Analyst Conference Summary


Vertex Pharmaceuticals

conference date: October 25, 2016 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2016 (third quarter, Q3, 2016)

Forward-looking statements

Overview: Continued strong Orkambi revenue ramp, non-GAAP profitable, but sequential revenue decline.

Basic data (GAAP):

Revenue was $413.8 million, down 4% sequentially from $431.6 million, and up 34% from $309.8 million in the year-earlier quarter.

Net income was negative $41.8 million, down sequentially from negative $36.2 million, and up from negative $95.1 million year-earlier.

Earnings Per Share (EPS) were negative $0.17, up sequentially from negative $0.26, and up from negative $0.39 year-earlier.


Reiterated 2016 guidance: Orkambi revenue $950 to $990 million. Kalydeco revenue $685 to $705 million. Operating expense, non-GAAP, $1.18 to $1.23 billion.

Kalydeco revenue is expected to be stable in 2017, unless approval is granted for residual functions.

Conference Highlights:

Jeff Leiden, CEO, said "Our progress toward treating more people with CF was marked by several important milestones in recent weeks, including the approval of Orkambi for children ages six to eleven in the U.S. and today's announcement regarding the advancement of our pipeline of next-generation correctors."

Orkambi (lumacaftor+ivacaftor) sales were $234 million, down 4% sequentially from $245 million, but up 79% y/y. U.S. sales were $211 million. Children ages 6 to 11 application (sNDA) to the FDA was approved, which adds 240 potential patients. 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. Should have data from a Phase 3 study to support approval for 6 to 11 year olds in Europe before the end of 2016. In U.S. 460 patients have initiated treatment, but additions are slowing as number of untreated patients is decreasing.

The sequential decline was due to a failure to get refilled prescriptions in July and August, but these patient have largely resumed treatment.

Kalydeco (ivacaftor) for cystic fibrosis had sales of $176 million, down 2% sequentially from $180 million and up 6% y/y from $166 million. Working on the complete response letter for patients with residual function mutations.

Outlined steps to moving from current 29,000 eligible patients worldwide, to 44,000 with label expansions, then 68,000 with triple combinations. Eventually 75,000 patients with Cystic Fibrosis could be treated.

Non-GAAP results: Net income $40 million, down 31% sequentially from $58 million, and up from negative $32 million year-earlier. EPS $0.16, up sequentially from $0.24, and up from from negative $0.13 year-earlier. Excludes stock-based compensation of $61.2 million and $23.1 million in other adjustments, as well as Incivek revenue and costs.

$ millions
Q3 2015
y/y % change
product subtotal

VX661 (Tezacaftor) (+ ivacaftor) Phase 3 trials for CF are complete, except for gating mutations. 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. Phase 2 trials are planned to begin before the end of 2016.

ENaC with Orkambi continued a Phase 2 study. VX-659 could start Phase 1 in the second half of 2016, and be more effective than 440 and 152 in triple combinations.

Vertex is exploring other therapies for CF and other indications including cancer and pain, including VX-970, a kinase inhibitor, for solid tumors.

See also the Vertex Pharmaceuticals Pipeline page.

Cash and equivalents balance ended at $1.13 billion, up sequentially from $1.07 billion. Debt $298 million.

Cost of revenue was $53.2 million. Royalty expense was $1 million. Research and development expense was $275.4 million. Sales, general and administrative expenses were $106 million. Restructuring expense was $0 million. Total costs and expenses were $435.5 million, leaving operating income of negative $42.0 million. Interest expense $20.1 million. Other expense was $0.2 million. Income tax $ million. Income attributable to noncontrolling interest $0.7 million.

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


Next generation compounds, therapeutic window? Based on Phase 1 results, we think both compounds will have safe and effective doses in Phase 2. We did see some GI symptoms, so 152 is starting at lower doses than 440.

2016 Orkambi guidance? We got approval on the younger group at the end of September, we think we are making progress with payers. That is incorporated into our guidance.

Tolerability in healthy volunteers was at higher doses than we are going to be using in the Phase 2 trials.

6400 U.S. Orkambi patients, remaining 2000? It is an individual decision by patients and physicians, but we hope to give them reasons given the long-term benefits of Orkambi.

Positioning of corrector assets? Strategy is the portfolio should have different properties, so developing several increases the probability of success for different patient populations. Our preclinical models help, but they are not definitive. We could take more than 1 molecule into Phase 3, it will depend on the data.

Europe reimbursement? Questions are consistent from one country to another. Clinical benefits, economic evaluation, and price negotiation. They are proceeding as we anticipated, they look at the budget impact for their country.

2 weeks of dosing vs. 4 weeks of dosing in new Phase 2 studies? Endpoints will be very similar. Both should give meaningful information. We will start with small cohorts to confirm the reaction is the same as with healthy volunteers, then we will choose doses for the rest of the trial.

Orkambi revenue in 2017? As we get closer to 2017 we might be able to give guidance for revenue in the U.S. and Germany, but it is hard to predict the rest of world at this point.

Orkambi list prices are less than Kalydeco because it addresses a larger patient population. Similar principles would affect the pricing of any future drugs.

We have a number of other next generation correctors in the preclinical pipelines. We would expect to bring at least one to Phase 1 in 2017.

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 2016 William P. Meyers