Analyst Conference Summary

Biotechnology

conference date: July 25, 2018 @ 1:30 PM Pacific Time
for quarter ending: June 30, 2018 (second quarter, Q2, 2018)

Forward-looking statements

Overview: Strong revenue and profit growth.

Basic data (GAAP):

Revenue was $752.2 million, up 17% sequentially from $640.8 million, and up 38% from $544.1 million in the year-earlier quarter.

Net income was $206.3 million, down 2% sequentially from $210.0 million, way up from $18.0 million year-earlier.

Diluted Earnings Per Share (EPS) were $0.80, down 1% sequentially from $0.81, but way up from $0.07 year-earlier.

Guidance:

Increased full year 2018 guidance to CF (cystic fibrosis) revenue $2.9 to $3.0 billion. GAAP combined RandD and SGandA expenses $1.8 to $1.95 billion; non-GAAP $1.5 to $1.55 billion.

Conference Highlights:

Jeff Leiden, CEO, said "We have made tremendous progress across our business in the first half of 2018 marked by the successful launch of Symdeko, the fast enrollment of two Phase 3 programs for our triple combination regimens, and continued success in bringing our CF medicines to more people outside of the U.S."

About 34,000 patients are eligible for the currently available Vertex medicines. The triple combination regimen will raise tht to about 68,000. Gene editing could raise that to 75,000.

Non-GAAP results: Net income $244 million, up 24% sequentially from $196 million, and up 146% from $99 million year-earlier. EPS $0.94, up 24% sequentially from $0.76, and up 141% from from $0.39 year-earlier.

The EU granted approval of Orkambi (lumacaftor/ivacaftor) for children 6 to 11 with CF the two copies of the F508del mutation on January 10, 2018.

Symdeko (tezacaftor/ivacaftor, was VX661) for CF ages 12 and up received FDA approval on February 12, with EU approval expected later this year.

Results from Phase 3 Orkambi trial in children aged 2 to 5 were positive, so regulatory submissions made and PDUFA date is August 7, 2018. On July 27 approval was announced.

Great data from both triple VX-659 & VX-445 triple combination (with tezacaftor/ivacaftor) regimen. Phase 3 trials are now underway. Could cover 90% of the CF population. Enrollment should complete before the end of 2018.

CTX001 for B-Thalassemia will start a Phase 1/2 trial in 2018.

VX-150 Phase 2 data reported "significant relief of acute pain." A Phase 2 study in neuropathic pain should have data in early 2019.

See also the Vertex Pharmaceuticals Pipeline page.

Cash and equivalents balance ended at $2.77 billion, up sequentially from $2.5 billion. No debt.

Cost of revenue was $104.4 million. Research and development expense was $337.5 million. Sales, general and administrative expenses were $137.3 million. Restructuring $62 million. Total costs and expenses were $579.3 million, leaving operating income of $172.9 million. Interest and other income $43.7 million. Income tax $10.3 million. Loss attributable to noncontrolling interest $1.1 million.

Q&A:

Symdeko launch in U.S.? Strong uptake among the three different groups we expected, including transitions from Orkambi. The transitions caused the drop in Orkambi revenue. But we also had new patients and some that had discontinued Orkambi.

Vertex beyond CF? First we will complete the CF mission, which should give us growth for a number of years. We have an internal pipeline that can generate breakthrough medicines, including some you know like pain and sickle cell. We are accumulating a lot of capital that can be invested externally to expand the pipeline.

We are particularly interested in new modalities like CRISPR.

U.K. pricing dispute? In many EU countries we have secured pricing agreeemnts. We want to get all patients in the world access. Patients in the U.K. and Australia have been waiting too long. We did receive a counteroffer in the U.K. from the NHS, which we did not accept.

Summer effects? We do see some effects from lack of compliance in summers, we do the best we can to help patients and doctors with it.

Has the reimbursement landscape changed for the worse? It varies by country. We believe innovation is rewarded in the U.S. In Europe there is single payer and has been difficult for all companies, including the innovative ones.

Competitive position? We are pleased with how fast we have developed our triple combinations, so we feel good about our competitive position.

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