Vertex Reports Full-Year and Fourth Quarter 2012 Financial Results and Provides Updates on Key Devel

Vertex Reports Full-Year and Fourth Quarter 2012 Financial Results and Provides Updates on Key Development Programs

-2013 investment focused on key development programs in cystic fibrosis, hepatitis C and autoimmune diseases-

-Full-year 2012 revenues of $1.53 billion, including net product revenues of $1.16 billion for INCIVEK in hepatitis C and $171.6 million for KALYDECO in cystic fibrosis-


-Company ends 2012 with $1.32 billion in cash, cash equivalents and marketable securities-

CAMBRIDGE, Mass.--(BUSINESS WIRE)-- Vertex Pharmaceuticals Incorporated (NAS: VRTX) today reported consolidated financial results for the full year and fourth quarter ended December 31, 2012. The company also today provided financial guidance for 2013.

Vertex reported total 2012 revenues of $1.53 billion, including net product revenues of $1.16 billion from INCIVEK® (telaprevir) and $171.6 million from KALYDECOTM (ivacaftor). The GAAP net loss attributable to Vertex was $(107.0) million, or $(0.50) per share, for 2012. 2012 non-GAAP net income attributable to Vertex was $255.5 million, or $1.18 per diluted share, excluding certain charges of $362.6 million. The company reported $1.32 billion in cash, cash equivalents and marketable securities as of December 31, 2012.

For the fourth quarter of 2012, Vertex reported $334.0 million in total revenues, including $222.8 million from INCIVEK and $58.5 million from KALYDECO. In the fourth quarter of 2012, the GAAP net loss attributable to Vertex was $(76.1) million, or $(0.35) per share. Non-GAAP net income attributable to Vertex was $9.0 million, or $0.04 per diluted share, excluding certain charges of $85.1 million, for the fourth quarter of 2012.

"Entering 2013, we are committed to advancing key development programs and to maintaining financial strength to position the company for sustainable long-term growth," said Jeffrey Leiden, M.D., Ph.D., Chair, President and Chief Executive Officer of Vertex. "Over the coming year, we expect to generate a significant amount of data from our key development programs in cystic fibrosis, hepatitis C and autoimmune diseases and to initiate important studies designed to bring additional transformative medicines to people with serious diseases, with a focus on specialty markets."

Development Program Updates

On January 6, 2013, Vertex provided a comprehensive update on the status of its development programs. The company today provided the following additional updates to its programs for cystic fibrosis, hepatitis C and autoimmune diseases:

Cystic Fibrosis

Combination of VX-809 and ivacaftor for People with Two Copies of the F508del Mutation

  • In early January, Vertex announced that the combination of VX-809 and ivacaftor for the treatment of people with CF who have two copies of the F508del mutation received Breakthrough Therapy Designation from the U.S. Food and Drug Administration (FDA). Vertex completed an end-of-Phase 2 meeting with the FDA and has submitted a proposed design for a pivotal Phase 3 program for the combination to the FDA. While the specific implications of the Breakthrough Therapy Designation cannot be determined at this time, Vertex is in discussions with the FDA regarding the final design of this program and expects to begin pivotal Phase 3 development in the first quarter of 2013, pending regulatory approval.

Hepatitis C

Telaprevir Twice-daily Dosing

  • Vertex recently submitted a supplemental New Drug Application (sNDA) for a twice-daily dosing regimen of telaprevir to the FDA. Also in January, the company submitted a supplemental New Drug Submission (sNDS) in Canada for a twice-daily dosing regimen of telaprevir.

Pipeline Programs

Ongoing Evaluation of VX-509 in Rheumatoid Arthritis

  • As part of its Phase 2 evaluation of VX-509 in rheumatoid arthritis (RA), Vertex recently initiated a 40-patient Phase 2 study in people with RA to evaluate the potential for VX-509 to improve structural joint changes as measured by Magnetic Resonance Imaging (MRI) and markers of inflammation and joint damage measured in joint fluid. The study will also examine a broad range of doses of VX-509 to provide information for future studies.

Full-Year 2012 Financial Results

Total Revenues: Total revenues for 2012 were $1.53 billion, compared with $1.41 billion in total revenues for 2011. The components of total revenues for 2012 and 2011 were:

                         
            2012           2011
Revenues           (in millions)
INCIVEK revenues, net           $1,161.8           $950.9
KALYDECO revenues, net           171.6          
Total product revenues, net           1,333.5           950.9
Royalty revenues from INCIVO           117.6           20.3

Collaborative and other royalty revenues

          76.0           439.4

Total revenues

          $1,527.0           $1,410.6
                   
  • Net Product Revenues from INCIVEK

Vertex's 2012 net product revenues from INCIVEK were $1.16 billion, compared to $950.9 million for 2011 following the U.S. approval of INCIVEK in May 2011.

  • Net Product Revenues from KALYDECO

Vertex's 2012 net product revenues from KALYDECO were $171.6 million, following FDA approval in January 2012. The vast majority of people with CF aged 6 and older with the G551D mutation in the U.S. have started treatment with KALYDECO. Vertex is currently seeking reimbursement for KALYDECO in multiple countries in Europe.

  • Royalty Revenues from INCIVO

Vertex recognized $117.6 million in INCIVO royalty revenues in 2012 from our collaborator Janssen, compared to $20.3 million in INCIVO royalty revenues for 2011. INCIVO was approved in Europe in September 2011 for the treatment of hepatitis C.

  • Collaborative and Other Royalty Revenues

Vertex recognized $76.0 million in collaborative and other royalty revenues in 2012, compared to $439.4 million for 2011. The 2011 collaborative and other royalty revenues included $318.5 million in collaborative milestone revenues, including $250.0 million in collaborative milestone payments from Janssen related to approval and commercialization of INCIVO in Europe and a $65.0 million milestone payment from Mitsubishi Tanabe related to approval and commercialization of TELAVIC in Japan.

Cost of Product Revenues: Cost of product revenues was $236.7 million for 2012, including charges of $133.2 million to reserve against the potential for excess INCIVEK inventory, compared to cost of product revenues of $63.6 million for 2011. The inventory charges reflect decreases in the anticipated future demand for INCIVEK, including the potential role that INCIVEK may have had in combination with VX-135 given plans to evaluate VX-135 in combination with other direct-acting antiviral medicines.

Research and Development (R&D) Expenses: R&D expenses were $806.2 million in 2012, including $87.5 million of Vertex stock-based compensation expense and Alios expenses related to the accounting for the collaboration with Vertex, compared to $707.7 million for 2011, including $80.5 million of Vertex stock-based compensation expense and Alios expenses related to the accounting for the collaboration with Vertex. The increase in Vertex's R&D investment is principally due to progression and expansion of clinical development programs in hepatitis C and cystic fibrosis, including preparation for a pivotal program for a combination of VX-809 and ivacaftor.

Sales, general and administrative (SG&A) expenses: SG&A expenses were $436.8 million in 2012, including $46.4 million of Vertex stock-based compensation expense and Alios expenses related to the accounting for the collaboration with Vertex, compared to $400.7 million for 2011, including $46.6 million of Vertex stock-based compensation expense and Alios expenses related to the accounting for the collaboration with Vertex. This increase reflects the expansion of the company's global commercial organization to support the launch of KALYDECO in North America and Europe.

GAAP Net Income (Loss) Attributable to Vertex: Vertex's 2012 GAAP net loss was $(107.0) million, or $(0.50) per share. Vertex's 2012 GAAP net loss includes certain charges totaling $362.6 million, including a charge in cost of product revenues to reserve against the potential for excess INCIVEK inventory, Vertex stock-based compensation expense, restructuring expense and a charge related to an increase in the fair value of expected future payments under Vertex's collaboration with Alios. Vertex's GAAP net income for 2011 was $29.6 million, or $0.14 per diluted share, including $(13.5) million in certain items.

Non-GAAP Net Income Attributable to Vertex: Vertex's 2012 non-GAAP net income was $255.5 million, or $1.18 per diluted share, excluding certain charges of $362.6 million. Vertex's non-GAAP net income in 2011 was $16.1 million, or $0.08 per diluted share, excluding $(13.5) million in certain items. The increased 2012 non-GAAP net income compared to 2011 was principally the result of increased INCIVEK and KALYDECO net product revenues and INCIVO royalties.

Cash Position: As of December 31, 2012, Vertex had $1.32 billion in cash, cash equivalents and marketable securities compared to $968.9 million in cash, cash equivalents and marketable securities on December 31, 2011.

Convertible Debt: As of December 31, 2012, Vertex had $400.0 million in convertible debt due in October 2015. The conversion price of the debt is $48.83 per share and is callable in October 2013.

Fourth Quarter 2012 Financial Results

Total Revenues: Totalrevenues were $334.0 million for the fourth quarter of 2012, compared with $563.3 million for the fourth quarter of 2011, which included a one-time milestone payment of $65.0 million from Mitsubishi Tanabe related to the approval and commercialization of TELAVIC in Japan. The components of total revenues for the fourth quarter of 2012 and 2011 were:

                               
              2012               2011
Revenues             (in millions)
INCIVEK revenues, net             $222.8               $456.8
KALYDECO revenues, net             58.5              
Total product revenues, net             281.3               456.8
Royalty revenues from INCIVO             36.8               16.5

Collaborative and other royalty revenues

            15.9               90.1

Total revenues

           

$334.0

             

$563.3

                         
  • Net Product Revenues from INCIVEK

Net product revenues from INCIVEK were $222.8 million for the fourth quarter of 2012, compared with $456.8 million for the fourth quarter of 2011. The change in revenue is primarily due to a decrease in the number of people with hepatitis C who are choosing to start treatment for hepatitis C with currently available medicines.

  • Net Product Revenues from KALYDECO

Net product revenues from KALYDECO were $58.5 million for the fourth quarter of 2012. KALYDECO was approved in the U.S. in January 2012.

  • Royalty Revenues from INCIVO

Vertex recognized $36.8 million in INCIVO royalty revenues from our collaborator Janssen in the fourth quarter of 2012, compared to $16.5 million in INCIVO royalty revenues from our collaborator Janssen for the fourth quarter of 2011. INCIVO was approved in Europe in September 2011.

  • Collaborative and Other Royalty Revenues

Vertex recognized $15.9 million in collaborative and other royalty revenues for the fourth quarter of 2012, compared to $90.1 million for the fourth quarter of 2011, which included a one-time milestone payment of $65.0 million from Mitsubishi Tanabe.

Cost of Product Revenues: Cost of product revenues was $75.6 million in the fourth quarter of 2012, including a $55.2 million charge to reserve against the potential for excess INCIVEK inventory, compared to $22.9 million for the fourth quarter of 2011. The inventory charge reflects a decrease in the anticipated potential role that INCIVEK may have had in combination with VX-135 given plans to evaluate VX-135 in combination with other direct-acting antiviral medicines.

Research and Development (R&D) Expenses: R&D expenses were $213.1 million in the fourth quarter of 2012, including $21.8 million of Vertex stock-based compensation expense and Alios expenses related to the accounting for the collaboration with Vertex, compared to $186.4 million for the fourth quarter of 2011, including $20.1 million of Vertex stock-based compensation expense and Alios expenses related to the accounting for the collaboration with Vertex. The increase in our R&D investment during the fourth quarter of 2012 is primarily due to the progression and expansion of clinical development programs in hepatitis C and cystic fibrosis, including preparation for a pivotal program for a combination of VX-809 and ivacaftor.

Sales, general and administrative (SG&A) expenses: SG&A expenses were $110.5 million in the fourth quarter of 2012, including $11.4 million of Vertex stock-based compensation expense and Alios expenses related to the accounting for the collaboration with Vertex, compared to $121.9 million for the fourth quarter of 2011, including $12.3 million of Vertex stock-based compensation expense and Alios expenses related to the accounting for the collaboration with Vertex.

GAAP Net Income (Loss) Attributable to Vertex: Vertex's fourth quarter 2012 GAAP net loss was $(76.1) million, or $(0.35) per share. Vertex's fourth quarter 2012 GAAP net loss includes certain charges totaling $85.1 million, including a charge in cost of product revenues to reserve against the potential for excess INCIVEK inventory, Vertex stock-based compensation expense, restructuring expense and a charge related to an increase in the fair value of expected future payments under Vertex's collaboration with Alios. The company's fourth quarter 2011 GAAP net income was $158.6 million, or $0.74 per diluted share, including $26.6 million in certain items.

Non-GAAP Net Income Attributable to Vertex: Vertex's fourth quarter 2012 non-GAAP net income was $9.0 million, or $0.04 per diluted share, excluding certain charges of $85.1 million, compared to fourth quarter 2011 non-GAAP net income of $185.2 million, or $0.86 per diluted share, excluding $26.6 million in certain items. The decrease in the company's fourth quarter 2012 non-GAAP net income compared to the fourth quarter of 2011 is primarily attributable to a decrease in INCIVEK revenues due to fewer HCV patients initiating treatment.

2013 Financial Guidance

This section contains forward-looking guidance about the financial outlook for Vertex Pharmaceuticals.

Total Revenues: Vertex expects full-year 2013 total revenues to be in the range of $1.10 billion to $1.25 billion, including full-year 2013 KALYDECO net revenues of $280 million to $320 million. The growth of 2013 KALYDECO revenues, compared to full-year 2012 revenues of $172 million, is primarily dependent on completion of reimbursement discussions in countries outside the U.S.

Total Operating Expenses (non-GAAP): Vertex expects total operating expenses, excluding cost of revenues, stock-based compensation expense and Alios expenses related to the accounting for the collaboration with Vertex, to be in the range of $1.09 billion to $1.15 billion for 2013. The principal non-GAAP operating expenses are:

  • R&D Expenses: Vertex expects that full-year 2013 R&D expenses will be in the range of $750 million to $790 million. The principal R&D expenses relate to investment in broad development activities for our late-stage CF and hepatitis C programs, including formulation and commercial supply chain investment, completion of Phase 2 evaluation of VX-509 in RA and investment in research programs aimed at the creation of future medicines. Vertex's 2013 R&D investment is expected to increase over the company's 2012 R&D investment of $718.7 million, primarily related to expenses for increased development and pre-launch supply chain activities to support medicines in late-stage development. The research component of 2013 R&D expenses is expected to remain consistent with 2012 at approximately $200 million.
  • SG&A Expenses: Vertex expects that full-year 2013 SG&A expenses will be in the range of $340 million to $360 million. The 2013 SG&A expenses are primarily driven by corporate infrastructure and activities related to global launches and commercial support for KALYDECO in cystic fibrosis and continued sales and marketing support for INCIVEK in hepatitis C. Vertex's guidance for 2013 SG&A expenses is less than the company's 2012 SG&A expenses of $390.4 million.

Non-GAAP Financial Measures

In this press release, Vertex's financial results and financial guidance are provided both in accordance with accounting principles generally accepted in the United States (GAAP) and using certain non-GAAP financial measures. In particular, Vertex provides its fourth quarter and full-year 2012 and 2011 net income (loss) excluding stock-based compensation expense, restructuring expense, inventory write-offs, revenues and expenses related to certain September 2009 financial transactions, intangible asset impairment charges, net of tax, a commercial milestone payment, and charges related to changes in the fair value of expected future payments under Vertex's collaboration with Alios. These results are provided as a complement to results provided in accordance with GAAP because management believes these non-GAAP financial measures help indicate underlying trends in the company's business, are important in comparing current results with prior period results and provide additional information regarding its financial position. Management also uses these non-GAAP financial measures to establish budgets and operational goals that are communicated internally and externally, and to manage the company's business and to evaluate its performance. A reconciliation of the GAAP financial results to non-GAAP financial results is included in the attached financial statements.

         
Vertex Pharmaceuticals Incorporated
Fourth Quarter and Twelve Months Results
Condensed Consolidated Statements of Operations Data
(in thousands, except per share amounts)
(unaudited)
 
Three Months Ended Twelve Months Ended
December 31, December 31,
2012     2011 2012     2011
Revenues:
Product revenues, net $281,309 $456,759 $1,333,458 $950,889

Royalty revenues

43,451

25,405

141,498

50,015

Collaborative revenues (Note 2)

9,234

81,176

52,086

409,722

Total revenues 333,994 563,340 1,527,042 1,410,626
 
Costs and expenses:
Cost of product revenues (Note 3) 75,595 22,936 236,742 63,625
Royalty expenses 12,120 7,191 43,143 16,880
Research and development expenses (R&D) 213,109 186,438 806,185 707,706
Sales, general and administrative expenses (SG&A) 110,452 121,881 436,796 400,721
Restructuring expense 194 992 1,844 2,074
Intangible asset impairment charge (Note 4) 105,800
 
Total costs and expenses 411,470 339,438 1,524,710 1,296,806
 
Income (loss) from operations (77,476) 223,902 2,332 113,820
 
Net interest expense (Note 2) (3,296) (12,233) (14,713) (36,574)
Change in fair value of derivative instruments (Note 2)

(868)

(16,801)

Income (loss) before provision for (benefit from) income taxes (80,772) 210,801 (12,381) 60,445
Provision for (benefit from) income taxes (Note 4) (2,696) 22,660 38,754 19,266
Net income (loss) (78,076) 188,141 (51,135) 41,179
Net loss (income) attributable to noncontrolling interest (Note 1)

1,928

(29,512)

(55,897)

(11,605)

Net income (loss) attributable to Vertex $(76,148) $158,629 $(107,032) $29,574
 
Net income (loss) per share attributable to Vertex common shareholders:
Basic $(0.35) $0.76 $(0.50) $0.14
Diluted $(0.35) $0.74 $(0.50) $0.14
 
Shares used in per share calculations:
Basic 214,607 206,758 211,946 204,891
Diluted 214,607 217,602 211,946 208,807
 
                 
Reconciliation of GAAP to Non-GAAP Financial Information-Fourth Quarter

(in thousands, except per share amounts)

(unaudited)

Three Months

Ended December

31, 2012

Adjustments

 

Intangible

September

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