Vertex Pharmaceuticals
Feb 2, 2012
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Vertex Reports Fourth Quarter and Full-Year 2011 Financial Results

-Successful launch of INCIVEK (telaprevir) for hepatitis C and recent approval of KALYDECO (ivacaftor) for cystic fibrosis position Vertex for continued growth, earnings and cashflow-

CAMBRIDGE, Mass.--(BUSINESS WIRE)-- Vertex Pharmaceuticals Incorporated (Nasdaq: VRTX) today reported consolidated financial results for the fourth quarter and full-year ended December 31, 2011.

"The successful launch of INCIVEK in hepatitis C and rapid approval of KALYDECO for people with a specific type of cystic fibrosis underscore our ability to discover and develop breakthrough new medicines and to bring them to patients," said Jeffrey Leiden, M.D., Ph.D., President and Chief Executive Officer of Vertex. "We will continue to advance our pipeline of eight other potential medicines and expect to generate proof-of-concept data for many of these programs throughout 2012. With two approved medicines and our broad pipeline, Vertex is well-positioned to become a global business focused on creating additional medicines for people with serious diseases."

Development Program Updates

On January 8, 2012, Vertex provided a comprehensive update on the status of its development programs. The company today provided the following additional updates:

Fourth Quarter 2011 Financial Results

Total Revenues: Total revenues for the fourth quarter of 2011 were $563.3 million, compared with $65.5 million in total revenues for the fourth quarter of 2010. The increase in total revenues for the fourth quarter of 2011 was primarily driven by INCIVEK net revenues of $456.8 million and a $65.0 million milestone payment from Mitsubishi Tanabe related to approval and commercialization of TELAVIC in Japan.

Net Product Revenues from INCIVEK: Net product revenues for INCIVEK for the fourth quarter of 2011 were $456.8 million. Vertex reported $419.6 million in net product revenues for INCIVEK in the third quarter of 2011.

Research and Development (R&D) Expenses: R&D expenses for the fourth quarter of 2011 were $186.4 million, including $18.2 million of Vertex stock-based compensation expense and $1.8 million in Alios expenses related to the accounting for the collaboration with Vertex, compared to $168.9 million for the fourth quarter of 2010, including $16.2 million of stock-based compensation expense. The increase in Vertex's R&D investment is principally due to the company's continued investment in its R&D pipeline, including preparation for the initiation of multiple clinical trials planned for 2012.

Sales, general and administrative (SG&A) expenses: SG&A expenses for the fourth quarter of 2011 were $121.9 million, including $11.1 million of stock-based compensation expense and $1.3 million in Alios expenses related to the accounting for the collaboration with Vertex, compared to $62.5 million for 2010, including $7.4 million of stock-based compensation expense. This increase reflects the expansion of the company's commercial organization to support both INCIVEK for the treatment of hepatitis C and KALYDECO for the treatment of cystic fibrosis and costs related to the commercial launch of INCIVEK.

GAAP Net Income (Loss) Attributable to Vertex: Vertex's GAAP net income for the fourth quarter of 2011 was $158.6 million, or $0.74 per diluted share. The GAAP net loss for 2010 was $180.4 million, or $0.90 per diluted share.

Non-GAAP Net Income (Loss) Attributable to Vertex: Vertex's non-GAAP net income for the fourth quarter of 2011, was $185.2 million, or $0.86 per diluted share. The non-GAAP net loss for the fourth quarter of 2010 was $148.5 million, or $0.74 per diluted share.

Cash Position: At December 31, 2011, Vertex had $968.9 million in cash, cash equivalents and marketable securities.

Full-Year 2011 Financial Results

Total Revenues: Total revenues for 2011 were $1.4 billion, compared with $143.4 million in total revenues for 2010. The increase in total revenues was primarily driven by 2011 INCIVEK net revenues of $950.9 million and approximately $315.0 million in collaborative milestone payments, including $250.0 million in collaborative milestone payments from Janssen and a $65.0 million milestone payment from Mitsubishi Tanabe related to approval and commercialization of TELAVIC in Japan.

Net Product Revenues from INCIVEK: Following the approval of INCIVEK on May 23, 2011, Vertex's 2011 net product revenues for INCIVEK were $950.9 million.

Research and Development (R&D) Expenses: R&D expenses for 2011 were $707.7 million, including $75.4 million of stock-based compensation expense and $5.2 million in Alios expenses related to the accounting for the collaboration with Vertex, compared to $637.4 million for 2010, including $65.2 million of stock-based compensation expense. The increase in Vertex's R&D investment is principally due to the company's continued investment in its R&D pipeline, including preparation for the initiation of multiple clinical trials planned for 2012.

Sales, general and administrative (SG&A) expenses: SG&A expenses for 2011 were $400.7 million, including $42.6 million of stock-based compensation expense and $4.0 million in Alios expenses related to the accounting for the collaboration with Vertex, compared to $187.8 million for 2010, including $25.9 million of stock-based compensation expense. This increase reflects the expansion of the company's commercial organization to support both INCIVEK for the treatment of hepatitis C and KALYDECO for the treatment of cystic fibrosis and costs related to the commercial launch of INCIVEK.

GAAP Net Income (Loss) Attributable to Vertex: Vertex's GAAP net income for 2011 was $29.6 million, or $0.14 per diluted share. The GAAP net loss for 2010 was $754.6 million, or $3.77 per diluted share.

Non-GAAP Net Income (Loss) Attributable to Vertex: Vertex's non-GAAP net income for 2011 was $16.1 million, or $0.08 per diluted share, compared to a non-GAAP net loss of $605.7 million, or $3.02 per diluted share, for 2010.

2012 Financial Guidance

"With the launch of INCIVEK and KALYDECO, Vertex is positioned to deliver significant earnings while we continue to invest to support the growth of our business," said Ian Smith, Executive Vice President and Chief Financial Officer for Vertex. "Throughout 2012, we will maintain a focus on balancing our revenues with the investment required to drive continued innovation in our pipeline and cashflow for our business so that we can discover and develop new medicines for patients and deliver value for our shareholders."

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

Full-Year INCIVEK Revenues: Vertex expects that full-year 2012 INCIVEK net revenues will be in the range of $1.5 billion to $1.7 billion.

Total Operating Expenses: Vertex expects 2012 total operating expenses, excluding cost of revenues, stock-based compensation expense and Alios expenses related to the accounting for the collaboration with Vertex, to be in the range of $1.03 billion to $1.13 billion. The principal operating expenses are:

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 fourth quarter and full-year 2011 net income and fourth quarter and full-year 2010 net loss excluding stock-based compensation expense, restructuring expense (credit), any revenues and expenses related to certain September 2009 financial transactions, any intangible asset impairment charge, net of tax, commercial milestone payments, and items related to Vertex's collaboration with Alios. 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
Fourth Quarter and Twelve Months Results
Consolidated Statements of Operations Data
(in thousands, except per share amounts)
(unaudited)

     

Three Months Ended
December 31,

   

Twelve Months Ended
December 31,

2011     2010 2011     2010
Revenues:
Product revenues, net $ 456,759 $ --- $ 950,889 $ ---
Royalty revenues 25,405 8,402 50,015 30,244
Collaborative revenues 81,176 57,122 409,722 113,126
       
Total revenues   563,340     65,524     1,410,626     143,370  
 
Costs and expenses:
Cost of product revenues 22,936 --- 63,625 ---
Royalty expenses 7,191 3,049 16,880 12,730
Research and development expenses (R&D) 186,438 168,888 707,706 637,416
Sales, general & administrative expenses (SG&A) 121,881 62,478 400,721 187,800
Restructuring expense (credit) 992 (2,257 ) 2,074 1,501
Intangible asset impairment charge (Note 3)   ---     ---     105,800     ---  
 
Total costs and expenses 339,438 232,158 1,296,806 839,447
 
Income (loss) from operations   223,902     (166,634 )   113,820     (696,077 )
 
Net interest expense (Note 2) (12,233 ) (7,163 ) (36,574 ) (17,320 )
Change in fair value of derivative instruments (Note 2)   (868 )   (6,595 )   (16,801 )   (41,229 )
Income (loss) before provision for income taxes 210,801 (180,392 ) 60,445 (754,626 )
Provision for income taxes (Note 3)   22,660     ---     19,266     ---  
Net income (loss) 188,141 (180,392 ) 41,179 (754,626 )
Net income attributable to noncontrolling interest (Note 1)   29,512     ---     11,605     ---  
Net income (loss) attributable to Vertex $ 158,629   $ (180,392 ) $ 29,574   $ (754,626 )
 
Net income (loss) per share attributable to Vertex common shareholders:
Basic $ 0.76 $ (0.90 ) $ 0.14 $ (3.77 )
Diluted $ 0.74 $ (0.90 ) $ 0.14 $ (3.77 )
 
Shares used in per share calculations:
Basic 206,758 201,355 204,891 200,402
Diluted 217,602 201,355 208,807 200,402
 
 

Reconciliation of GAAP to Non-GAAP Financial Information-Fourth Quarter
(in thousands, except per share amounts)
(unaudited)

Three Months Ended December 31, 2011

 

      Adjustments
 
GAAP    

Alios
Transaction

   

Stock-based
Compensation
Expense

   

September 2009
Financial
Transactions

   

Mitsubishi Tanabe
Milestone

   

Restructuring
Expense

    Non-GAAP
Revenues $ 563,340 $ $ $ $ (65,000 ) $ $ 498,340
Operating costs and expenses   339,438     (3,119 )   (29,278 )         (992 )   306,049  
Income from operations 223,902 3,119 29,278 (65,000 ) 992 192,291
Other income and expenses   (13,101 )   358         8,798           (3,945 )
Income before provision for income taxes 210,801 3,477 29,278 8,798 (65,000 ) 992 188,346
Provision for income taxes   22,660     (19,511 )                 3,149  
Net income $ 188,141 $ 22,988 $ 29,278 $ 8,798 $ (65,000 ) $ 992 $ 185,197
Net income attributable to noncontrolling interest (Alios)   29,512     (29,512 )                  
Net income attributable to Vertex $ 158,629   $ 52,500   $ 29,278   $ 8,798 $ (65,000 ) $ 992   $ 185,197  
Net income per share attributable to Vertex common shareholders:
Basic $ 0.76 $ 0.89
Diluted $ 0.74 $ 0.86
Shares used in per share calculations:
Basic 206,758 206,758
Diluted 217,602 217,602
 

Three Months Ended December 31, 2010

 

 

Adjustments
 
GAAP

Alios
Transaction

Stock-based
Compensation
Expense

September 2009
Financial
Transactions

Mitsubishi Tanabe
Milestone

Restructuring
Expense

Non-GAAP
Revenues $ 65,524 $ $ $ $ $ $ 65,524
Operating costs and expenses   232,158         (23,574 )         2,257     210,841  
Loss from operations (166,634 ) 23,574 (2,257 ) (145,317 )
Other income and expenses   (13,758 )           10,551           (3,207 )
Net loss attributable to Vertex $ (180,392 ) $   $ 23,574   $ 10,551 $   $ (2,257 ) $ (148,524 )
Net loss per share attributable to Vertex common shareholders:
Basic $ (0.90 ) $ (0.74 )
Diluted $ (0.90 ) $ (0.74 )
Shares used in per share calculations:
Basic 201,355 201,355
Diluted 201,355 201,355
 
 

Reconciliation of GAAP to Non-GAAP Financial Information-Twelve Months
(in thousands, except per share amounts)
(unaudited)

Twelve Months Ended December 31, 2011     Adjustments
 
GAAP    

Alios
Transaction

   

Stock-based
Compensation
Expense

   

September 2009
Financial
Transactions

   

Mitsubishi Tanabe
Milestone

   

Intangible Asset
Impairment
Charge, Net of
Tax

   

Restructuring
Expense

    Non-GAAP
Revenues $ 1,410,626 $ $ $ (250,000 ) $ (65,000 ) $ $ $ 1,095,626
Operating costs and expenses   1,296,806     (9,178 )   (117,922 )           (105,800 )   (2,074 )   1,061,832  
Income from operations 113,820 9,178 117,922 (250,000 ) (65,000 ) 105,800 2,074 33,794
Other income and expenses   (53,375 )   358         38,488                 (14,529 )
Income before provision for income taxes 60,445 9,536 117,922 (211,512 ) (65,000 ) 105,800 2,074 19,265
Provision for income taxes   19,266     (48,809 )               32,692         3,149  
Net income $ 41,179 $ 58,345 $ 117,922 $ (211,512 ) $ (65,000 ) $ 73,108 $ 2,074 $ 16,116
Net income attributable to noncontrolling interest (Alios)   11,605     (11,605 )                        
Net income attributable to Vertex $ 29,574   $ 69,950   $ 117,922   $ (211,512 ) $ (65,000 ) $ 73,108   $ 2,074   $ 16,116  
Net income per share attributable to Vertex common shareholders:
Basic $ 0.14 $ 0.08
Diluted $ 0.14 $ 0.08
Shares used in per share calculations:
Basic 204,891 204,891
Diluted 208,807 208,807
Twelve Months Ended December 31, 2010

Adjustments

 
GAAP

Alios
Transaction

Stock-based
Compensation
Expense

September 2009
Financial
Transactions

Mitsubishi Tanabe
Milestone

Intangible Asset
Impairment
Charge, Net of
Tax

Restructuring
Expense

Non-GAAP
Revenues $ 143,370 $ $ $ $ $ $ $ 143,370
Operating costs and expenses   839,447         (91,124 )               (1,501 )   746,822  
Loss from operations (696,077 ) 91,124 1,501 (603,452 )
Other income and expenses   (58,549 )           56,297                 (2,252 )
Net loss attributable to Vertex $ (754,626 ) $   $ 91,124   $ 56,297   $   $   $ 1,501   $ (605,704 )
Net loss per share attributable to Vertex common shareholders:
Basic $ (3.77 ) $ (3.02 )
Diluted $ (3.77 ) $ (3.02 )
Shares used in per share calculations:
Basic 200,402 200,402
Diluted 200,402 200,402
 
 
Condensed Consolidated Balance Sheets Data
(in thousands)
(unaudited)
           

December 31,
2011

December 31,
2010

 

Assets

 

Cash, cash equivalents and marketable securities $ 968,922 $ 1,031,411
Restricted cash and cash equivalents (Alios) (Note 1) 51,878 ---
Accounts receivable, net 183,135 12,529
Inventories 112,430 ---
Other current assets 14,889 13,099
Property and equipment, net 133,176 72,333
Restricted cash 34,090 34,090
Intangible assets (Note 3) 663,500 518,700
Goodwill (Note 3) 30,992 26,102
Other non-current assets   11,268   17,182
Total assets $ 2,204,280 $ 1,725,446
 
 
Liabilities and Shareholders' Equity
Other liabilities $ 405,616 $ 182,142
Accrued restructuring expense 26,313 29,595
Deferred tax liability (Note 3) 243,707 160,278
Deferred revenues 163,132 234,668
Convertible notes (due 2015) 400,000 400,000
Liabilities related to milestone

transactions (Note 2)

--- 214,790
Noncontrolling interest (Alios) (Note 1) 178,669 ---
Shareholders' equity (Vertex)   786,843   503,973
Total liabilities and shareholders' equity $ 2,204,280 $ 1,725,446
Common shares outstanding 209,304 203,523

Note 1: The company has consolidated the financial statements of its collaborator Alios BioPharma, Inc., as of December 31, 2011 and for the period from June 13, 2011 through December 31, 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. Increases (decreases) in the fair value of contingent milestone and royalty payments result in gains (losses) attributable to the noncontrolling interest (Alios), which decrease (increase) net income attributable to Vertex on the Consolidated Statements of Operations Data.

Note 2: 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 as of December 31, 2010, relate to two financial transactions that the company entered into in September 2009 relating to milestone payments under the company's collaboration agreement with Janssen Pharmaceutica, N.V. In 2011, the company earned $250.0 million in milestone payments from its collaborator, Janssen, which are reflected in total collaborative revenues in the Consolidated Statements of Operations Data. During 2011, $155.0 million of these milestone payments was used to redeem $155.0 million in outstanding debt and the remaining $95.0 million was paid directly to the purchaser of the rights to the $95.0 million in payments.

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 $4.9 million of goodwill related to the Alios collaboration.

In the third quarter of 2011 the company determined that the value of VX-759, which was a back-up to VX-222, had become impaired and that the fair value of VX-759 was zero as of September 30, 2011, resulting in a $105.8 million impairment charge. In connection with this impairment charge, the company recorded a credit of $32.7 million in its provision for income taxes.

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, rheumatoid arthritis, 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. Today, Vertex has more than 2,000 employees around the world, and Science magazine named Vertex number one on its 2011 list of Top Employers in the life sciences.

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

Indication and Important Safety Information for KALYDECO

KALYDECO is a prescription medicine used for the treatment of cystic fibrosis (CF) in patients ages 6 years and older who have a certain mutation in their CF gene called the G551D mutation.

KALYDECO is not for use in people with CF due to other mutations in the CF gene. It is not effective in CF patients with two copies of the F508del mutation (F508del/F508del) in the CF gene.

It is not known if KALYDECO is safe and effective in children under 6 years of age.

KALYDECO should not be used with certain medicines, including the antibiotics rifampin and rifabutin; seizure medications (phenobarbital, carbamazepine, or phenytoin); and the herbal supplement St. John's Wort.

KALYDECO can cause serious side effects. High liver enzymes in the blood have occurred in patients taking KALYDECO. Regular assessment is recommended.

The most common side effects associated with KALYDECO include headache; upper respiratory tract infection (common cold) including sore throat, nasal or sinus congestion, and runny nose; stomach (abdominal) pain; diarrhea; rash; nausea; and dizziness.

These are not all the possible side effects of KALYDECO. Patients should tell their healthcare providers about any side effect that bothers them or doesn't go away.

Please see full Prescribing Information for KALYDECO at www.KALYDECO.com.

Indication and Important Safety Information for INCIVEK

INCIVEK™ (telaprevir) 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.

INCIVEK should always be taken in combination with peginterferon alfa and ribavirin. Ribavirin may cause birth defects or death of an unborn baby. Therefore, a patient should not take INCIVEK combination treatment if she is pregnant or may become pregnant, or if he is a man with a sexual partner who is pregnant. Patients must use two forms of effective birth control during treatment and for the 6 months after treatment with these medicines. Hormonal forms of birth control, including birth control pills, vaginal rings, implants or injections, may not work during treatment with INCIVEK.

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 patients cannot take with INCIVEK combination treatment. Patients should tell their healthcare providers about all the medicines they take, including prescription and non-prescription medicines, vitamins and herbal supplements.

INCIVEK can cause serious side effects including skin reactions, rash and anemia that can be severe. 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. Patients should tell their healthcare providers about any side effect that bothers them or doesn't go away.

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

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 Dr. Leiden's statements in the second paragraph of the press release, Mr. Smith's statements in the paragraph following the caption "2012 Financial Guidance," the information provided in the four paragraphs following the statement "This section contains forward-looking guidance about the financial outlook for Vertex Pharmaceuticals" and statements regarding (i) Vertex being positioned for growth, earnings and cashflow; (ii) the expected timing of data from (A) studies of VX-809 and VX-661, in each case dosed in combination with KALYDECO, (B) studies of ALS-2200 and ALS-2158 and (C) the ZENITH study; and (iii) the plans to conduct additional studies of KALYDECO, Phase 2 studies of ALS-2200 or ALS-2158 with VX-222 or INCIVEK, a global Phase 2b study of VX-509 and a Phase 2a study of VX-787. 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 the outcomes for each of Vertex's ongoing and planned clinical trials and studies may not be favorable, that the company's expectations regarding its 2012 INCIVEK revenues and/or operating expenses 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, February 2, 2012 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 1-877-250-8889 (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 40883608.

The call will be available for replay via telephone commencing February 2, 2012 at 8:00 p.m. ET running through 5:00 p.m. ET on February 9, 2012. The replay phone number for the United States and Canada is 1-855-859-2056. The international replay number is 1-404-537-3406.

Following the live webcast, an archived version will be available on Vertex's website until 5:00 p.m. ET on February 16, 2012. Vertex is also providing a podcast MP3 file available for download on the Vertex website at www.vrtx.com.

(VRTX-GEN)

Vertex Pharmaceuticals Incorporated
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Source: Vertex Pharmaceuticals Incorporated

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