Stock Update (NASDAQ:VRTX): Vertex Pharmaceuticals Incorporated Reports Full-Year and Fourth Quarter 2015 Financial Results


Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) reported consolidated financial results for the quarter endedDecember 31, 2015. Vertex also reiterated its financial guidance for total 2016 KALYDECO® (ivacaftor) net revenues and non-GAAP operating expenses. Key financial results include:

“Entering 2016, Vertex is in a strong financial position to support continued investment in our business to create future medicines for serious diseases and value for our shareholders,” said Jeffrey Leiden, M.D., Ph.D., Chairman, President and Chief Executive Officer of Vertex. “We look forward to multiple important milestones over the coming year that will mark continued progress toward our goal of discovering and developing potential new medicines for all people with CF.”

On January 10, 2016, Vertex provided a comprehensive update on its development programs in cystic fibrosis (CF) and other serious diseases. The company today provided the following updates and highlighted upcoming milestones:

Phase 3 Data Support Submission of Supplemental New Drug Application for ORKAMBI in Children Ages 6 to 11 with Two Copies of the F508del Mutation in the U.S.

Vertex recently completed a Phase 3 clinical study that was conducted to support the potential approval of ORKAMBI for children with CF as young as six years of age with two copies of the F508del mutation in the U.S. Children in the study received a twice-daily fixed-dose combination of lumacaftor (200mg) and ivacaftor (250mg) for six months. The study enrolled 58 children ages 6 to 11 with two copies of the F508del mutation, and the primary endpoint of the study was safety. The study did not include a placebo control arm. Secondary and exploratory endpoints evaluated the effect on multiple efficacy endpoints including forced expiratory volume in one second (FEV1), lung clearance index and others.

The study met its primary safety endpoint, and safety data from the study showed that the combination was generally well-tolerated. The most common adverse events were cough, headache, infective pulmonary exacerbation, nasal congestion, abdominal pain, increased sputum and elevated liver enzymes. Two patients (3.4%) discontinued treatment because of adverse events.

Based on these data, Vertex plans to submit a supplemental New Drug Application (sNDA) to the U.S. Food and Drug Administration (FDA) in the second quarter of 2016. There are approximately 2,400 children ages 6-11 who have two copies of the F508del mutation in the U.S.

In addition to meeting its primary safety endpoint, the study showed a 2.5 percentage point improvement in FEV1 (p=0.067), a secondary endpoint, and a -0.88 improvement in lung clearance index (p=0.0018), which was an exploratory endpoint. Improvements in secondary endpoints of body mass index, the respiratory domain of the CF questionnaire-revised (CFQ-R) and sweat chloride were also observed in the study.

To support approval in the European Union, a six-month Phase 3 efficacy study is ongoing to evaluate lumacaftor/ivacaftor in approximately 200 children. The primary endpoint of this study is the absolute change in lung clearance index. There are approximately 3,400 children ages 6-11 who have two copies of the F508del mutation in the European Union.

Supplemental New Drug Application in Residual Function Mutations

The FDA set a target review date of February 7, 2016 for its decision regarding a supplemental New Drug Application for the use of KALYDECO in people ages two and older with one of 23 residual function mutations. The sNDA was based on preclinical data for ivacaftor in certain residual function mutations, the established clinical profile of KALYDECO and on previously reported data from an exploratory Phase 2a study. Eight of the 23 mutations proposed for approval in the sNDA were represented in the Phase 2a study. More than 1,500 people with CF in the U.S. ages two and older have the mutations represented in the sNDA.

Approval of ORKAMBI in Canada

On January 26, Vertex announced that announced that Health Canada approved ORKAMBI for use in people ages 12 and older with two copies of the F508del mutation. It is only indicated for these patients, who can be identified with a genetic test. Of the approximately 4,000 people in Canada with CF, approximately 1,500 are ages 12 and older and have two copies of the F508del mutation. Health Canada approval is the first step in the process for securing funding throughCanada’s public drug programs for a new medicine. Once a new medicine receive approval from Health Canada, it enters the Canadian Agency for Drugs and Technologies (CADTH) Common Drug Review (CDR) process. Following its review, CADTH will send a recommendation to participating public drug programs, and participating jurisdictions may then proceed to reimbursement discussions with the manufacturer through the Pan-Canadian Pharmaceutical Alliance(pCPA). When an agreement has been reached between the manufacturer and the pCPA, each province and territory determines how the new medicine will be funded.

Fourth Quarter 2015 Financial Highlights

Revenues:

  • Net Product Revenues from ORKAMBI were $219.9 million. As of December 31, 2015, more than 4,500 people with CF had started treatment with ORKAMBI.
  • Net Product Revenues from KALYDECO were $180.7 million compared to $124.4 million for the fourth quarter of 2014.

Expenses:

  • Total combined non-GAAP cost of product revenues and royalty expenses (COR) were $64.2 million, compared to $13.2 million for the fourth quarter of 2014. GAAP COR expenses were $64.4 million, compared to $14.0 million for the fourth quarter of 2014. Fourth quarter 2015 COR expenses included a$13.9 million sales milestone earned by Cystic Fibrosis Foundation Therapeutics, Inc.
  • Non-GAAP research and development (R&D) expenses were $203.8 million compared to $175.7 million for the fourth quarter of 2014. The increased R&D expenses for the fourth quarter of 2015 were primarily the result of increased costs related to the pivotal Phase 3 program for VX-661 in combination with ivacaftor, which includes four Phase 3 studies in more than 1,000 patients. GAAP R&D expenses were $310.4 million compared to$201.5 million for the fourth quarter of 2014.
  • Non-GAAP sales, general and administrative (SG&A) expenses were $78.1 million compared to $60.4 million for the fourth quarter of 2014. The increased SG&A expenses were primarily the result of increased investment in global commercial support for the planned launch of ORKAMBI. GAAP SG&A expenses were $97.1 million compared to $78.5 million for the fourth quarter of 2014.

Net Income (Loss) Attributable to Vertex:

  • Non-GAAP net income was $42.7 million, or $0.17 per diluted share, compared to a non-GAAP net loss of $131.8 million, or $0.55 per diluted share, for the fourth quarter of 2014. The net income was the result of ORKAMBI product revenues and increased KALYDECO product revenues, partially offset by increased operating expenses. The GAAP net loss was $75.5 million, or $0.31 per diluted share, compared to Vertex’s fourth quarter 2014 GAAP net loss of $176.7 million, or $0.74 per diluted share.

Full Year 2015 Financial Highlights

Revenues:

  • Net Product Revenues from ORKAMBI were $350.7 million.
  • Net Product Revenues from KALYDECO were $631.7 million compared to $463.8 million for the full year 2014.

Expenses:

  • Total combined non-GAAP cost of product revenues and royalty expenses (COR) were $124.9 million, compared to $45.0 million for the full year 2014. GAAP COR expenses were $125.5 million compared to $61.0 million for the full year 2014.
  • Non-GAAP research and development (R&D) expenses were $764.4 million compared to $694.2 million for the full year 2014. The increased R&D expenses for the full year 2015 were primarily the result of increased costs related to the pivotal Phase 3 program for VX-661 in combination with ivacaftor, which includes four Phase 3 studies in more than 1,000 patients. GAAP R&D expenses were $996.2 million compared to $855.5 million for the full year 2014.
  • Non-GAAP sales, general and administrative (SG&A) expenses were $295.4 million compared to $225.6 million for the full year 2014. This increased SG&A expenses were primarily the result of increased investment in global commercial support for the planned launch of ORKAMBI. GAAP SG&A expenses were $377.1 million compared to $305.4 million for the full year 2014.

Net Loss Attributable to Vertex:

  • Non-GAAP net loss was $268.3 million, or $1.11 per diluted share, compared to a non-GAAP net loss of $511.2 million, or $2.17 per diluted share, for the full year 2014. The decreased net loss was the result of the first half year of ORKAMBI product revenues and increased KALYDECO product revenues, partially offset by increased operating expenses. The GAAP net loss was $558.1 million, or $2.31 per diluted share, compared to Vertex’s full year 2014 GAAP net loss of $738.6 million, or $3.14 per diluted share.

Cash Position:

  • As of December 31, 2015, Vertex had $1.04 billion in cash, cash equivalents and marketable securities compared to $1.39 billion in cash, cash equivalents and marketable securities as of December 31, 2014.
  • As of December 31, 2015, Vertex had $300 million outstanding from a credit agreement that provides for a secured loan of up to $500 million.

2016 Financial Guidance:

Vertex today reiterated its 2016 net product revenue guidance for KALYDECO and guidance for non-GAAP operating expenses, excluding cost of revenues. The company also today provided financial guidance for the non-GAAP R&D and SG&A components of non-GAAP operating expenses. The financial guidance is summarized below, together with information regarding the company’s expectation for providing ORKAMBI net revenue guidance in 2016, as previously discussed on January 10, 2016:

  • KALYDECO: As announced on January 10, 2016, Vertex anticipates total 2016 KALYDECO net product revenues of $670 to $690 million, which exclude any revenues related to the potential approval of KALYDECO for people in the U.S. who have residual function mutations. Anticipated 2016 KALYDECO net revenues reflect the expectation for approximately 200 patients with a gating mutation to enroll in a Phase 3 clinical study of VX-661 in combination with ivacaftor who would otherwise receive KALYDECO, which will thus reduce 2016 KALYDECO revenues.
  • ORKAMBI: The company expects to provide net product revenue guidance for ORKAMBI during 2016 after gaining additional information on the launch of ORKAMBI in the U.S., including:
    • The total proportion of the 8,500 eligible patients who begin treatment with ORKAMBI in 2016.
    • The rate at which patients initiate treatment in 2016.
    • The proportion of initiated patients who remain on treatment.
    • The compliance rate for patients who remain on treatment.

As of December 31, more than 4,500 people had begun treatment with ORKAMBI in the U.S. since the approval of the medicine in July 2015. Vertex expects the vast majority of eligible patients in the U.S. will begin treatment by the end of 2016.

Vertex expects to recognize revenues from sales of ORKAMBI in the U.S. and Germany in 2016. In Germany, there are approximately 2,500 people with CF ages 12 and older with two copies of the F508del mutation. The company does not anticipate any other significant revenues from other countries in 2016.

  • Operating Expenses, Excluding Cost of Revenues (Combined Non-GAAP R&D and SG&A Expenses): Vertex expects that its combined non-GAAP R&D and SG&A expenses in 2016 will be in the range of $1.18 to $1.23 billion. The increase as compared to 2015 is primarily a result of expanded development efforts related to the pivotal Phase 3 development program for VX-661 in combination with ivacaftor and for multiple Phase 1 and 2 studies of Vertex’s early-stage and mid-stage pipeline of potential CF medicines and anticipated costs to support the launch of ORKAMBI in new global markets. The components of Vertex’s non-GAAP operating expenses include:
    • Non-GAAP R&D Expenses: Vertex expects that full-year 2016 non-GAAP R&D expenses will be in the range of $850 to $880 million. The development component of 2016 non-GAAP R&D expenses is expected to increase as compared to 2015 primarily as a result of the ongoing pivotal Phase 3 program for VX-661 and other ongoing and planned Phase 1 and Phase 2 studies in CF.
    • Non-GAAP SG&A Expenses: Vertex expects that full-year 2016 non-GAAP SG&A expenses will be in the range of $330 to $350 million. The expected increase in SG&A is a result of ongoing investment in the company’s commercial infrastructure to support the global launch of ORKAMBI in new markets.

Vertex’s expected non-GAAP R&D and SG&A expenses exclude stock-based compensation expense and certain other expenses. (Original Source)

Shares of Vertex Pharmaceuticals closed today at $92.50, up $0.30 or 0.33%. VRTX has a 1-year high of $143.45 and a 1-year low of $89.92. The stock’s 50-day moving average is $113.01 and its 200-day moving average is $122.14.

On the ratings front, Vertex has been the subject of a number of recent research reports. In a report issued on January 20, Credit Suisse analyst Alethia Young initiated coverage with a Buy rating on VRTX and a price target of $154, which represents a potential upside of 66.8% from where the stock is currently trading. Separately, on January 19, Maxim Group’s Jason McCarthy maintained a Hold rating on the stock .

According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Alethia Young and Jason McCarthy have a total average return of -10.8% and -22.5% respectively. Young has a success rate of 37.5% and is ranked #3365 out of 3607 analysts, while McCarthy has a success rate of 20.0% and is ranked #3545.

Overall, 4 research analysts have assigned a Hold rating and 6 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $135.00 which is 46.2% above where the stock opened today.

Vertex Pharmaceuticals Inc is engaged in the business of discovering, developing, manufacturing and commercializing small molecule drugs for patients with serious diseases in specialty markets.