10-QPeriod: Q3 FY2017

VERTEX PHARMACEUTICALS INC / MA Quarterly Report for Q3 Ended Sep 30, 2017

Filed October 30, 2017For Securities:VRTX

Summary

Vertex Pharmaceuticals Inc. reported a net loss attributable to Vertex of $103.0 million for the third quarter of 2017, compared to a net loss of $38.8 million in the prior year's third quarter. This widened loss was primarily driven by a significant $255.3 million intangible asset impairment charge related to Parion's pulmonary ENaC platform and a $160.0 million acquisition payment for VX-561, which were not present in the prior year period. Despite the net loss, total revenues saw a substantial increase of 40% year-over-year, reaching $578.2 million, propelled by strong growth in product revenues from ORKAMBI and KALYDECO, which increased by 34% and 22% respectively. For the nine months ended September 30, 2017, Vertex reported a net income of $162.8 million, a significant improvement from a net loss of $145.0 million in the same period last year. This turnaround was aided by continued growth in product revenues and a substantial $231.7 million in collaborative revenue recognized from the Merck KGaA agreement. However, the operating costs and expenses also increased considerably, largely due to the aforementioned impairment charge and acquisition payment. Investors should note the significant R&D investments continuing, especially in next-generation CFTR corrector compounds, which are crucial for future growth, alongside the ongoing regulatory review for tezacaftor in combination with ivacaftor.

Financial Highlights

50 data points
Beta

Revenue

$578.16M

87.5% Gross Margin

Net Income

-$102.95M

-17.8% Net Margin

EPS (Diluted)

$-0.41

Total Assets

$3.20B

Cash & Equivalents

$1.38B

Free Cash Flow

$142.13M

Financial Statements
Beta
Revenue$578.16M
Cost of Revenue$72.19M
Gross Profit$505.98M
R&D Expenses$454.95M
SG&A Expenses$120.71M
Operating Expenses$904.21M
Operating Income-$326.04M
Net Income-$102.95M
EPS (Basic)$-0.41
EPS (Diluted)$-0.41
Shares Outstanding (Basic)250.27M
Shares Outstanding (Diluted)250.27M

Key Highlights

  • 1Total revenues increased by 40% year-over-year to $578.2 million in Q3 2017, driven by robust product sales growth.
  • 2Product revenues from ORKAMBI and KALYDECO grew by 34% and 22% respectively year-over-year in Q3 2017.
  • 3A significant $255.3 million intangible asset impairment charge was recorded related to Parion's pulmonary ENaC platform.
  • 4The company made a $160.0 million payment for the acquisition of VX-561, an investigational CFTR potentiator.
  • 5For the nine months ended September 30, 2017, Vertex reported a net income of $162.8 million, a substantial improvement from a net loss in the prior year period.
  • 6The company recognized $286.1 million in collaborative revenues for the nine months ended September 30, 2017, primarily from the Merck KGaA agreement.
  • 7Vertex continues to invest heavily in R&D, particularly in next-generation CFTR corrector compounds for triple combination therapies.

Frequently Asked Questions

Vertex's revenue growth is primarily driven by its key cystic fibrosis (CF) products, ORKAMBI and KALYDECO. In the third quarter of 2017, product revenues for ORKAMBI increased by 34% and for KALYDECO by 22% compared to the same period in the previous year. Significant collaborative revenues, notably from the Merck KGaA agreement, also contributed substantially to the nine-month revenue figures.

Vertex reported a net loss attributable to Vertex of $103.0 million in Q3 2017, widened from a $38.8 million loss in Q3 2016, primarily due to significant one-time charges. These included a $255.3 million intangible asset impairment charge related to the Parion ENaC platform and a $160.0 million payment for the acquisition of VX-561. These substantial expenses outweighed the revenue growth for the quarter.

Vertex is actively developing new therapies for cystic fibrosis. They have submitted regulatory applications for tezacaftor in combination with ivacaftor, with a target FDA review date in February 2018. Furthermore, the company is making significant investments in next-generation CFTR corrector compounds for triple combination therapies, with plans to initiate pivotal development in early 2018. However, a significant impairment charge was taken on the VX-371 program (Parion ENaC platform) following disappointing Phase 2 trial results.

As of September 30, 2017, Vertex had approximately $1.81 billion in cash, cash equivalents, and marketable securities. The company expects its existing cash reserves and future cash flows from product sales to be sufficient to fund operations for at least the next twelve months. Vertex also has a $500 million revolving credit facility, of which $300 million was repaid in February 2017.