July 28, 2011

Vertex Reports Second Quarter 2011 Financial Results and Provides Updates on Launch of INCIVEKTM (telaprevir) and Development Programs

-Quarter highlighted by approval and launch of INCIVEKTM for hepatitis C and completion of VX-770 Phase 3 program in cystic fibrosis-

-Continued progress in advancing new combinations of medicines for the future treatment of hepatitis C and cystic fibrosis-

CAMBRIDGE, Mass.--(BUSINESS WIRE)-- Vertex Pharmaceuticals Incorporated (Nasdaq: VRTX) today reported consolidated financial results for the quarter ended June 30, 2011 and provided an update on the launch of INCIVEKTM (telaprevir) tablets and its development programs.

The company reported approximately $75 million in net product revenues for INCIVEK in the second quarter. Vertex ended the quarter with a cash position of approximately $593 million and expects to become a cash flow and earnings positive company for 2012. The company also today provided several updates to its development-stage programs in hepatitis C, cystic fibrosis (CF), rheumatoid arthritis and influenza. The company noted that it plans to submit its New Drug Application (NDA) in the United States and Marketing Authorization Application (MAA) in the European Union for VX-770 in October 2011 for people with CF who have a specific mutation known as G551D. Vertex is also preparing to initiate multiple additional studies in CF, including two studies to evaluate combinations of Vertex's investigational CF medicines planned for later this year and three additional studies of VX-770 planned to begin in the first half of 2012.

"The second quarter of 2011 was marked by several defining events for our company, including the approval and launch of INCIVEK for the treatment of hepatitis C and the completion of the Phase 3 program for VX-770 in cystic fibrosis," said Matthew Emmens, Chairman, President and Chief Executive Officer of Vertex.

"Upon approval in May, Vertex was prepared to immediately make INCIVEK available to people with hepatitis C, and the first person was able to begin treatment just three days after approval. We are very pleased with the launch of this important new medicine."

Recent Clinical Development Progress

Hepatitis C:

Positive Opinion Issued by European Committee for Medicinal Products for Human Use (CHMP) for Telaprevir

  • Vertex's collaborator, Tibotec Virco-Virology BVBA, one of the Janssen Pharmaceutical companies of Johnson & Johnson, announced last week that the CHMP adopted a positive opinion to recommend the approval of telaprevir in Europe. The positive opinion will be considered by the European Commission, which has authority to approve new medicines for use throughout the European Union. Vertex expects that Tibotec will receive a response from the European Commission on their application for approval in the third quarter of 2011. Following marketing authorization approvals, telaprevir will be marketed in the European Union and certain other global territories under the brand name INCIVOTM by the Janssen companies.

Enrollment Complete in Phase 3b Study of Twice-daily Dosing of INCIVEK

  • Patient enrollment is complete in a Phase 3b clinical trial to evaluate twice-daily dosing of INCIVEK (1,125 mg; BID) compared to three-times-daily dosing of INCIVEK (750 mg; q8h) in combination with Pegasys® (pegylated-interferon alfa-2a) and Copegus® (ribavirin) for people with chronic genotype 1 hepatitis C. Sustained viral response (SVR, or viral cure) data from OPTIMIZE are expected as early as the second half of 2012, which could support the submission of a supplemental NDA for twice-daily dosing of INCIVEK by the end of 2012.

Interim Results from Phase 2 Combination Study of INCIVEK and VX-222

  • In a separate press release issued earlier this week, Vertex announced results from an interim analysis of the two, four-drug (quad) arms of an ongoing Phase 2 clinical trial evaluating multiple 12- and 24-week response-guided regimens of Vertex's lead investigational hepatitis C virus polymerase inhibitor, VX-222, dosed in combination with INCIVEK. The study currently includes four treatment arms. Two of the arms are fully enrolled and are evaluating four-drug combinations of VX-222 (400 mg or 100 mg; BID), INCIVEK (1,125 mg; BID), pegylated-interferon and ribavirin. The third and fourth arms are three-drug treatment arms that are evaluating a twice-daily, all-oral, interferon-free regimen of INCIVEK (1,125 mg), VX-222 (400 mg) and ribavirin in people with genotype 1a or 1b chronic hepatitis C. Vertex expects to complete enrollment in the all-oral arms in the third quarter of 2011.
  • Data from this study will be submitted for presentation at a medical meeting later this year.

Phase 2 Study of INCIVEK Combination Treatment Evaluating 12-week Regimens on Track to Begin in the Third Quarter

  • Vertex plans to begin a Phase 2 trial in the third quarter that will evaluate a treatment regimen of INCIVEK dosed in combination with pegylated-interferon and ribavirin for people who have a specific genetic marker, known as CC, near the IL28B gene. All people in the study will receive 12 total weeks of treatment. The trial is expected to include approximately 400 people with genotype 1 chronic hepatitis C who have not previously been treated. Data from this trial are expected in 2012.

Additional information on INCIVEK, including important safety information, appears at the end of this release.

Cystic Fibrosis (CF):

Submission of VX-770 NDA and MAA on Track for October 2011

  • The Phase 3 program for VX-770, Vertex's cystic fibrosis transmembrane conductance regulator protein (CFTR) potentiator, is now complete. In October, Vertex plans to submit both its VX-770 NDA to the U.S. Food and Drug Administration (FDA) and its VX-770 MAA to the European Medicines Agency (EMA). Additional regulatory submissions are planned for Canada and other countries following the submissions of the NDA and MAA. Vertex is seeking approval of VX-770 in people six years of age and older who have at least one copy of the G551D mutation in the CFTR gene.

Additional Studies of VX-770 Planned for 2012

  • Pediatric Study: The Phase 3 program for VX-770 was focused on people ages 6 and older with the G551D mutation. In the first half of 2012, Vertex plans to begin the first study of VX-770 in children younger than 6 years of age. The study is expected to enroll children ages 2 through 5 and will evaluate the safety, tolerability, and effect on sweat chloride and other measures of clinical efficacy using a pediatric formulation of VX-770.
  • Studies of VX-770 in People with other CFTR Mutations: The G551D mutation is the most common gating mutation, present in approximately 4 percent of all people with CF. In the first half of 2012, Vertex plans to begin two clinical studies of VX-770 in people with CF who have other CFTR mutations where, based on in vitro data, VX-770 may help improve the function of CFTR proteins at the cell surface. These additional studies are expected to enroll people with CF who have certain other gating mutations that result in the CFTR protein functioning abnormally at the cell surface, as well as people with other mutations that result in some residual CFTR function. A goal of the trials will be to generate data to support the evaluation of the use of sweat chloride measurements as a marker for clinical benefit in people with CF.
  • Additional information on these studies will be provided upon completion of discussions with regulatory agencies in the U.S. and E.U.

Phase 2 Trials Combining Two CFTR Modulators for the Treatment of People with the Most Common Mutation of CF

  • Vertex is conducting an exploratory Phase 2 clinical trial to evaluate combination regimens of VX-770 and VX-809, a CFTR corrector, in people with the most common mutation in CF, known as F508del. Vertex recently completed the first part of the trial and is on track to initiate the second part of the trial in September 2011. Part Two of this trial will include dosing of VX-809 alone for at least four weeks followed by dosing of VX-770 and VX-809 in combination for at least four weeks. Similar to Part One, the primary goals of the second part of the trial will be to evaluate the safety and tolerability and the effect of the combination of VX-770 and VX-809 on CFTR function as measured by sweat chloride. Lung function will be measured as a secondary endpoint. The trial is expected to evaluate higher doses of VX-809 than the 200 mg dose studied in the first part of the trial and to enroll people with CF who have one copy or two copies of the F508del mutation.
  • Vertex also plans to initiate a Phase 2a clinical trial to evaluate combination regimens of VX-770 and VX-661, another CFTR corrector, by the end of 2011. This trial will evaluate people with two copies of the F508del mutation.

Rheumatoid Arthritis:

Data from Phase 2 Study of JAK3 Inhibitor VX-509 Expected in September

  • Vertex is conducting a Phase 2 proof-of-concept clinical trial of the JAK3 inhibitor VX-509 in people with moderate to severe rheumatoid arthritis. All patients in the study have completed dosing of VX-509, and analyses of all data from the trial are ongoing. Vertex expects to announce clinical results from this trial in September, including safety and tolerability data and measurements of clinical efficacy using American College of Rheumatology (ACR) and Disease Activity Score (DAS) response criteria.

Influenza:

VX-787 to Enter Phase 1 Clinical Development in September

  • Vertex recently completed a successful pre-Investigational New Drug (pre-IND) meeting with the FDA for VX-787, a medicine in development designed to treat influenza A, including recent H1 (pandemic) and H5 (avian) influenza strains. VX-787 is the first of a new class of molecules that aims to treat influenza in a way that is distinct from neuraminidase inhibitors, the current standard of care for the treatment of influenza, and from other previous approaches to the treatment of influenza. Vertex plans to begin Phase 1 development of VX-787 in healthy volunteers in September. Pending results from Phase 1 studies, VX-787 could begin to be evaluated in influenza in the first half of 2012.

Second Quarter Results

INCIVEK Revenues: For the quarter ended June 30, 2011, Vertex reported $74.5 million in net revenues of INCIVEK. Revenue was recorded on an ex-factory basis.

Total Revenues: Total revenues for the quarter ended June 30, 2011 were $114.4 million, compared with $31.6 million in total revenues for the second quarter of 2010. The increase in total revenues is a result of net INCIVEK revenues in the second quarter of 2011 following approval on May 23, 2011.

Cost of Product Revenues: Cost of product revenues for the quarter ended June 30, 2011 was $5.4 million, which principally reflects royalty expenses owed to third parties on the sale of INCIVEK. The majority of the costs related to the manufacture of INCIVEK sold in the second quarter was expensed in prior quarters.

Research and Development (R&D) Expense: R&D expense for the quarter ended June 30, 2011 was $172.8, including $20.5 million in stock-based compensation expense, compared to $155.1 million, including $17.7 million in stock-based compensation expense, for the second quarter of 2010. This expense reflects the company's continued investment in its research and development pipeline.

Sales, General and Administrative (SG&A) Expense: SG&A expense for the quarter ended June 30, 2011 was $97.5 million, including $11.4 million in stock-based compensation expense, compared to $40.9 million, including $6.7 million in stock-based compensation expense, for the second quarter of 2010. This increase reflects the expansion of our commercial organization to support both INCIVEK and VX-770 and costs related to the commercial launch of INCIVEK.

GAAP and Non-GAAP Loss Attributable to Vertex: For the quarter ended June 30, 2011, the Company's GAAP net loss attributable to Vertex was $174.1 million, or $0.85 per share, compared to a GAAP net loss attributable to Vertex for the quarter ended June 30, 2010 of $200.0 million, or $1.00 per share.

The non-GAAP loss attributable to Vertex for the quarter ended June 30, 2011 was $136.4 million, or $0.67 per share, compared to $142.5 million, or $0.71 per share, for the quarter ended June 30, 2010. The decrease in the second quarter 2011 non-GAAP loss attributable to Vertex resulted principally from increased revenues partially offset by increased operating costs and expenses. The non-GAAP loss attributable to Vertex in each period excludes stock-based compensation expense, restructuring expense and expenses related to certain September 2009 financial transactions.

Cash Position: At June 30, 2011, Vertex had $593.5 million in cash, cash equivalents and marketable securities.

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

Vertex is today revising its guidance for 2011 total operating expenses. Vertex now expects 2011 total operating expenses, excluding cost of revenues and stock-based compensation expense, of $960 to $980 million. Vertex's previous guidance for 2011 total operating expenses, excluding cost of revenues and stock-based compensation expense, was $890 to $930 million. The revised guidance reflects increased investment to support the expansion of Vertex's clinical development program in cystic fibrosis, including an increased investment in the company's European infrastructure to support the planned global launch of VX-770, as well as activities related to the Alios transaction.

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 second quarter 2011 and 2010 loss excluding stock-based compensation expense, restructuring expense, and any 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 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,

2011     2010   2011     2010  
 
Revenues:
Product revenues, net $74,535 $ --- $74,535 $ ---
Royalty revenues 10,010 7,262 16,071 13,669
Collaborative revenues 29,879 24,360 97,480 40,382
       
Total revenues 114,424   31,622   188,086   54,051  
 
Costs and expenses:
Cost of product revenues 5,404 --- 5,404 ---
Royalty expenses 3,902 3,086 6,568 6,453

Research and development expenses
(R&D)

172,796 155,082 331,408 298,094

Sales, general & administrative expenses
(SG&A)

97,471 40,915 168,994 76,467
Restructuring expense 741  

 

2,112   1,501   2,892  
 
Total costs and expenses 280,314 201,195 513,875 383,906
 
Loss from operations (165,890 ) (169,573 ) (325,789 ) (329,855 )
 
Net interest expense (Note 2) (6,760 ) (3,199 ) (17,359 ) (6,699 )

Change in fair value of derivative
instruments (Note 2)

(2,220 ) (27,234 ) (7,818 ) (28,723 )
Net loss $(174,870 ) $(200,006 ) $(350,966 ) $(365,277 )

Adjusted for: Net loss attributable to
noncontrolling interest (Note 1)

(801 ) ---   (801 ) ---  
Net loss attributable to Vertex $(174,069 ) $(200,006 ) $(350,165 ) $(365,277 )
 

Basic and diluted net loss per common share
attributable to Vertex common shareholders

$(0.85 ) $(1.00 ) $(1.72 ) $(1.83 )
 

Basic and diluted weighted-average number of
common shares outstanding

204,413 200,397 203,377 199,670
 

Non-GAAP Loss and Loss per
Common Share Attributable to
Vertex Reconciliation

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

2011   2010   2011   2010  
GAAP Net Loss Attributable to Vertex $(174,069 ) $(200,006 ) $(350,165 ) $(365,277 )
Pro Forma Adjustments:
 

Milestone revenues related to
September 2009 financial transactions (Note 2)

$--- $--- $(50,000 ) $---
 

Stock-based compensation expense
included in R&D

$20,453 $17,735 $39,002 $ 32,055

Stock-based compensation expense
included in SG&A

11,426   6,714  

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