus forecast calls for Vertex to earn $4.05 a share in 2012.

Analysts and investors had high expectations for the early launch of the drug, which dramatically improves the cure rate in hepatitis C. Thursday's results and the company's bullish commentary about ramping sales in the current quarter suggest that Incivek forecasts will rise once analysts rejigger their financial models.

Before Thursday's results, investors were forecasting third-quarter Incivek sales of $162 million followed by $254 million in the fourth quarter, according to a survey conducted earlier this week by ISI Group biotech analyst Mark Schoenebaum.

SellinG Incivek does cost money and Vertex said that it now expects 2011 total operating expenses, adjusted, in the range of $960 million to $980 million. That's up from previous operating expense guidance in the range of $890 million to $930 million. The company also said it expects Incivek to receive formal approval in Europe later this quarter. European regulators just recently recommended Incivek's approval.

Merck is set to announce second-quarter earnings Friday morning, which should include disclosure of Victrelis sales.

While Incivek sales are very much the focal point of Vertex's second quarter results, the company also said that will be submitted its cystic fibrosis drug VX-770 for approval in the U.S. and Europe in October.

Results from a phase II study of Vertex's experimental rheumatoid arthritis drug VX-509 will be ready in September, the company said.

The old gold-standard treatment regimen for hepatitis C -- 48 weekly injections of interferon and daily doses of oral ribavirin -- cured about 40% of patients. Adding Incivek to that regimen shortens treatment duration for some patients to six months and improves cure rates to more than 80%.

Higher cure rates are expected to expand the pool of hepatitis C patients seeking treatment, including patients who were treated unsuccessfully with older hepatitis C drugs but who are now coming back for retreatment with the new drugs.

Vertex is also working on new combination therapies against hepatitis C but faces competition from Pharmasset (VRUS), Johnson & Johnson (JNJ - Get Report) and Bristol-Myers Squibb (BMY - Get Report), among others.

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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