On January 30, 2020 Vertex Pharmaceuticals Incorporated (Nasdaq: VRTX) reported consolidated financial results for the full year and fourth quarter ended December 31, 2019 and provided full-year 2020 financial guidance (Press release, Vertex Pharmaceuticals, JAN 30, 2020, View Source [SID1234553705]).
"In 2019, our differentiated strategy of investing in serial scientific innovation to create transformative medicines delivered remarkable performance. This was marked by the early approval of TRIKAFTA, the rapid progression of our pipeline in additional diseases and continued financial growth as we continued to treat more patients with our medicines worldwide," said Jeffrey Leiden, M.D., Ph.D., Chairman, President and Chief Executive Officer of Vertex. "This success is the culmination of many years of hard work to build a team, a pipeline and a company that we believe will discover, develop and commercialize transformative medicines for years to come."
Fourth-Quarter and Full-Year 2019 Financial Highlights
^Non-GAAP product revenues exclude $155.8 million related to ORKAMBI in the fourth quarter and full year ended December 31, 2019. Please refer to Note 4 for further information.
^^ GAAP Net income and GAAP Net income per share – diluted included a benefit from income taxes of approximately $1.5 billion in the fourth quarter and full year ended December 31, 2018 due to the release of Vertex’s valuation allowance on the majority of its net operating losses and other deferred tax assets.
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Total GAAP and Non-GAAP product revenues increased 37% and 32%, respectively, compared to 2018, primarily driven by the global uptake of SYMDEKO and SYMKEVI in patients ages 12 and older, label expansions for the company’s CF medicines globally, and the early approval and launch of TRIKAFTA in the U.S.
GAAP net income decreased compared to 2018, largely driven by the release of Vertex’s tax valuation allowance in 2018.
Non-GAAP net income increased compared to 2018, driven by the strong growth in total product revenues.
Cash, cash equivalents and marketable securities as of December 31, 2019 were $3.8 billion, an increase of approximately $600 million compared to $3.2 billion as of December 31, 2018.
Combined GAAP and Non-GAAP R&D and SG&A expenses increased compared to 2018, primarily due to the incremental investment to support the global use of Vertex’s medicines and the expansion of Vertex’s pipeline in CF and other new disease areas. Combined GAAP R&D and SG&A expenses also increased compared to 2018 due to Vertex’s business development activities.
GAAP and Non-GAAP income taxes increased significantly compared to 2018 due to Vertex’s release of its valuation allowance on the majority of its deferred tax assets in the fourth quarter of 2018. GAAP and non-GAAP income taxes in 2019 include a provision for income taxes on Vertex’s pre-tax income using an estimated effective tax rate approximating statutory rates. This provision for income taxes includes a significant non-cash charge due to Vertex’s ability to offset its pre-tax income against previously benefited net operating losses. Refer to "Supplemental Income Tax Information" for discussion of the cash versus non-cash components of Vertex’s provision for income taxes.
Total GAAP and Non-GAAP product revenues increased 63% and 45%, respectively, compared to the fourth quarter of 2018, primarily driven by the early approval and launch of TRIKAFTA in the U.S. and the global uptake of SYMDEKO and SYMKEVI in patients ages 12 and older.
GAAP net income decreased compared to the fourth quarter of 2018, largely driven by the release of Vertex’s tax valuation allowance in the fourth quarter of 2018.
Non-GAAP net income increased compared to the fourth quarter of 2018, driven by the strong growth in total product revenues.
Combined GAAP and Non-GAAP R&D and SG&A expenses increased compared to the fourth quarter of 2018, primarily due to the incremental investment to support the global use of Vertex’s medicines and the expansion of Vertex’s pipeline in CF and other new disease areas.
GAAP and Non-GAAP income taxes increased significantly compared to the fourth quarter of 2018 due to Vertex’s release of its tax valuation allowance in the fourth quarter of 2018. Refer to "Full-Year 2019 Expenses" for further information. Refer to "Supplemental Income Tax Information" for discussion of the cash versus non-cash components of Vertex’s provision for income taxes.
Full-Year 2020 Financial Guidance
Vertex today provided its full-year 2020 financial guidance. A summary of the company’s current financial expectations is below:
"Entering 2020, Vertex has never been stronger," said Reshma Kewalramani, M.D., Executive Vice President and Chief Medical Officer. "We are well-positioned for both near- and long-term growth based on treating more people with our CF medicines and from other future medicines in diseases aligned with our strategy, including alpha-1 antitrypsin deficiency, APOL1-mediated kidney diseases, pain and severe hemoglobinopathies. Going forward, our financial strength will enable us to continue to significantly invest
in internal R&D and external innovation, which will provide access to new technologies, programs and expertise that will lead to further growth in the years ahead."
Clinical Development
Cystic Fibrosis (CF):
On October 21, 2019, the company announced that the U.S. Food and Drug Administration (FDA) approved TRIKAFTA (elexacaftor/tezacaftor/ivacaftor and ivacaftor) for the treatment of CF in people ages 12 years and older who have at least one F508del mutation. TRIKAFTA is Vertex’s fourth breakthrough medicine approved to treat the underlying cause of CF.
On October 31, 2019, the company announced that the European Medicines Agency (EMA) has validated the marketing authorization application (MAA) for the elexacaftor, tezacaftor and ivacaftor triple combination regimen.
Enrollment is ongoing in a Phase 3 study evaluating the elexacaftor, tezacaftor and ivacaftor triple combination regimen in children with CF ages 6 to 11 years who have two F508del mutations and in children who have one F508del mutation and one minimal function mutation. Pending the results of the Phase 3 study, the company plans to submit a supplemental New Drug Application (sNDA) to the FDA in 2020 followed by additional submissions to other global regulatory agencies.
Alpha-1 Antitrypsin (AAT) Program:
VX-814: Enrollment is ongoing in the Phase 2 proof-of-concept study evaluating VX-814, the company’s first oral small molecule corrector for the treatment of alpha-1 antitrypsin (AAT) deficiency. Vertex expects to obtain data from this study in 2020.
VX-864: A Phase 1 study is ongoing in healthy volunteers evaluating VX-864, the company’s second investigational small molecule corrector for the treatment of AAT deficiency.
Sickle Cell Disease and Beta Thalassemia:
In November 2019, Vertex and its partner CRISPR Therapeutics announced positive, interim data from the first two patients with severe hemoglobinopathies – one patient with transfusion-dependent beta thalassemia and one patient with severe sickle cell disease – treated with the investigational CRISPR/Cas9 gene-editing therapy CTX001 in the ongoing Phase 1/2 clinical trials. Enrollment is ongoing in both trials and the companies expect to provide additional data for this program in 2020.
APOL1-Mediated Kidney Diseases:
Vertex continues to advance a portfolio of molecules for the treatment of APOL1-mediated focal segmental glomerulosclerosis (FSGS) and other serious kidney diseases. In the fourth quarter of 2019, Vertex completed a Phase 1 study of its first investigational oral small molecule VX-147 in healthy volunteers. Vertex plans to initiate a Phase 2 proof-of-concept study in 2020 to evaluate the reduction in protein levels with VX-147.
Pain:
The company announced today that it has discontinued Phase 1 development of VX-961. The company continues to advance a portfolio of NaV1.8 inhibitors into the clinic. As part of this strategy, Vertex plans to advance an additional molecule into clinical development in the first half of 2020.
Type 1 Diabetes:
Vertex plans to advance its cell therapy program for the treatment of type 1 diabetes into clinical development in late 2020 or early 2021.
Notes and Explanations
1: The company records gains and losses related to changes in the fair value of its strategic investments to "Other income, net."
2: In the fourth quarter of 2018, the company recorded a non-cash benefit from income taxes of approximately $1.5 billion related to the release of its valuation allowance on the majority of its net operating losses and other deferred tax assets. As a result, the company recorded deferred tax assets of $1.5 billion on its consolidated balance sheet as of December 31, 2018, which were previously subject to its valuation allowance. Starting in the first quarter of 2019, the company began recording a provision for income taxes on its pre-tax income using an estimated effective tax rate that approximates statutory rates. The provision includes a significant non-cash charge due to the company’s ability to offset its pre-tax income against previously benefited net operating losses. The company expects the majority of its tax provision to represent a non-cash expense until its net operating losses have been fully utilized. As of December 31, 2019, the company’s federal net operating losses and credits that were available to offset future pre-tax income were approximately $3.5 billion.
3: During the three and twelve months ended December 31, 2019, the increase in the fair value of the contingent consideration relates to payments potentially payable to Exonics’ former equity holders. During the three and twelve months ended December 31, 2018, the company consolidated the financial statements of a variable interest entity, or VIE, resulting in changes in the fair value of contingent consideration.
4: "ORKAMBI adjustment" in the three and twelve months ended December 31, 2019 includes an adjustment to net product revenues and cost of sales related to the conclusion of the early access program for ORKAMBI in France in the fourth quarter of 2019. The company had previously recognized a portion of net product revenues related to ORKAMBI distributed through the early access program in France. As a result, the company recognized an adjustment to increase net product revenues and cost of sales, which related to prior period shipments of ORKAMBI distributed through the early access program in France. The company has excluded the adjustment to net product revenues and cost of sales from its Non-GAAP measures for the three and twelve months ended December 31, 2019. Beginning in 2020, the company does not expect to adjust any revenues from its GAAP net product revenues.
5: "Collaborative revenues and expenses" in the three and twelve months ended December 31, 2019 and 2018 primarily related to collaborative upfront and milestone payments. "Collaborative revenues and expenses" in the three and twelve months ended December 31, 2018 also included revenues and expenses attributable to our VIE’s operations.
6: "Acquisition-related costs" in the three and twelve months ended December 31, 2019 primarily related to costs associated with the company’s acquisitions of Semma and Exonics. There were no comparable amounts during the three and twelve months ended December 31, 2018.
7: In the three and twelve months ended December 31, 2019, "Estimated income taxes related to non-GAAP adjustments to pre-tax income" primarily related to (i) stock-based compensation (including an adjustment for excess tax benefits related to stock-based compensation), (ii) increases or decreases in the fair value of the company’s strategic investments and (iii) collaborative upfront payments. In the three and twelve months ended December 31, 2018, "Estimated income taxes related to non-GAAP adjustments to pre-tax income" were related to a provision for income taxes attributable to the company’s VIE and excess tax benefits related to stock-based compensation.