November 1, 2012

Vertex Reports Third Quarter 2012 Financial Results and Recent Progress in Development Programs

-Third quarter 2012 total revenues of $336 million, including third quarter 2012 net product revenues of approximately $254 million for INCIVEK in hepatitis C and $49 million for KALYDECO in cystic fibrosis-

-Cystic Fibrosis: Three ongoing Phase 3 label expansion studies for ivacaftor monotherapy; pivotal program for VX-809 and ivacaftor combination expected to begin in early 2013-

-Hepatitis C: Planned start of first all-oral Phase 2 study of VX-135 by the end of 2012; agreements with GlaxoSmithKline and Janssen Pharmaceuticals announced today provide opportunity to study VX-135 in additional all-oral regimens in Phase 2 studies-

CAMBRIDGE, Mass.--(BUSINESS WIRE)-- Vertex Pharmaceuticals Incorporated (Nasdaq: VRTX) today reported consolidated financial results for the quarter ended September 30, 2012.

Vertex reported total revenues of approximately $336 million for the third quarter of 2012, including net product revenues of approximately $254 million from INCIVEK® (telaprevir) and approximately $49 million from KALYDECOTM (ivacaftor). Royalty revenues related to the sale of INCIVO® in Europe by our collaborator were approximately $20 million for the third quarter of 2012, and the company reported $1.3 billion in cash, cash equivalents and marketable securities as of September 30, 2012. In the third quarter of 2012, the company reported a GAAP net loss of approximately $(58) million, or $(0.27) per share, and non-GAAP net income of approximately $28 million, or $0.13 per diluted share. Vertex today also provided updates on a number of ongoing and planned trials in cystic fibrosis, hepatitis C, rheumatoid arthritis and influenza. In separate press releases issued earlier today, Vertex announced that it has entered into two non-exclusive agreements to conduct Phase 2 proof-of-concept studies of its nucleotide analogue hepatitis C virus (HCV) polymerase inhibitor VX-135 in combination with simeprevir (TMC435), a protease inhibitor being jointly developed by Janssen R&D Ireland and Medivir AB, and with GSK2336805, an NS5A inhibitor in development by GlaxoSmithKline (GSK), for the treatment of hepatitis C.

"In the third quarter, we made significant progress across our broad pipeline of potential medicines," said Jeffrey Leiden, M.D., Ph.D., Chair, President and Chief Executive Officer of Vertex. "In hepatitis C, we are advancing rapidly with our plans to evaluate multiple all-oral regimens of VX-135, both with medicines in our own pipeline and, as we announced earlier today, in collaboration with other companies. We are also advancing toward our goal to help more people with cystic fibrosis with the recent initiation of multiple label-expansion studies for ivacaftor and the planned start of pivotal development early next year for a combination of VX-809 and ivacaftor.

"Importantly, we are advancing our business while keeping a focus on financial discipline and prioritization to allow us to continue investing in key research and development programs that may produce transformative medicines for patients in the years to come," concluded Dr. Leiden.

Cystic Fibrosis (CF)

  • Ongoing global launch of KALYDECO: KALYDECO (ivacaftor) is approved in the U.S. and in all 27 EU countries for people with cystic fibrosis ages 6 and older who have at least one copy of the G551D mutation in the cystic fibrosis transmembrane conductance regulator (CFTR) gene. Currently, Vertex is working with individual countries in Europe to make KALYDECO available to eligible patients as soon as possible. Vertex has submitted marketing applications for KALYDECO in Canada and Australia that are currently under review with the respective regulatory agencies.
  • Efforts to help more CF patients with ivacaftor monotherapy: There are three Phase 3 label expansion trials and one Phase 2 proof-of-concept study underway for ivacaftor monotherapy:
    • A Phase 3 study of ivacaftor is ongoing in people with CF ages 6 and older who have at least one copy of the R117H mutation. Approximately 3 percent of people with CF in the U.S. have at least one R117H mutation.
    • A Phase 3 study of ivacaftor is ongoing in people with CF ages 6 and older who have at least one non-G551D CFTR gating mutation. Approximately 1 percent of people with CF in the U.S. have at least one non-G551D gating mutation.
    • A Phase 3 study of ivacaftor was recently initiated in children with CF ages 2 to 5 who have a gating mutation, with enrollment targeted to begin by the end of 2012.
    • A Phase 2 proof-of-concept study is underway evaluating ivacaftor in people with clinical evidence of residual CFTR function. This is the first study to evaluate the efficacy of ivacaftor based on a person's clinical symptoms and characteristics, or phenotype, rather than solely on their CFTR mutation, or genotype. Between 5 and 10 percent of people with CF in the U.S. may have residual CFTR function.
  • Combination therapy for people with two copies of the F508del mutation: Based on data from the second part of an ongoing Phase 2 study and pending discussions with regulatory agencies, Vertex is preparing to start a pivotal program in early 2013 evaluating combination therapy with VX-809 and ivacaftor in people ages 12 and older with two copies of the F508del mutation, the most common form of cystic fibrosis. A third part (Cohort 3) of the Phase 2 study is evaluating the pharmacokinetics, safety and tolerability of a twice-daily (q12h) combination of VX-809 (400mg) and ivacaftor (250mg). Cohort 3 is fully enrolled, and Vertex expects to use data from this part of the study to support the pivotal program for VX-809 and ivacaftor. Additional data are expected in the first half of 2013 from a Phase 2 study of combination therapy with VX-661, another CFTR corrector, and ivacaftor.
  • Research to identify additional CF treatment regimens: Vertex has an active and ongoing research program that has identified next-generation correctors. This research is being conducted as part of the company's collaboration with Cystic Fibrosis Foundation Therapeutics, Inc. and is focused on the accelerated discovery and development of correctors that could play a role in a variety of future combination treatments, including a dual corrector approach and other combinations with ivacaftor.

Hepatitis C

  • Development-stage agreements: Vertex announced earlier today that it has entered into two separate, non-exclusive agreements with GSK and Janssen Pharmaceuticals, Inc. to evaluate multiple all-oral treatment regimens for people with genotype 1 hepatitis C. The collaboration with GSK will evaluate Vertex's nucleotide analogue HCV polymerase inhibitor VX-135 in combination with GSK's NS5A inhibitor GSK2336805, and the collaboration with Janssen will evaluate VX-135 in combination with Janssen's protease inhibitor simeprevir (TMC435). Additional details were provided today in separate press releases.
  • Additional all-oral studies with VX-135: Based on positive viral kinetic data for VX-135 announced in the third quarter, Vertex plans to conduct 12-week Phase 2 all-oral studies of VX-135, including a study in combination with ribavirin and a study in combination with telaprevir, pending regulatory approval. The study in combination with ribavirin is expected to begin by the end of 2012, followed by the study with telaprevir in early 2013. Data on VX-135 will be presented at The Liver Meeting®, the 63rd Annual Meeting of the American Association for the Study of Liver Diseases (AASLD) in November 2012.
  • Telaprevir twice-daily dosing data: Data from a study examining twice-daily dosing (BID) for telaprevir will be presented at the upcoming AASLD annual meeting in Boston. The results demonstrated that twice-daily dosing of telaprevir in combination with peginterferon alfa and ribavirin compared to dosing telaprevir every eight hours, the currently approved dosing schedule, achieved similar sustained virological response (SVR12) rates, or viral cure rates, thereby meeting the study's primary objective of non-inferiority. Adverse events were generally similar between both arms of the study and consistent with previous studies. Vertex plans to submit data supporting this new dosing regimen to the U.S. Food and Drug Administration (FDA) in 2013 for potential inclusion in the telaprevir label in the U.S.

Pipeline Programs

  • Phase 2b study of VX-509 underway in rheumatoid arthritis: Enrollment is ongoing in the U.S. and Europe in a Phase 2b 350-person study of VX-509, an oral, selective JAK3 inhibitor, being evaluated in combination with methotrexate for people with moderate to severe rheumatoid arthritis (RA). Vertex expects to start additional studies of VX-509 in other immune-mediated inflammatory diseases in 2013.
  • Ongoing Phase 2 study of VX-787 in influenza: Vertex expects final data from an ongoing Phase 2 proof-of-concept study of VX-787 in experimental influenza by the end of 2012. VX-787 is an investigational medicine that is designed to treat influenza A, including recent H1N1 (pandemic) and H5N1 (avian) influenza strains.

Third Quarter 2012 Financial Results

Total Revenues: Total revenues were $336.0 million for the third quarter of 2012, compared with $659.2 million for the third quarter of 2011, which included one-time milestone revenue of $200.0 million from Janssen. Key components of total revenues for the third quarter 2012 were:

  • Net Product Revenues from INCIVEK: Net product revenues from INCIVEK were $254.3 million, compared with $419.6 for the third quarter of 2011.
  • Net Product Revenues from KALYDECO: Net product revenues from KALYDECO were $49.2 million. Because KALYDECO was approved in January 2012, there were no net product revenues from KALYDECO for the third quarter of 2011.
  • Royalty Revenues: Vertex recognized $25.6 million in royalty revenues, including $20.0 million in INCIVO royalty revenues from our collaborator Janssen, compared to $8.5 for the third quarter of 2011. INCIVO was approved in Europe in September 2011.
  • Collaborative Revenues: Vertex recognized $6.9 million in collaborative revenues, compared to $231.1 million for the third quarter of 2011, which included an aggregate of $200.0 million in milestone revenue from Janssen related to the approval and launch of INCIVO in Europe.

Cost of Product Revenues: Cost of product revenues was $30.7 million in the third quarter of 2012, compared to $35.3 million for the third quarter of 2011.

Research and Development (R&D) Expenses: R&D expenses were $200.2 million in the third quarter of 2012, including $21.3 million of Vertex stock-based compensation expense and Alios expenses related to the accounting for the collaboration with Vertex, compared to $189.1 million for the third quarter of 2011, including $20.9 million of Vertex stock-based compensation expense and Alios expenses related to the accounting for the collaboration with Vertex.

Sales, general and administrative (SG&A) expenses: SG&A expenses were $97.7 million in the third quarter of 2012, including $10.8 million of Vertex stock-based compensation expense and Alios expenses related to the accounting for the collaboration with Vertex, compared to $110.7 million for the third quarter of 2011, including $13.2 million of Vertex stock-based compensation expense and Alios expenses related to the accounting for the collaboration with Vertex.

GAAP Net Income (Loss) Attributable to Vertex: Vertex's GAAP net loss was $(57.5) million, or $(0.27) per share, for the third quarter of 2012 compared to the GAAP net income of $221.1 million, or $1.02 per diluted share, for the third quarter of 2011.

Non-GAAP Net Income Attributable to Vertex: Vertex's non-GAAP net income was $28.2 million, or $0.13 per diluted share, for the third quarter of 2012, excluding $28.2 million in stock-based compensation expense and restructuring expense and a $57.6 million charge related to an increase in the fair value of expected future payments under Vertex's collaboration with Alios. The non-GAAP net income was $151.2 million, or $0.70 per diluted share, for the third quarter of 2011, excluding $28.9 million in stock-based compensation expense, $(0.4) million in restructuring expense (credit), $188.9 million related to certain September 2009 financial transactions, a $73.1 million intangible asset impairment charge, net of tax, and a $17.5 million charge related to an increase in the fair value of expected future payments under Vertex's collaboration with Alios.

Cash Position: As of September 30, 2012, Vertex had $1.3 billion in cash, cash equivalents and marketable securities compared to cash, cash equivalents and marketable securities on December 31, 2011 of $968.9 million.

2012 Financial Guidance

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

Full-Year INCIVEK Revenues: Vertex is today reiterating its guidance for full-year 2012 INCIVEK net revenues to be in the range of $1.1 billion to $1.25 billion. This guidance was initially established on July 30, 2012.

Total Operating Expenses: Vertex is also reiterating its guidance for 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. This guidance was initially established on February 2, 2012.

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 third quarter and first nine months of 2012 and 2011 net income (loss) excluding stock-based compensation expense, restructuring expense, inventory write-off, revenues and expenses related to certain September 2009 financial transactions, intangible asset impairment charges, net of tax and charges related to changes in the fair value of expected future payments under 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 non-GAAP financial results to GAAP financial results is included in the attached financial statements.

 

Vertex Pharmaceuticals Incorporated

Third Quarter and Nine Month Results

Consolidated Statements of Operations Data

(in thousands, except per share amounts)

(unaudited)

 
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

2012   2011 2012   2011
Revenues:
Product revenues, net $303,501 $419,595 $1,052,149 $494,130
Royalty revenues 25,586 8,539 98,047 24,610
Collaborative revenues (Note 2) 6,919 231,066 42,852 328,546
Total revenues 336,006 659,200 1,193,048 847,286
 
Costs and expenses:
Cost of product revenues (Note 3) 30,680 35,285 161,147 40,689
Royalty expenses 7,856 3,121 31,023 9,689
Research and development expenses (R&D) 200,161 189,052 593,076 521,268
Sales, general & administrative expenses (SG&A)

97,684

110,654

326,344

278,840

Restructuring expense (credit) 696 (419) 1,650 1,082
Intangible asset impairment charge (Note 4) 105,800 105,800
Total costs and expenses 337,077 443,493 1,113,240 957,368
 
Income (loss) from operations (1,071) 215,707 79,808 (110,082)
 
Net interest expense (Note 2) (4,041) (6,982) (11,417) (24,341)
Change in fair value of derivative instruments (Note 2)

(8,115)

(15,933)

Income (loss) before provision for (benefit from) income taxes (5,112) 200,610 68,391 (150,356)
Provision for (benefit from) income taxes (Note 4) 21,355 (27,842) 41,450 (3,394)
Net income (loss) (26,467) 228,452 26,941 (146,962)

Net loss (income) attributable to noncontrolling interest (Note 1)

(31,076)

(7,342)

(57,825)

17,907

Net income (loss) attributable to Vertex $(57,543) $221,110 $(30,884) $(129,055)
 
Net income (loss) per share attributable to Vertex common shareholders:
Basic $(0.27) $1.06 $(0.15) $(0.63)
Diluted $(0.27) $1.02 $(0.15) $(0.63)
 
Shares used in per share calculations:
Basic 213,767 206,002 211,053 204,262
Diluted 213,767 219,349 211,053 204,262
 


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Reconciliation of GAAP to Non-GAAP Financial Information-Third Quarter

(in thousands, except per share amounts)

(unaudited)

 

Three Months Ended September 30, 2012

 

Adjustments

GAAP

 

Alios
Transaction

 

Stock-based
Compensation
Expense

 

Inventory
Write-off

 

September
2009 Financial
Transactions

 

Intangible
Asset
Impairment
Charge, Net of
Tax

 

Restructuring
Expense

  Non-GAAP
Income (loss) from operations $(1,071) $4,624 $27,484

$—

$—

$— $696 $31,733
Other income and expenses (4,041) 466

(3,575)
Income (loss) before provision for (benefit from) income taxes

(5,112)

5,090

27,484

696