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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: SEPTEMBER 30, 1996 Commission File Number 0-19319
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VERTEX PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)
Massachusetts 04-3039129
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
130 WAVERLY STREET, CAMBRIDGE, MASSACHUSETTS 02139-4242
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(Address of principal executive offices, including zip code)
(617) 577-6000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 21,063,825
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Class Outstanding at November 08, 1996
Number of Pages: 12
Exhibit Index on Page 11
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VERTEX PHARMACEUTICALS INCORPORATED
INDEX
PAGE
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PART I. - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations -
Three Months Ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Operations -
Nine Months Ended September 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. - OTHER INFORMATION 11
SIGNATURES 12
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VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
September 30, December 31,
1996 1995
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ASSETS
Current assets:
Cash and cash equivalents $ 39,124 $28,390
Short-term investments 92,309 58,588
Prepaid expenses and other current assets 941 959
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Total current assets 132,374 87,937
Restricted cash 2,316 2,316
Property and equipment, net 7,014 7,840
Other assets 1,756 888
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Total assets $143,460 $98,981
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Obligations under capital lease $ 2,457 $ 2,075
Accounts payable and accrued expenses 2,918 6,525
Deferred revenue -- 197
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Total current liabilities 5,375 8,797
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Obligations under capital leases, excluding
current portion 4,419 4,912
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Total liabilities 9,794 13,709
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Stockholders' equity:
Common stock 210 173
Additional paid-in capital 226,579 142,038
Equity adjustments (45) --
Accumulated deficit (93,078) (56,939)
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Total stockholders' equity 133,666 85,272
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Total liabilities and stockholders' equity $143,460 $98,981
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The accompanying notes are an integral part of
these condensed consolidated financial statements.
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VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
Three Months Ended September 30,
--------------------------------
1996 1995
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Revenues:
Collaborative and other research and development $ 2,930 $ 2,314
Interest income 1,190 1,179
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Total revenues 4,120 3,493
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Costs and expenses:
Research and development 8,525 8,612
General and administrative 1,832 1,701
Interest 109 120
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Total costs and expenses 10,466 10,433
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Net loss $ (6,346) $ (6,940)
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Net loss per common share $ (0.33) $ (0.40)
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Weighted average number of common shares
outstanding 19,363,696 17,229,377
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The accompanying notes are an integral part of
these condensed consolidated financial statements.
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VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Nine Months Ended September 30,
-------------------------------
1996 1995
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Revenues:
Collaborative and other research and development $ 8,519 $ 13,901
Interest income 3,498 3,876
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Total revenues 12,017 17,777
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Costs and expenses:
Research and development 27,352 33,089
General and administrative 5,473 4,999
License payment 15,000 --
Interest 331 355
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Total costs and expenses 48,156 38,443
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Net loss $ (36,139) $ (20,666)
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Net loss per common share $ (2.00) $ (1.20)
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Weighted average number of common shares
outstanding 18,035,884 17,212,507
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The accompanying notes are an integral part of
these condensed consolidated financial statements.
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VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended September 30,
-------------------------------
1996 1995
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Cash flows from operating activities:
Net loss $(36,139) $(20,666)
Adjustment to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 2,534 2,723
Changes in assets and liabilities:
Prepaid expenses and other
current assets 18 (13)
Accounts payable and accrued
expenses (3,607) 2,048
Deferred revenue (197) (437)
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Net cash provided (used) by
operating activities (37,391) (16,345)
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Cash flows from investing activities:
Short-term investments (33,767) (12,873)
Deposit to collateralize letter of credit -- (2,316)
Expenditures for property and equipment (1,708) (1,716)
Other assets (869) (32)
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Net cash provided (used) by
investing activities (36,344) (16,937)
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Cash flows from financing activities:
Proceeds from public offerings of common stock 77,539 --
Proceeds from private placement of common stock 5,000 --
Other issuances of common stock 2,039 590
Proceeds from equipment sale/leaseback 1,488 1,758
Repayment of capital lease obligations (1,598) (1,350)
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Net cash provided (used) by
financing activities 84,468 998
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Effect of exchange rate changes on cash 1 4
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Increase (decrease) in cash and cash equivalents 10,734 (32,280)
Cash and cash equivalents at beginning of period 28,390 71,643
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Cash and cash equivalents at end of period $ 39,124 $ 39,363
======== ========
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying financial statements are unaudited and have been prepared
by the Company in accordance with generally accepted accounting principles.
Certain information and footnote disclosures normally included in the
Company's annual financial statements have been condensed or omitted. The
interim financial statements, in the opinion of management, reflect all
adjustments (including normal recurring accruals) necessary for a fair statement
of the results for the interim periods ended September 30, 1996 and 1995.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year,
although the Company expects to incur a substantial loss for the year ending
December 31, 1996. These interim financial statements should be read in
conjunction with the audited financial statements for the year ended December
31, 1995, which are contained in the Company's 1995 Annual Report to its
shareholders and in its Form 10-K filed with the Securities and Exchange
Commission.
2. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less at the date of purchase to be cash equivalents. Changes in
cash and cash equivalents may be affected by shifts in investment portfolio
maturities as well as by actual net cash receipts or disbursements.
3. NET LOSS PER COMMON SHARE
The net loss per common share is computed based upon the weighted average
number of common shares outstanding. Common equivalent shares are not included
in the per-share calculations where the effect of their inclusion would be
anti-dilutive.
4. LICENSE PAYMENT AND EQUITY TRANSACTION
In June 1996, the Company and Glaxo Wellcome plc ("Glaxo") obtained a
worldwide, non-exclusive license under certain G.D. Searle & Co. ("Searle")
patent applications in the area of HIV protease inhibition. Vertex paid $15.0
million and Glaxo paid $10.0 million to Searle for the license. The Company also
agreed to pay Searle a royalty on sales of VX-478, the Company's lead HIV
compound. In connection with this transaction, Glaxo purchased 151,792 shares of
the Company's Common Stock at a price of $32.94 per share, with net proceeds to
the Company of approximately $5.0 million.
5. PUBLIC OFFERING OF COMMON STOCK
On August 14, 1996, the Company completed a public offering of 3,450,000
shares of its common stock, including an over-allotment option exercised by the
underwriters for 450,000 shares, at a price of $24 per share. Gross proceeds
from this offering were $82,800,000, and net proceeds to the Company totaled
approximately $77,539,000 after expenses and underwriting discounts.
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VERTEX PHARMACEUTICALS INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Vertex Pharmaceuticals Incorporated ("Vertex" or "the Company") is engaged
in the discovery, development and commercialization of novel, small molecule
pharmaceuticals for the treatment of major diseases for which there are
currently limited or no effective treatments. The Company is a leader in the use
of structure-based drug design, an approach to drug discovery that integrates
advanced biology, biophysics and chemistry. The Company is conducting eight
significant pharmaceutical research and development programs to develop
pharmaceuticals for the treatment of viral diseases, multidrug resistance in
cancer, hemoglobin disorders, inflammation, immunosuppression and
neurodegenerative disorders. Three of these programs are in the development
phase, and the other five are in the research phase. During the third quarter of
1996, Vertex's partner, Glaxo Wellcome plc ("Glaxo Wellcome"), reported Phase
I/II clinical results for VX-478 (141W94), the lead compound from the Company's
HIV program. The clinical data suggests that VX-478 was well-tolerated and
displayed potent antiviral activity at the doses tested. Kissei Pharmaceutical
Co., Ltd. ("Kissei") is also developing VX-478 as Vertex's partner for the HIV
program in the Far East. During the third quarter, clinical trials continued for
VX-710, the Company's lead compound in its cancer multidrug resistance program.
The Company, together with its partner Alpha Therapeutic Corporation ("Alpha")
and Ravizza Farmaceutici S.p.A. ("Ravizza"), also continued development of
VX-366 in its hemoglobin disorders program.
To date, the Company has not received any revenues from the sale of
pharmaceutical products and does not expect to receive such revenues, if any,
for several years. The Company has incurred since its inception, and expects to
incur over the next several years, significant operating losses as a result of
expenditures for its research and development programs. The Company expects that
losses will fluctuate from quarter to quarter and that such fluctuations may be
substantial.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995. For the third quarter of 1996, the Company's total revenues
were $4,120,000 as compared to $3,493,000 during the same period in 1995. From
quarter to quarter, the Company's revenues fluctuate as a result of changes in
the timing and amount of partner research support payments, partner
reimbursements of Vertex drug development costs, and payments for the
achievement of various research or development milestones. The quarterly revenue
increase for the three months ended September 30, 1996 was principally due to
the reimbursement by Glaxo Wellcome of certain development costs associated with
the Company's HIV program. In the third quarter of 1996, the Company received
$2,678,000 in revenue from its collaborative agreements, $1,190,000 in interest
earned on invested funds and $252,000 from government grants and other revenue.
In the third quarter of 1995, revenues consisted of $2,250,000 earned under
collaborative agreements, $1,179,000 in interest earned and $64,000 from
government grants.
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VERTEX PHARMACEUTICALS INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - CONTINUED
The Company's total costs and expenses increased slightly to $10,466,000
for the third quarter of 1996, from $10,433,000 in the comparable quarter in
1995. Research and development expenses declined in the third quarter of 1996 to
$8,525,000 from $8,612,000 for the same period in 1995. The decrease in research
and development expense resulted from lower levels of clinical trial and
material manufacturing costs incurred during the third quarter of 1996. These
cost decreases were offset in part by increased costs associated with personnel
growth of approximately 19% in the research and development organization.
General and administrative expenses increased 8% during the third quarter of
1996 to $1,832,000 from $1,701,000 in the third quarter of 1995. This moderate
increase reflects the addition of management and related support personnel.
Interest expense was $109,000 in the third quarter of 1996 as compared to
$120,000 during the same period in 1995 as a result of lower interest rates
charged on similar levels of equipment financing.
For the reasons stated above, the Company incurred a net loss of
$6,346,000 or $.33 per share in the third quarter of 1996 as compared to a net
loss of $6,940,000 or $.40 per share in the third quarter of 1995. In addition,
the net loss per share was reduced for the third quarter of 1996 by an increase
in average shares outstanding for the quarter as compared to the third quarter
of 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1995. The Company's total revenues decreased to $12,017,000 during
the nine months ended September 30, 1996 from $17,777,000 for the nine months
ended September 30, 1995. The principle reason for the decrease was the
discontinuance of research funding under the Chugai Pharmaceutical Co., Ltd. and
Kissei collaborative agreements. In addition, the reimbursements by Glaxo
Wellcome in the nine months ended September 31, 1996 of certain material
manufacturing expenses were lower as compared to the same period in
1995. In 1996, the Company's revenues consisted of $7,825,000 earned under the
Company's collaborative agreements, $3,498,000 in interest income and $694,000
in government grants and other income. During the same period in 1995, the
Company's revenues consisted of $13,518,000 earned under the Company's
collaborative agreements, $3,876,000 in interest income and $383,000 in
government grants and other income.
The Company's total costs increased to $48,156,000 for the nine months
ended September 30, 1996 from $38,443,000 for the nine months ended September
30, 1995. The principle reason for the increase was the Company's payment of
$15,000,000 to obtain a non-exclusive, world-wide license under certain G.D.
Searle & Co. patent applications claiming HIV protease inhibitors. Research and
development expenses decreased to $27,352,000 in the nine months ended September
31, 1996 from $33,089,000 in the same period in 1995. This decrease is
attributable to higher levels of manufacturing expense incurred in 1995 for the
HIV program in anticipation of ongoing and near-term clinical trials. The
increase in general and administrative costs and expenses for the 1996 period to
$5,473,000 from $4,999,000 is due mainly to increasing average staff levels and
staff related expenditures including a growing sales and marketing
infrastructure for the Company's subsidiary Altus Biologics Inc. Interest
expense on lease financing of equipment was $331,000 in the nine months ended
September 30, 1996 as compared to $355,000 during the same period in 1995.
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VERTEX PHARMACEUTICALS INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - CONTINUED
For the reasons stated above, the Company incurred a net loss of
$36,139,000 or $2.00 per share in the nine months ended September 30, 1996
compared to a net loss of $20,666,000 or $1.20 per share in the nine months
ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company's operations have been funded principally
through strategic collaborative agreements, public offerings and private
placements of the Company's equity securities, equipment lease financing,
government grants and interest income. The Company expects to incur increased
research and development and related supporting expenses and, consequently,
continued losses on a quarterly and annual basis as it continues to develop
existing and future compounds as well as undertaking clinical trials of
potential drugs. The Company also expects to incur substantial administrative
and commercialization expenditures in the future and additional expenses related
to the filing, prosecution, defense and enforcement of patent and other
intellectual property rights.
The Company expects to finance these substantial cash needs with its
existing cash and investments of approximately $131.4 million, together with
interest earned thereon, future payments under its existing collaborative
agreements, and facilities and equipment financing. To the extent that funds
from these sources are not sufficient to fund the Company's activities, it will
be necessary to raise additional funds through public offerings or private
placements of securities or other methods of financing. There can be no
assurance that such financing will be available on acceptable terms, if at all.
The Company's aggregate cash and investments increased by $44,455,000
during the nine months ended September 30, 1996, principally due to the third
quarter issuances of the Company's common stock. Cash used by operations,
principally to fund research and development activities, was $37,391,000 during
the same period.
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PART II.
OTHER INFORMATION
Item 1. Legal Proceedings:
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None
Item 2. Changes in Securities:
----------------------
None
Item 3. Defaults Upon Senior Securities:
--------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders:
----------------------------------------------------
None
Item 5. Other Information:
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None
Item 6. Exhibits and Reports on Form 8-K:
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27 Financial Data Schedule (submitted as an exhibit only in the
electronic format of this Quarterly Report on Form 10-Q
submitted to the Securities and Exchange Commission).
Reports on Form 8-K:
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERTEX PHARMACEUTICALS INCORPORATED
Date: November 12, 1996 /s/ Thomas G. Auchincloss, Jr.
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Thomas G. Auchincloss, Jr.
Senior Director of Finance and Treasurer
(Principal Financial Officer)
/s/ Hans D. van Houte
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Hans D. van Houte
Controller
(Principal Accounting Officer)
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1,000
U.S. DOLLARS
3-MOS
DEC-31-1995
JUL-01-1996
SEP-30-1996
1
39,124
92,309
0
0
0
132,374
26,426
19,412
143,460
5,375
0
210
0
0
133,456
143,460
0
4,120
0
10,357
0
0
109
(6,346)
0
0
0
0
0
(6,346)
(0.33)
0
