On April 29, 2015 Vertex Pharmaceuticals Incorporated (Nasdaq: VRTX) reported consolidated financial results for the quarter ended March 31, 2015 (Filing, Q1, Vertex Pharmaceuticals, APR 29, 2015, View Source [SID:1234506609]). Vertex also reiterated its financial guidance for total 2015 KALYDECO revenues and non-GAAP operating expenses.
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"We continue to make significant progress toward our goals of bringing new medicines to more people with CF and positioning the company for long-term growth," said Jeffrey Leiden, M.D., Ph.D., Chairman, President and Chief Executive Officer of Vertex. "The number of people eligible for Kalydeco continues to increase with both geographic and label expansion, and we are also preparing for the potential launch of Orkambi, which we announced today as the proposed tradename for the combination of lumacaftor and ivacaftor. Our New Drug Application for Orkambi is currently under review by the FDA, and if approved, Orkambi would be the first medicine to treat the underlying cause of CF for eligible patients ages 12 and older with two copies of the F508del mutation – some 8,500 people in the U.S."
First Quarter 2015 Non-GAAP Financial Results
The non-GAAP financial results for the first quarter 2015 and first quarter 2014 exclude stock-based compensation expense, costs related to the relocation of the company’s corporate headquarters, hepatitis C-related revenues and costs and other adjustments.
Total Non-GAAP Revenues: Total non-GAAP revenues for the first quarter of 2015 were $135.4 million, including $130.2 million in net product revenues from KALYDECO and $5.3 million from royalty revenues.
Net Product Revenues from KALYDECO: Vertex’s first quarter 2015 net product revenues from KALYDECO were $130.2 million compared to $99.5 million for the first quarter of 2014. The increased KALYDECO net product revenues, compared to the first quarter of 2014, resulted primarily from additional people being treated with KALYDECO in both U.S. and ex-U.S. markets.
Non-GAAP Cost of Product Revenues and Royalty Expenses (COR): Total combined non-GAAP COR expenses for the first quarter of 2015 were $10.7 million, compared to $9.6 million for the first quarter of 2014.
Non-GAAP Research and Development (R&D) Expenses and Sales, General and Administrative (SG&A) Expenses: Total combined non-GAAP R&D and SG&A expenses for the first quarter of 2015 were $246.3 million, compared to $233.9 million for the first quarter of 2014. The components include:
R&D Expenses: Non-GAAP R&D expenses were $177.2 million for the first quarter of 2015, compared to $181.5 million in non-GAAP R&D expenses for the first quarter of 2014. The R&D expenses for the first quarter of 2015 were similar to the first quarter of 2014 as a result of the completion of the Phase 3 program for the combination of lumacaftor and ivacaftor in the first half of 2014, offset by increased costs related to the initiation of the pivotal Phase 3 program for VX-661 in combination with ivacaftor in the first quarter of 2015.
SG&A Expenses: Non-GAAP SG&A expenses were $69.1 million for the first quarter of 2015, compared to $52.4 million in non-GAAP SG&A expenses for the first quarter of 2014. This increase was primarily the result of increased investment in global commercial support for the planned launch of ORKAMBI (lumacaftor/ivacaftor).
Non-GAAP Net Loss Attributable to Vertex: Vertex’s first quarter 2015 non-GAAP net loss was $148.4 million, or $0.62 per diluted share, compared to a non-GAAP net loss of $151.4 million, or $0.65 per diluted share, for the first quarter of 2014. The non-GAAP net loss for the first quarter of 2015 was similar to the first quarter of 2014 as a result of increased KALYDECO product revenues, offset by increased operating expenses and interest expense.
Cash Position at March 31, 2015
As of March 31, 2015, Vertex had $1.2 billion in cash, cash equivalents and marketable securities compared to $1.4 billion in cash, cash equivalents and marketable securities as of December 31, 2014. As of March 31, 2015, Vertex had $300 million outstanding from a credit agreement that provides for a secured loan of up to $500 million.
2015 Financial Guidance
This section contains forward-looking guidance about the financial outlook for Vertex.
Vertex today reiterated its financial guidance for total 2015 KALYDECO revenues and non-GAAP operating expenses:
KALYDECO Net Revenues: Vertex expects KALYDECO net revenues of $560 to $580 million for 2015.
Non-GAAP R&D and SG&A Expenses: Vertex expects that its combined non-GAAP R&D and SG&A expenses in 2015 will be in the range of $1.05 to $1.10 billion.
Vertex’s expected combined non-GAAP R&D and SG&A expenses exclude stock-based compensation expense and certain other expenses recorded in 2015.
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 exclude stock-based compensation expense, costs related to the relocation of the company’s corporate headquarters, hepatitis C-related revenues and costs and other adjustments. 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. A reconciliation of the GAAP financial results to non-GAAP financial results is included in the attached financial information.
First Quarter 2015 GAAP Financial Results
Total Revenues: Total revenues for the first quarter of 2015 were $138.5 million compared with $118.5 million in total revenues for the first quarter of 2014. First quarter 2015 revenues were comprised primarily of $130.2 million in KALYDECO net product revenues and an aggregate of $8.3 million in net product revenues from INCIVEK, royalty revenues and collaborative revenues. For the first quarter of 2014, Vertex reported $99.5 million in net product revenues from KALYDECO and an aggregate of $18.9 million in net product revenues from INCIVEK, royalty revenues and collaborative revenues.
Operating Costs and Expenses: Total operating costs and expenses for the first quarter of 2015 were $310.5 million, including certain charges of $53.5 million, compared to $334.5 million for the first quarter of 2014, including certain charges of $91.0 million. GAAP operating costs and expenses include:
COR Expenses: COR expenses were $12.3 million for the first quarter of 2015, including $1.6 million of certain charges, compared to $15.5 million for the first quarter of 2014, including $5.9 million of certain charges.
R&D Expenses: R&D expenses were $215.6 million for the first quarter of 2015, including $38.4 million of certain charges, compared to $238.6 million for the first quarter of 2014, including $57.1 million of certain charges.
SG&A Expenses: SG&A expenses were $85.9 million for the first quarter of 2015, including $16.7 million of certain charges, compared to $74.2 million for the first quarter of 2014, including $21.8 million of certain charges.
Net Loss Attributable to Vertex: Vertex’s first quarter 2015 net loss was $198.6 million, or $0.83 per diluted share, including net charges of $50.2 million. Vertex’s first quarter 2014 net loss was $232.5 million, or $1.00 per diluted share, including net charges of $81.1 million.
Note 1: For the three months ended March 31, 2014, the company presents the effect of its relationship with Alios, which it consolidated as a variable interest entity from June 2011 to December 2013, as discontinued operations attributable to Vertex in its condensed consolidated statements of operations.
Note 2: In the three months ended March 31, 2015, "Real estate restructuring costs" consisted of restructuring credits of $3.6 million primarily related to the company’s relocation from Cambridge to Boston, Massachusetts. In the three months ended March 31, 2014, "Real estate restructuring costs" consisted of (i) transition costs related to the company’s relocation that were recorded as R&D and SG&A, and (ii) restructuring charges related to this relocation.
Note 3: In the three months ended March 31, 2015, "HCV related revenues and costs" consisted of (i) $0.7 million net product revenues from INCIVEK, (ii) $1.5 million royalty revenues from INCIVO, (iii) $0.6 million HCV collaborative revenues, (iv) $1.6 million COR expenses, (v) R&D and SG&A credits (including the pharma fee) and (vi) $0.2 million restructuring expenses. In the three months ended March 31, 2014, "HCV related revenues and costs" included in the company’s loss from continuing operations consisted of (1) $3.9 million net product revenues from INCIVEK, (2) $4.9 million royalty revenues from INCIVO, (3) $1.4 million HCV collaborative revenues, (4) $0.7 million and $5.2 million costs of product revenues and royalty revenues related to INCIVEK and INCIVO, respectively, (5) R&D and SG&A expenses (including the pharma fee) and (6) $0.6 million restructuring expenses.
Note 4: In each of the three months ended March 31, 2014 and 2015, "Other adjustments" consisted of development cost associated with VX-509. In addition, in the three months ended March 31, 2015, "Other adjustments" included amounts related to a variable interest entity.
Note 5: In each of the three months ended March 31, 2014 and 2015, the company excludes from its non-GAAP loss attributable to Vertex restructuring (income) expenses. In addition, in the three months ended March 31, 2014 discontinued operations are excluded from its non-GAAP loss attributable to Vertex.
INDICATION AND IMPORTANT SAFETY INFORMATION FOR KALYDECO (ivacaftor)
Ivacaftor is a cystic fibrosis transmembrane conductance regulatory (CFTR) potentiator indicated for the treatment of cystic fibrosis (CF). In the U.S. (in patients age 2 years and older) and Europe (in patients age 6 years and older), ivacaftor is indicated for patients who have one of the following mutations in the CFTR gene: G551D, G1244E, G1349D, G178R, G551S, S1251N, S1255P, S549N, or S549R. In Canada (in patients 6 years and older), ivacaftor is indicated for patients with these same mutations and also for patients with the G970R mutation. Additionally, in the U.S. (in patients age 2 years and older) and Canada (in patients age 18 years and older) ivacaftor is indicated for the treatment of CF in patients who have an R117H mutation in the CFTR gene.
Ivacaftor is available as 150 mg tablets in countries where it is approved for patients age 6 years and older, and additionally in the U.S. as 50 mg and 75 mg oral granules for patients age 2 to less than 6 years.
Ivacaftor is not effective in patients with CF with 2 copies of the F508del mutation (F508del/F508del) in the CFTR gene. The safety and efficacy of ivacaftor in children with CF younger than 2 years of age have not been studied. The use of ivacaftor in children under the age of 2 years is not recommended.
High liver enzymes (transaminases; ALT and AST) have been reported in patients with CF receiving ivacaftor. Transaminase elevations were more common in patients with a history of transaminase elevations or in patients who had abnormal transaminases at baseline. It is recommended that ALT and AST be assessed prior to initiating ivacaftor, every 3 months during the first year of treatment, and annually thereafter. For patients with a history of transaminase elevations, more frequent monitoring of liver function tests should be considered. Patients who develop increased transaminase levels should be closely monitored until the abnormalities resolve. Dosing should be interrupted in patients with ALT or AST of greater than 5 times the upper limit of normal. Following resolution of transaminase elevations, consider the benefits and risks of resuming ivacaftor dosing.
Use of ivacaftor with medicines that are strong CYP3A inducers, such as the antibiotics rifampin and rifabutin; seizure medications (phenobarbital, carbamazepine, or phenytoin); and the herbal supplement St. John’s wort, substantially decreases exposure of ivacaftor and may diminish effectiveness. Therefore, co-administration is not recommended. The dose of ivacaftor must be adjusted when used concomitantly with strong and moderate CYP3A inhibitors or when used in patients with moderate or severe hepatic disease.
Cases of non-congenital lens opacities/cataracts have been reported in pediatric patients treated with ivacaftor. Baseline and follow-up ophthalmological examinations are recommended in pediatric patients initiating ivacaftor treatment.
Serious adverse reactions that occurred more frequently with ivacaftor included abdominal pain, increased liver enzymes, and low blood sugar (hypoglycemia). The most common side effects associated with ivacaftor include headache; upper respiratory tract infection (common cold), including sore throat, nasal or sinus congestion, and runny nose; stomach (abdominal) pain; diarrhea; rash; nausea; and dizziness. These are not all the possible side effects of ivacaftor. A list of the adverse reactions can be found in the product labeling for each country where ivacaftor is approved. Patients should tell their healthcare providers about any side effect that bothers them or does not go away.