Analyst Conference Summary

Biotechnology

conference date: February 1, 2021 @ 1:30 PM Pacific Time
for quarter ending: December 30, 2020 (Fourth quarter, Q4, 2020)

Forward-looking statements

Overview: Good but moderating revenue growth.

Basic data (GAAP):

Revenue was $1.63 billion, up 6% sequentially from $1.54 billion, and up 15% from $1.41 million in the year-earlier quarter.

Net income was $604 million, down 9% sequentially from $667 million and up 4% from $583 million year-earlier.

Diluted Earnings Per Share (EPS) were $2.30, down 9% sequentially from $2.53 and up 3% from $2.23 year-earlier.

Guidance:

Full year 2021 product revenue is expected between $6.7 and $6.9 billion. R&D and SG&A combined expense $2.9 to $3.05 billion GAAP or $2.25 to $2.3 billion non-GAAP. Non-GAAP tax rate 21% to 22%.

Conference Highlights:

Reshma Kewalramani, CEO, said "Our achievements in 2020 were marked by a significant increase in the number of people treated with the triple combination in the U.S. and the EU. It was also a year marked by meaningful pipeline advancement. We now have clinical programs in seven disease areas, spanning multiple modalities including small molecules for alpha-1 antitrypsin deficiency and APOL1-mediated kidney diseases, gene editing for sickle cell disease and beta thalassemia, and cell therapy for type 1 diabetes. As we enter 2021, we look forward to treating more CF patients and reaching important R&D milestones in multiple additional diseases which will fuel our growth this year and for many years to come."

Trikafta (Kaftrio in EU) Phase 3 trial to expand the label to children aged 6 to 11 reported positive data and a PFUFA of June 8, 2021 was set. Believes Trikafta can treat about 90% of CF patients. Label expanded by FDA to include people 12 and older. Approved for marketing and reimbursement in Switzerland in Q4 2020.

Non-GAAP results: Net income $661 million, down 5% sequentially from $697 million, and up 49% from $444 million year-earlier. EPS $2.51, down 5% sequentially from $2.64, and up 48% from from $1.70 year-earlier.

Plans to reinvest cash in innovation. Looking for mid and late stage assets. But will continue stock buy-back program.

Note that in Q4 2019 Vertex reported $1,413 million in GAAP product revenue, but $1,257 million in non-GAAP product revenue. So % increases/decreases may not be consistent.

Vertex and its partner CRISPR Therapeutics are evaluating the use of a CRISPR gene-edited therapy for the treatment of transfusion-dependent beta thalassemia and sickle cell disease. Enrollment is ongoing in the clinical studies for CTX001, with more than 20 patients have been dosed with CTX001 to date. Completion of enrollment in both studies is expected in 2021.

VX-880 for type 1 diabetes (T1D) was cleared for clinical trail by the FDA. The Phase 1/2 trial should begin first half of 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

In Q4 2020 Skyhawk Therapeutics and Vertex entered a strategic collaboration to discover and develop novel small molecules that modulate RNA splicing for the treatment of diseases.

A Phase 2 trial underway for a second AAT therapy, VX-864. Data expected in first half of 2021.

See also the Vertex Pharmaceuticals Pipeline page.

Cash and equivalents balance ended at $6.66 billion, up sequentially from $6.15 billion. No debt.

Cost of revenue was $203 million. Research and development expense was $467 million. Sales, general and administrative expenses were $212 million. Change in contingent consideration $ million. Total costs and expenses were $882 million, leaving operating income of $746 million. Interest expense net $14 million. Other income $157 million. Income tax $284 million.

Full year 2020 results: Revenue $6.20 billion, up 49% y/y. GAAP net income $2.71 billion, up 130%. Non-GAAP net income $2.72 billion, up 96%. GAAP EPS $10.29, up 128%. Non-GAAP EPX $10.32, up 94%.

Q&A:

AAT status? We always follow safety closely. VX-864 concept study will also looking at PK and functional AAT levels, as well as a dose-effect relationship. We are hoping to close the loop on the biological mechanism.

CF guidance, pandemic uncertainty? In the US the vast majority of patients were already initiated on Trikafta. The growth driver would be if we get the 6 to 11 year olds approval. Elsewhere we have launched Trikafta, with a majority of patients initiated. Guidance does not include countries where we have not received reimbursement, like France, Spain, and Italy. We have filed for approval in Canada and Australia but not included them in our guidance.

Business development? It is not a change of strategy. We are interested in complementary R&D assets. Transformative potential in specialty markets is the goal. We have no preconceived notions about the timing or cost of an acquisition.

VX-814 failure, any update? We are enthusiastic about the mechanism, the only one that could treat both liver and lung. 814 was just not the right molecule, given results.

Updated CF market data? Epidemiology updated from 75,000 to 83,000, for Canada, EU, Australia and U.S. Just improved data collection. It was used to develop our 2021 guidance.

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