10-QPeriod: Q2 FY2012

VERTEX PHARMACEUTICALS INC / MA Quarterly Report for Q2 Ended Jun 30, 2012

Filed August 8, 2012For Securities:VRTX

Summary

Vertex Pharmaceuticals Incorporated (VRTX) reported its financial results for the quarter and six months ended June 30, 2012. The company experienced a significant increase in total revenues, primarily driven by the strong performance of its key products INCIVEK and KALYDECO, which launched in May 2011 and January 2012, respectively. Despite the revenue growth, Vertex reported a net loss attributable to Vertex of $64.9 million for the quarter, compared to a net loss of $174.1 million in the prior year period. This was largely due to a substantial inventory write-down for INCIVEK ($78.0 million) and an increase in the fair value of contingent liabilities related to the Alios collaboration ($56.2 million). For the six-month period, Vertex reported a net income of $26.7 million, a significant improvement from the net loss of $350.2 million in the comparable period of 2011. The company's liquidity remains strong, with $1.2 billion in cash, cash equivalents, and marketable securities as of June 30, 2012, providing sufficient resources to fund operations and ongoing research and development efforts.

Financial Highlights

49 data points
Beta

Revenue

$418.31M

75.0% Gross Margin

Net Income

-$64.93M

-15.5% Net Margin

EPS (Diluted)

$-0.31

Total Assets

$2.60B

Cash & Equivalents

$454.06M

Free Cash Flow

$102.86M

Financial Statements
Beta
Revenue$418.31M
Cost of Revenue$104.55M
Gross Profit$313.76M
R&D Expenses$196.54M
SG&A Expenses$117.51M
Operating Expenses$429.07M
Operating Income-$10.77M
Interest Expense-$179K
Net Income-$64.93M
EPS (Basic)$-0.31
EPS (Diluted)$-0.31
Shares Outstanding (Basic)211.34M
Shares Outstanding (Diluted)211.34M

Key Highlights

  • 1Total revenues surged by 266% to $418.3 million for the quarter ended June 30, 2012, driven by product revenues from INCIVEK and the newly launched KALYDECO.
  • 2Despite revenue growth, Vertex reported a net loss of $64.9 million for the quarter, primarily impacted by a $78.0 million charge for excess and obsolete INCIVEK inventory and a $56.2 million increase in the fair value of Alios collaboration liabilities.
  • 3For the six months ended June 30, 2012, Vertex reported a net income of $26.7 million, a substantial turnaround from a net loss of $350.2 million in the same period last year.
  • 4Product revenues increased dramatically to $373.3 million for the quarter, with INCIVEK and KALYDECO contributing $327.7 million and $45.5 million, respectively.
  • 5Research and development expenses increased by 13% to $196.5 million for the quarter, reflecting continued investment in its drug pipeline, particularly for Hepatitis C (HCV) and Cystic Fibrosis (CF).
  • 6Sales, general, and administrative expenses rose by 22% to $117.5 million for the quarter, supporting the commercialization of INCIVEK and KALYDECO.
  • 7The company maintained a strong liquidity position with $1.2 billion in cash, cash equivalents, and marketable securities as of June 30, 2012.

Frequently Asked Questions

The substantial increase in total revenues was primarily driven by the strong performance of Vertex's key products, INCIVEK and KALYDECO. INCIVEK, approved in May 2011, and KALYDECO, approved in January 2012, generated significant product revenues. Royalty revenues also contributed positively due to the European launch of INCIVO by Janssen.

Despite revenue growth, a net loss was reported due to two significant charges. First, a $78.0 million charge for excess and obsolete INCIVEK inventory was recorded. Second, there was a $56.2 million increase in the fair value of contingent milestone and royalty payments related to the Alios collaboration, driven by positive clinical data for ALS-2200. These charges negatively impacted profitability for the quarter.

Vertex maintained a strong liquidity position with $1.2 billion in cash, cash equivalents, and marketable securities as of June 30, 2012. The company expects this liquidity, combined with ongoing cash flows from product and royalty revenues, to be sufficient to fund its operations and ongoing research and development for at least the next twelve months.

Vertex anticipates that INCIVEK net product revenues will decrease in the second half of 2012 due to competitive pressures. Conversely, KALYDECO net product revenues are expected to increase, supported by its recent European Union approval and ongoing market penetration. The company expects KALYDECO's revenue growth to partially offset the decline in INCIVEK revenues.