Analyst Conference Summary


Vertex Pharmaceuticals

conference date: April 27, 2016 @ 2:00 PM Pacific Time
for quarter ending: March 31, 2016 (first quarter, Q1, 2016)

Forward-looking statements

Overview: Strong revenue ramp paused, but profitable on a non-GAAP basis. Finally gave guidance for Orkambi revenue.

Basic data (GAAP):

Revenue was $398.1 million, down 5% sequentially from $417.9 million, but up 187% from $138.5 million in the year-earlier quarter.

Net income was negative $41.6 million, up sequentially from negative $75.5 million, and up from negative $198.6 million year-earlier.

Earnings Per Share (EPS) were negative $0.17, up sequentially from negative $0.31, and up from negative $0.83 year-earlier.


Full year 2016 Orkambi revenue between $1.0 and $1.1 billion. Kalydeco revenue $685 to $705 million. Operating expense between $1.18 and $1.23 billion (non-GAAP).

Conference Highlights:

"Vertex is on a path to sustained revenue and earnings growth." according to Jeff Leiden, CEO. Increased 2016 Kalydeco revenue guidance.

Orkambi was approved by the FDA on July 2, 2015 for cystic fibrosis (CF) patients with two copies of the F508del mutation and was approved in Europe in Q4. Sales were $223.1 million, up sequentially from $219.9 million. Orkambi was approved in Canada on January 26. Expects by end of year almost all potential U.S. patients will have begun treatment. Children ages 6 to 11 application (sNDA) has been submitted to the FDA with approval possible before the end of 2016. Discussing reimbursement with nations in Europe and elsewhere.

Kalydeco (ivacaftor) for cystic fibrosis had sales of $170.5 million, down 6% sequentially from $180.7 million and up 31% y/y from $130.2 million. Completed key reimbursement discussions in Europe and benefited from label expansion. About $95 million was in the U.S., $75 million international.

Non-GAAP results: Net income $22 million, down sequentially from $43 million, and up from negative $148 million year-earlier. EPS $0.09, down sequentially from $0.17, and up from from negative $0.62 year-earlier. Excludes stock-based compensation of $55.5 million and $9.6 million in other adjustments, as well as Incivek revenue.

$ millions
Q4 2015
Q1 2015
y/y % change
product subtotal

Vertex plans to submit a supplemental new drug application to the FDA in Q2 for Orkambi in children ages 6 to 11 with two copies of the F508del mutation, based on a recently completed Phase 3 study.

VX661 (+ ivacaftor) Phase 3 trials for CF are ongoing. First data could be in early 2017. Vertex hopes to submit an application to the FDA for approval in 2017, with potential approval in 2018.

Vertex has moved two next-generation correctors for cystic fibrosis, VX-152 and VX-440, into Phase 1 clinical development. ENaC with Orkambi began a Phase 2 study in the quarter.

Vertex is exploring other therapies for CF and other indications including cancer and pain, including VX-970, a kinase inhibitor, for solid tumors. Two Phase 1 studies are ongoing.

Approximately 25,000 people should be eligible to be treated with either Kalydeco or Orkambi. Vertex hopes to eventually be able to treat all CF patients with these or newer drugs.

See also the Vertex Pharmaceuticals Pipeline page.

Cash and equivalents balance ended at $1.03 billion, about flat sequentially from $1.04 billion. Debt $296 million.

Cost of revenue was $49.8 million. Royalty expense was $0.9 million. Research and development expense was $255.9 million. Sales, general and administrative expenses were $105.2 million. Restructuring expense was $0.7 million. Total costs and expenses were $412.4 million, leaving operating loss of $14.3 million. Interest expense $20.7 million. Other income was $4.4 million. Income tax $5.5 million. Income attributable to noncontrolling interest $5.5 million.


Can discontinuation and compliance rates be improved? We will continue to generate data on the benefits of Orkambi. That could encourage patients to restart. Educational materials can help with compliance, as they did with Kalydeco.

661 enrollment changed to 200 from 300? There were no changes for the trial. It is the residual function mutation trial that had the sample size reduced.

Orkambi guidance, U.S. vs. rest of world breakdown? Mostly U.S. Small ex-U.S.

When did you realize compliance was differenct Kalydeco vs. Orkambi, or Phase 3 vs. real world? We've been clear about Orkambi guidance. We knew there might be a variance because the trial is very controlled vs. the real world. It took us watching new patients for 6 to 9 months to track enough patients long enough to give guidance today.

Strategy for those who get broncho-constriction? No concrete specific guidance. Support for patients and doctors in the early weeks is very important. We continue to collect data. We are studying patients who choose the option to start on a lower dose.

Were you surprised the way the launch unfolded? We are pleased with launch progress, including reimbursement by payers. We have 65% of eligible patients initiated after 9 months. 70% to 80% persistence is a very good result.

Some physicians have tried re-initiating patients on Orkambi, with reports of some successes. Our guidance includes minimal assumptions for restarts.

At the end of three quarters availability, about 50% of the potential Orkambi patients in the U.S. were on the drug.

Cash use now that you are profitable? Our priority during the transitional period is reinvestment internally or by diversifying our pipeline with external investments. When we are generating more cash we will consider stock buy-backs, at first just to balance option exercises.

French vs. German pricing? We have not disclosed the price.

Our gross-to-net may be lower than we had expected, at 12%, due to patients on Medicaid. It has been 9%, but has been creeping up. It has been included in guidance.

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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 2016 William P. Meyers