Vertex Pharmaceuticals
Jul 28, 2011
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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

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

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

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

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

Additional Studies of VX-770 Planned for 2012

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

Rheumatoid Arthritis:

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

Influenza:

VX-787 to Enter Phase 1 Clinical Development in September

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   20,756   11,727  
 
Total stock-based compensation expense $31,879 $24,449 $59,758 $43,782
 

Expenses related to September 2009
financial transactions (Note 2)

 

5,083 30,936 18,615 36,008
Restructuring expense 741   2,112   1,501   2,892  
 
Non-GAAP Loss Attributable to Vertex $(136,366 ) $(142,509 ) $ (320,291 ) $ (282,595 )
 

Basic and diluted non-GAAP loss per
common share attributable to Vertex
common shareholders

$(0.67 ) $(0.71 ) $(1.57 ) $(1.42 )
 

Note 1: The Company has consolidated the financial statements of its collaborator Alios BioPharma, Inc., as of June 13, 2011 and for the period from June 13, 2011 through June 30, 2011. The Company's interest and obligations with respect to Alios' assets and liabilities are limited to those accorded to the company in its collaboration agreement with Alios. Restricted cash and cash equivalents (Alios) reflects Alios' cash and cash equivalents, which Vertex does not have any interest in and which will not be used to fund the collaboration. Alios' operations are not material to the company's statements of operations for the periods presented.

Note 2: A portion of the collaborative revenues for the first half of 2011, 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.

Note 3: 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 and the company's collaboration agreement with Alios in 2011. The company recorded $250.6 million of in-process research and development as an intangible asset and $7.4 million of goodwill related to the Alios collaboration in the second quarter of 2011.

   

Condensed Consolidated Balance Sheets Data

(in thousands)

(unaudited)

 

June 30,
2011

 

December 31,
2010

 

 

Assets

 

Cash, cash equivalents and marketable securities $593,491 $1,031,411
Restricted cash and cash equivalents (Alios) (Note 1) 63,098 ---
Accounts receivable, net 96,016 12,529
Inventories 52,622 ---
Other current assets 21,897 13,099
Property and equipment, net 84,203 72,333
Restricted cash 34,114 34,090
Intangible assets (Note 3) 769,300 518,700
Goodwill (Note 3) 33,501 26,102
Other non-current assets 14,858 17,182
Total assets $1,763,100 $1,725,446
 
 
Liabilities and Shareholders' Equity
Other liabilities $229,206 $182,142
Accrued restructuring expense 28,205 29,595
Deferred tax liability (Note 3) 160,372 160,278
Deferred revenues 199,054 234,668
Convertible notes (due 2015) 400,000 400,000
Liabilities related to milestone

transactions (Note 2)

181,795 214,790
Noncontrolling interest (Alios) (Note 1) 256,919 ---
Shareholders' equity (Vertex) 307,549 503,973
Total liabilities and shareholders' equity $1,763,100 $1,725,446
Common shares outstanding 207,473 203,523
 

Indication and Important Safety Information

INCIVEK (telaprevir) tablets is a prescription medicine used with the medicines peginterferon alfa and ribavirin to treat chronic (lasting a long time) hepatitis C genotype 1 infection in adults with stable liver problems, who have not been treated before or who have failed previous treatment.

It is not known if INCIVEK is safe and effective in children under 18 years of age.

IMPORTANT SAFETY INFORMATION

INCIVEK should always be taken in combination with peginterferon alfa and ribavirin. Ribavirin may cause birth defects or death of an unborn baby. Therefore, you should not take INCIVEK combination treatment if you are pregnant or may become pregnant, or if you are a man with a sexual partner who is pregnant.

INCIVEK and other medicines can affect each other and can also cause side effects that can be serious or life threatening. There are certain medicines you cannot take with INCIVEK combination treatment. Tell your healthcare provider about all the medicines you take, including prescription and non-prescription medicines, vitamins and herbal supplements.

INCIVEK can cause serious side effects including rash and anemia. The most common side effects of INCIVEK include itching, nausea, diarrhea, vomiting, anal or rectal problems, taste changes and tiredness. There are other possible side effects of INCIVEK, and side effects associated with peginterferon alfa and ribavirin also apply to INCIVEK combination treatment. Tell your healthcare provider about any side effect that bothers you or doesn't go away.

Please see full Prescribing Information for INCIVEK, including the Medication Guide, available at www.INCIVEK.com.

About Vertex

Vertex creates new possibilities in medicine. Our team discovers, develops and commercializes 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.

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

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) continued progress in advancing new combinations of medicines for the future treatment of hepatitis C and cystic fibrosis, (ii) the expectation that Vertex will become a cash flow and earnings positive company for 2012, (iii) the plan to submit an NDA in the United States and an MAA in the European Union for VX-770 in October 2011 and to make additional submissions in Canada and other countries in periods thereafter, (iv) the multiple additional studies in CF that the company is preparing to initiate, (v) the expectation that Tibotec will receive a response to its MAA submission for telaprevir from the European Commission in the third quarter of 2011, (vi) the expected timing of SVR data from OPTIMIZE and the possibility that this data could support the submission of a supplemental NDA for twice-daily dosing of INCIVEK by the end of 2012, (vii) the design and timing of initiation, completion of enrollment and receipt of data from planned and ongoing studies of INCIVEK, VX-770, VX-509, VX-787, all-oral combinations of VX-222 and INCIVEK, combinations of VX-770 and VX-809 and combinations of VX-770 and VX-661 and (viii) 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 Tibotec 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 VX-770, that the company may not be able to successfully develop INCIVEK, VX-770, VX-222, VX-809, VX-661, VX-765, VX-509 or VX-787, that the company's expectations regarding its 2011 operating expenses and/or its expectation that it will become 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 Information

Vertex will host a conference call and webcast today, July 28, 2011 at 5:00 p.m. ET to review financial results and recent developments. The conference call will be webcast live and a link to the webcast may be accessed from the ‘Events & Presentations' page of Vertex's website at www.vrtx.com.

To listen to the live call on the telephone, dial 1-866-501-1537 (United States and Canada) or 1-720-545-0001 (International). To ensure a timely connection, it is recommended that users register at least 15 minutes prior to the scheduled webcast.

The conference ID number for the live call and replay is 80694276.

The call will be available for replay via telephone commencing July 28, 2011 at 8:00 p.m. ET running through 5:00 p.m. ET on August 5, 2011. The replay phone number for the United States and Canada is 1-800-642-1687. The international replay number is 1-706-645-9291.

Following the live webcast, an archived version will be available on Vertex's website until 5:00 p.m. ET on August 11, 2011. Vertex is also providing a podcast MP3 file available for download on the Vertex website at www.vrtx.com.

(VRTX-GEN)

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

Source: Vertex Pharmaceuticals

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