Analyst Conference Summary


Vertex Pharmaceuticals

conference date: April 27, 2017 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2017 (first quarter, Q1, 2017)

Forward-looking statements

Overview: Astonishing rate of revenue growth, but boosted by a one-time upfront collaboration payment.

Basic data (GAAP):

Revenue was $715 million, up 56% sequentially from $459 million, and up 80% from $398 million in the year-earlier quarter.

Net income was $248 million, way up sequentially from $33 million, and way up from negative $42 million year-earlier.

Earnings Per Share (EPS) were $0.99, up sequentially from $0.13, and up from negative $0.17 year-earlier.


Increased CF revenue for full 2017 to $1.81 to $2.03 billion on higher Kalydeco revenue. Otherwise no change.

Conference Highlights:

Jeff Leiden, CEO, said "We saw continued uptake of Orkambi in eligible children ages 6 to 11 in the U.S. and completed an MAA submission for the same group of patients in Europe. Additionally, we reported positive data from two Phase 3 studies of the tezacaftor/ivacaftor combination, which we believe will bring us closer to treating more people with the disease."

Orkambi (lumacaftor+ivacaftor) sales were $295 million, up 6% sequentially from $277 million, and up 32% y/y from $223 million.

Kalydeco (ivacaftor) for cystic fibrosis had sales of $186 million, up slightly sequentially from $177 million and up 9% y/y from $171 million.

On January 11, 2017 Vertex entered a license agreement with Merck KGaA, for four oncology programs, and received $230 million in up-front payments in Q1. This appeared as collaboration revenue. "In the three months ended March 31, 2017, collaborative revenues were primarily attributable to a $230 million up-front payment earned from our collaboration with Merck KGaA, Darmstadt, Germany. During the first quarter of 2017, the company received $193.6 million of the up-front payment and the remaining $36.4 million was remitted to the German tax authorities. The company filed a refund application for the tax withholding and expects to receive the refund in approximately six months. The income tax receivable is included in other assets at March 31, 2017."

Non-GAAP results: Net income $101 million, up 15% sequentially from $88 million, and up 359% from $22 million year-earlier. EPS $0.41, up 17% sequentially from $0.35, and up 355% from from $0.09 year-earlier. Excludes stock-based compensation of $69 million and $11 million in other costs as well as $226 million in income.

$ millions
Q1 2016
y/y % change
product subtotal

Vertex believes there are 29,000 patients eligible for its currently approved therapies. Label expansions could take that to 44,000. Triple combination regiments could expand that to 68,000, and future approaches could bring the total to 75,000.

Vertex applied to the EMA for approval of Orkambi for children 6 to 11 with CF the two copies of the F508del mutation.

VX661 (Tezacaftor) (+ ivacaftor) Phase 3 trials for CF are complete, except for gating mutations. First data supports regulatory submissions in Q3. A U.S. Phase 3 study for children age 6 to 11 continues.

Vertex has moved two next-generation correctors for cystic fibrosis, VX-152 and VX-440, into clinical development. Phase 2 data is expected before the end of 2017.

ENaC with Orkambi continued a Phase 2 study.

VX-659 for CF Phase 1 data is expected in 2017.

VX-445 Phase 1 CF trial began this quarter.

CTP-656 was purchased from Concert Pharmaceuticals in March. It is a CFTR potentiator. It could be used in a combination regiment. On closing Vertex will pay $160 million in cash for worldwide rights. $90 million more in milestones are possible.

Vertex is exploring other therapies for CF.

VX-970, a kinase inhibitor, for solid tumors, VX-803, and VX-984 all went to Merck KGaA as part of the deal described above.

See also the Vertex Pharmaceuticals Pipeline page.

Cash and equivalents balance ended at $1.41 billion, down sequentially from $1.43 billion. Debt reduced to $0 million from $300 million.

Cost of revenue was $46.2 million. Royalty expense was $0.7 million. Research and development expense was $273.6 million. Sales, general and administrative expenses were $113.3 million. Restructuring expense was $10 million. Total costs and expenses were $443.9 million, leaving operating income of $253.5 million. Interest & other expense $0.5 million. Income tax $4 million. Loss attributable to noncontrolling interest $1.8 million.

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


Triple combo study move from 2 week to 4 week dosing? Will have 4 triple regimen combos in trials, in two waves. We are pleased with the progression of all four trials. VX-152 was expanded to 4 weeks to give us more information about which therapies to take forward.

CF patients currently take 20 to 40 pills a day. We are hoping to develop a once-a-day pill with our therapies.

Disclosure of triple combo data? Our plan is to let the studies play out, then provide a top line release on safety and efficacy.

Was there better tolerability leading to the 4 week dosing? Tolerability did allow for extension to 4 weeks. We don't feel we need to test this in every population.

We will have data in a tight timeframe on 3 or possibly 4 of the potential triple combo molecules, then will decide which to take forward.

Negotiating in Europe for reimbursements remains hard to predict, which is a main source for the range in the guidance. We did recently get pricing reimbursement agreements with Austria, Denmark and Germany. We have an agreement in principle with Ireland.

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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 2017 William P. Meyers