Analyst Conference Summary


Vertex Pharmaceuticals

conference date: July 26, 2017 @ 2:15 PM Pacific Time
for quarter ending: June 30, 2017 (second quarter, Q2, 2017)

Forward-looking statements

Overview: solid quarter in revenue, but barely profitable.

Basic data (GAAP):

Revenue was $544 million, down 24% sequentially from $715 million, but up 26% from $432 million in the year-earlier quarter.

Net income was $18 million, down sequentially from $248 million, but way up from negative $65 million year-earlier.

Earnings Per Share (EPS) were $0.07, down sequentially from $0.99, and up from negative $0.26 year-earlier.


Total cystic fibrosis product revenue still expected between $1.84 and $2.07 billion. Combined non-GAAP R&D and SG&A expense estimate raised to $1.33 to $1.36 billion; GAAP raised to $1.79 to $1.92 billion. This now includes the $160 million R&D expense expected in Q3 for upfront payments for CTP-656.

Large revenue range is due to uncertain timing of reimbursement approvals in Europe.

Conference Highlights:

Jeff Leiden, CEO, said "Our progress has been marked by the progression of multiple combination regimens that allow us to treat more people with CF today and to potentially treat up to 90% of patients with this disease in the future." Progressing towards treating all people with CF.

Revenue declined sharply from Q1 because of the large collaboration payment in that quarter.

Non-GAAP results: Net income $99 million, down 2% sequentially from $101 million, but up 71% from $58 million year-earlier. EPS $0.39, down 5% sequentially from $0.41, but up 63% from from $0.24 year-earlier. Excludes stock-based compensation of $73 million and $8 million in other costs.

$ millions
Q2 2016
y/y % change
product subtotal

Vertex has applied to the EMA for approval of Orkambi for children 6 to 11 with CF the two copies of the F508del mutation. Also received reimbursement in Ireland and Italy for 12 and older patients with two copies of the F508del mutation. Continuing discussions with France, the U.K. and others.

Kalydeco received FDA approval for people with CF with one of 23 residual function mutations.

VX661 (Tezacaftor) (+ ivacaftor) Phase 3 trials for CF are complete, except for gating mutations. Submitted for approval in Europe and USA. FDA granted orphan drug status. A U.S. Phase 3 study for children age 6 to 11 continues. Enrollment completed in a Phase 3 study in people with one copy of the F508del mutation and a second mutation resulting in a gating effect; data expected before the end of 2017.

Two next-generation correctors for cystic fibrosis, VX-152 and VX-440, showed positive proof-of-concept results. 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 was positive.

VX-445 Phase 1 CF trial began this quarter.

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

Vertex is exploring other therapies for CF.

See also the Vertex Pharmaceuticals Pipeline page.

Cash and equivalents balance ended at $1.67 billion, up sequentially from $1.41 billion. No debt.

Cost of revenue was $71 million. Royalty expense was $1 million. Research and development expense was $289 million. Sales, general and administrative expenses were $127 million. Restructuring expense was $4 million. Total costs and expenses were $491 million, leaving operating income of $53 million. Interest & other expense $17 million. Income tax $4 million. Loss attributable to noncontrolling interest $13 million.

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


Progression of reimbursement in Europe, what are the details? These discussions have 3 phases, we are in Phase 3, pricing discussions. There is no doubt about the clinical benefits. The timing is not in our control.

Nonsense and splicing mutations strategy? We view splice and nonsense quite differently. We are in productive discussions with the FDA about splice, they respond to Kalydeco. Nonsense mutations are not going to respond to our current therapies. The first approach is (? sp) e-nec inhibitors. We will have first data in the second half of the year. A genetic approach like CRISPR could work, the problem would be delivery, which could take a number of years to bring to the clinic.

We are still working on understanding the types of mutations and number of potential patients in Latin America, where there may be a founder effect.

We believe Tex-Iva may be applicable to a variety of patients, including some that discontinued Orkambi.

Lumacaftor is known to have a broncho-constriction effect, while Tezacaftor has not shown that, which should give it an extra benefit for some patients.

Cash use? We are in a very nice position to think about how to allocate the cash. It goes into R&D, including disease areas beyond CF. We could also use it to buy assets, just as we just bought CPP656. We are doing a Moderna and a CRISPR collaboration, so using platforms other than small molecules.

We are not planning to develop CPP656 as a monotherapy. It is all about incorporating it into triple therapy.


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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