Analyst Conference Summary


Vertex Pharmaceuticals

conference date: October 29, 2013 @ 5:30 AM Pacific Time
for quarter ending: September 30, 2013 (third quarter, Q3, 2013)

Forward-looking statements

Overview: Plunge in Incivek revenue results in change of strategy. Guidance revised downward.

Basic data (GAAP):

Revenue was $221.7 million, down 29% sequentially from $310.8 million and down 34% from $336 million from the year-earlier quarter.

Net income was negative $124.1 million, down sequentially from negative $57.2 million and down from negative $57.5 million year-earlier.

Earnings Per Share (EPS) were negative $0.54, down sequentially from negative $0.26 and also down from negative $$0.27 year-earlier.


Total revenues for 2013 are now expected at $1.00 to $1.05 billion. Kalydeco revenue expected between $360 and $365 million, higher than prior guidance. Non-GAAP operating expenses are estimated at $1.1 billion. Vertex expects its cash position at the end of 2013 to be near $1.3 billion.

For 2014, based on Incivek workforce reduction, non-GAAP operating expense is expected to be reduced by $150 million to $200 million from 2013 levels. "We expect research investment to stay relatively stable between 2013 and 2014." Kalydeco revenue is expected to grow in 2014.

Conference Highlights:

Due to the rapid decline in the number of people taking Incivek for hepatitis C, as other new therapies approach approval, Vertex will reduce its Incivek marketing program and focus R&D dollars on CF (cystic fibrosis), earlier development candidates, and VX-135 for a possible future all-oral regimen for hepatitis C.

Non-GAAP results: net income negative $74.4 million, down sequentially from negative $6.2 million; EPS negative $0.32, down sequentially from negative $0.03. Excluded from non-GAAP numbers were $31.2 million in stock-based compensation and $17.3 million restructuring and inventory write-off expense.

Revenue, $millions
Q3 2013
Q3 2012
% change
product subtotal

The two Phase 3 studies of ivacaftor (Kalydeco) plus lumacaftor for CF patients with two copies of F508del are now fully enrolled, with data expected in mid-2014. VX-661 four week proof of concept study is now enrolling.

A number of VX-135 studies are underway, notably a Phase 2 study by Bristol Myers Squibb in combination with daclatasvir, with preliminary data possible in early 2014. But VX-135 is on partial clinical hold by the FDA in the U.S.

Vertex is seeking a partner for VX-509 JAK3 inhibitor for autoimmune diseases following a positive outcome in a Phase 2b study in rheumatoid arthritis.

See also the Vertex Pharmaceuticals Pipeline page.

More than 100,000 patients were treated with Incivek since its launch, and brought in over $2.8 billion in revenue.

Cash and equivalents balance ended at $1.42 billion.

Cost of revenue was $20.0 million. Royalty expense was $7.3 million. Research and development expense was $228.6 million. Sales, general and administrative expenses were $87.8 million. Restructuring expense was $12.0 million. Total costs and expenses were $355.8 million, leaving operating profit at negative $134.1 million. Other income was $4.7 million. Income tax benefit $0.8 million. $4.5 million of the loss was attributed to noncontrolling interests.


Incivek decision effect on internal hurdle rate for VX-135 program? It is an early-stage program. We need to get the data on the combination with daclatasvir, which we expect in early 2014. At that point we will make an evaluation. We are very aware of the external environment, which is fast-paced and very competitive.

CF, VX-661 speed to a pivotal study? Given the ivacaftor track record and what we know about 661, we would hope to move this along to Phase 2 quickly.

Studies of other hepatitis genotypes? We did develop 7-day data for other genotypes. We are likely to do studies in other genotypes if the genotype 1 study underway is successful. We are not likely to pursue 135 plus ribavirin.

More expense savings if VX-135 fails? We are still in planning stages for 2014. Other decisions have not been made, but we are planning for VX-135 success.

Long term, if CF growth is dramatic, should revenue outgrow SG&A? We are consolidating down around CF. We don't expect a significant expansion in SG&A even if we are successful is revenue growth.

We plan to continue our research spend level because with a really very modest investment in research we have produced a series of successful drugs. It is the engine for future value.

What is the plan if 135 does get FDA approval? We are studying 100 and 200 mg doses in combination with daclatasvir.

Is there any sales force left to market Incivek? No. None.

Pricing $180,000 per year, is that about right? We don't comment on realized price.

VX-509 efficacy and safety, possible partnering? Efficacy is very, very good. We are quite pleased with the safety profile. Cardiovascular disease is the most common cause of death in RA populations. We know all-oral RA therapies is a very competitive field. It requires more study, so yes we are looking for partners.

Do you think you might need a third agent for VX-135? We are waiting for data, but we think we are seeing good activity comparable to sofosbuvir (by Gilead).

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Disclaimer: My analyst call summaries may include both our condensations of statements made by company representatives and my own analysis. They are not covered by any warranty. I cannot guarantee anything said by company representatives is true. I try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2013 William P. Meyers