Vertex Pharmaceuticals
May 3, 2011
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Vertex Reports First Quarter 2011 Financial Results and Reviews Milestones for Key Development Programs

-Hepatitis C: FDA decision on NDA for INCIVEKTM (telaprevir) expected this month-

-Cystic Fibrosis: Phase 3 program for VX-770 supports applications for approval in U.S. and E.U., with NDA and MAA planned for second half of 2011-

-Financial: Vertex enters second quarter with more than $820 million in cash, cash equivalents and marketable securities-

CAMBRIDGE, Mass.--(BUSINESS WIRE)-- Vertex Pharmaceuticals Incorporated (Nasdaq: VRTX) today provided an update on recent progress in its key development programs, discussed upcoming milestones and reported consolidated financial results for the quarter ended March 31, 2011.

"Our progress in recent months with both INCIVEK for people with hepatitis C and VX-770 for people with cystic fibrosis marks a significant step toward Vertex becoming a company capable of discovering, developing and launching innovative new medicines for serious diseases," said Matthew Emmens, Chairman, President and Chief Executive Officer of Vertex.

"We are pleased with the outcome of our recent FDA advisory committee meeting and look forward to a decision on our New Drug Application for INCIVEK later this month. In cystic fibrosis, we recently announced results from our registration program for VX-770, which we expect to form the basis for global regulatory submissions for approval in the second half of the year.

"We have many important milestones still ahead in 2011, and we believe our financial position will continue to support our business as we prepare for the launch of INCIVEK and advance toward becoming a cash flow- and earnings-positive company in 2012," concluded Mr. Emmens.

Recent Clinical Development Progress

Vertex today reviewed recent progress in its clinical development programs and provided the following updates:

Hepatitis C:

Preparing for Launch of INCIVEKTM (telaprevir)

Phase 3b Study of Twice-daily Dosing of INCIVEK (telaprevir)

Phase 2 Combination Study of INCIVEK (telaprevir) and VX-222

Phase 3 Study of INCIVEK (telaprevir) in People Co-infected with the Hepatitis C Virus (HCV) and Human Immunodeficiency Virus (HIV)

Phase 2 Study of INCIVEK (telaprevir) to Evaluate 3-month Treatment Regimens

Phase 2 Post-Transplant Study of INCIVEK (telaprevir)

Cystic Fibrosis:

VX-770 NDA and MAA Submissions Planned for Second Half of 2011

Phase 2 Trial Combining Two CFTR Modulators for the Treatment of People with the Most Common Mutation of Cystic Fibrosis

Additional CFTR Corrector Enters Clinical Development

Epilepsy:

Phase 2b Trial Planned for Second Half of 2011

Rheumatoid Arthritis:

Ongoing Phase 2 Study of JAK3 Inhibitor VX-509

First Quarter Results

For the quarter ended March 31, 2011, the Company's GAAP net loss was $176.1 million, or $0.87 per share, compared to a GAAP net loss for the quarter ended March 31, 2010 of $165.3 million, or $0.83 per share.

The non-GAAP loss for the quarter ended March 31, 2011 was $183.9 million, or $0.91 per share, compared to $140.1 million, or $0.70 per share, for the quarter ended March 31, 2010. The increase in the company's 2011 non-GAAP loss was principally attributable to costs to support the planned launch of INCIVEK (telaprevir), including an increase in sales, general and administrative expenses (SG&A). The non-GAAP loss in each period excludes stock-based compensation expense, restructuring expense and expenses related to the September 2009 financial transactions. The non-GAAP loss for the first quarter of 2011 also excludes revenues from a $50.0 million milestone payment we received from Janssen upon the acceptance of the MAA for telaprevir in Europe. We used that milestone to redeem a portion of the 2012 secured notes issued in the September 2009 financial transactions, in accordance with the note terms.

Total revenues for the quarter ended March 31, 2011 were $73.7 million, including the $50.0 million Janssen milestone payment, compared with $22.4 million for the first quarter of 2010.

Research and development (R&D) expenses for the quarter ended March 31, 2011 were $158.6 million, compared to $143.0 million in R&D expenses for the first quarter of 2010. These expenses reflect the company's continued investment in its research and development pipeline.

Sales, general and administrative (SG&A) expenses for the quarter ended March 31, 2011 were $71.5 million, compared to $35.6 million for the first quarter of 2010. This increase reflects increased investment to prepare the company for the planned launch of INCIVEK (telaprevir) in May.

Net interest expense for the quarter ended March 31, 2011 was $10.6 million, compared to $3.5 million for the first quarter of 2010. This increase resulted from interest expense relative to the 2015 convertible notes and the 2012 secured notes.

At March 31, 2011, Vertex had $823.5 million in cash, cash equivalents and marketable securities.

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

Vertex is today reiterating its guidance for 2011 total operating expenses, excluding costs of revenues and stock-based compensation expense, of $890 to $930 million, as provided on February 3, 2011.

Non-GAAP Financial Measures

In this press release, Vertex's financial results and financial guidance 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 first quarter 2011 and 2010 loss, excluding stock-based compensation expense, restructuring expense, and revenues 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.

Vertex Pharmaceuticals Incorporated

2011 First Quarter Results
Consolidated Statements of Operations Data
(in thousands, except per share amounts)
(unaudited)

       

Three Months Ended
March 31,

2011   2010
 
Revenues:
Royalty revenues $6,061 $6,407
Collaborative revenues 67,601 16,022
   
Total revenues 73,662 22,429
 
Costs and expenses:
Royalty expenses 2,666 3,367
Research and development expenses (R&D) 158,612 143,012
Sales, general & administrative expenses (SG&A) 71,523 35,552
Restructuring expense 760

 

780
 
Total costs and expenses 233,561 182,711
 
Loss from operations (159,899) (160,282)
 
Net interest expense (Note 1) (10,599) (3,500)

Change in fair value of derivative instruments (Note 1)

 

(5,598) (1,489)
Net loss $(176,096) $(165,271)
 
Basic and diluted net loss per common share $(0.87) $ (0.83)
 
Basic and diluted weighted-average number of common shares outstanding 202,329 198,935
 

Non-GAAP Loss and Loss per
Common Share Reconciliation

       

Three Months Ended
March 31,

2011   2010
GAAP Net Loss $(176,096) $(165,271)
Pro Forma Adjustments:
Milestone revenues related to September 2009 financial transactions (Note 1) $(50,000) $---
 
Stock-based compensation expense included in R&D $18,549 $14,320
 
Stock-based compensation expense included in SG&A 9,330 5,013
 

Total stock-based compensation expense

$27,879 $19,333
 

Expenses related to September 2009 financial transactions (Note 1)

 

13,532 5,072
Restructuring expense 760 780
 
Non-GAAP Loss $(183,925) $(140,086)
 
Basic and diluted non-GAAP loss per common share $(0.91) $ (0.70)
 

Note 1: A portion of the collaborative revenues, 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 first quarter of 2011, the company redeemed $50.0 million in 2012 Notes with the proceeds of a milestone payment the company received from Janssen and the company recognized the $50.0 million as revenues. During the three months ended March 31, 2011 and 2010, the company recorded interest expense of $7.9 million and $3.6 million, respectively, related to its secured notes (due 2012) and an additional aggregate expense of $5.6 million and $1.5 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 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: On January 1, 2011, the Company began capitalizing its inventory for INCIVEK (telaprevir).

 

Condensed Consolidated Balance Sheets Data
(in thousands)
(unaudited)

         

March 31,
2011

December 31,
2010

 

Assets

 

Cash, cash equivalents and marketable securities $823,452 $1,031,411
Inventories (Note 3) 17,816 ---
Other current assets 31,706 25,628
Property and equipment, net 70,877 72,333
Restricted cash 34,111 34,090
Intangible assets (Note 2) 518,700 518,700
Goodwill (Note 2) 26,102 26,102
Other non-current assets 15,723 17,182
Total assets $1,538,487 $1,725,446
 
 
Liabilities and Stockholders' Equity
Other liabilities $162,121 $182,142
Accrued restructuring expense 28,814 29,595
Deferred tax liability (Note 2) 160,278 160,278
Deferred revenues 218,609 234,668
Convertible notes (due 2015) 400,000 400,000
Liabilities related to milestone transactions (Note 1) 176,993 214,790
Stockholders' equity 391,672 503,973
Total liabilities and stockholders' equity $1,538,487 $1,725,446
Common shares outstanding 205,458 203,523
 

About Vertex

Vertex creates new possibilities in medicine. Our team aims to discover, develop and commercialize innovative therapies so people with serious diseases can lead better lives.

Vertex scientists and our collaborators are working on new medicines to cure or significantly advance the treatment of hepatitis C, cystic fibrosis, epilepsy and other life-threatening diseases.

Founded more than 20 years ago in Cambridge, MA, we now have ongoing worldwide research programs and sites in the U.S., U.K. and Canada.

INCIVEKTM is a trademark of Vertex Pharmaceuticals Incorporated.

PEGASYS® and COPEGUS® are registered trademarks of Hoffmann-La Roche.

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 FDA will make a decision on INCIVEK by May 23, 2011; (ii) the Phase 3 program for VX-770 supporting applications for approval in U.S., Canada and E.U. and the plan to submit an NDA and an MAA in the second half of 2011; (iii) Vertex becoming a company capable of discovering, developing and launching innovative new medicines for serious diseases; (iv) Vertex's financial position continuing to support its business as it prepares for the launch of INCIVEK; (v) Vertex advancing toward becoming a cash flow and earnings positive company in 2012; (vi) Vertex's belief that Tibotec may receive a response on the MAA in the second half of 2011; (vii) Vertex's commercial function being prepared for the potential commercial launch of INCIVEK; (viii) Vertex's expectations regarding when it will obtain data from ongoing clinical trials, including the 48-week data from ENVISION, SVR data from OPTIMIZE, additional data from the combination study of INCIVEK and VX-222, interim data from the combination trial of VX-770 and VX-809 and data from the VX-509 clinical trial; (ix) the design, initiation and enrollment expectations for ongoing and planned clinical trials, including the ongoing combination trial of INCIVEK and VX-222, the possible Phase 3 study of INCIVEK dosed in combination with pegylated-interferon and ribavirin in people co-infected with HCV and HIV, the additional planned studies of INCIVEK dosed in combination with pegylated-interferon and ribavirin and the trials designed to evaluate VX-661 and VX-765; (x) the potential that ongoing and planned clinical trials of INCIVEK could support supplemental NDAs and the potential timing of such filings; (xi) the expectation that Vertex will present clinical and in vitro data regarding VX-770 in June; and (xii) the information provided in the paragraph following the statement "This section contains forward-looking guidance about the financial outlook for Vertex Pharmaceuticals." While Vertex 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 Vertex or Janssen-Cilag could experience unforeseen delays in obtaining approval to market telaprevir, that the outcomes for each of Vertex's ongoing and planned clinical trials and studies may not be favorable, that regulatory authorities may require supplemental clinical trials in order to support the approval of INCIVEK and/or VX-770, that the company may not be able to successfully develop INCIVEK, VX-770, VX-222, VX-809, VX-661, VX-765 or VX-509, that the company's expectations regarding its 2011 operating expenses and/or its expectation that it will advance toward becoming a cash flow and earnings positive company in 2012 may be incorrect (including because one or more of the company's assumptions underlying its revenue or expense expectations may not be realized) 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. Vertex disclaims any obligation to update the information contained in this press release as new information becomes available.

Conference Call and Webcast

Vertex will host a conference call and webcast today, Tuesday, May 3, 2011 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. 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 on the home page.

To listen to the call on the telephone, dial 866-501-1537 (U.S. and Canada) 720-545-0001 (International). Vertex is also providing a podcast MP3 file available for download on the Vertex website at www.vrtx.com. The conference ID number is 58377696.

The call will be available for replay via telephone commencing May 3, 2011 at 8:00 p.m. ET running through 5:00 p.m. ET on May 10, 2011. The replay phone number for the U.S. and Canada is 800-642-1687. The international replay number is 706-645-9291. The conference ID number is 58377696. Following the live webcast, an archived version will be available on Vertex's website until 5:00 p.m. ET on May 17, 2011.

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

(VRTX-GEN)

Vertex Pharmaceuticals Incorporated
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Source: Vertex Pharmaceuticals Incorporated

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