Analyst Conference Summary

Biotechnology

conference date: July 29, 2013 @ 2:00 PM Pacific Time
for quarter ending: June 30, 2013 (second quarter, Q2, 2013)

Forward-looking statements

Overview: Still losing money due to reinvestment in R&D. Revenue down y/y.

Basic data (GAAP):

Revenue was $310.8 million, down 26% from $418.3 million in the year-earlier quarter.

Net income was negative $57.2 million, better than negative $64.9 million year-earlier.

Earnings Per Share (EPS) were negative $0.26, better than negative $0.31 year-earlier.

Guidance:

For the full year 2013: revenues between $1.0 and $1.2 billion (revised slightly downward). Kalydeco revenue between $345 and $360 million (revised up significantly). Non-GAAP operating expenses expected between $1.09 and $1.15 million.

Conference Highlights:

The first half of 2013 was characterized by investment in cystic fibrosis (CF), hepatitis C and rheumatoid arthritis programs. The goal this year is to position Vertex for long-term growth.

Non-GAAP results: net income negative $6.2 million, EPS negative $0.03. Excluded from non-GAAP numbers were $41.3 million in stock-based compensation, a $5.1 million inventory write-off, $3.9 million used in debt conversion, and $0.8 restructuring.

Decline of Incivek (telaprevir, VX-950) revenue was attributed to ongoing reduction in number of patients seeking treatment for hep C in anticipation of next-generation therapies. The increase in Kalydeco revenue was attributed to the reimbursement approval in Europe. Royalties increased primarily due to expansion of Incivo into international markets by collaborator Janssen, with Australia in line for reimbursement approval.

Kalydeco (ivacaftor) label expansion program continued to make progress in the quarter. After the quarter ended the Phase 3 study for CF patients with at least one non-G551D mutations showed statistically significant improvement in lung function, so a supplemental marketing application will be submitted to the FDA before the end of 2013. Two additional Phase 3 label expansion studies continue, and a Phase 2 study is enrolling Kalydeco for patients with residual CFTR function. Enrollment is also ongoing for Kalydeco in combination with VX-809 (a corrector). Data from a Phase 2 study in combination with VX-661 was presented in June, and preparations are underway for a second Phase 2 study.

Incivek for hepatitis C is currently administered with peginterferon alfa and ribavirin. Vertex is working on an all-oral treatment, with the goal of providing a high cure rate with improved tolerability in a regimen lasting 12 weeks or less. Multiple Phase 2 studies of VX-135 (a polymerase inhibitor) in various combinations are ongoing. However, there is a clinical hold on the 200 mg does of VX-135 in the United States.

VX-509 for rheumatoid arthritis is in a 24-week Phase 2b trial, with data expected later in 2013.

See also the Vertex Pharmaceuticals Pipeline page.

Cash and equivalents balance ended $1.43 billion. During the quarter debt was reduced to zero (0), which increased common stock shares by 8.2 million and cost $6.7 million in make-whole interest payments.

Cost of revenue was $24.7 million. Royalty expense was $13.2 million. Research and development expense was $222.5 million. Sales, general and administrative expenses were $106.5 million. Restructuring expense was $0.8 million. Total costs and expenses were $367.7 million, leaving operating profit at negative $57.0 million. Other expense was $1.8 million. $4.5 million of the loss was attributed to noncontrolling interests.

Q&A:

Kalydeco with VX-809, any limitations on enrollment for genotypes beyond G551D? We choose patients who have mutations on the other allele that would not respond to Kalydeco. We try to keep the baseline at an absolute minimum. Same for all the heterozygous studies.

VX-135 investments given FDA hold? Based on FDA questions, we should have a complete data set for them in the early part of the fourth quarter. We are aware of the very competitive nature of this disease area. We believe we have the assets to compete for an all-oral regimen.

VX-135 metabolic pathway, 400 mg does, elevated liver functions? Renally excreted pathway. We went to 400 mg doses to explore the dose range, since we had good tolerability at 200 mg. We had no highly elevated liver functions, and they (non-highly?) resolved in a week or so.

Hepatitis C, VX-135, PK exposures? In the 3 subjects who had lft abnormalities at 400 mg the exposures were the highest among 10 subjects. But it is a small data set. We need to establish the safety in a larger set of patients.

CF for patients with residual functions? We have good correlation of clinical and pre-clinical results, giving us confidence in the study.

Evidence 135 does not have mitochondrial toxicity? We have done state of the art studies on this issue. We have seen no evidence for this type of toxicity. We monitored patients in Europe with echo and EKG and saw no cardiac pathology, which would be the most worrying mitochondrial toxicity.

Cash use? We are still building cash, at least for a short period of time. As Incivek cash generation decline may have to use other cash in 2014 to fund R&D.

We are very please with our own pipeline, but we are always interested in strategic things that can complement what we have done.

SG&A infrastructure, HCV sales force going forward? We have a small, but world class, sales force for HCV. We constantly evaluate the return on investment, and at this time they generate a good return. But we have reduced HCV marketing spend from 2012.

Before doing a pivotal study of VX-135, we would likely do a study larger than the current ones to get a better feel for efficacy and safety before designing the pivotal study. Those studies would have patient numbers in the hundreds.

If we see a positive signal for 661 and 770, we would have to do a larger safety study as well. At least a couple of hundred patients.

OpenIcon Analyst Conference Summaries Main Page

Search

More Analyst Conference Pages: