Vertex total product revenues increased 34%,driven by SYMDEKO in the U.S. in first-quarter 2019

April 30, 2019 Off By BusinessWire

– First-quarter 2019 product revenues of $857 million, a 34% increase
compared to $638 million in 2018-

– First-quarter 2019 GAAP operating income increased 115% to $277
million; non-GAAP operating income increased 81% to $377 million –

– On track to choose best triple combination regimen in Q2 2019; NDA
submission planned for Q3 2019 –

BOSTON–(BUSINESS WIRE)–Vertex Pharmaceuticals Incorporated (Nasdaq: VRTX) today reported
consolidated financial results for the first quarter ended March 31,
2019 and reiterated full-year 2019 financial guidance.

“Our goal is to develop transformative medicines for all people with CF
and other serious diseases and to ensure all eligible patients have
access to these medicines as quickly as possible,” said Jeffrey Leiden,
M.D., Ph.D., Chairman, President and Chief Executive Officer of Vertex.
“We have made significant progress toward achieving this goal by rapidly
advancing our triple combination regimens through late-stage
development, and we remain on track to submit a New Drug Application for
one of these medicines in the third quarter of 2019. We also continue to
advance our earlier-stage programs targeting AAT, pain, FSGS and sickle
cell disease. In the first quarter, we again delivered strong revenue
and earnings growth, which further enhances our ability to make
significant investments in internal and external innovation.”

First-Quarter 2019 Financial Highlights

Total product revenues increased 34% compared to the first
quarter of 2018, primarily driven by the uptake of SYMDEKO in the U.S.
since launch.

GAAP and Non-GAAP net income increased compared to the first
quarter of 2018, largely driven by the strong growth in total product
revenues, and was partially offset by increases in operating expenses
and income taxes.

Cash, cash equivalents and marketable securities as of March 31,
2019 were $3.5 billion, an increase of approximately $300 million
compared to $3.2 billion as of December 31, 2018.

First-Quarter 2019 Expenses

Combined GAAP and non-GAAP R&D and SG&A expenses
increased compared to the first quarter of 2018 primarily due to the
incremental investment to support the global use of Vertex’s medicines
and the expansion of Vertex’s pipeline in CF and other new disease areas.

GAAP and Non-GAAP income taxes increased significantly compared
to the first quarter of 2018 due to Vertex’s release of its valuation
allowance on the majority of its deferred tax assets in the fourth
quarter of 2018. GAAP and non-GAAP income taxes in the first quarter of
2019 include a provision for income taxes on Vertex’s pre-tax income
using an estimated effective tax rate approximating statutory rates.
This provision for income taxes includes a significant non-cash charge
due to Vertex’s ability to offset its pre-tax income against previously
benefited net operating losses. Vertex 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 income. Refer to “Supplemental
Income Tax Information” for discussion of the cash versus non-cash
components of Vertex’s provision for income taxes.

Full-Year 2019 Financial Guidance

The company’s total product revenue growth in 2019 is expected to be
driven primarily by the full-year impact of the SYMDEKO launch,
reimbursement agreements reached in 2018 and label expansions for the
company’s CF medicines. The company’s full-year 2019 revenue guidance
reflects only markets where its CF medicines are currently reimbursed.

The company’s combined GAAP and non-GAAP R&D and SG&A expense guidance
reflects CF development efforts, incremental investment to support the
potential launch of a triple combination regimen and investment to
support the expansion of Vertex’s pipeline into new disease areas.

In addition, based on the release of the company’s valuation allowance
in the fourth quarter of 2018, Vertex has also begun to record a tax
provision in 2019 and expects its full-year non-GAAP tax rate to be
between 21% and 22%. The vast majority of this tax provision will be a
non-cash expense until the company fully utilizes its net operating
losses.

Business Highlights

INVESTIGATIONAL CF MEDICINES

Bringing CF medicines to more people as quickly as possible:

- Final Phase 3 24-week data are expected in the second quarter of 2019
  from the triple combination program. Vertex plans to utilize these
  data to choose the best triple combination regimen to submit for
  regulatory approvals globally. The company plans to submit a New Drug
  Application (NDA) to the U.S. Food and Drug Administration (FDA) in
  the third quarter of 2019 and a Marketing Authorization Application
  (MAA) in Europe in the fourth quarter of 2019 for either the VX-659 or
  VX-445 triple combination regimen in people with CF who have two F508del
  mutations and in people with CF who have one F508del mutation
  and one minimal function mutation.

- The company has initiated 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 has 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.

APPROVED CF MEDICINES

Securing access for Vertex CF medicines:

- The company continues to work toward establishing pricing and
  reimbursement agreements in additional countries outside of the U.S.
  Highlights in 2019 thus far include:

– Positive recommendation for SYMDEKO in Australia for ages 12+ from the
Pharmaceutical Benefits Advisory Committee (PBAC).

– Reimbursement for ORKAMBI in Sweden for ages 2 to 5.

– Expanded pricing agreement for ORKAMBI in Germany to include children
ages 6 through 11.

Treating patients at younger ages with CFTR modulators:

- Vertex continues to make significant progress toward gaining approval
  for its CF medicines for use earlier in the course of disease
  progression. Recent highlights include:

– Approval for KALYDECO in the U.S. for infants ages 6 to <12 months.

– Approval for KALYDECO in Canada for children ages 12 to <24 months.

– Approval for ORKAMBI in the EU for children ages 2 to 5 years old.

– Supplemental New Drug Application (sNDA) submitted in the U.S. for
tezacaftor/ivacaftor in children ages 6 to 11 years old.

LATE-STAGE RESEARCH & CLINICAL DEVELOPMENT

Alpha-1 Antitrypsin (AAT) Program:

- The FDA has granted Fast Track Designation for VX-814, Vertex’s first
  small molecule corrector for the treatment of alpha-1 antitrypsin
  (AAT) deficiency. The company initiated a Phase 1 study of VX-814 in
  December 2018.

- Vertex is advancing other small molecule correctors of AAT through
  late preclinical development and expects to begin clinical development
  of a second small molecule AAT corrector in 2019.

Sickle Cell Disease & Beta-Thalassemia:

- In February 2019, CRISPR and Vertex announced that the first patient
  had been treated with CTX001 in a Phase 1/2 clinical study of patients
  with TDT, marking the first company-sponsored use of a CRISPR/Cas9
  therapy in a clinical trial.

- In April 2019, Vertex and its partner CRISPR Therapeutics announced
  that the FDA has granted Fast Track Designation for CTX001, an
  investigational, autologous, gene-edited hematopoietic stem cell
  therapy, for the treatment of transfusion-dependent beta thalassemia
  (TDT).

- The companies are also evaluating CTX001 for the treatment of sickle
  cell disease (SCD) and received Fast Track Designation for CTX001 from
  the FDA in January 2019 for SCD. The companies announced in February
  2019 that the first patient had been enrolled in a Phase 1/2 clinical
  study of CTX001 in severe SCD in the U.S. and is expected to be
  infused with CTX001 in mid-2019.

- Enrollment in both Phase 1/2 studies of CTX001 in patients with TDT
  and in patients with severe SCD is ongoing.

Non-GAAP Financial Measures

In this press release, Vertex’s financial results and financial guidance
are provided in accordance with accounting principles generally accepted
in the United States (GAAP) and using certain non-GAAP financial
measures. In particular, non-GAAP financial results and guidance exclude
from Vertex’s pre-tax income (i) stock-based compensation expense, (ii)
revenues and expenses related to business development transactions
including collaboration agreements, asset acquisitions and consolidated
variable interest entities and (iii) other adjustments, including gains
or losses related to the fair value of the company’s strategic
investments. The company’s non-GAAP financial results also exclude from
its provision for or benefit from income taxes the estimated tax impact
related to its non-GAAP adjustments to pre-tax income described above.
These results are provided as a complement to results provided in
accordance with GAAP because management believes these non-GAAP
financial measures help indicate underlying trends in the company’s
business, are important in comparing current results with prior period
results and provide additional information regarding the company’s
financial position. Management also uses these non-GAAP financial
measures to establish budgets and operational goals that are
communicated internally and externally and to manage the company’s
business and to evaluate its performance. The company adjusts, where
appropriate, for both revenues and expenses in order to reflect the
company’s operations. The company provides guidance regarding product
revenues in accordance with GAAP and provides guidance regarding
combined research and development and sales, general, and administrative
expenses on both a GAAP and non-GAAP basis. The company also provides
guidance regarding its anticipated income taxes as a percentage of
pre-tax income on a non-GAAP basis. The guidance regarding GAAP research
and development expenses and sales, general and administrative expenses
does not include estimates associated with any potential future business
development activities. A reconciliation of the GAAP financial results
to non-GAAP financial results is included in the attached financial
information.

Notes and Explanations

1: The company recorded gains of $43.6 million and $95.5 million
in the three months ended March 31, 2019 and 2018, respectively, to
“Other income, net,” related to changes in the fair value of its
strategic investments.

2: In the fourth quarter of 2018, the company recorded a non-cash
benefit from income taxes of approximately $1.5 billion related to the
release of its valuation allowance on the majority of its net operating
losses and other deferred tax assets. As a result, the company recorded
deferred tax assets of $1.5 billion on its consolidated balance sheet as
of December 31, 2018, which were previously subject to its valuation
allowance. Starting in the first quarter of 2019, the company began
recording a provision for income taxes on its pre-tax income using an
estimated effective tax rate that approximates statutory rates. The
provision includes a significant non-cash charge due to the company’s
ability to offset its pre-tax income against previously benefited net
operating losses. The company expects the majority of its tax provision
to represent a non-cash expense until its net operating losses have been
fully utilized. As of December 31, 2018, the company’s federal net
operating losses and credits that were available to offset future
pre-tax income were approximately $4.5 billion.

3: During the three months ended March 31, 2018, the company
consolidated the financial statements of a variable interest entity, or
VIE, because Vertex had licensed the rights to develop the VIE’s most
significant intellectual property asset. During the three months ended
March 31, 2018, the fair value of the contingent payments payable by
Vertex to the VIE increased by $24.0 million. This increase was
attributable to noncontrolling interest and resulted in a decrease in
net income attributable to Vertex on a dollar-for-dollar basis. The
company deconsolidated the VIE as of December 31, 2018; therefore, there
were no comparable amounts during the three months ended March 31, 2019.

4: “Other adjustments” in the three months ended March 31, 2019
primarily related to collaborative milestone payments. “Other
adjustments” in the three months ended March 31, 2018 primarily related
to revenues and expenses attributable to our VIE’s operations and
collaboration revenues and payments including those related to the
company’s oncology collaboration with Merck KGaA, Darmstadt, Germany.

5: In the three months ended March 31, 2019, “Estimated income
taxes related to non-GAAP adjustments to pre-tax income” primarily
related to (i) stock-based compensation (including an adjustment for
excess tax benefits related to stock-based compensation) and (ii) the
increase in the fair value of the company’s strategic investments. In
the three months ended March 31, 2018, “Estimated income taxes related
to non-GAAP adjustments to pre-tax income” were related to a provision
for income taxes attributable to the company’s VIE and excess tax
benefits related to stock-based compensation.