10-QPeriod: Q3 FY2001

VERTEX PHARMACEUTICALS INC / MA Quarterly Report for Q3 Ended Sep 30, 2001

Filed November 14, 2001For Securities:VRTX

Summary

Vertex Pharmaceuticals Inc. reported its third-quarter and year-to-date results for the period ending September 30, 2001. The company experienced increased revenues driven by service revenues and collaborative R&D, alongside a significant rise in research and development expenses. A major event for the quarter was the completion of the merger with Aurora Biosciences Corporation, accounted for using the pooling-of-interests method, which necessitated restatement of prior periods. The company also adopted a new revenue recognition policy for collaborative R&D, leading to a non-cash charge but aligning with industry practices. Financially, Vertex saw a decrease in cash and cash equivalents, largely due to operational funding of R&D activities and investments in property and equipment. While the company continues to incur net losses, it expects to fund its substantial future cash needs through existing collaborations, royalties from Agenerase, and current cash reserves, with the potential for additional financings. Investors should note the ongoing litigation with Chiron Corporation, which remains in a stay pending patent reexamination.

Key Highlights

  • 1Completed merger with Aurora Biosciences Corporation on July 18, 2001, accounted for under the pooling-of-interests method, with prior financial statements restated.
  • 2Reported a net loss of $11.5 million for Q3 2001, an improvement from the restated net loss of $24.2 million in Q3 2000, driven by a change in accounting principle for revenue recognition.
  • 3Total revenues increased to $40.4 million in Q3 2001 from $36.9 million in Q3 2000, with significant growth in service revenues and collaborative R&D revenues.
  • 4Research and Development expenses increased substantially to $38.1 million in Q3 2001 from $26.2 million in Q3 2000, reflecting continued investment in drug development.
  • 5Cash and cash equivalents decreased to $196.0 million as of September 30, 2001, from $346.7 million as of December 31, 2000, with net cash used in operating activities of $50.3 million for the nine months.
  • 6Adopted a new revenue recognition policy (Substantive Milestone Method) for collaborative R&D, resulting in a one-time non-cash charge of $25.9 million and restatement of prior periods.
  • 7Vertex is involved in ongoing litigation with Chiron Corporation regarding patent infringement; the lawsuit is currently stayed pending patent reexamination.

Frequently Asked Questions

The merger with Aurora Biosciences, completed on July 18, 2001, was accounted for using the pooling-of-interests method. This required Vertex to restate all prior period consolidated financial statements to include Aurora's results, financial position, and cash flows as if the merger had occurred earlier. This led to a significant increase in reported revenues and expenses, as well as merger-related costs.

Vertex changed its revenue recognition policy for collaborative and other research and development revenues from the EITF 91-6 method to the Substantive Milestone Method in Q3 2001. This change was applied retroactively to January 1, 2001, and resulted in a one-time non-cash charge of $25.9 million. The new method recognizes revenue over the period of performance, which generally defers revenue recognition compared to the previous method, impacting comparability without restatement.

Vertex reported a net loss for both the three and nine months ended September 30, 2001. The company continues to invest heavily in research and development and anticipates ongoing operating losses beyond 2001. While cash and investments decreased during the nine-month period, Vertex expects to fund its substantial cash needs through existing and future collaborations, royalties from Agenerase, current cash reserves, and potentially additional financing.

Vertex is a defendant in a patent infringement lawsuit filed by Chiron Corporation. The lawsuit, concerning research in the hepatitis C viral protease field, is currently stayed pending the outcome of a U.S. Patent and Trademark Office reexamination of Chiron's patents. Vertex believes the claims are without merit and intends to defend itself vigorously if the lawsuit resumes.