Analyst Conference Summary


Vertex Pharmaceuticals

conference date: February 5, 2019 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2018 (fourth quarter, Q4, 2018)

Forward-looking statements

Overview: Continued strong revenue and profit ramp. GAAP net income and EPS includes a huge tax benefit, so non-GAAP numbers are a better measure.

Basic data (GAAP):

Revenue was $868 million, up 11% sequentially from $783 million, and up 40% from $621 million in the year-earlier quarter.

Net income was $1.55 billion, up hugely sequentially from $129 million and up from $101 million year-earlier.

Diluted Earnings Per Share (EPS) were $5.97, up sequentially from $0.50 and up from $0.39 year-earlier.


For the full year 2019 revenue expected between $3.45 and $3.55 billion. Combined non-GAAP operating expense expected between $1.65 and $1.70 billion. Effective tax rate 21% to 22%, but this will be a non-cash expense due to NOLs.

If more nations approve reimbursement for therapies, guidance could be revised higher.

Conference Highlights:

Jeff Leiden, CEO, said "Our achievements in 2018 were marked by a significant increase in the number of CF patients being treated with our approved medicines and by remarkable progress advancing our two triple combination regimens through late-stage development. We remain on track to submit a New Drug Application for a triple combination regimen no later than mid-2019. Beyond CF, we have made tremendous advances with our research and development pipeline. We initiated clinical development for potential medicines to treat alpha-1 antitrypsin deficiency, sickle cell disease and beta thalassemia, provided multiple positive data readouts in pain, and progressed several other drug candidates into late preclinical development. Through our continued progress in treating CF and other serious diseases, we believe Vertex will continue to create revenue and earnings growth in 2019 and beyond."

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 $337 million, up 20% sequentially from $282 million, and up 113% from $158 million year-earlier. EPS $1.30, up 19% sequentially from $1.09, and up 113% from from $0.61 year-earlier.

Full year 2018 revenue was $3.04 billion, up 40% from $2.17 billion in 2017. GAAP net income was $2.10 billion, up from $263 million in 2017. EPS was 8.09, up from 1.04 in 2017. Non-GAAP net income was $1.06 billion, up from $495 million in 2017. EPS was $4.09, up from $1.95.

Starting in Q1 2019 the company will record a provision for income taxes on its pre-tax net income using an estimated effective tax rate that is expected to approximate statutory rates. This provision will include a significant non-cash charge due to the company's ability to offset its pre-tax net income against previously accumulated net operating losses. The company expects its cash paid for income taxes to increase significantly once all of its net operating losses have been utilized to offset its pre-tax net income. As of December 31, 2018, the company's federal net operating losses and credits were approximately $4.5 billion.

$ millions
Q4 2017
y/y % change
product subtotal
royalties & collaboration

Anticipates continued revenue growth in 2019. Triple combination regimens would drive growth starting in 2020. In 2019 non-cash tax rate could increase, but will continue to use NOLs.

Results from Phase 3 Orkambi trial in children aged 2 to 5 were positive; on July 27, 2018 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. Positive data was reported in November 2018 for the two Phase 3 studies of VX-659 in triple combination with tezacaftor and ivacaftor in people with CF who have one F508del mutation and one minimal function mutation and in people who have two F508del mutations. Enrollment completed in Q4 2018 for the two Phase 3 studies of VX-445 in triple combination with tezacaftor and ivacaftor in people who have one F508del mutation and one minimal function mutation and in people who have two F508del mutations. Data from these studies should read out in the first quarter of 2019. But just one will be chosen to take forward to commercialization.

CTX001 for B-Thalassemia Phase 1/2 trial is ongoing, as is the sickle cell trial. FDA granted Fast Track Designation. This is a gene editing therapy.

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

Vertex is preparing a focal segmental glomerulosclerosis candidate for the clinic.

On January 29, 2019, the FDA granted Vertex a rare pediatric disease priority review voucher based on the February 2018 approval of Symdeko for the treatment of people with CF ages 12 and older who have two copies of the F508del mutation or who have at least one mutation that is responsive to tezacaftor/ivacaftor. A rare pediatric disease priority review voucher entitles the voucher holder to priority review of other human drug applications. Rare pediatric disease priority review vouchers can be transferred, including by sale, from one sponsor to another.

In December 2018 Vertex initiated clinical development of its first medicine for alpha-1 antitrypsin deficiency, a genetic disorder that is caused by mutations in a single gene that result in life-shortening systemic complications, primarily in the lung and liver.

See also the Vertex Pharmaceuticals Pipeline page.

Cash and equivalents balance ended at $3.17 billion, up sequentially from $3.1 billion. No debt.

Cost of revenue was $122 million. Research and development expense was $438 million. Sales, general and administrative expenses were $153 million. Impairment $29 million. Total costs and expenses were $742 million, leaving operating income of $128 million. Interest expense $5 million. Other expense $90 million. Income tax benefit $1.49 billion. Loss attributable to noncontrolling interest $25 million.


United Kingdom pricing and reimbursement? We made great progress in reimbursement in other nations in 2018. Those countries use appropriate methodologies to assess value. We hope to get that in the UK. We have reached an agreement about assessment in Scottland, could get access in 2019. In England we have not been able to reach an agreement on methodology. Even the triple will be difficult under the current NICE methodology.

Patient split US / EU? Of the 18,000 patients, two-thirds are US, one-third ex-US.

Taxes after 2019? The rate could go lower due to geographic mix after 2019, can't predict until we see how EU reimbursement is working out. Would continue to be non-cash until NOLs done.

Portfolio agreements are in place in Ireland, Australia, Denmark, and the Netherlands. England has expressed an interest in a portfolio agreement. They allow reimbursement to kick in as soon as a therapy is approved.

Yes, we are still looking to acquire external assets to complement our internal development efforts.

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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. This is journalism, not advice.

Copyright 2019 William P. Meyers