Vertex Reports Fourth Quarter And Full-Year 2011 Financial Results

Vertex Pharmaceuticals Incorporated (Nasdaq: VRTX) today reported consolidated financial results for the fourth quarter and full-year ended December 31, 2011.

“The successful launch of INCIVEK in hepatitis C and rapid approval of KALYDECO for people with a specific type of cystic fibrosis underscore our ability to discover and develop breakthrough new medicines and to bring them to patients,” said Jeffrey Leiden, M.D., Ph.D., President and Chief Executive Officer of Vertex. “We will continue to advance our pipeline of eight other potential medicines and expect to generate proof-of-concept data for many of these programs throughout 2012. With two approved medicines and our broad pipeline, Vertex is well-positioned to become a global business focused on creating additional medicines for people with serious diseases.”

Development Program Updates

On January 8, 2012, Vertex provided a comprehensive update on the status of its development programs. The company today provided the following additional updates:

• FDA Approval of KALYDECO: On Tuesday, Vertex announced that the U.S. Food and Drug Administration (FDA) approved KALYDECO ^TM (ivacaftor), the first medicine to treat the underlying cause of cystic fibrosis (CF). KALYDECO was approved for people with cystic fibrosis ages 6 and older who have at least one copy of the G551D mutation in the cystic fibrosis transmembrane conductance regulator ( CFTR) gene. The approval of KALYDECO was one of the fastest approvals ever by the FDA and marks the second approval of a new medicine from Vertex within the past nine months. Vertex today announced it has begun shipping KALYDECO to pharmacies in the United States.
• Global Availability of INCIVEK for Hepatitis C: INCIVEK ^® (telaprevir) is now approved in the United States for certain adults with hepatitis C and in multiple countries outside the United States. Vertex has exclusive rights to INCIVEK in the United States and Canada. Vertex's collaborator, Janssen, is marketing telaprevir in Europe as INCIVO ^®. INCIVO is now available in the U.K., Germany, France, Sweden, Austria, Finland, Denmark, Switzerland and Norway. Vertex's collaborator Mitsubishi Tanabe Pharma has rights in Japan, where telaprevir is being marketed as TELAVIC ^®.
• Study of Second Corrector VX-661 Underway for Cystic Fibrosis: Vertex recently initiated a Phase 2 study of VX-661, a second CFTR corrector. The study will evaluate VX-661 as monotherapy followed by dosing of VX-661 in combination with KALYDECO in people with two copies of the F508del mutation. According to the 2010 Cystic Fibrosis Foundation Patient Registry Annual Data Report, approximately 48 percent of the total CF patient population in the United States have two copies of the F508del mutation and an additional 40 percent of the total CF patient population have one copy of the F508del mutation. A Phase 2 study of the CFTR corrector VX-809 dosed in combination with KALYDECO is also ongoing. Data from the study with VX-809 are expected mid-year, followed by data from the study with VX-661 later in 2012.
• Other Ongoing and Planned Clinical Studies for 2012:
  • Cystic Fibrosis: Vertex plans to conduct three additional studies of KALYDECO that will enroll children with CF as young as two years of age and people with CF who have certain CFTR mutations that were not evaluated in the previous Phase 3 studies.
  • Hepatitis C: Vertex expects to have on-treatment and SVR4 data from the all-oral, interferon-free arms (VX-222, INCIVEK and ribavirin) of the Phase 2 ZENITH study in the first quarter of 2012. Vertex expects to have the first data from Phase 1 safety and 7-day viral kinetic studies of the nucleotide analogues ALS-2200 and ALS-2158 in healthy volunteers and people with genotype 1 hepatitis C in the second quarter of 2012. Data from studies in other genotypes are expected later in 2012. Following these Phase 1 studies, Vertex plans to conduct Phase 2 studies that are expected to evaluate combination regimens of ALS-2200 or ALS-2158 with INCIVEK or VX-222, potential dual nucleotide regimens and other interferon-free combination regimens that may also include ribavirin.
  • Rheumatoid Arthritis: Pending final regulatory feedback, Vertex plans to initiate a global Phase 2b study of VX-509 in people with moderate to severe rheumatoid arthritis that will evaluate once and twice-daily dosing in combination with methotrexate.
  • Influenza: Following the completion of Phase 1 studies in healthy volunteers , Vertex plans to begin a Phase 2a study of VX-787 in influenza.

Fourth Quarter 2011 Financial Results

Total Revenues: Total revenues for the fourth quarter of 2011 were $563.3 million, compared with $65.5 million in total revenues for the fourth quarter of 2010. The increase in total revenues for the fourth quarter of 2011 was primarily driven by INCIVEK net revenues of $456.8 million and a $65.0 million milestone payment from Mitsubishi Tanabe related to approval and commercialization of TELAVIC in Japan.

Net Product Revenues from INCIVEK: Net product revenues for INCIVEK for the fourth quarter of 2011 were $456.8 million. Vertex reported $419.6 million in net product revenues for INCIVEK in the third quarter of 2011.

Research and Development (R&D) Expenses: R&D expenses for the fourth quarter of 2011 were $186.4 million, including $18.2 million of Vertex stock-based compensation expense and $1.8 million in Alios expenses related to the accounting for the collaboration with Vertex, compared to $168.9 million for the fourth quarter of 2010, including $16.2 million of stock-based compensation expense. The increase in Vertex's R&D investment is principally due to the company's continued investment in its R&D pipeline, including preparation for the initiation of multiple clinical trials planned for 2012.

Sales, general and administrative (SG&A) expenses: SG&A expenses for the fourth quarter of 2011 were $121.9 million, including $11.1 million of stock-based compensation expense and $1.3 million in Alios expenses related to the accounting for the collaboration with Vertex, compared to $62.5 million for 2010, including $7.4 million of stock-based compensation expense. This increase reflects the expansion of the company's commercial organization to support both INCIVEK for the treatment of hepatitis C and KALYDECO for the treatment of cystic fibrosis and costs related to the commercial launch of INCIVEK.

GAAP Net Income (Loss) Attributable to Vertex: Vertex’s GAAP net income for the fourth quarter of 2011 was $158.6 million, or $0.74 per diluted share. The GAAP net loss for 2010 was $180.4 million, or $0.90 per diluted share.

Non-GAAP Net Income (Loss) Attributable to Vertex: Vertex’s non-GAAP net income for the fourth quarter of 2011, was $185.2 million, or $0.86 per diluted share. The non-GAAP net loss for the fourth quarter of 2010 was $148.5 million, or $0.74 per diluted share.

Cash Position: At December 31, 2011, Vertex had $968.9 million in cash, cash equivalents and marketable securities.

Full-Year 2011 Financial Results

Total Revenues: Total revenues for 2011 were $1.4 billion, compared with $143.4 million in total revenues for 2010. The increase in total revenues was primarily driven by 2011 INCIVEK net revenues of $950.9 million and approximately $315.0 million in collaborative milestone payments, including $250.0 million in collaborative milestone payments from Janssen and a $65.0 million milestone payment from Mitsubishi Tanabe related to approval and commercialization of TELAVIC in Japan.

Net Product Revenues from INCIVEK: Following the approval of INCIVEK on May 23, 2011, Vertex’s 2011 net product revenues for INCIVEK were $950.9 million.

Research and Development (R&D) Expenses: R&D expenses for 2011 were $707.7 million, including $75.4 million of stock-based compensation expense and $5.2 million in Alios expenses related to the accounting for the collaboration with Vertex, compared to $637.4 million for 2010, including $65.2 million of stock-based compensation expense. The increase in Vertex's R&D investment is principally due to the company's continued investment in its R&D pipeline, including preparation for the initiation of multiple clinical trials planned for 2012.

Sales, general and administrative (SG&A) expenses: SG&A expenses for 2011 were $400.7 million, including $42.6 million of stock-based compensation expense and $4.0 million in Alios expenses related to the accounting for the collaboration with Vertex, compared to $187.8 million for 2010, including $25.9 million of stock-based compensation expense. This increase reflects the expansion of the company's commercial organization to support both INCIVEK for the treatment of hepatitis C and KALYDECO for the treatment of cystic fibrosis and costs related to the commercial launch of INCIVEK.

GAAP Net Income (Loss) Attributable to Vertex: Vertex’s GAAP net income for 2011 was $29.6 million, or $0.14 per diluted share. The GAAP net loss for 2010 was $754.6 million, or $3.77 per diluted share.

Non-GAAP Net Income (Loss) Attributable to Vertex: Vertex’s non-GAAP net income for 2011 was $16.1 million, or $0.08 per diluted share, compared to a non-GAAP net loss of $605.7 million, or $3.02 per diluted share, for 2010.

2012 Financial Guidance

“With the launch of INCIVEK and KALYDECO, Vertex is positioned to deliver significant earnings while we continue to invest to support the growth of our business,” said Ian Smith, Executive Vice President and Chief Financial Officer for Vertex. “Throughout 2012, we will maintain a focus on balancing our revenues with the investment required to drive continued innovation in our pipeline and cashflow for our business so that we can discover and develop new medicines for patients and deliver value for our shareholders.”

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