Vertex Pharmaceuticals
Jul 28, 2010
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Vertex Pharmaceuticals Reports Second Quarter 2010 Financial Results and Highlights Recent Business and Clinical Progress

-Hepatitis C: Rolling submission of New Drug Application underway; data from second pivotal Phase 3 trial - REALIZE - expected in the third quarter of 2010-
-Cystic Fibrosis: Phase 3 registration program for VX-770 fully enrolled; data expected in first half of 2011-
-Financial: Vertex ends second quarter with cash position of approximately $980 million-

CAMBRIDGE, Mass., Jul 28, 2010 (BUSINESS WIRE) -- Vertex Pharmaceuticals Incorporated (Nasdaq: VRTX) today provided an update on recent progress in its development programs in hepatitis C virus (HCV) infection, cystic fibrosis (CF) and other diseases and reported consolidated financial results for the quarter ended June 30, 2010.

"We remain on track to complete the New Drug Application submission process for telaprevir later this year and to complete the buildout of our commercial function in advance of the potential launch of telaprevir," said Matthew Emmens, Chairman, President and Chief Executive Officer of Vertex Pharmaceuticals. "In the first half of this year, we established a seasoned commercial leadership team with broad experience in the area of infectious diseases, and we continue to bolster the internal infrastructure needed to support a field-based sales force for telaprevir and other potential future medicines.

"Our Phase 3 registration program in cystic fibrosis is now fully enrolled, positioning us for the planned submission of a New Drug Application for VX-770 in the second half of 2011. There is an urgent need for new and more effective therapies in cystic fibrosis, and we are committed to working toward improving the lives of people affected by this disease.

"As our development programs and commercial efforts advance, we remain focused on the management of our capital structure. We ended the second quarter of 2010 with a cash position of approximately $980 million, positioning us for continued investment in key activities to help support a successful potential launch for telaprevir," concluded Mr. Emmens.

Recent Clinical Development Progress

Telaprevir Phase 3 Program in Hepatitis C

Rolling NDA Submission Underway

Phase 3b Trial to Evaluate Twice-Daily (BID) Compared to Three-Times-Daily Dosing of Telaprevir

Telaprevir/VX-222 Combination Trial

Phase 3 Registration Program for VX-770

Planned Combination Trial of VX-770 and VX-809

Proof of Concept Trials of VX-509 in Rheumatoid Arthritis and VX-765 in Epilepsy

Second Quarter Results

For the quarter ended June 30, 2010, the Company's GAAP net loss was $200.0 million, or $1.00 per share, including certain charges totaling $57.5 million, compared to a GAAP net loss for the quarter ended June 30, 2009 of $171.3 million, or $0.99 per share, including certain charges totaling $42.0 million.

The non-GAAP loss, before certain charges, for the quarter ended June 30, 2010 was $142.5 million, or $0.71 per share, compared to $129.3 million, or $0.75 per share, for the quarter ended June 30, 2009. The increase in the Company's 2010 non-GAAP loss was principally attributable to an increase in total operating expenses as the company prepares for the potential launch of telaprevir and conducts a Phase 3 registration program for VX-770.

Total revenues for the quarter ended June 30, 2010 were $31.6 million, compared to $19.1 million for the second quarter of 2009. The increase is primarily attributable to higher collaborative revenues.

Research and development (R&D) expenses for the quarter ended June 30, 2010 were $155.1 million, compared to $139.3 million for the second quarter of 2009. The increase primarily reflects greater commercial supply investment for telaprevir.

Sales, general and administrative (SG&A) expenses for the quarter ended June 30, 2010 were $40.9 million, compared to $32.5 million for the second quarter of 2009. This increase reflects building of capabilities, including an increase in the number of employees and our commercial investments, to support advancement of telaprevir toward potential launch.

At June 30, 2010, Vertex had $979.1 million in cash, cash equivalents and marketable securities.

Full Year 2010 Financial Guidance

This section contains forward-looking guidance about the financial outlook for Vertex Pharmaceuticals.

The company is today reiterating its guidance for 2010 non-GAAP loss of approximately $600 million, as provided on February 4, 2010. The company is revising its guidance for 2010 GAAP net loss from approximately $700 million to approximately $750 million to reflect the timing of certain non-cash expenses and revenues related to the company's 2009 financial transactions and the milestone payments the company is eligible to earn from Janssen.

Non-GAAP Financial Measures

In this press release, Vertex's financial results are provided both in accordance with accounting principles generally accepted in the United States (GAAP) and using certain non-GAAP financial measures. In particular, Vertex provides its second quarter 2010 and 2009 loss, and guidance for its projected 2010 loss, excluding stock-based compensation and executive transition expenses, restructuring expense, acquisition-related expenses, loss on exchange of convertible subordinated notes, and revenue and expenses related to certain September 2009 financial transactions. These results are provided as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help indicate underlying trends in the Company's business, are important in comparing current results with prior period results and provide additional information regarding its financial position. Management also uses these non-GAAP financial measures to establish budgets and operational goals that are communicated internally and externally, and to manage the Company's business and to evaluate its performance. A reconciliation of the other non-GAAP financial results to GAAP financial results is included in the attached financial statements.

About Vertex

Vertex Pharmaceuticals Incorporated is a global biotechnology company committed to the discovery and development of breakthrough small molecule drugs for serious diseases. The Company's strategy is to commercialize its products both independently and in collaboration with major pharmaceutical companies. Vertex's product pipeline is focused on viral diseases, cystic fibrosis, inflammation, autoimmune diseases, epilepsy, cancer, and pain.

Special Note Regarding Forward-looking Statements

This press release contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, including statements regarding (i) the expectation that the company will complete the NDA submission for telaprevir later in the year, (ii) the expectation that safety and efficacy data will be available from REALIZE in September 2010 and from ILLUMINATE in August 2010, (iii) the company remaining on track to complete the buildout of its commercial function in advance of the potential launch of telaprevir, (iv) the company being positioned to submit a New Drug Application for VX-770 in the second half of 2011, (v) the company's cash position positioning it for continued investment in key activities to help support a successful potential launch for telaprevir, (vi) the expectation that the ILLUMINATE data will supplement the data obtained from ADVANCE and REALIZE, (vii) the expectation that a Phase 3b clinical trial to evaluate twice-daily dosing of telaprevir will be initiated in the fourth quarter of 2010 and a Phase 2a clinical trial to evaluate combination regimens of VX-809 and VX-770 will be initiated later this year, (viii) the expected clinical trial designs for the Phase 3b clinical trial of telaprevir and the VX-809/VX-770 clinical trial, (ix) the anticipated timing of receiving clinical data from the Phase 3 registration program of VX-770 and from clinical trials of telaprevir/VX-222, VX-509 and VX-765 and (x) the company's guidance regarding 2010 GAAP and non-GAAP net loss. While the company believes the forward-looking statements contained in this press release are accurate, there are a number of factors that could cause actual events or results to differ materially from those indicated by such forward-looking statements. Those risks and uncertainties include, among other things, that the outcomes for each of its planned clinical trials and studies, and in particular its planned clinical trials of telaprevir, may not be favorable, that regulatory authorities may require supplemental clinical trials in order to support registration of telaprevir and/or VX-770, that planned or potential clinical trials may be delayed or may not be conducted, that the company may not be able to successfully develop telaprevir, VX-770, VX-509, VX-765 or combination therapies involving telaprevir and VX-222 or VX-770 and VX-809, that the company's expectations regarding its 2010 GAAP and non-GAAP net loss may be incorrect, and other risks listed under Risk Factors in Vertex's annual report and quarterly reports filed with the Securities and Exchange Commission and available through the company's website at www.vrtx.com. The company disclaims any obligation to update the information contained in this press release as new information becomes available.

Vertex Pharmaceuticals Incorporated

2010 Second Quarter and Six Month Results

Consolidated Statements of Operations Data

(in thousands, except per share amounts)

(unaudited)

Three Months Ended

June 30,

Six Months Ended

June 30,

2010 2009 2010 2009
Revenues:
Royalty revenues $ 7,262 $ 5,917 $ 13,669 $ 12,057
Collaborative revenues 24,360 13,147 40,382 30,986
Total revenues 31,622 19,064 54,051 43,043
Costs and expenses:
Royalty expenses 3,086 3,267 6,453 6,843
Research and development expenses (R&D) 155,082 139,331 298,094 282,912
Sales, general & administrative expenses (SG&A) 40,915 32,526 76,467 61,046
Restructuring expense 2,112

1,107 2,892 3,509
Acquisition-related expenses (Note 2) --- --- --- 7,793
Total costs and expenses 201,195 176,231 383,906 362,103
Loss from operations (169,573 ) (157,167 ) (329,855 ) (319,060 )
Net interest expense (Note 1) (3,199 ) (1,836 ) (6,699 ) (2,615 )

Change in fair value of derivative
instruments (Note 1)

(27,234 ) --- (28,723 ) ---

Loss on exchange of convertible
subordinated notes (Note 3)

--- (12,294 ) --- (12,294 )
Net loss $ (200,006 ) $ (171,297 ) $ (365,277 ) $ (333,969 )
Basic and diluted net loss per common share $ (1.00 ) $ (0.99 ) $ (1.83 ) $ (2.03 )

Basic and diluted weighted-average number of
common shares outstanding

200,397 172,563 199,670 164,258

Non-GAAP Loss and Loss per Common Share Reconciliation

Three Months Ended

June 30,

Six Months Ended

June 30,

2010 2009 2010 2009
GAAP Net Loss $ (200,006 ) $ (171,297 ) $ (365,277 ) $ (333,969 )
Pro Forma Adjustments:

Stock-based compensation and
executive transition expenses included
in R&D

$ 17,735 $ 22,162 $ 32,055 $ 40,735

Stock-based compensation and
executive transition expenses included
in SG&A

6,714 6,415 11,727 11,620

Total stock-based compensation and
executive transition expenses

$ 24,449 $ 28,577 $ 43,782 $ 52,355

Expenses related to September 2009
financial transactions (Note 1)

30,936 --- 36,008 ---

Loss on exchange of convertible
subordinated notes (Note 3)

--- 12,294 --- 12,294
Restructuring expense 2,112 1,107 2,892 3,509
Acquisition-related expenses (Note 2) --- --- --- 7,793

Non-GAAP Loss

$ (142,509 ) $ (129,319 ) $ (282,595 ) $ (258,018 )

Basic and diluted non-GAAP loss per
common share

$ (0.71 ) $ (0.75 ) $ (1.42 ) $ (1.57 )

Note 1: The change in fair value of derivative instruments and a portion of the net interest expense reflected in the Consolidated Statements of Operations Data, and the liabilities related to milestone transactions reflected in the Condensed Consolidated Balance Sheets Data, relate to two financial transactions that the Company entered into in September 2009 relating to future milestone payments under the Company's collaboration agreement with Janssen Pharmaceutica, N.V. In the second quarter of 2010 and the first half of 2010, the Company recorded interest expense of $3.7 million and $7.3 million, respectively, related to its secured notes (due 2012) and an additional aggregate expense of $27.2 million and $28.7 million, respectively, related to the changes in estimated fair values of the rights to the $95.0 million in potential future milestone payments and the derivative embedded in the secured notes (due 2012).

Note 2: The acquisition-related expenses reflected in the Consolidated Statements of Operations Data, and the intangible assets, the goodwill and the deferred tax liability reflected in the Condensed Consolidated Balance Sheets Data, relate to the Company's acquisition of ViroChem Pharma Inc. in 2009.

Note 3: In the second quarter of 2009, the Company recorded a non-cash loss related to an exchange of $143.5 million in aggregate principal amount of 4.75% convertible senior subordinated notes due February 2013 (the "2013 Notes"), plus interest, for 6.6 million shares of newly issued common stock.

In the first quarter of 2010, the holders of $32.1 million in aggregate principal amount of the 2013 Notes converted their 2013 Notes into 1.4 million shares of the Company's common stock in full satisfaction of the 2013 Notes.

Condensed Consolidated Balance Sheets Data

(in thousands)

(unaudited)

June 30,

2010

December 31,

2009

Assets

Cash, cash equivalents and marketable securities $979,145 $1,284,913
Other current assets 25,410 22,113
Property and equipment, net 60,438 62,279
Restricted cash 34,090 30,313
Intangible assets (Note 2) 518,700 518,700
Goodwill (Note 2) 26,102 26,102
Other non-current assets 10,317 11,068
Total assets $1,654,202 $1,955,488
Liabilities and Stockholders' Equity

Other liabilities

$164,104 $172,273
Accrued restructuring expense 33,924 34,017
Deferred tax liability (Note 2) 160,278 160,278
Deferred revenues 273,496 300,531
Convertible notes (Note 3) --- 32,071
Liabilities related to milestone

transactions (Note 1)

195,265 159,972
Stockholders' equity (Note 3) 827,135 1,096,346
Total liabilities and stockholders' equity $1,654,202 $1,955,488
Common shares outstanding (Note 3) 202,533 199,955

Conference Call and Webcast: Second Quarter Financial Results

Vertex Pharmaceuticals will host a conference call and webcast today, Wednesday, July 28, 2010 at 5:00 p.m. ET to review financial results and recent developments. This call and webcast will be broadcast via the Internet at www.vrtx.com/finances. It is suggested that webcast participants go to the web site at least 10 minutes in advance of the call to ensure that they can access the slides. The link to the webcast is available on the Events and Presentations button. To listen to the call on the telephone, dial (888) 510-1762 (U.S. and Canada) or (719) 457-2647 (International) using conference ID number 1949937. Vertex is also providing a podcast MP3 file available for download on the Vertex website at www.vrtx.com.

The call will be available for replay via telephone commencing July 28, 2010 at 8:00 p.m. ET running through 5:00 p.m. ET on August 4, 2010. The replay phone number for the U.S. and Canada is (888) 203-1112, the international replay number is (719) 457-0820 and the conference ID number is 1949937. Following the live webcast, an archived version will be available on Vertex's website until 5:00 p.m. ET on August 11, 2010.

Vertex's press releases are available at www.vrtx.com.

(VRTX-GEN)

SOURCE: Vertex Pharmaceuticals

Vertex Contacts:
Media:
Zachry Barber, 617-444-6470
or
Investors:
Michael Partridge, 617-444-6108
Lora Pike, 617-444-6755
Matthew Osborne, 617-444-6057

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