Vertex Pharmaceuticals
Nov 1, 2012
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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)

Hepatitis C

Pipeline Programs

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:

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
 
 

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 28,158
Provision for (benefit from) income taxes 21,355 (21,394)

(39)
Net income (loss) (26,467) 26,484 27,484 696 28,197

Net loss (income) attributable to noncontrolling interest (Alios)

(31,076)

31,076

Net income (loss) attributable to Vertex $(57,543) $57,560 $27,484

$—

$— $— $696 $28,197
 
Net income (loss) per diluted share attributable to Vertex common shareholders (Note 5) $(0.27) $0.13
 
 

Three Months Ended September 30, 2011

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 $215,707 $5,258 $28,886 $— $(200,000) $105,800 $(419) $155,232
Other income and expenses (15,097) 11,075 (4,022)
Income (loss) before provision for (benefit from) income taxes 200,610 5,258 28,886 (188,925) 105,800 (419) 151,210
Provision for (benefit from) income taxes (27,842) (4,850) 32,692
Net income (loss) 228,452 10,108 28,886 (188,925) 73,108 (419) 151,210

Net loss (income) attributable to noncontrolling interest (Alios)

(7,342)

7,342

Net income (loss) attributable to Vertex $221,110 $17,450 $28,886 $— $(188,925) $73,108 $(419) $151,210
 
Net income (loss) per diluted share attributable to Vertex common shareholders (Note 5) $1.02 $0.70
 
 

Reconciliation of GAAP to Non-GAAP Financial Information-Nine Month

(in thousands, except per share amounts)

(unaudited)

 

Nine 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

$79,808 $14,356 $86,280 $78,000 $— $— $1,650 $260,094
Other income and expenses (11,417) 225 (11,192)
Income (loss) before provision for (benefit from) income taxes

68,391

14,581 86,280

78,000

1,650 248,902
Provision for (benefit from) income taxes 41,450 (40,354) 1,239 2,335
Net income (loss) 26,941 54,935 86,280 76,761 1,650 246,567

Net loss (income) attributable to noncontrolling interest (Alios)

(57,825)

57,825

Net income (loss) attributable to Vertex $(30,884) $112,760 $86,280 $76,761 $— $— $1,650 $246,567
 
Net income (loss) per diluted share attributable to Vertex common shareholders (Note 5)

$(0.15)

$1.14

 
 

Nine Months Ended September 30, 2011

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 $(110,082) $6,059 $88,644 $ — $(250,000) $105,800 $1,082 $(158,497)
Other income and expenses (40,274) 29,690 (10,584)
Income (loss) before provision for (benefit from) income taxes (150,356) 6,059 88,644 (220,310) 105,800 1,082 (169,081)
Provision for (benefit from) income taxes (3,394) (29,298) 32,692
Net income (loss) (146,962) 35,357 88,644 (220,310) 73,108 1,082 (169,081)

Net loss (income) attributable to noncontrolling interest (Alios)

17,907

(17,907)

Net income (loss) attributable to Vertex $(129,055) $17,450 $88,644 $— $(220,310) $73,108 $1,082 $(169,081)
 
Net income (loss) per diluted share attributable to Vertex common shareholders (Note 5) $(0.63) $(0.83)
 
 

Condensed Consolidated Balance Sheets Data

(in thousands)

(unaudited)

 
 

September 30,
2012

 

December 31,
2011

 

Assets

 

Cash, cash equivalents and marketable securities $1,298,542 $968,922
Restricted cash and cash equivalents (Alios) (Note 1) 74,954 51,878
Accounts receivable, net 139,629 183,135
Inventories (Note 3) 86,275 112,430
Other current assets 35,123 14,889
Property and equipment, net 347,249 133,176
Restricted cash 32,166 34,090
Intangible assets (Note 4) 663,500 663,500
Goodwill (Note 4) 30,992 30,992
Other non-current assets 10,393 11,268

Total assets

$2,718,823 $2,204,280
 
 
Liabilities and Shareholders' Equity
Other liabilities $619,527 $405,616
Accrued restructuring expense 24,155 26,313
Deferred tax liability (Note 4) 279,466 243,707
Deferred revenues 130,929 163,132
Convertible notes (due 2015) 400,000 400,000
Noncontrolling interest (Alios) (Note 1) 237,013 178,669
Shareholders' equity (Vertex) 1,027,733 786,843
Total liabilities and shareholders' equity $2,718,823 $2,204,280
Common shares outstanding 216,342 209,304
 

Note 1: The company has consolidated the financial statements of its collaborator Alios BioPharma, Inc., as of September 30, 2012 and December 31, 2011, for the three and nine months ended September 30, 2012, and for the period from June 13, 2011 through September 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. 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: In the three and nine months ended September 30, 2011, 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 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 the three and nine months ended September 30, 2011, the company earned $200.0 million and $250.0 million, respectively in milestone revenue from its collaborator, Janssen, which are reflected in total collaborative revenues in the Condensed Consolidated Statements of Operations Data.

Note 3: In the second quarter of 2012, the company recorded within cost of product revenues a $78.0 million lower of cost or market charge for excess and obsolete INCIVEK inventories.

Note 4: 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 June 2011.

In the third quarter of 2011, the company recorded an impairment charge of $105.8 million related to VX-759, a back-up HCV polymerase inhibitor to VX-222 that had been discovered by ViroChem Pharma Inc. The fair value of VX-759 following the impairment charge was zero. In connection with this impairment charge, the company recorded a benefit from income taxes of $32.7 million resulting in a net effect on its income (loss) related to this impairment of $73.1 million in the three and nine months ended September 30, 2011.

Note 5: Shares used in Non-GAAP net income (loss) per diluted share attributable to Vertex common shareholders were 217,797,000 and 219,349,000 for the three months ended September 30, 2012 and 2011, respectively, and 214,580,000 and 204,262,000 for the nine months ended September 30, 2012 and 2011, respectively.

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 and other life-threatening diseases.

Founded more than 20 years ago in Cambridge, Mass., 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 for three years in a row, Science magazine has named Vertex one of its Top Employers in the life sciences.

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

INDICATION AND IMPORTANT SAFETY INFORMATION FOR KALYDECO (ivacaftor)

KALYDECO (150mg tablets) is indicated for the treatment of cystic fibrosis (CF) in patients age 6 years and older who have a G551D mutation in the CFTR gene.

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

High liver enzymes (transaminases, ALT and AST) have been reported in patients receiving KALYDECO. It is recommended that ALT and AST be assessed prior to initiating KALYDECO, every 3 months during the first year of treatment, and annually thereafter. Patients who develop increased transaminase levels should be closely monitored until the abnormalities resolve. Dosing should be interrupted in patients with ALT or AST of greater than 5 times the upper limit of normal. Following resolution of transaminase elevations, consider the benefits and risks of resuming KALYDECO dosing. Moderate transaminase elevations are common in subjects with CF. Overall, the incidence and clinical features of transaminase elevations in clinical trials was similar between subjects in the KALYDECO and placebo treatment groups. In the subset of patients with a medical history of elevated transaminases, increased ALT or AST have been reported more frequently in patients receiving KALYDECO compared to placebo.

Use of KALYDECO with medicines that are strong CYP3A inducers such as the antibiotics rifampin and rifabutin; seizure medications (phenobarbital, carbamazepine, or phenytoin); and the herbal supplement St. John's Wort substantially decreases exposure of KALYDECO, which may diminish effectiveness. Therefore, co-administration is not recommended.

The dose of KALYDECO must be adjusted when concomitantly used with potent and moderate CYP3A inhibitors.

KALYDECO can cause serious adverse reactions including abdominal pain and high liver enzymes in the blood. The most common side effects associated with KALYDECO include headache; upper respiratory tract infection (the common cold), including sore throat, nasal or sinus congestion, and runny nose; stomach (abdominal) pain; diarrhea; rash; and dizziness. These are not all the possible side effects of KALYDECO. A list of the adverse reactions can be found in the full product labeling for each country where KALYDECO is approved. Patients should tell their healthcare providers about any side effect that bothers them or doesn't go away.

Please see full U.S. Prescribing Information for KALYDECO at www.KALYDECO.com and the EU Summary of Product Characteristics for KALYDECO at http://goo.gl/N3Tz4.

INDICATION AND IMPORTANT SAFETY INFORMATION FOR INCIVEK (telaprevir)

Indication

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.

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, 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, without limitation, Dr. Leiden's statements in the third and fourth paragraphs of the press release, the information provided in the two paragraphs following the statement "This section contains forward-looking guidance about the financial outlook for Vertex Pharmaceuticals" and statements regarding (i) the expectation that the pivotal program for ivacaftor and VX-809 will begin in early 2013; (ii) the expectations regarding the timing and structure of all-oral Phase 2 studies with VX-135; (iii) information regarding the company's ongoing and planned studies, including studies to evaluate ivacaftor, ivacaftor in combination with VX-809, VX-135, VX-509 and VX-787; (iv) expectations regarding the availability of data from ongoing studies, including Cohort 3 of the Phase 2 study of ivacaftor and VX-809, the ongoing Phase 2 study of VX-661 and the ongoing Phase 2 study of VX-787, (v) Vertex's CF research program and (vi) the company's plans to submit data supporting a twice-daily dosing regimen to the U.S. Food and Drug Administration in 2013 for potential inclusion in the telaprevir label in the U.S. 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 company's expectations regarding its 2012 INCIVEK net 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), that the outcomes of Vertex's ongoing and planned clinical studies may not be favorable, that the initiation of planned studies may be delayed or prevented, 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, November 1, 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' 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 38809529.

The call will be available for replay via telephone commencing November 1, 2012 at 8:00 p.m. ET running through 5:00 p.m. ET on November 15, 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 November 8, 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
Investors
Michael Partridge, 617-341-6108
or
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Source: Vertex Pharmaceuticals Incorporated

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