Analyst Conference Summary


Vertex Pharmaceuticals

conference date: July 27, 2016 @ 1:30 PM Pacific Time
for quarter ending: June 30, 2016 (second quarter, Q2, 2016)

Forward-looking statements

Overview: Strong revenue growth, non-GAAP but not GAAP profits.

Basic data (GAAP):

Revenue was $431.6 million, up 8% sequentially from $398.1 million, and up 160% from $166.1 million in the year-earlier quarter.

Net income was negative $36.2 million, up sequentially from negative $41.6 million, and up from negative $221.0 million year-earlier.

Earnings Per Share (EPS) were negative $0.26, down sequentially from negative $0.17, and up from negative $0.78 year-earlier.


Reiterated prior guidance.

Conference Highlights:

Jeff Leiden, CEO, said "today, approximately 27,000 people are eligible for a medicine to treat the cause of their CF [cystic fibrosis], and we're making significant progress toward bringing ORKAMBI and KALYDECO to even more patients while also advancing our pipeline of other potential medicines to enhance the future treatment of CF."

Orkambi (lumacaftor+ivacaftor) sales were $245 million, up sequentially from $223.1 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. Other trials are studying children aged 2 to 11. Still looking to reimbursement approval in Europe, but available in Germany and some other early access countries, notably France.

Kalydeco (ivacaftor) for cystic fibrosis had sales of $180 million, up 6% sequentially from $170.5 million and up 16% y/y from $155 million. Working on the complete response letter for patients with residual function mutations.

Non-GAAP results: Net income $58 million, up sequentially from $22 million, and up from negative $131 million year-earlier. EPS $0.24, up sequentially from $0.09, and up from from negative $0.54 year-earlier. Excludes stock-based compensation of $62 million and $60 million in other adjustments, as well as Incivek revenue and costs.

$ millions
Q2 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 $1.07 billion, up sequentially from $1.03 billion. Debt $296 million.

Cost of revenue was $44.2 million. Royalty expense was $1.1 million. Research and development expense was $271.0 million. Sales, general and administrative expenses were $111.7 million. Restructuring expense was 0.3$ million. Total costs and expenses were $428.3 million, leaving operating income of $3.4 million. Interest expense $20.2 million. Other expense was $1.2 million. Income tax 18.1$ million. Income attributable to noncontrolling interest $28.4 million.

As revenues grow, Vertex plans to keep costs growing at a slower rate, and so improve its margins and profitability.


Persistence rate in U.S.? Consistent with Q1, tracking towards 70% to 80%, and the same for compliance.

Europe? Uptake is slow in Germany, and it is the only significant contributor for Orkambi. Reimbursement negotiations are proceeding as expected, but many will not be completed until 2017. We did just complete a deal in Austria, which will go in effect in September.

$1.18 to $1.23 non-GAAP operating expense for the year assumes success of the programs. Next year we could see some marginal increases in marketing expense for Europe. R&D expense depends on the specifics of the programs.

Long term Orkambi data about bringing patients back on? Orkambi is very meaningful to patients and prescribers. The long term safety continues to look very good. Long term efficacy appears to be very good, consistent with trials. We also did a comparison on the rate of decline and saw a 40% reduction in the rate of decline.

Orkambi for pediatric patients PDUFA date is September 30. We are deep into the planning for the launch. Expectation is access is going to be very good. It is a label expansion, so broad access through payers should be obtained quickly. We expect uptake by patients will be rapid, and the adverse event and discontinuation rates will be lower than in the adult population, as it was in the trial. Compliance rates should be high. Revenue growth should start in Q4.

Orkambi number of patients on therapy? A dynamic number, we continue to see additional patients.

Pricing pressure? Governments report that ours are the sorts of medicines they want to be able to provide to patients. Our number of patients is small.

Recognition of revenue in France? We are providing early access, and are being paid. But we don't record that as GAAP revenue until we have an agreed price in France. That should be at some point in 2017, at which point they will be included in reported revenue.


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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