Analyst Conference Summary


Vertex Pharmaceuticals

conference date: January 29, 2014 @ 2:00 PM Pacific Time
for quarter ending: December 31, 2013 (fourth quarter, Q4, 2013)

Forward-looking statements

Overview: Despite a bounce off of Q3, disaster continues, with 2014 revenue guided to about one-half of 2013 revenue. Several very large unusual items, so take a close look. Non-GAAP loss is more accurate than GAAP net income in this case.

Basic data (GAAP):

Revenue was $351.2 million, up 58% sequentially from $221.7 million, and up 5% from $334.0 million in the year-earlier quarter.

Net income [attributable to Vertex; see below for details] was $44.3 million, up sequentially from negative $124.1, and also up from negative $76.1 million year-earlier.

Earnings Per Share (EPS) were $0.19, up sequentially from negative $0.54, and also up from negative $76.1 million year-earlier.


Full year 2014 revenue is expected between $570 and $600 million, with $470 to $500 million derived from Kalydeco sales. Other revenue would be from collaborations and Incivek. Non-GAAP operating expenses will range between $900 million and $950 million.

Depending on developments, positive cash flow could be restored in 2015.

Conference Highlights:

GAAP net income excludes $228.8 million in losses attributable to noncontrolling interests. It includes other expense of $66.0 million. It also includes a $155.7 million tax benefit from the losses from operations, which were $274.2 million. There is an intangible asset impairment charge of $250.6 million related to the HCV nucleotide collaboration with Alios BioPharma.

$185 million in revenue was related to the amendment to the collaboration agreement with Janssen. This appears in both GAAP & non-GAAP numbers.

These are one-time expenses and benefits for Q4 only.

Incivek sales plummetted to $19.3 million, while Vertex recognized $16.4 million in Incivo royalties from Nanssen. In November the Incivo righs were sold to Janssen for $152 million. So no future Incivo royalties. Incivo and Incivek are both trade names for Telaprevir for hepatitis C. Incevek patient starts are expected to decrease, allowing the inventory to be worked off, but with some price decreases depending on payer mix.

Vertex's broader goal is treating the vast majority of people suffering from cystic fibrosis. Actions to be taken in 2014, if successful, should provide returns in 2015 and beyond.

Kalydeco for cystic fibrosis is now reaching virtually every patient on its current label (G551D mutations) in the U.S. and Europe. Future growth will come from expansion of the label and further geographic expansion. Canada and Australia are first in line.

Non-GAAP results: net income negative 128.4 million , down sequentially from negative $74.4 million. EPS negative $0.56. Compared to GAAP numbers this excludes $68.2 million in gains and $174.4 million in gains from the Janssen amendment, as well as restructuring and stock-based compensation charges.

Revenue, $millions
Q4 2013
Q4 2012
% change
product subtotal

VX-661 in combination with Ivacaftor was granted breakthrough therapy designation by the FDA for treatment of cystic fibrosis for patients with two copies of the F508del mutation. A twelve-week Phase II study is expected to be initiated in the first half of 2014.

The Phase IIb study of VX-509, a JAK3 inhibitor for rheumatoid arthritis met its primary endpoints. Vertex is pursuing collaboration agreements to further global development.

See also the Vertex Pharmaceuticals Pipeline page.

Vertex plans to spend between $40 and $50 million in 2014 to try to develop an all-oral treatment for hepatitis C. But overall op ex should be substantially lower in 2014 than 2013.

Cash and equivalents balance ended at $1.47 billion, up about $40 million sequentially from $1.42 billion. No debt.

Cost of revenue was $13.3 million. Royalty expense was $9.0 million. Research and development expense was $249.6 million. Sales, general and administrative expenses were $75.2 million. Restructuring expense was $27.7 million. Intangible asset impairments were $250.6 million. Total costs and expenses were $625.3 million, leaving operating profit at negative $274.2 million. Other expense was $66.1 million. Income tax benefit $155.7 million. $228.8 million of the loss was attributed to noncontrolling interests.


Data on Kalydeco effect on CF residual functions? We have not yet analysed the data from the Phase 2 trial. We will make plans once we have the results.

Given the larger populations for other mutation types, will the Phase III patient numbers be larger than the earlier Kalydeco Phase III trials? We will have to discuss that with the FDA.

R117H in or out of guidance for 2014? There is some 117H in guidance. We are optimistic about our talks with the FDA, but it would be a small amount in 2014. In Europe we will have the additional hurdle of qualifying for reimbursement.

About $8 million of Kalydeco revenue in Q4 was inventory build, so the run rate was really $100 million per quarter.

Incremental cash burn in 2014 in addition to operating expense? We are not guiding for cash. We get cash from multiple sources. Non-GAAP guidance tends to be aligned with cash burn.

R&D guidance for 2014? There should be a 5% to 10% decline sequentially in op ex from Q4 to Q1.

HCV expenses in 2014 guidance? We have some small costs we still incur, that we are contracted to complete. Incivek marketing and sales in minimal. We included $40 to $50 million in R&D in guidance, but we are not spending on that at this time.

661 Phase II study? It is a 12 week safety and efficacy for 661 plus Ivacaftor. This is just the next step in the process. We are happy with 661 so far, but this is not a prelude to a Phase III study. 809 and 661 have been similar in vitro. 661 could be part of a triple therapy, or as a backup for 809 in double therapy. We'll know more when we have results from the trials.

Interest expense in 2014? $60 million in GAAP and is a net interest charge on the lease of our building.

For heterozygous cells in CF to get to a meaningful level of chloride activity you need something like 809 plus Kalydeco.

Patent coverage for 809 and 661? They should go to the mid to late 2020s. We have filed for combination patents.

We are seeking collaborators for VX509.


OpenIcon Analyst Conference Summaries Main Page



More Analyst Conference Pages:



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 2014 William P. Meyers