Market Overview

Vertex Reports Second-Quarter 2018 Financial Results

Share:

-Second-quarter 2018 total CF product revenues of $750 million, a 46%
increase compared to $514 million in the second quarter of 2017-

-Company increases full-year 2018 total CF product revenue guidance
to $2.9 to $3.0 billion; reiterates full-year 2018 combined non-GAAP R&D
and SG&A expense guidance of $1.50 to $1.55 billion-

-Provides update for triple combination regimens for CF; Phase 3
programs for both VX-659 and VX-445 expected to complete enrollment in
the second half of 2018-

Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) today reported
consolidated financial results for the second quarter ended June 30,
2018 and reviewed recent progress with its approved and investigational
medicines. Vertex also updated its guidance for full-year 2018 total CF
product revenues and reiterated its guidance for combined GAAP and
non-GAAP R&D and SG&A expenses.

 

Second-Quarter 2018 Financial Highlights

       
Three Months Ended June 30,
2018     2017 % Change
(in millions, except per share and percentage data)
TOTAL CF product revenues, net $ 750 $ 514 46%
 
GAAP net income $ 207 $ 18
GAAP net income per share - diluted $ 0.80 $ 0.07
 
Non-GAAP net income $ 244 $ 99 147%
Non-GAAP net income per share - diluted $ 0.94 $ 0.39 141%
 

"We have made tremendous progress across our business in the first half
of 2018 marked by the successful launch of SYMDEKO, the fast enrollment
of two Phase 3 programs for our triple combination regimens, and
continued success in bringing our CF medicines to more people outside of
the U.S.," said Jeffrey Leiden, M.D., Ph.D., Chairman, President and
Chief Executive Officer of Vertex. "As we enter the second half of the
year, we are well positioned to continue our progress toward developing
new medicines for all people with CF as well as advancing other
transformative medicines outside of CF from research into development."

 

Second-Quarter 2018 CF Net Product
Revenues

   
Three Months Ended June 30,
2018     2017
(in millions)
TOTAL CF product revenues, net $

750

$

514

 
KALYDECO product revenues, net $ 253 $ 190
ORKAMBI product revenues, net $ 311 $ 324
SYMDEKO product revenues, net $ 186 $
 

Total CF net product revenues increased 46% compared to the
second quarter of 2017 driven by the rapid uptake of SYMDEKO in the U.S.
across all eligible patients.

   

Second-Quarter 2018 R&D and SG&A Expenses

 
Three Months Ended June 30,
2018     2017
(in millions)
Combined GAAP R&D and SG&A expenses $

475

$

417

 
GAAP R&D expense $ 338 $ 289
GAAP SG&A expense $ 137 $ 127
 
Combined Non-GAAP R&D and SG&A expenses $

388

$

333

 
Non-GAAP R&D expense $ 281 $ 240
Non-GAAP SG&A expense $ 107 $ 93
 

Combined GAAP and non-GAAP R&D and SG&A expenses
increased compared to the second quarter of 2017 due to the advancement
of the company's portfolio of triple combination regimens for CF and
investments to support the treatment of CF globally.

Non-GAAP net income increased $145 million to $244 million
compared to the second quarter of 2017 largely driven by the strong
growth in total CF product revenues. GAAP net income increased $189
million to $207 million compared to the second quarter of 2017 due to an
increase in CF product revenues and an increase of $53.9 million in the
fair value of the company's strategic investments in CRISPR Therapeutics.

Cash, cash equivalents and marketable securities as of June 30,
2018 were approximately $2.8 billion, an increase of approximately $700
million compared to $2.1 billion as of December 31, 2017.

2018 Financial Guidance

Vertex today increased its full-year 2018 total CF product revenue
guidance and reiterated guidance for combined GAAP and non-GAAP R&D and
SG&A expenses as summarized below:

    Current FY 2018     Previous FY 2018
TOTAL CF product revenues $ 2.9 - 3.0 billion $ 2.65 - 2.80 billion
 
Combined GAAP R&D and SG&A expenses $ 1.80 - 1.95 billion Unchanged
Combined Non-GAAP R&D and SG&A expenses $ 1.50 - 1.55 billion Unchanged

The increase in total CF product revenue guidance reflects the continued
rapid uptake and strong demand for SYMDEKO in the U.S. among people ages
12 and older.

Business Highlights

TRIPLE COMBINATION REGIMENS

In the second half of 2018, Vertex expects to complete enrollment across
all four studies of its Phase 3 programs evaluating VX-659 and VX-445 in
people with CF ages 12 and older who have one F508del mutation
and one minimal function mutation and who have two copies of the F508del
mutation. Based on the anticipated completion of enrollment for both
programs, the company expects to submit a New Drug Application (NDA) to
the U.S. Food and Drug Administration (FDA) no later than mid-2019.

APPROVED CF MEDICINES

Strong demand for SYMDEKO: In the second quarter of 2018,
Vertex saw strong demand for SYMDEKO following the U.S. launch in
February 2018. SYMDEKO has received broad access and coverage from
commercial and government payers, which is similar to past U.S. launches
of KALYDECO and ORKAMBI.

On June 28, 2018, SYMDEKO was approved in Canada to treat people ages 12
and older who have two copies of the F508del mutation or who have
one copy of the F508del mutation and one of the following
mutations in the cystic fibrosis transmembrane conductance regulator
(CFTR) gene: P67L, D110H, R117C, L206W, R352Q, A455E, D579G, 711+3A→G,
S945L, S977F, R1070W, D1152H, 2789+5G→A, 3272-26A→G, and 3849+10kbC→T.
Vertex expects approval for the tezacaftor/ivacaftor combination in the
European Union (EU) in the second half of 2018.

Establishing long-term reimbursement outside of the U.S.:
On June 28, 2018, Vertex announced that it reached a pricing and
reimbursement agreement for ORKAMBI in Sweden. The innovative, long-term
access agreement also includes a framework for assessment and access to
Vertex's future CF medicines. In addition to Sweden, ORKAMBI is also
reimbursed for eligible people with CF in Austria, Denmark, Germany,
Ireland, Italy, Luxembourg and the Netherlands. Vertex continues to work
toward establishing pricing and reimbursement agreements in other
countries in the EU, Canada and Australia to ensure all eligible
patients have access to this important medicine as quickly as possible.

Treating patients at younger ages with CFTR modulators:
The company continues to make significant progress toward developing CF
medicines to be used earlier in the course of disease progression.
Recent highlights include:

  • Data expected in the second half of 2018 from a Phase 3 study
    evaluating ivacaftor in infants ages 6 to <12 months.
  • Data expected in the second half of 2018 from a Phase 3 study
    evaluating tezacaftor/ivacaftor in children ages 6 to 11.
  • Phase 3 study evaluating lumacaftor/ivacaftor in children ages
    12 to <24 months is planned to start in the second half of 2018.
  • Pending approval of ivacaftor in children ages 12 to <24 months
    with a Prescription Drug User Fee Act (PDUFA) action date of August
    15, 2018.
  • Pending approval of lumacaftor/ivacaftor in children ages 2 to
    5 years old with a PDUFA date of August 7, 2018.

SICKLE CELL DISEASE & β-THALASSEMIA

In beta thalassemia, Vertex and its partner CRISPR Therapeutics obtained
approval in the U.K. for a Clinical Trial Application (CTA) for CTX001
earlier this year and recently obtained a CTA approval in Canada. The
companies remain on track to initiate the first study of CTX001 in beta
thalassemia later this year. In sickle cell disease, the companies also
recently obtained CTA approvals in Canada and the U.K. and continue to
work with the FDA to address the agency's questions regarding the IND
for CTX001 that was submitted earlier this year.

Non-GAAP Financial Measures

In this press release, Vertex's financial results and financial guidance
are provided in accordance with accounting principles generally accepted
in the United States (GAAP) and using certain non-GAAP financial
measures. In particular, non-GAAP financial results and guidance exclude
(i) stock-based compensation expense, (ii) revenues and expenses related
to business development transactions including collaboration agreements,
asset acquisitions and consolidated variable interest entities, (iii)
non-operating tax adjustments and (iv) other adjustments, including
gains or losses related to the fair value of the company's strategic
investments in CRISPR and Moderna Therapeutics, Inc. 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 the company's 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. The company adjusts, where appropriate, for both revenues
and expenses in order to reflect the company's operations. The company
provides guidance regarding product revenues in accordance with GAAP and
provides guidance regarding combined research and development and sales,
general, and administrative expenses on both a GAAP and a non-GAAP
basis. The guidance regarding GAAP research and development expenses and
sales, general and administrative expenses does not include estimates
regarding expenses associated with any potential future business
development activities. A reconciliation of the GAAP financial results
to non-GAAP financial results is included in the attached financial
information.

       

Vertex Pharmaceuticals Incorporated
Second-Quarter
Results

Consolidated Statements of Operations Data
(in
thousands, except per share amounts)
(unaudited)

 
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
Revenues:
Product revenues, net $ 749,912 $ 513,988 $ 1,387,641 $ 994,610
Royalty revenues 1,085 2,861 2,441 4,412
Collaborative revenues (Note 1) 1,160   27,286   2,874   259,831  
Total revenues 752,157 544,135 1,392,956 1,258,853
Costs and expenses:
Cost of sales 104,382 71,205 175,995 118,193
Research and development expenses 337,532 289,451 648,085 563,014
Sales, general and administrative expenses 137,303 127,249 267,111 240,575
Restructuring expenses (income) 62   3,523   (14 ) 13,522  
Total costs and expenses 579,279   491,428   1,091,177   935,304  
Income from operations 172,878 52,707 301,779 323,549
Interest expense, net (10,106 ) (14,664 ) (21,203 ) (31,429 )
Other income (expense), net (Note 2) 53,819   (2,537 ) 150,657   (3,081 )
Income from operations before provision for (benefit from) income
taxes (Note 3)
216,591 35,506 431,233 289,039
Provision for (benefit from) income taxes (Note 3)(Note 4) 10,341   4,337   (2,318 ) 8,322  
Net income 206,250 31,169 433,551 280,717
Loss (income) attributable to noncontrolling interest (Note 3) 1,110   (13,173 ) (15,928 ) (14,965 )
Net income attributable to Vertex $ 207,360   $ 17,996   $ 417,623   $ 265,752  
 
Amounts per share attributable to Vertex common shareholders:
Net income:
Basic $ 0.82 $ 0.07 $ 1.65 $ 1.08
Diluted $ 0.80 $ 0.07 $ 1.61 $ 1.06
Shares used in per share calculations:
Basic 254,135 247,521 253,685 246,782
Diluted 258,584 251,635 258,557 250,199
 
 

Reconciliation of GAAP to Non-GAAP Net Income
Second-Quarter
Results

(in thousands, except per share amounts)
(unaudited)

       
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
GAAP net income attributable to Vertex $ 207,360 $ 17,996 $ 417,623 $ 265,752
Stock-based compensation expense 82,436 72,582 160,572 141,564
Collaborative and transaction revenues and expenses (Note 5) 1,352 4,051 25,898 (222,249 )
Other adjustments (Note 6) (52,092 ) 4,268 (147,254 ) 15,236
Non-operating tax adjustments (Note 7) 5,030     (16,829 )  
Non-GAAP net income attributable to Vertex $ 244,086   $ 98,897   $ 440,010   $ 200,303  
 
Amounts per diluted share attributable to Vertex common shareholders:
GAAP $ 0.80 $ 0.07 $ 1.61 $ 1.06
Non-GAAP $ 0.94 $ 0.39 $ 1.70 $ 0.80
Shares used in diluted per share calculations:
GAAP and Non-GAAP 258,584 251,635 258,557 250,199
 
       

Reconciliation of GAAP to Non-GAAP Revenues and Expenses
Second-Quarter
Results

(in thousands)
(unaudited)

 
Three Months Ended June 30, Six Months Ended June 30,
2018     2017 2018     2017
GAAP total revenues $ 752,157 $ 544,135 $ 1,392,956 $ 1,258,853
Collaborative and transaction revenues (Note 5) (941 ) (27,222 ) (2,860 ) (259,684 )
Non-GAAP total revenues $ 751,216   $ 516,913   $ 1,390,096   $ 999,169  
 
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
GAAP cost of sales $ 104,382 $ 71,205 $ 175,995 $ 118,193
Stock-based compensation expense (Note 8) (1,191 )   (2,004 )  
Non-GAAP cost of sales $ 103,191 $ 71,205 $ 173,991 $ 118,193
 
GAAP research and development expenses $ 337,532 $ 289,451 $ 648,085 $ 563,014
Stock-based compensation expense (51,612 ) (43,832 ) (100,100 ) (88,669 )
Collaborative and transaction expenses (Note 5) (3,605 ) (5,024 ) (5,460 ) (7,033 )
Other adjustments (Note 6) (1,522 ) (136 ) (1,740 ) (272 )
Non-GAAP research and development expenses $ 280,793 $ 240,459 $ 540,785 $ 467,040
 
GAAP sales, general and administrative expenses $ 137,303 $ 127,249 $ 267,111 $ 240,575
Stock-based compensation expense (29,633 ) (28,750 ) (58,468 ) (52,895 )
Collaborative and transaction expenses (Note 5) (240 ) (4,984 ) (1,415 ) (6,988 )
Other adjustments (Note 6) (242 ) (609 ) (396 ) (1,442 )
Non-GAAP sales, general and administrative expenses $ 107,188 $ 92,906 $ 206,832 $ 179,250
       
Combined non-GAAP R&D and SG&A expenses $ 387,981   $ 333,365   $ 747,617   $ 646,290  
 
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
GAAP interest expense, net and other income (expense), net $ 43,713 $ (17,201 ) $ 129,454 $ (34,510 )
Collaborative and transaction expenses (Note 5) (26 ) (40 ) (34 ) (74 )
Other adjustments (Note 6) (53,918 )   $ (149,376 )  
Non-GAAP interest expense, net and other (income) expense, net $ (10,231 ) $ (17,241 ) $ (19,956 ) $ (34,584 )
 
GAAP provision for (benefit from) income taxes $ 10,341 $ 4,337 $ (2,318 ) $ 8,322
Collaborative and transaction expenses (Note 5) 416 (8,132 ) (5,989 ) (8,523 )
Non-operating tax adjustments (Note 7) (5,030 )   16,829    
Non-GAAP provision for (benefit from) income taxes (Note 4) $ 5,727 $ (3,795 ) $ 8,522 $ (201 )
 
 

Condensed Consolidated Balance Sheets Data
(in
thousands)
(unaudited)

       
June 30, 2018 December 31, 2017
Assets
Cash, cash equivalents and marketable securities $ 2,767,755 $ 2,088,666
Accounts receivable, net 393,439 281,343
Inventories 115,025 111,830
Property and equipment, net 815,928 789,437
Intangible assets and goodwill 79,384 79,384
Other assets 163,855   195,354
Total assets $ 4,335,386   $ 3,546,014
 
Liabilities and Shareholders' Equity
Accounts payable and accruals $ 562,154 $ 517,955
Other liabilities 478,889 415,501
Deferred tax liability 9,335 6,341
Construction financing lease obligation 570,125 563,911
Shareholders' equity 2,714,883   2,042,306
Total liabilities and shareholders' equity $ 4,335,386   $ 3,546,014
 
Common shares outstanding 254,883 253,253
 

Note 1: In the six months ended June 30, 2017, collaborative
revenues were primarily attributable to a $230.0 million upfront payment
earned from the company's collaboration with Merck KGaA, Darmstadt,
Germany. During the three and six months ended June 30, 2017,
collaborative revenues includes $20.0 million that Parion Science Inc.,
a company that Vertex consolidated as a variable interest entities
("VIE") during the first three quarters of 2017, earned from a
collaboration agreement with a third party.

Note 2: The company recorded gains of $53.9 million and $146.5
million to "Other income (expense), net" in the three and six months
ended June 30, 2018, respectively, related to increases in the fair
value of the company's investment in CRISPR Therapeutics AG. The company
adopted ASU No. 2016-01, Recognition and Measurement of Financial
Assets and Financial Liabilities
effective January 1, 2018. Prior to
the adoption of ASU 2016-01 on January 1, 2018, changes in the fair
value of the company's investment in CRISPR were recorded to equity on
the company's condensed consolidated balance sheets until the related
gains and losses were realized; therefore, there was no comparable
income in the three and six months ended June 30, 2017.

Note 3: The company consolidates the financial statements of one
of its collaborators, BioAxone Biosciences, Inc. during the three and
six months of 2018 and 2017. BioAxone is consolidated because Vertex has
licensed the rights to develop its most significant intellectual
property asset. Each reporting period Vertex estimates the fair value of
the contingent payments by Vertex to BioAxone. Any increase in the fair
value of these contingent payments results in a decrease in net income
attributable to Vertex on a dollar-for-dollar basis. The fair value of
contingent payments is evaluated each quarter and any change in the fair
value is reflected in the company's statement of operations. Vertex also
consolidated Parion during the first three quarters of 2017.

Note 4: The company continues to maintain a valuation allowance
on the majority of its net operating losses and other deferred tax
assets. Due to this valuation allowance, the company did not record a
significant provision for income taxes in the three and six months of
2018 and 2017. The company is profitable from a U.S. federal income tax
perspective and has used a portion of its net operating losses to offset
this income since becoming profitable. The company may release all or a
portion of the valuation allowance in the near-term; however, the
release of the valuation allowance, as well as the exact timing and
amount of such release, continue to be subject to, among other things,
the company's level of profitability, revenue growth, clinical program
progression and expectations regarding future profitability. In the
period of the release of the valuation allowance, the company will
recognize a significant non-cash credit to net income and will reflect a
deferred tax asset, which is currently subject to the valuation
allowance, on its condensed consolidated balance sheet. Following the
release, the company expects to continue to utilize its net operating
losses to offset income, but would begin recording a provision for
income taxes reflecting the utilization of the deferred tax assets. As
of December 31, 2017, the company's U.S. Federal net operating loss
carry forwards totaled approximately $3.6 billion and its total deferred
tax asset balance subject to the valuation allowance was approximately
$1.6 billion.

Note 5: In the three and six months ended June 30, 2018 and 2017,
"Collaborative and transaction revenues and expenses" primarily
consisted of (i) revenues and operating costs and expenses attributable
to BioAxone, (ii) changes in the fair value of contingent milestone
payments and royalties payable by Vertex to BioAxone, and (iii)
collaboration revenues and payments. "Collaborative and transaction
revenues and expenses" included a $22.9 million increase in the fair
value of contingent milestone payments and royalties payable by Vertex
to BioAxone that were attributable to Vertex in the six months ended
June 30, 2018. "Collaborative and transaction revenues and expenses"
included (i) the $230.0 million upfront payment earned from Merck KGaA
in the six months ended June 30, 2017 and (ii) the $20.0 million of
collaborative revenues related to Parion in the three and six months
ended June 30, 2017, both of which are discussed in Note 1.

Note 6: In the three and six months ended June 30, 2018, "Other
adjustments" primarily consisted of the increase in fair value of the
company's investment in CRISPR Therapeutics AG discussed in Note 2 above
as well as a $2.9 million increase in the fair value of the company's
investment in Moderna Therapeutics, Inc. that was recorded in the three
months ended March 31, 2018. In the three and six months ended June 30,
2017, "Other adjustments" primarily consisted of restructuring charges
related to the company's decision to consolidate its research activities
into its Boston, Milton Park and San Diego locations and to close its
research site in Canada.

Note 7: In the three and six months ended June 30, 2018,
"Non-operating tax adjustments" included discrete items related to
stock-based compensation. On a GAAP basis, the company recorded a
provision for income taxes related to stock-based compensation of $5.0
million in the three months ended June 30, 2018 and a benefit from
stock-based compensation of $16.8 million in the six months ended June
30, 2018. The company expects the net benefit from income taxes for the
six months ended June 30, 2018, as well as any amounts recorded in the
third quarter of 2018, to reverse in the fourth quarter of 2018
resulting in no effect on its GAAP annual provision for income taxes.
Accordingly, the company is excluding these adjustments from its
Non-GAAP measures.

Note 8: In the three and six months ended June 30, 2018, "Cost of
sales" included $1.2 million and $2.0 million, respectively, in
stock-based compensation expense. In the three and six months ended June
30, 2017, "Cost of sales" included $0.5 million and $1.0 million,
respectively, in stock-based compensation expense. Beginning with the
first quarter of 2018, the company is adjusting for the stock-based
compensation expense recorded in "Cost of sales" in its reconciliation
of "Non-GAAP net income attributable to Vertex" and "Non-GAAP cost of
sales". In its Non-GAAP reconciliation, the company is not adjusting for
the stock-based compensation expense recorded in "Cost of sales" for the
three and six months ended June 30, 2017.

About Vertex

Vertex is a global biotechnology company that invests in scientific
innovation to create transformative medicines for people with serious
and life-threatening diseases. In addition to clinical development
programs in CF, Vertex has more than a dozen ongoing research programs
focused on the underlying mechanisms of other serious diseases.

Founded in 1989 in Cambridge, Mass., Vertex's headquarters is now
located in Boston's Innovation District. Today, the company has research
and development sites and commercial offices in the United States,
Europe, Canada and Australia. Vertex is consistently recognized as one
of the industry's top places to work, including being named to Science
magazine's Top Employers in the life sciences ranking for eight years in
a row.

For additional information and the latest updates from the company,
please visit www.vrtx.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 this press release, the
information provided in the sections captioned "2018 Financial Guidance"
and statements regarding (i) the timing and expected outcome of
regulatory applications, including NDAs and MAAs and (ii) the
development plan and timelines for our product development candidates,
including tezacaftor in combination with ivacaftor and our
next-generation triple combination regimens. While Vertex believes the
forward-looking statements contained in this press release are accurate,
these forward-looking statements represent the company's beliefs only as
of the date of this press release and 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 2018 CF net product revenues and expenses may
be incorrect (including because one or more of the company's assumptions
underlying its expectations may not be realized), that data from the
company's development programs may not support registration or further
development of its compounds due to safety, efficacy or other reasons,
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 and Webcast

The company will host a conference call and webcast today at 4:30 p.m.
ET. To access the call, please dial (866) 501-1537 (U.S.) or +1 (720)
545-0001 (International). The conference call will be webcast live and a
link to the webcast can be accessed through Vertex's website at www.vrtx.com
in the "Investors" section under "Events and Presentations." To ensure a
timely connection, it is recommended that users register at least 15
minutes prior to the scheduled webcast. An archived webcast will be
available on the company's website.

(VRTX-E)

View Comments and Join the Discussion!