10-QPeriod: Q3 FY2012

VERTEX PHARMACEUTICALS INC / MA Quarterly Report for Q3 Ended Sep 30, 2012

Filed November 6, 2012For Securities:VRTX

Summary

Vertex Pharmaceuticals Inc. reported a net loss attributable to Vertex of $57.5 million for the third quarter of 2012, a significant change from the $221.1 million net income reported in the same period of the prior year. This shift was primarily driven by a substantial decrease in collaborative revenues, largely due to the absence of milestone payments received in the prior year, and a decline in INCIVEK product revenues. Total revenues for the quarter fell to $336.0 million from $659.2 million year-over-year. Despite the revenue decrease, operating costs and expenses were reduced, largely due to the absence of a significant intangible asset impairment charge recorded in the prior year. For the nine-month period ended September 30, 2012, Vertex reported a net loss attributable to Vertex of $30.9 million, an improvement compared to a net loss of $129.1 million in the same period of 2011. This improvement was driven by a significant increase in product revenues, more than doubling to $1.05 billion, primarily from the launch of KALYDECO and continued sales of INCIVEK, alongside increased royalty revenues. However, collaborative revenues decreased substantially. The company ended the period with $1.3 billion in cash, cash equivalents, and marketable securities, providing a strong liquidity position to fund ongoing research and development and commercialization efforts.

Financial Highlights

49 data points
Beta

Revenue

$336.01M

90.9% Gross Margin

Net Income

-$57.54M

-17.1% Net Margin

EPS (Diluted)

$-0.27

Total Assets

$2.72B

Cash & Equivalents

$436.89M

Free Cash Flow

$84.56M

Financial Statements
Beta
Revenue$336.01M
Cost of Revenue$30.68M
Gross Profit$305.33M
R&D Expenses$200.16M
SG&A Expenses$97.68M
Operating Expenses$337.08M
Operating Income-$1.07M
Interest Expense-$13K
Net Income-$57.54M
EPS (Basic)$-0.27
EPS (Diluted)$-0.27
Shares Outstanding (Basic)213.77M
Shares Outstanding (Diluted)213.77M

Key Highlights

  • 1Total revenues decreased by 49% to $336.0 million in Q3 2012 compared to $659.2 million in Q3 2011, primarily due to a significant drop in collaborative revenues.
  • 2Net loss attributable to Vertex was $57.5 million ($0.27 per diluted share) in Q3 2012, compared to a net income of $221.1 million ($1.02 per diluted share) in Q3 2011.
  • 3Product revenues increased by 113% to $1.05 billion for the nine months ended September 30, 2012, driven by INCIVEK and the newly launched KALYDECO.
  • 4The company recorded a $78.0 million charge for excess and obsolete INCIVEK inventories in the second quarter of 2012.
  • 5Research and development expenses increased by 6% to $200.2 million in Q3 2012 compared to $189.1 million in Q3 2011, indicating continued investment in pipeline development.
  • 6Vertex maintained a strong liquidity position with $1.3 billion in cash, cash equivalents, and marketable securities as of September 30, 2012.

Frequently Asked Questions

The substantial decrease in total revenues from $659.2 million in Q3 2011 to $336.0 million in Q3 2012 was primarily due to a significant decline in collaborative revenues, which fell by $224.1 million. This was largely because the prior year's third quarter included substantial milestone payments from the Janssen collaboration, which were not present in the current quarter. Additionally, net product revenues decreased by $116.1 million, primarily due to lower INCIVEK sales, although this was partially offset by the introduction of KALYDECO revenues.

In the second quarter of 2012, Vertex recorded a $78.0 million charge for excess and obsolete INCIVEK inventories. This charge was recognized within the cost of product revenues and negatively impacted profitability for the period. The write-down was a result of decreased demand for INCIVEK, competitive pressures, and the potential development of new treatments for Hepatitis C.

Vertex maintained a strong liquidity position, reporting $1.3 billion in cash, cash equivalents, and marketable securities as of September 30, 2012. The company expects this liquidity, along with ongoing cash flows from product sales (INCIVEK and KALYDECO) and royalty revenues, to be sufficient to fund its operations and research and development activities for at least the next twelve months.

For HCV, Vertex is advancing VX-135 through collaborations with GlaxoSmithKline and Janssen, planning Phase 2 trials for all-oral regimens. They are also evaluating VX-135 in combination with ribavirin and telaprevir. For CF, Vertex is expanding the use of KALYDECO (ivacaftor) by evaluating it as a monotherapy in new patient populations and is preparing for pivotal trials of VX-809 in combination with ivacaftor for patients with two copies of the F508del mutation. Clinical trials for VX-661/ivacaftor are also ongoing.