On April 29, 2021 Vertex Pharmaceuticals Incorporated (Nasdaq: VRTX) reported consolidated financial results for the first quarter ended March 31, 2021 and reiterated full-year 2021 guidance for product revenues (Press release, Vertex Pharmaceuticals, APR 29, 2021, View Source [SID1234578780]).
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"In CF, our goal is that all eligible patients have access to and can benefit from CFTR modulators. In the first quarter, we continued to make significant progress towards this goal, and in so doing again delivered strong revenue and earnings growth," said Reshma Kewalramani, M.D., Chief Executive Officer and President of Vertex. "Beyond CF, we have also seen continued significant progress across our broad pipeline, including advancement of VX-548 to Phase 2 in acute pain, initiation of the Phase 1/2 clinical trial with VX-880 in type 1 diabetes and completion of enrollment and dosing in our Phase 2 proof-of-concept study with the AAT corrector, VX-864. The recent amendment of our agreement with CRISPR Therapeutics for the CTX001 program further enhances our leadership position in cell and genetic therapies and we look forward to completing enrollment of our ongoing trials for CTX001 in sickle cell disease and beta thalassemia this year and bringing this first-in-class treatment to patients with these devastating diseases as soon as possible."
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First-Quarter 2021 Financial Highlights
Three Months Ended March 31,
%
2021
2020
Change
(in millions, except per share amounts)
Product revenues, net
$
1,723
$
1,515
14%
TRIKAFTA/KAFTRIO
$
1,193
$
895
SYMDEKO/SYMKEVI
$
125
$
173
ORKAMBI
$
219
$
234
KALYDECO
$
186
$
213
GAAP Operating income
$
888
$
720
23%
Non-GAAP Operating income
$
1,003
$
877
14%
GAAP Net income
$
653
$
603
8%
Non-GAAP Net income
$
781
$
674
16%
GAAP Net income per share – diluted
$
2.49
$
2.29
9%
Non-GAAP Net income per share – diluted
$
2.98
$
2.56
16%
Product revenues increased 14% compared to the first quarter of 2020, primarily driven by the uptake of KAFTRIO in Europe and continued performance of TRIKAFTA in the U.S. Net product revenues in the first quarter of 2021 increased 6% to $1.25 billion in the U.S. and increased 43% to $470 million outside the U.S., compared to the prior year.
GAAP and non-GAAP net income increased compared to the first quarter of 2020, largely driven by strong growth in total product revenues.
Cash, cash equivalents and marketable securities as of March 31, 2021 were $6.9 billion, an increase of $265 million compared to $6.7 billion as of December 31, 2020 primarily driven by strong revenue and profitability offset by the repurchase of our common stock authorized under our stock repurchase plan.
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First-Quarter 2021 Expenses
Three Months Ended March 31,
2021
2020
(in millions)
Combined GAAP R&D and SG&A expenses
$
648
$
631
Combined Non-GAAP R&D and SG&A expenses
$
530
$
477
GAAP R&D expenses
$
456
$
449
Non-GAAP R&D expenses
$
379
$
337
GAAP SG&A expenses
$
192
$
182
Non-GAAP SG&A expenses
$
151
$
140
GAAP income taxes (1)
$
168
$
55
Non-GAAP income taxes
$
207
$
184
GAAP effective tax rate
20%
8%
Non-GAAP effective tax rate (1)
21%
21%
Combined GAAP and Non-GAAP R&D and SG&A expenses increased compared to the first quarter of 2020, primarily due to the expansion of Vertex’s pipeline in CF and other disease areas and incremental investment to support the global launches of Vertex’s medicines.
GAAP income taxes and the GAAP effective tax rate increased compared to the first quarter of 2020 due a non-recurring discrete tax benefit recognized in the first quarter of 2020 and Vertex’s increased operating income.
Non-GAAP income taxes increased compared to the first quarter of 2020 primarily due to Vertex’s increased operating income.
Full-Year 2021 Financial Guidance
Vertex today reiterated its full-year 2021 financial guidance, except for its expectations for combined GAAP R&D and SG&A expenses, which increased by $900 million as a result of Vertex’s amended collaboration with CRISPR announced in April. Vertex’s guidance is summarized below:
Current FY 2021
Previous FY 2021
Product revenues
Unchanged
$6.7 to 6.9 billion
Combined GAAP R&D and SG&A expenses (2)
$3.8 to 3.95 billion
$2.9 to 3.05 billion
Combined Non-GAAP R&D and SG&A expenses (2)
Unchanged
$2.25 to 2.3 billion
Non-GAAP effective tax rate
Unchanged
21% to 22%
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Key Business Highlights
Cystic Fibrosis (CF)
Vertex anticipates that achieving new approvals and entering into additional reimbursement agreements for our current CFTR modulators will increase the number of CF patients treated with our medicines and continue to grow our CF business in the years ahead.
Key progress in 2021 includes:
•New approval received for TRIKAFTA (elexacaftor/tezacaftor/ivacaftor and ivacaftor) in Australia for people with CF ages 12 years and older who have at least one F508del mutation.
•Post-marketing application filed with the European Medicines Agency (EMA) for the expanded indication of KAFTRIO (elexacaftor/tezacaftor/ivacaftor and ivacaftor) to include children with CF ages 6 through 11 years.
•TRIKAFTA/KAFTRIO is now approved and reimbursed or accessible in 12 countries outside the U.S., including Denmark, Germany, Ireland, Israel, Switzerland and the countries within the UK.
R&D pipeline
Vertex continues to progress a broad pipeline of potentially transformative small molecule, cell and genetic therapies aimed at serious diseases. Recent and anticipated progress for key pipeline programs is noted below:
Beta Thalassemia and Sickle Cell Disease
•In April, Vertex and CRISPR Therapeutics amended their collaboration for the CTX001 programs in beta thalassemia and sickle cell disease. Under the terms of the revised agreement, Vertex will lead worldwide development, manufacturing and commercialization of CTX001. The revised agreement provides Vertex with 60% and CRISPR Therapeutics with 40% of program economics. At closing, CRISPR Therapeutics will receive a $900 million upfront payment with the potential for an additional $200 million milestone payment upon CTX001 regulatory approval.
•The CTX001 program employs a non-viral ex vivo CRISPR gene-editing therapy for the treatment of transfusion-dependent beta thalassemia (TDT) and sickle cell disease (SCD). This approach aims to edit a person’s hematopoietic stem cells to produce fetal hemoglobin in red blood cells, which has the potential to reduce or eliminate symptoms associated with the diseases.
•Enrollment and dosing are ongoing in the clinical studies for CTX001 and more than 30 patients have now been dosed to date. Completion of enrollment in both studies is expected in 2021.
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•In April, the European Medicines Agency (EMA) granted Priority Medicines Designation (PRIME) to CTX001 for TDT. The program has previously been granted Regenerative Medicine Advanced Therapy (RMAT), Fast Track, Orphan Drug and Rare Pediatric Disease designations from the U.S. Food and Drug Administration (FDA) for both TDT and SCD. CTX001 has also been granted PRIME designation for SCD and Orphan Drug Designation from EMA for both TDT and SCD.
Alpha-1 Antitrypsin (AAT) Deficiency
•Vertex is evaluating multiple compounds with the potential to correct the misfolding of Z-AAT protein in the liver, in order to increase the systemic levels of functional AAT. Misfolded Z-AAT protein is the root cause of AAT deficiency and the Vertex small molecule corrector program targets both the liver and lung manifestations of the disease.
•Patients enrolled in the Phase 2 proof-of-concept study for the Z-AAT corrector, VX-864, have completed the 28-day dosing period. The study includes a 28-day safety follow-up period which is ongoing, and results are expected in the second quarter of 2021.
APOL1-mediated Kidney Diseases
•Vertex is evaluating the potential of inhibitors of APOL1 function in people with APOL1-mediated kidney diseases, including focal segmental glomerulosclerosis (FSGS).
•Enrollment is ongoing in a Phase 2 proof-of-concept study designed to evaluate the reduction in proteinuria in people with APOL1-mediated FSGS after treatment with VX-147. Results from this study are expected in the second half of 2021.
Type 1 Diabetes (T1D)
•Vertex is evaluating a cell therapy designed to replace insulin-producing islet cells in people with T1D. Vertex is pursuing two programs for the transplant of these fully-differentiated functional islets into patients: 1) transplantation of islet cells alone, using immunosuppression to protect the implanted cells and 2) implantation of the islet cells inside a novel immunoprotective device.
•In March, the U.S. FDA granted Fast Track Designation and Vertex initiated a Phase 1/2 clinical trial for VX-880, the islet cells alone program, in people with T1D.
Pain
•Vertex is evaluating selective small molecule inhibitors of NaV1.8, a genetically validated, novel target for the treatment of pain, with the goal of preventing pain signals traveling from the sensory
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nerves to the central nervous system. Vertex has previously demonstrated clinical proof-of-concept with a small molecule investigational treatment targeting NaV1.8, VX-150, in multiple pain indications including acute pain, neuropathic pain and musculoskeletal pain.
•VX-548, a selective NaV1.8 inhibitor, demonstrated favorable safety, tolerability and pharmacokinetic profiles in Phase 1 studies. In these studies, the molecule exhibited a favorable profile at doses considerably lower than those required with our previous NaV1.8 inhibitors.
•VX-548 is expected to advance into Phase 2 proof-of-concept studies for acute pain in the second half of 2021.
Investments in External Innovation
•In April, we entered into a research collaboration with Obsidian Therapeutics, Inc., or Obsidian, aimed at the discovery of novel therapies that regulate gene-editing for the treatment of serious diseases. This collaboration enables us to leverage Obsidian’s cytoDRiVE platform technology to discover gene-editing medicines whose therapeutic activity can be precisely controlled using small molecules.
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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 collaborative milestones and upfront payments, (iii) gains or losses related to the fair value of the company’s strategic investments, (iv) increases or decreases in the fair value of contingent consideration, (v) acquisition-related costs and (vi) other adjustments. The company’s non-GAAP financial results also exclude from its provision for income taxes the estimated tax impact related to its non-GAAP adjustments to pre-tax income described above and certain discrete items. These results should not be viewed as a substitute for the company’s GAAP results and are provided as a complement to results provided in accordance with GAAP. 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 that the company believes is helpful to an understanding of its ongoing business. Management also 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. The company adjusts, where appropriate, for both revenues and expenses in order to reflect the company’s operations. The company’s calculation of non-GAAP financial measures likely differs from the calculations used by other companies. A reconciliation of the GAAP financial results to non-GAAP financial results is included in the attached financial information.
The company provides guidance regarding combined R&D and SG&A expenses and effective tax rate on a non-GAAP basis. The guidance regarding combined GAAP R&D and SG&A expenses does not include estimates associated with any potential future business development activities. The company does not provide guidance regarding its GAAP effective tax rate because it is unable to forecast with reasonable certainty the impact of excess tax benefits related to stock-based compensation and the possibility of certain discrete items, which could be material.
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Vertex Pharmaceuticals Incorporated
First-Quarter Results
Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
Three Months Ended March 31,
2021
2020
Revenues:
Product revenues, net
$
1,723,305
$
1,515,107
Other revenues
1,000
—
Total revenues
1,724,305
1,515,107
Costs and expenses:
Cost of sales
192,329
162,497
Research and development expenses
455,973
448,528
Sales, general and administrative expenses
192,077
182,258
Change in fair value of contingent consideration
(3,900)
1,600
Total costs and expenses
836,479
794,883
Income from operations
887,826
720,224
Interest income
1,465
12,576
Interest expense
(15,678)
(14,136)
Other expense, net (3)
(52,653)
(61,130)
Income before provision for income taxes
820,960
657,534
Provision for income taxes
167,822
54,781
Net income
$
653,138
$
602,753
Net income per common share:
Basic
$
2.52
$
2.32
Diluted
$
2.49
$
2.29
Shares used in per share calculations:
Basic
259,369
259,815
Diluted
261,916
263,515
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Reconciliation of GAAP to Non-GAAP Net Income
First-Quarter Results
(in thousands, except per share amounts)
(unaudited)
Three Months Ended March 31,
2021
2020
GAAP net income
$
653,138
$
602,753
Stock-based compensation expense
115,174
115,706
Decrease in fair value of strategic investments (3)
52,295
44,870
(Decrease) increase in fair value of contingent consideration (4)
(3,900)
1,600
Collaborative revenues and expenses (5)
650
36,250
Acquisition-related costs (6)
2,820
2,883
Total non-GAAP adjustments to pre-tax income
167,039
201,309
Tax adjustments (1)
(38,961)
(129,608)
Non-GAAP net income
$
781,216
$
674,454
Net income per diluted common share:
GAAP
$
2.49
$
2.29
Non-GAAP
$
2.98
$
2.56
Shares used in diluted per share calculations:
GAAP and Non-GAAP
261,916
263,515
Three Months Ended March 31,
2021
2020
GAAP operating income
$
887,826
$
720,224
Stock-based compensation expense
115,174
115,706
(Decrease) increase in fair value of contingent consideration (4)
(3,900)
1,600
Collaborative revenues and expenses (5)
650
36,250
Acquisition-related costs (6)
2,820
2,883
Non-GAAP operating income
$
1,002,570
$
876,663
9
Reconciliation of GAAP to Non-GAAP Revenues and Expenses
First-Quarter Results
(in thousands)
(unaudited)
Three Months Ended March 31,
2021
2020
GAAP total revenues
$
1,724,305
$
1,515,107
Collaborative revenues
(1,000)
—
Non-GAAP total revenues
$
1,723,305
$
1,515,107
Three Months Ended March 31,
2021
2020
GAAP cost of sales
$
192,329
$
162,497
Stock-based compensation expense
(1,431)
(1,361)
Non-GAAP cost of sales
$
190,898
$
161,136
GAAP research and development expenses
$
455,973
$
448,528
Stock-based compensation expense
(72,802)
(72,687)
Collaborative expenses (5)
(1,650)
(36,250)
Acquisition-related costs (6)
(2,820)
(2,678)
Non-GAAP research and development expenses
$
378,701
$
336,913
GAAP sales, general and administrative expenses
$
192,077
$
182,258
Stock-based compensation expense
(40,941)
(41,658)
Acquisition-related costs (6)
—
(205)
Non-GAAP sales, general and administrative expenses
$
151,136
$
140,395
Combined non-GAAP R&D and SG&A expenses
$
529,837
$
477,308
Three Months Ended March 31,
2021
2020
GAAP other expense, net
$
(52,653)
$
(61,130)
Decrease in fair value of strategic investments (3)
52,295
44,870
Non-GAAP other expense, net
$
(358)
$
(16,260)
GAAP provision for income taxes
$
167,822
$
54,781
Tax adjustments (1)
38,961
129,608
Non-GAAP provision for income taxes (7)
$
206,783
$
184,389
GAAP effective tax rate
20
%
8
%
Non-GAAP effective tax rate (7)
21
%
21
%
10
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
March 31, 2021
December 31, 2020
Assets
Cash, cash equivalents and marketable securities
$
6,923,968
$
6,658,897
Accounts receivable, net
977,551
885,352
Inventories
298,863
280,777
Property and equipment, net
986,123
958,534
Goodwill and intangible assets
1,402,158
1,402,158
Deferred tax assets
815,890
882,779
Other assets
710,506
683,311
Total assets
$
12,115,059
$
11,751,808
Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses
$
1,659,876
$
1,560,110
Finance lease liabilities
572,856
581,476
Contingent consideration
185,700
189,600
Other liabilities
716,373
733,807
Shareholders’ equity
8,980,254
8,686,815
Total liabilities and shareholders’ equity
$
12,115,059
$
11,751,808
Common shares outstanding
258,829
259,890
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Notes and Explanations
1: In the three months ended March 31, 2021 and 2020, "Tax adjustments" primarily related to the estimated income taxes related to non-GAAP adjustments to pre-tax income including (i) stock-based compensation (including an adjustment for excess tax benefits related to stock-based compensation), (ii) decreases in the fair value of the company’s strategic investments and (iii) collaborative milestone payments. In the three months ended March 31, 2020, "Tax adjustments" also included a non-recurring discrete benefit to the company’s provision for income taxes of $50.4 million, relating to the write-off of a long-term intercompany receivable, that the company excluded from its Non-GAAP measures.
2: The company’s increased combined GAAP R&D and SG&A expenses guidance reflects the expected effect upon closing of the company’s contemplated transaction with CRISPR, which was announced in April 2021. The difference between the company’s full-year 2021 combined GAAP R&D and SG&A expenses and combined non-GAAP R&D and SG&A expenses guidance relates primarily to $1.12 billion to $1.17 billion of R&D expenses related to existing and contemplated collaboration agreements and $430 million to $455 million of stock-based compensation expense. The guidance regarding combined GAAP R&D and SG&A expenses does not include estimates associated with any potential future business development activities other than the company’s contemplated transaction with CRISPR.
3: "Other expense, net" includes net losses related to changes in the fair value of the company’s strategic investments and from sales of certain investments.
4: During the three months ended March 31, 2021 and 2020, the change in the fair value of contingent consideration relates to potential payments to Exonics Therapeutics’ former equity holders.
5: "Collaborative revenues and expenses" in the three months ended March 31, 2021 and 2020 primarily related to collaborative milestone payments.
6: "Acquisition-related costs" in the three months ended March 31, 2021 and 2020 related to costs associated with the company’s acquisition of Exonics Therapeutics in 2019.
7: The company released its valuation allowance on the majority of its net operating losses and other deferred tax assets as of December 31, 2018. As of December 31, 2020, the company had utilized substantially all of its remaining federal net operating losses. As a result, a larger portion of the company’s tax provision will represent a cash tax payable beginning in 2021, subject to continued utilization of certain tax credits.