Analyst Conference Summary

Biotechnology

conference date: January 30, 2020 @ 1:30 PM Pacific Time
for quarter ending: December 31, 2019 (fourth quarter, Q4, 2019)

Forward-looking statements

Overview: Extremely rapid (63% y/y) revenue ramp on new drug introduction. Significant differences between GAAP and non-GAAP results.

Basic data (GAAP):

Revenue was $1.41 billion, up 48% sequentially from $950 million, and up 63% from $ million in the year-earlier quarter.

Net income was $583 million, up 10x sequentially from $57 million but down 62% from $1.55 billion year-earlier.

Diluted Earnings Per Share (EPS) were $2.23, up 10x sequentially from $0.22 and down 63% from $5.97 year-earlier.

Guidance:

Full year 2020 revenue expected between $5.1 and $5.3 billion. GAAP operating expense $2.4 to $2.55 billion; non-GAAP $1.95 to $2.0 billion. Non-GAAP tax rate 21% to 22%.

Conference Highlights:

Jeff Leiden, CEO, said "In 2019 all parts of our business met or exceeded the goals we set."

Trikafta was approved by the FDA on October 21, 2019. It combines elexacaftor/tezacaftor/ivacaftor and ivacaftor for the treatment of cystic fibrosis in people ages 12 years and older who have at least one F508del mutation. An estimated 18,000 potential patients in the U.S. A phase 3 trial to expand the label to children aged 6 to 11 is ongoing.

Non-GAAP results: Revenue $1.26 billion. Net income $444 million, up 38% sequentially from $322 million, and up 32% from $337 million year-earlier. EPS $1.70, up 38% sequentially from $1.23, and up 31% from from $1.30 year-earlier.

On October 10, 2019, Vertex completed its previously announced acquisition of Semma Therapeutics, a privately held biotechnology company pioneering the use of stem cell-derived human islets as a potentially curative treatment for type 1 diabetes.

Vertex plans to advance its cell therapy program for the treatment of type 1 diabetes into clinical development in late 2020 or early 2021.

Vertex continued a Phase 2 dose-ranging study evaluating the once-daily potentiator VX-561 as a monotherapy as requested by the FDA. The study is designed to evaluate multiple doses of VX-561 to support potential Phase 3 development of VX-561 in a once-daily triple combination regimen. Vertex also initiated a Phase 2 study evaluating the next-generation corrector, VX-121, in combination with VX-561 and tezacaftor as a potential once-daily triple combination regimen

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 continued a Phase 1 study of VX-147, the company's first investigational oral small molecule medicine for the treatment of APOL1-mediated focal segmental glomerulosclerosis (FSGS) and other serious kidney diseases. VX-147 is designed to inhibit APOL1 function, which is a causal genetic factor in FSGS and other proteinuric kidney diseases. Vertex is also advancing multiple other APOL1 inhibitors through preclinical development.

Plans a Phase 2 clinical trial continued for VX-814, its first medicine for alpha-1 antitrypsin (AAT) 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. Also has a Phase 1 trial underway for a second AAT therapy, VX-864.

CRISPR and Vertex continued CTX001 in a Phase 1/2 clinical study of patients with transfusion-dependent beta thalassemia (TDT). The FDA has granted Fast Track Designation for CTX001, an investigational, autologous, gene-edited hematopoietic stem cell therapy, for the treatment of TDT.

CTX001 for the treatment of sickle cell disease (SCD) received Fast Track Designation from the FDA in January 2019. In February 2019 the first patient was enrolled in a Phase 1/2 clinical study of for severe SCD and is expected to be infused with CTX001 in mid-2019.

See also the Vertex Pharmaceuticals Pipeline page.

Cash and equivalents balance ended at $3.81 billion, down sequentially from $4.0 billion. Semma Therapeutics acquisition used $ billion cash. No debt.

Cost of revenue was $185 million. Research and development expense was $480 million. Sales, general and administrative expenses were $195 million. Change in contingent consideration $2 million. Total costs and expenses were $862 million, leaving operating income of $551 million. Interest expense net $2 million. Other income $127 million. Income tax $94 million.

For the full year 2019, revenue was $4.01 billion. GAAP net income was $1.18 billion.

Q&A:

Most patients eligible for Trikafta are expected to transition to it.

Expected Trikafta uptake path in 2020? Off to a strong start. We expect to add patients through 2020, which is built into guidance. We expect persistance and compliance will be high.

Alpha1 antitrypsin (AAT) need for biopsie? Prior FDA conference said would work with each sponsor, believes functional serum AAT levels are the key data point. We hope to treat both liver and lung manifestations.

Guidance, 1Q is the full year rate? Guidance is not conservative. Backing out inventory, guidance implies significant growth over Q4.

Cell therapy approach to Type 1 diabetes? Current therapies don't do a good job controlling glucose, but transplants do. But there are not enough islets available for transplants. Our approach should produce and scale islet cells, which could have really good glucose control.

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