- Company Reiterates Anticipated Timeline of Clinical Milestones -
CAMBRIDGE, Mass., Oct. 26 /PRNewswire-FirstCall/ -- Vertex
Pharmaceuticals Incorporated (Nasdaq: VRTX) today reported consolidated
financial results for the quarter ended September 30, 2006.
"Vertex is well-positioned to pursue late-stage development and
commercialization of its product opportunities," stated Joshua Boger,
Ph.D., President and CEO of Vertex Pharmaceuticals. "Our lead
investigational drug, telaprevir (VX-950), has the potential to address
significant unmet medical need in the treatment of HCV. Behind telaprevir
(VX-950), we have a pipeline of first-in-class compounds with promising
profiles, and we have the financial strength to help us capitalize on our
clinical opportunities. We are focused on executing our clinical strategies
over the next year to help realize the full potential of telaprevir
(VX-950) and our pipeline products."
Third Quarter Results
The non-GAAP loss, before certain charges and gains for the quarter
ended September 30, 2006 was $47.9 million, or $0.42 per share, compared to
a non- GAAP loss, before charges, of $40.8 million, or $0.43 per share for
the quarter ended September 30, 2005. The increase in the Company's third
quarter 2006 non-GAAP loss resulted from increased development investment
as the Company continued to advance its proprietary drug candidates.
For the quarter ended September 30, 2006, the Company's net loss on a
GAAP basis was $51.8 million, or $0.46 per share. This included stock-based
compensation expense of approximately $9.3 million, restructuring expense
of approximately $1.4 million, loss on exchange of convertible subordinated
notes of $5.2 million, and gains related to an investment of approximately
$11.9 million. The net loss on a GAAP basis for the quarter ended September
30, 2005 was $79.6 million, or $0.84 per share. The 2005 GAAP net loss
includes stock-based compensation expense of approximately $0.9 million,
restructuring expense of approximately $1.6 million, and loss on exchange
of convertible subordinated notes of $36.3 million.
Total revenues for the quarter ended September 30, 2006 were $53.3
million compared to $36.2 million for the third quarter of 2005. The
increase in revenues is primarily due to revenue recognized during the
quarter from our collaboration with Janssen Pharmaceutica, which offsets a
decline in revenue from the Company's research collaborations.
Research and development (R&D) expenses for the quarter ended September
30, 2006 were $96.1 million, including $7.6 million of stock-based
compensation, compared to $63.6 million, including $0.8 million of
stock-based compensation, for the third quarter of 2005. The increase
primarily relates to development investment to support the global Phase 2b
clinical development program, as well as to the Company's initial
commercial inventory investment for telaprevir (VX-950) and to increased
charges for stock-based compensation compared to the prior year, as a
result of the adoption of FAS 123R on January 1, 2006.
Sales, general and administrative (SG&A) expenses for the quarter ended
September 30, 2006 were $14.8 million, including $1.7 million of
stock-based compensation, compared to $10.7 million, including $0.2 million
of stock-based compensation, for the third quarter of 2005. This increase
reflects building of infrastructure to support the advancement of the
business.
Other income, net, for the quarter ended September 30, 2006 was $3.6
million, compared to other expense, net, of $0.8 million for the third
quarter in 2005. This increase resulted from the Company's reduction of
outstanding debt in 2005 and higher investment returns.
At September 30, 2006, Vertex had approximately $752.3 million in cash,
cash equivalents and other investments. This amount includes the up-front
payment of $165.0 million received from Janssen Pharmaceutica in July and
proceeds from the Company's $330.0 million equity financing completed in
September. Vertex ended the third quarter with $42.1 million in principal
amount of convertible debt due September 2007 and $59.6 million in
principal amount of convertible debt due February 2011. The 2011
convertible debt has a conversion price of $14.94 and is callable in
February 2007.
Third Quarter Achievements and 2006 Objectives
* Continue to advance proprietary Vertex compounds:
telaprevir (VX-950)
* The global Phase 2b clinical development program for telaprevir
(VX-950) is advancing according to plan. In September, the Company
announced that it had completed enrollment in the 260-patient PROVE
1 clinical trial. Vertex expects that the first data from the PROVE
1 clinical trial will become available in December 2006. These data
will reflect an analysis of the safety and antiviral activity of
telaprevir (VX-950) in 80 patients initially randomized to receive
either 12 weeks of telaprevir (VX-950) therapy in combination with
pegylated interferon and ribavirin, or 12 weeks of pegylated
interferon, ribavirin and placebo.
* Vertex has initiated in Europe the 320-patient PROVE 2 clinical
trial. The trial is on track to complete enrollment in the fourth
quarter. The Company expects the first data from PROVE 2 to be
available in mid-2007.
* The Company remains on track to initiate in the fourth quarter the
PROVE 3, 400-patient clinical trial of telaprevir (VX-950) in
patients with HCV who have failed prior treatment. Preliminary
analysis including histopathology data from the six-month
nonclinical studies with telaprevir (VX-950) in two species has been
completed. Vertex believes these nonclinical studies will support
clinical trials as planned. Complete reports will be provided to
regulatory agencies in the fourth quarter.
* In September, Vertex announced that it has successfully completed
the technical development work for the Phase 3 and commercial
formulation of telaprevir (VX-950). With this formulation, the
dosing of telaprevir (VX-950) is planned as two 375 mg tablets to be
taken every eight hours. Vertex has begun to manufacture drug
substance registration batches and all registration batches are
anticipated in the first half of 2007. Vertex expects to make a
significant investment in the commercial supply for telaprevir (VX-
950) in 2007, subject to continued progress of the drug candidate.
* Five abstracts have been accepted for presentation at the 57th
Annual Meeting of the American Association for the Study of Liver
Diseases (AASLD) in Boston, October 27-31.
VX-702
* In September, Vertex announced that it plans to initiate in the
fourth quarter of 2006 a 12-week, 120-patient Phase 2a clinical
trial in patients with rheumatoid arthritis. This clinical trial
will evaluate safety, tolerability and anti-inflammatory effects of
VX-702 on a background of methotrexate. Vertex also plans to
initiate in the fourth quarter a Thorough QTc study with VX-702
under an open Investigational New Drug (IND) application.
VX-770
* Vertex completed a Phase 1 clinical trial of VX-770 in healthy
volunteers and in patients with cystic fibrosis (CF) in the third
quarter. The Company believes that the study results support the
initiation in 2007 of a Phase 2 clinical program in patients with
CF. In addition, Vertex announced today that it has completed a
bioavailability study of VX-770 with a new tablet formulation.
* Continue to advance collaborator-led compounds:
VX-680 (MK-0457)
* Vertex's collaborator Merck is conducting Phase 2 clinical trials of
VX-680 (MK-0457) in solid tumor cancers and an ongoing Phase 1
clinical trial in hematological cancers. Clinical results for
VX-680 (MK-0457) in three patients with treatment-resistant blood
cancers were published in the October 2006 issue of the journal
Blood. Vertex expects that additional clinical results for VX-680
(MK-0457) will be presented at the American Society of Hematology
(ASH) conference in December. Vertex believes that VX-680 (MK-0457)
has the potential to advance into late stage clinical development.
Lexiva
* Updated treatment guidelines issued by the U.S. Department of Health
and Human Services (DHHS) and the International AIDS Society-USA
(IAS-USA) now include Lexiva(R) (fosamprenavir calcium) dosed with
ritonavir twice daily as a preferred or recommended option for
protease inhibitor-based regimens in the initial treatment of adults
with HIV infection.
Full Year 2006 Financial Guidance
This section contains forward-looking guidance about the financial
outlook for Vertex Pharmaceuticals.
Vertex is revising upward its guidance for 2006 year end cash and cash
equivalents and other investments from $400 million to more than $725
million, primarily as a result of the proceeds from the $330 million equity
financing the Company completed in September.
The Company expects that its non-GAAP loss for the full year, excluding
certain charges and gains, will be in the range of $180 to $195 million.
The Company expects that the full year 2006 GAAP loss will be in the range
of $222 to $237 million. The estimated 2006 GAAP loss includes the loss on
the exchange of convertible subordinated notes of approximately $5 million,
gains related to an investment of approximately $12 million, an estimate of
stock- based compensation expense of approximately $38 million, and
restructuring expense of approximately $4 million as a result of imputed
interest charges relating to the restructuring accrual.
Non-GAAP Financial Measures
In this press release, Vertex's financial results are provided both in
accordance with accounting principles generally accepted in the United
States (GAAP) and using certain non-GAAP financial measures. In particular,
Vertex provides its third quarter 2006 and 2005 loss and guidance for a
full year 2006 loss excluding, in each case, restructuring charges,
stock-based compensation expense, loss on exchange of convertible
subordinated notes and net gains related to an investment, which in each
case results in a non-GAAP financial measure. 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 and are important in comparing current results
with prior period results. 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.
About Vertex
Vertex Pharmaceuticals Incorporated is a global biotechnology company
committed to the discovery and development of breakthrough small molecule
drugs for serious diseases. The Company's strategy is to commercialize its
products both independently and in collaboration with major pharmaceutical
companies. Vertex's product pipeline is focused on viral diseases,
inflammation, autoimmune diseases, cancer, pain and bacterial infection.
Vertex co-discovered the HIV protease inhibitor, Lexiva, with
GlaxoSmithKline.
Lexiva is a registered trademark of the GlaxoSmithKline group of
companies.
This press release contains forward-looking statements, including
statements that Vertex (i) is well positioned today to pursue late-stage
development and commercialization of its product opportunities; (ii)
believes telaprevir has the potential to address significant unmet medical
need in the treatment of HCV; (iii) has the financial strength to help it
to capitalize on its clinical opportunities; (iv) expects the first data
from the PROVE 1 clinical trial will become available in December 2006; (v)
believes that the PROVE 2 clinical trial is on track to complete enrollment
in the fourth quarter, with first data available in mid-2007; (vi) expects
the 400-patient PROVE 3 trial to begin in the fourth quarter; (vii) expects
all registration batches to be completed in the first half of 2007 and
plans to make a significant investment in the commercial supply for
telaprevir in 2007, subject to continued progress of the drug candidate;
(viii) plans to initiate with VX-702 both a 12-week, 120-patient Phase 2a
clinical trial in patients with rheumatoid arthritis, and a Thorough QTc
study under an open IND, in the fourth quarter of 2006; (ix) believes that
the results of the Phase 1 clinical trial of VX-770 in cystic fibrosis
support the initiation of a Phase 2 clinical program in patients with CF in
2007; (x) expects that additional clinical results for VX-680 will be
presented at ASH and believes that VX-680 has the potential to advance into
late stage clinical development; and (xi) expects that its GAAP and
non-GAAP 2006 loss, and its stock-based compensation expense and its cash
position will be as stated above in the Company's financial guidance. The
2006 loss guidance ranges depend on achievement and timing of certain
milestones that relate to compound acceptances and clinical achievement in
collaborative programs. While management makes its best efforts to be
accurate in making forward-looking statements, those statements are subject
to risks and uncertainties that could cause Vertex's actual results to vary
materially. Those risks and uncertainties include, among other things, the
risk that any one or more of Vertex's internal drug development programs,
including its proposed or ongoing Phase 2 clinical trials of telaprevir
(VX-950), VX-702 and VX-770, or its development programs with
collaborators, including the VX-680 collaboration with Merck, will not
proceed as planned for technical, scientific or commercial reasons, or due
to FDA disagreement with study designs or to patient enrollment issues or
new judgments based on new information from non-clinical studies or from
clinical trials or other sources, that one or more of the Company's
assumptions underlying its revenue expectations, including the expectation
of clinical and scientific progress and the timing of any such progress,
could lead to revenues from compound acceptance or milestone achievement
under existing collaboration agreements that might be higher or lower than
expected and could consequently result in a lower or higher net loss, that
Vertex will be unable to realize one or more of its financial objectives
for 2006 due to unexpected and costly program delays or any number of other
unexpected financial, technical or collaboration considerations including
interpretations limiting its ability under applicable accounting rules to
recognize revenue in current periods on account of cash received from its
collaborators, that unexpected costs associated with one or more of the
Company's programs will necessitate a reduction in its investment in other
programs or a change in the Company's financial projections, and other
risks listed under Risk Factors in Vertex's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 16, 2006. We
disclaim any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise, unless required by law.
Vertex Pharmaceuticals Incorporated
2006 Third Quarter and Nine Month Results
Consolidated Statements of Operations Data
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Revenues:
Royalties $10,902 $9,466 $29,086 $23,086
Collaborative and other R&D
revenues 42,387 26,741 93,016 74,048
Total revenues $53,289 $36,207 $122,102 $97,134
Costs and expenses:
Royalty payments 3,113 2,796 8,993 7,315
Research and development 96,115 63,590 262,567 180,382
Sales, general & administrative 14,773 10,738 42,022 31,179
Restructuring expense (Note 4) 1,415 1,565 2,625 1,736
Total costs and expenses 115,416 78,689 316,207 220,612
Loss from operations $(62,127) $(42,482) $(194,105) $(123,478)
Other income (expense), net 3,563 (772) 6,750 (5,484)
Realized gain on sale of
investment (Note 6) 7,663 --- 7,663 ---
Unrealized gain on warrants
(Note 7) 4,250 --- 4,250 ---
Loss on exchange of convertible
subordinated notes (Note 5) (5,151) (36,324) (5,151) (36,324)
Loss from continuing
operations before cumulative
effect of a change in
accounting principle -- FAS
123R $(51,802) $(79,578) $(180,593) $(165,286)
Cumulative effect of a change in
accounting principle -- FAS 123R
(Note 3) --- --- 1,046 ---
Net loss $(51,802) $(79,578) $(179,547) $(165,286)
Basic and diluted loss per
common share before
cumulative effect of a change
in accounting principle
-- FAS 123R $(0.46) $(0.84) $(1.65) $(1.93)
Cumulative effect of a change in
accounting principle
-- basic and diluted --- --- $0.01 ---
Basic and diluted net loss per
share $(0.46) $(0.84) $(1.64) $(1.93)
Basic and diluted weighted
average number of common
shares outstanding 112,803 94,590 109,608 85,462
Non-GAAP Loss Reconciliation Three Months Ended Nine Months Ended
(Note 1) September 30, September 30,
2006 2005 2006 2005
GAAP Net Loss $(51,802) $(79,578) $(179,547) $(165,286)
Pro Forma Adjustments:
Stock-based compensation
expense included in R&D
(Note 2): $7,554 $751 $23,715 $2,515
Stock-based compensation
expense included in SG&A
(Note 2): 1,720 164 5,331 560
Total stock-based
compensation expense $9,274 $915 $29,046 $3,075
Realized gain on sale of
investment (Note 6) (7,663) --- (7,663) ---
Unrealized gain on warrants
(Note 7) (4,250) --- (4,250) ---
Loss on exchange of convertible
subordinated notes (Note 5) 5,151 36,324 5,151 36,324
Restructuring expense (Note 4) 1,415 1,565 2,625 1,736
Cumulative effect of a change
in accounting principle --
FAS 123R (Note 3) --- --- (1,046) ---
Non-GAAP loss $(47,875) $(40,774) $(155,684) $(124,151)
Basic and diluted non-GAAP
loss per share $(0.42) $(0.43) $(1.42) $(1.45)
Note 1: Financial results are provided both in accordance with
generally accepted accounting principles (GAAP) in the United States and
using certain non-GAAP financial measures. These results are provided as a
complement to the results in accordance with GAAP because management
believes these non-GAAP measures help indicate underlying trends in the
Company's business, and uses these non-GAAP financial measures to establish
budgets and operational goals that are communicated internally and
externally, to manage the Company's business and to evaluate its
performance.
Note 2: For the three and nine months ended September 30, 2006, the
Company incurred $9.3 million and $29.0 million, respectively, in stock
compensation expense of which $7.6 million and $23.7 million, respectively,
is included in research and development expenses and $1.7 million and $5.3
million, respectively, is included in sales, general and administrative
expenses. Stock compensation expense includes costs associated with
restricted stock, stock option awards, and employee stock purchase shares,
which were recorded in connection with provisions of FAS 123R, "Accounting
for Stock-Based Compensation." FAS 123R requires companies to record
stock-based payments in the financial statements using a fair value method.
The Company adopted FAS 123R on a modified prospective basis beginning
January 1, 2006. For the three and nine months ended September 30, 2005,
the Company recorded $0.9 million and $3.1 million, respectively, of stock
compensation expense relating to restricted stock awards.
Note 3: FAS 123R requires the Company to recognize expense only for
shares expected to vest, and this results in the Company being required to
estimate forfeitures on grant date. During the nine months ended September
30, 2006 the Company recorded a $1.0 million benefit due to the cumulative
effect of estimating forfeitures on the grant date rather than recording
them as they occur.
Note 4: For the three and nine months ended September 30, 2006, the
Company incurred restructuring expense charges of $1.4 million and $2.6
million, respectively. These charges are primarily a result of the imputed
interest charge related to the restructuring liability.
For the three and nine months ended September 30, 2005, the Company
incurred restructuring charges. The charge for the three months ended
September 30, 2005 was $1.6 million that principally relates to imputed
interest costs relating to the restructuring liability. For the nine months
ended September 30, 2005, the Company recorded $1.7 million of net
restructuring expense which includes a credit for reversing a portion of
the restructuring liability related to the space that Vertex decided to
occupy, offset by estimated incremental net ongoing lease obligations for
the remainder of the space and imputed interest costs on the restructuring
liability.
The expense and the related liability have been estimated in accordance
with FASB 146 "Accounting for Costs Associated with Exit or Disposal
Activities" and are reviewed quarterly for changes in circumstances.
Note 5: In August 2006, the Company exchanged approximately 4.1 million
shares of the Company's common stock for approximately $58.3 million in
aggregate principal amount of outstanding 5.75% Convertible Senior
Subordinated Notes due 2011, plus accrued interest. As a result of the
exchange, the Company incurred a non-cash charge of approximately $5.2
million related to the incremental shares issued in the transaction over
the number that would have been issued upon the conversion of the notes
under the original terms.
In September 2005, holders of 5% Convertible Subordinated Notes due
2007 exchanged $40.5 million in aggregate principal amount plus accrued
interest on the notes for approximately 2.5 million shares of common stock.
As a result of the exchange, a non-cash charge of approximately $36.3
million was incurred. This charge is related to the incremental shares
issued in the transaction over the number that would have been issued upon
conversion of the notes under their original terms.
Note 6: In July 2006, the Company sold 817,749 shares of Altus
Pharmaceuticals common stock for approximately $11.7 million, resulting in
a realized gain of approximately $7.7 million.
Note 7: At September 30, 2006 the Company owned warrants to purchase
1,962,494 shares of Altus common stock. In accordance with FAS 133,
"Accounting for Derivative Instruments and Hedging Activities," the
warrants have been classified as derivatives at September 30, 2006. FAS 133
requires the Company to record derivatives at fair value on the balance
sheet and any changes in the fair value must be recognized in income. For
the period ending September 30, 2006, there is an unrealized gain on the
fair market value of the warrants of $4.3 million.
Note 8: In September 2006, the Company completed a public offering of
10,000,000 shares of common stock, including the underwriters' allotment of
900,000 shares, at a price of $33.00 per share. This transaction resulted
in net proceeds of approximately $313.3 million. The net proceeds include
an underwriting discount of approximately $15.7 million and other expenses
of the offering estimated at $1.0 million that were recorded as an offset
to additional paid-in-capital.
Vertex Pharmaceuticals Incorporated
2006 Third Quarter Results
Condensed Consolidated Balance Sheets Data
(In thousands)
(Unaudited)
September 30, December 31,
2006 2005
Assets
Cash, cash equivalents and other
investments $752,348 $407,510
Other current assets 47,945 23,898
Property, plant and equipment, net 61,135 54,533
Restricted cash 37,392 41,482
Other noncurrent assets 3,291 21,575
Total assets $902,111 $548,998
Liabilities and Equity
Other liabilities $77,882 $54,443
Accrued restructuring expense 32,754 42,982
Deferred revenue 161,959 32,300
Collaborator development loan (due 2008) 19,997 19,997
Convertible notes (due 2007) 42,102 42,102
Convertible notes (due 2011) 59,648 117,998
Stockholders' Equity 507,769 239,176
Total liabilities and equity $902,111 $548,998
Common shares outstanding 125,262 108,153
Conference Call and Webcast: Third Quarter 2006 Financial Results:
Vertex Pharmaceuticals will host a conference call today, October 26,
2006 at 5:00 p.m. EDT to review financial results and recent developments.
This call will be broadcast via the Internet at http://www.vrtx.com in the
investor center. Alternatively, to listen to the call on the telephone,
dial 800-374-0296 (U.S. and Canada) or 706-634-2224 (International). Vertex
is also providing a podcast MP3 file available for download on the Vertex
website, http://www.vrtx.com.
The call will be available for replay via telephone commencing October
26, 2006 at 8:00 p.m. ET running through 5:00 p.m. ET on November 2, 2006.
The replay phone number for the U.S. and Canada is 800-642-1687. The
international replay number is 706-645-9291 and the conference ID number is
8433366. Following the live webcast, an archived version will be available
on Vertex's website until 5:00 p.m. ET on November 9, 2006. Vertex's press
releases are available at http://www.vrtx.com.
Vertex Contacts:
Lynne H. Brum, Vice President, Strategic Communications, 617-444-6614
Michael Partridge, Director, Corporate Communications, 617-444-6108
Lora Pike, Manager, Investor Relations, 617-444-6755
SOURCE Vertex Pharmaceuticals Incorporated
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CONTACT:
Lynne H. Brum, Vice President, Strategic
Communications, +1-617-444-6614, Michael Partridge, Director,
Corporate Communications, +1-617-444-6108, or Lora Pike, Manager,
Investor Relations, +1-617-444-6755, all of Vertex
Pharmaceuticals Incorporated
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