10-QPeriod: Q1 FY2007

VERTEX PHARMACEUTICALS INC / MA Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 10, 2007For Securities:VRTX

Summary

Vertex Pharmaceuticals Inc. reported a net loss of $80.7 million for the first quarter of 2007, an increase from the $50.1 million net loss in the same period of 2006. This widened loss was primarily driven by a significant increase in research and development (R&D) expenses, which rose by 76% to $132.6 million. The company is heavily investing in the late-stage development and commercialization preparations for its lead drug candidate, telaprevir, for Hepatitis C. Total revenues more than doubled to $68.8 million, largely due to a substantial increase in collaborative and R&D revenues, notably from the new Janssen collaboration for telaprevir. Despite robust revenue growth, the aggressive R&D spending, coupled with increased sales, general, and administrative expenses, outpaced the revenue gains, leading to the higher net loss. The company maintains a strong cash position with $690.5 million in cash, cash equivalents, and marketable securities as of March 31, 2007, which it believes is sufficient for at least the next 18 months.

Key Highlights

  • 1Net loss increased to $80.7 million ($0.64 per share) from $50.1 million ($0.47 per share) in the prior year's quarter.
  • 2Total revenues surged by 76% to $68.8 million, driven by a 97% increase in collaborative and R&D revenues, largely from the new Janssen collaboration.
  • 3Research and Development (R&D) expenses increased significantly by 76% to $132.6 million, reflecting heavy investment in telaprevir and other drug candidates.
  • 4The company invested $31.7 million in building commercial supply for telaprevir, classified under R&D expenses.
  • 5Sales, General, and Administrative (SG&A) expenses increased by 28% to $16.5 million, supporting infrastructure build-out.
  • 6Cash, cash equivalents, and marketable securities stood at $690.5 million as of March 31, 2007, with management estimating sufficiency for at least the next 18 months.
  • 7All outstanding 5.75% Convertible Senior Subordinated Notes due February 2011 ($59.6 million) were converted into common stock during the quarter.

Frequently Asked Questions

The primary driver for the increased net loss is the significant rise in Research and Development (R&D) expenses. R&D costs grew by 76% to $132.6 million, driven by substantial investments in the late-stage clinical development of telaprevir for Hepatitis C and the establishment of its commercial supply chain. This increased spending outpaced the substantial revenue growth seen in the quarter.

Vertex experienced a robust increase in total revenues, which more than doubled to $68.8 million compared to $39.1 million in the same period of 2006. This growth was primarily fueled by a 97% surge in collaborative and other R&D revenues, largely attributed to the new collaboration with Janssen for telaprevir, which included an upfront payment amortization and a milestone payment. Royalty revenues also saw a modest increase.

Vertex reported a strong liquidity position with $690.5 million in cash, cash equivalents, and marketable securities as of March 31, 2007. The company believes this is sufficient to fund its operations for at least the next 18 months. However, given its continued operating losses and significant R&D investments, Vertex anticipates the need for additional funding in the future and is evaluating various capital market transactions. They also noted that all outstanding 2011 Convertible Senior Subordinated Notes were converted into common stock.

Telaprevir, Vertex's lead drug candidate for Hepatitis C, is undergoing extensive Phase 2b clinical trials (PROVE 1, 2, and 3). Interim data from PROVE 1 presented in April 2007 showed strong antiviral activity. The company is making significant investments in preparing for Phase 3 trials, regulatory filings, and establishing a commercial supply chain, even though it has limited prior experience in these areas. The company expects to initiate Phase 3 development by the end of 2007.