10-QPeriod: Q3 FY2011

VERTEX PHARMACEUTICALS INC / MA Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 3, 2011For Securities:VRTX

Summary

Vertex Pharmaceuticals Incorporated (VRTX) reported strong financial results for the third quarter of 2011, driven by the successful launch and sales of its hepatitis C drug, INCIVEK™. The company generated significant product revenues and achieved profitability for the quarter, a notable improvement from previous periods. This performance was further bolstered by milestone payments from its collaboration with Janssen Pharmaceutica, N.V. regarding INCIVO. Beyond INCIVEK's commercial success, Vertex is advancing its pipeline with regulatory submissions for KALYDECO™ (VX-770) for cystic fibrosis. The company also recorded an intangible asset impairment charge related to VX-759, a backup drug candidate, due to the advancement of its lead candidate, VX-222. Despite increased operating expenses related to commercialization and R&D investments, Vertex ended the quarter with a healthy cash position and anticipates continued revenue growth from its key products.

Financial Highlights

50 data points
Beta

Revenue

$659.20M

94.6% Gross Margin

Net Income

$221.11M

33.5% Net Margin

EPS (Diluted)

$1.02

Total Assets

$2.09B

Cash & Equivalents

$542.54M

Free Cash Flow

$32.91M

Financial Statements
Beta
Revenue$659.20M
Cost of Revenue$35.28M
Gross Profit$623.91M
R&D Expenses$189.05M
SG&A Expenses$110.65M
Operating Expenses$443.49M
Operating Income$215.71M
Interest Expense$7.06M
Net Income$221.11M
EPS (Basic)$1.06
EPS (Diluted)$1.02
Shares Outstanding (Basic)206.00M
Shares Outstanding (Diluted)219.35M

Key Highlights

  • 1Significant revenue growth driven by INCIVEK™ (telaprevir) product sales, generating $419.6 million in the third quarter of 2011.
  • 2Achieved profitability in the third quarter of 2011 with net income of $221.1 million, a substantial turnaround from prior periods.
  • 3Received $200 million in milestone revenues from Janssen for the approval and launch of INCIVO™ (telaprevir) in the European Union.
  • 4Submitted New Drug Application (NDA) and Marketing Authorization Application (MAA) for KALYDECO™ (ivacaftor/VX-770) for cystic fibrosis.
  • 5Recorded a $105.8 million intangible asset impairment charge related to VX-759, a backup Hepatitis C drug candidate, due to the advancement of VX-222.
  • 6Ended the quarter with a strong cash and marketable securities balance of $658.7 million, indicating robust liquidity.
  • 7Increased operating expenses, particularly in sales, general, and administrative functions, reflecting the commercialization efforts for INCIVEK.

Frequently Asked Questions

The primary driver was the successful launch and strong sales of INCIVEK™ (telaprevir), Vertex's treatment for chronic Hepatitis C virus (HCV) infection. This resulted in substantial product revenues and contributed to the company achieving profitability for the quarter.

Vertex submitted its New Drug Application (NDA) to the FDA and its Marketing Authorization Application (MAA) to the European Union for KALYDECO™ (VX-770) in October 2011. The drug is intended for patients with CF with at least one copy of the G551D mutation in the CFTR gene. The company is seeking Priority Review from the FDA and Accelerated Assessment from the EMA.

Vertex recorded a $105.8 million intangible asset impairment charge related to VX-759, a backup HCV polymerase inhibitor. This decision was made because the company's lead HCV polymerase inhibitor, VX-222, had advanced significantly in clinical trials, making further development of VX-759 unlikely and resulting in its fair value being assessed at zero.

Vertex consolidated Alios BioPharma, Inc. in June 2011, accounting for it as a business combination. This led to the recognition of intangible assets and goodwill on Vertex's balance sheet. The net income (loss) attributable to the noncontrolling interest in Alios is reflected on Vertex's income statement and can impact Vertex's overall net income.