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VRTX > SEC Filings for VRTX > Form 10-Q on 8-May-2013All Recent SEC Filings

Show all filings for VERTEX PHARMACEUTICALS INC / MA | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for VERTEX PHARMACEUTICALS INC / MA


8-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
We are in the business of discovering, developing, manufacturing and commercializing small molecule drugs for patients with serious diseases. Over the last two years, we have obtained approval for, and initiated commercial sales of, our first two products: INCIVEK (telaprevir), which we market in the United States and Canada for the treatment of adults with genotype 1 hepatitis C virus, or HCV, infection; and KALYDECO (ivacaftor), which we market in the United States, Canada and Europe for the treatment of patients six years of age and older with cystic fibrosis, or CF, who have a specific genetic mutation that is referred to as the G551D mutation. We receive royalties from sales in Europe and other countries of telaprevir, where it is marketed as INCIVO, by our collaborator, Janssen Pharmaceutica, N.V.
We invest in scientific innovation to create transformative medicines for patients with serious diseases, with a focus on specialty markets. Our strategy is to make focused investments to invent and develop innovative drugs, while we continue to market INCIVEK and KALYDECO to eligible patients to generate revenues and maintain a strong financial position.
Our first quarter 2013 revenues included INCIVEK net product revenues of $205.6 million and KALYDECO net product revenues of $61.8 million. As of March 31, 2013, we had cash, cash equivalents and marketable securities of $1.2 billion. Our net product revenues from sales of INCIVEK declined over the course of 2012 and in the first quarter of 2013, and we expect this trend to continue due to reduced demand for current therapies for HCV infection, as new competitive therapies approach commercialization. We expect that KALYDECO net product revenues will increase in the second quarter of 2013 as compared to the first quarter of 2013 as we begin to receive reimbursement in additional European countries. In the future, we expect that our ability to increase net product revenues will be dependent upon increasing KALYDECO sales and introducing one or more of our drug candidates in late-stage development to the market. We are focusing most of our drug development investment on the following key programs:
Cystic Fibrosis - Our goal is to develop treatment regimens that will provide benefits to as many patients with CF as possible and to maximize those benefits. We are conducting three Phase 3 label-expansion clinical trials and a proof-of-concept clinical trial of ivacaftor monotherapy in patients with certain mutations in their cystic fibrosis transmembrane conductance regulator, or CFTR, gene that were not studied in prior Phase 3 clinical trials. In the first quarter of 2013, we initiated an international pivotal Phase 3 development program to evaluate combinations of ivacaftor and our investigational CFTR corrector VX-809 for patients with the most prevalent genetic mutation that causes CF.
HCV - We are seeking to develop all-oral, interferon-free treatment regimens that are 12 weeks or less in duration with a goal of providing high viral cure rates and improved tolerability, in order to be commercially competitive in the HCV market of the future. We are conducting multiple Phase 2 clinical trials to evaluate all-oral combination treatment regimens that include our HCV nucleotide analogue VX-135 together with molecules that have potentially complementary mechanisms, such as ribavirin, or RBV, HCV protease inhibitors and HCV NS5A inhibitors.
Autoimmune Diseases - We are evaluating our JAK3 inhibitor, VX-509, in a fully-enrolled Phase 2 clinical trial. The primary endpoints of this clinical trial will be measured after 12 weeks of treatment, and we expect data from this analysis in the second half of 2013.
We may seek collaborators for some of our drug candidates in order to diversify risk, broaden or accelerate or otherwise benefit a development program in an effort to fully-realize the value of a drug candidate.
We plan to continue investing in our research programs and supporting scientific innovation in order to identify and develop transformative medicines. We believe that pursuing research in diverse areas allows us to balance the risks inherent in drug development and may provide the drug candidates that will form our pipeline in future years. We have later-stage research programs in the areas of CF, Huntington's disease, multiple sclerosis and cancer.


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CF
KALYDECO (ivacaftor) is approved in the United States, Canada and the European Union for the treatment of patients with CF six years of age and older who have the G551D mutation on at least one allele of the CFTR gene. We are continuing our work in CF to identify and develop treatment regimens that will provide benefits to as many patients with CF as possible and to maximize those benefits. We have multiple ongoing clinical development programs to evaluate our CF treatment regimens, and our research group is working to identify additional corrector compounds that could be included in future dual- and/or triple-combination treatment regimens that have the potential to provide additional benefits to patients with CF. Ivacaftor (monotherapy)
We are conducting three Phase 3 label-expansion clinical trials and a Phase 2 clinical trial of ivacaftor monotherapy:
• We have completed enrollment in a Phase 3 clinical trial evaluating ivacaftor in patients six years of age and older with CF with gating mutations other than the G551D mutation. We expect the first data from this clinical trial in the second half of 2013.

• We are continuing enrollment in a Phase 3 clinical trial evaluating ivacaftor in patients six years of age and older with CF with the R117H mutation in the CFTR gene on at least one allele.

• We are continuing enrollment in a Phase 3 clinical trial in which we are evaluating a pediatric formulation of ivacaftor as a treatment for children two to five years of age with gating mutations in the CFTR gene, including the G551D mutation.

• We are enrolling patients in a Phase 2 clinical trial in which we are evaluating ivacaftor in patients with CF who have clinical evidence of residual CFTR function.

If we are able to establish that these additional patient groups will benefit from ivacaftor monotherapy, there is the potential to increase the number of patients eligible for treatment with ivacaftor monotherapy to more than ten percent of patients worldwide with CF.
VX-809 in Combination with Ivacaftor
We are enrolling patients in an international pivotal Phase 3 clinical program to evaluate combinations of VX-809 and ivacaftor in patients with CF who have two copies of the F508del mutation in their CFTR gene (homozygous). We plan to conduct two 24-week Phase 3 clinical trials that are designed to support approval of the combination of VX-809 and ivacaftor for patients 12 years of age and older. Each Phase 3 clinical trial will enroll approximately 500 patients with CF who are homozygous for the F508del mutation, for a total of approximately 1,000 patients. The two clinical trials have the same design and together will be conducted at approximately 200 clinical trial sites in North America, Europe and Australia. We expect to obtain final safety and efficacy data from both Phase 3 clinical trials in 2014. If these trials are successful, we plan to submit a New Drug Application, or NDA, to the FDA in 2014 and a Marketing Authorization Application, or MAA, to the European Medicines Agency, or EMA. Almost half of the patients with CF worldwide are homozygous for the F508del mutation in their CFTR gene.
In addition to the two Phase 3 clinical trials, we plan to conduct an 8-week exploratory Phase 2 clinical trial of VX-809 in combination with ivacaftor in patients with CF who are 12 years of age and older and who have one copy of the F508del mutation in the CFTR gene. We also plan to conduct a Phase 2 clinical trial to evaluate VX-809 in combination with ivacaftor in children with CF six to eleven years of age who have two copies of the F508del mutation. If this Phase 2 clinical trial is successful, we plan to use the data from this clinical trial, along with data from the two Phase 3 clinical trials, for registration in the United States in patients six to eleven years of age, following registration in patients 12 years of age and older. Discussions with European regulatory agencies about plans for patients in this age group are ongoing.
HCV
Janssen and we market INCIVEK/INCIVO in direct competition with Merck & Co., Inc.'s VICTRELIS™ (boceprevir), another HCV protease inhibitor that was approved for sale in the United States and Europe in 2011. We expect that a number of new therapies for HCV infection will become available to patients over the next several years. The most advanced potentially competitive drug candidates are Gilead's sofosbuvir (GS-7977) and Janssen's simeprevir (TMC435). Gilead and Janssen have filed NDAs for sofosbuvir and simeprevir, respectively, and each of these drug candidates may be approved as treatments for genotype 1 HCV infection in combination with pegylated-interferon, or peg-IFN, and RBV, in late 2013 or 2014. The top-line results reported by Gilead and Janssen from Phase 3 clinical trials suggest that the safety and efficacy


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profiles of sofosbuvir and simeprevir will position them, if approved, to potentially take a significant portion of the market for HCV therapies. We plan to compete in the HCV infection market as it shifts away from current treatment regimens, including our INCIVEK triple-combination therapy, to regimens that incorporate new drugs with improved safety, efficacy and/or tolerability, by pursuing development of all-oral regimens incorporating our HCV nucleotide analogue VX-135. A number of pharmaceutical companies are investigating combination regimens that incorporate one or more of an HCV protease inhibitor, an HCV nucleotide analogue, an HCV non-nucleotide polymerase inhibitor or an NS5A inhibitor. Clinical trials of these investigational combination regimens are being conducted in a wide variety of patient populations, including treatment-naïve and treatment-failure patients, and across all HCV genotypes, which respond differently to different combinations of molecules employing different mechanisms. In the future, we expect that the market for any specific HCV treatment regimen, including INCIVEK triple-combination therapy, could be affected by the introduction of new competitive drugs or drug combinations, sales from currently approved drugs, adverse information regarding the safety characteristics or efficacy of the regimen, significant new information regarding potential treatment regimens being evaluated in clinical trials and enrollment by patients in clinical trials being conducted by us or our competitors. While it is possible that a portion of patients with HCV infection would continue to benefit from treatment regimens that include peg-IFN, we expect that treatment regimens that include the administration of peg-IFN by injection will command a relatively small portion of the overall market.
We are evaluating potential all-oral treatment regimens in planned and ongoing Phase 2 clinical trials in order to determine which regimen or regimens appear likely to provide benefits to patients and to advance into Phase 3 clinical development. We are conducting two Phase 2 clinical trials of VX-135 in combination with RBV, one of which is fully-enrolled, and a drug-drug interaction clinical trial of VX-135 in combination with simeprevir. We also plan to conduct two clinical trials of VX-135 in combination with Bristol-Myers Squibb's NS5A inhibitor daclatasvir. We expect to obtain the first data from the all-oral clinical trials of VX-135 in the second half of 2013, including data from the initial clinical trial of VX-135 in combination with daclatasvir and from clinical trials of VX-135 in combination with RBV.
Some of our competitors' potential all-oral treatment regimens are more advanced, including all-oral treatment regimens that are being evaluated in Phase 3 clinical trials by Gilead and Abbvie, Inc. While the development and regulatory timelines for drug candidates for the treatment of HCV infection are subject to risk and uncertainty, we believe that (i) substantial additional clinical data regarding potential all-oral treatment regimens will become available in 2013 and (ii) it is possible that one or more all-oral treatment regimens for genotype 1 HCV infection could be commercially available as soon as late 2014. As a result, if we are successful in developing all-oral treatment regimens that include VX-135, independently or with a collaborator, it is likely that our all-oral treatment regimens would compete directly with one or more previously approved all-oral treatment regimens. Recent Developments
Results of Phase 2 Clinical Trial of VX-661 In April 2013, we announced the data from a randomized, double-blind, placebo-controlled Phase 2 clinical trial of VX-661 alone and in combination with ivacaftor that enrolled 128 patients with CF who were 18 years of age and older with two copies of the F508del mutation. One group of patients was randomized to receive either VX-661 (10, 30, 100 and 150 mg dosed once daily), or placebo, alone for 28 days. A separate group of patients was randomized to receive the combination of VX-661 (10, 30, 100 and 150 mg dosed once daily) and ivacaftor (150 mg dosed twice daily), or placebo, for 28 days. The primary endpoints of the clinical trial were safety, tolerability and change in sweat chloride levels. Change in lung function (percent predicted forced expiratory volume in one second; FEV1) was measured as a secondary endpoint.
There were statistically significant mean absolute decreases in sweat chloride levels, both within-group and versus placebo, across the combination and monotherapy groups. These changes were generally modest and were variable across the dose groups.
VX-661 was generally well-tolerated when dosed alone and in combination with ivacaftor. The most common adverse events were pulmonary in nature. Most adverse events were mild to moderate in severity and similar between the treatment and placebo groups, and the types and frequency of adverse events were similar between the treatment and placebo groups. The rate of serious adverse events was also similar between the treatment groups and those who received placebo. We plan to conduct additional clinical trials of VX-661 to further evaluate its potential for late-stage development, pending discussions with regulatory authorities.


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Lung Function Results for Combination Dosing Mean absolute and relative improvements in lung function were observed in all the combination dosing groups (10, 30, 100 and 150 mg), both within group and versus placebo. The improvements in lung function were dose dependent, with the greatest improvements observed in the groups that received the highest doses of VX-661 in combination with ivacaftor. The result of statistical testing is often defined in terms of a "p-value," with p<0.05 generally considered to represent a statistically significant difference. Patients in the two highest combination dose groups (VX-661 100 mg or 150 mg in combination with ivacaftor 150 mg) showed statistically significant mean relative improvements in lung function, versus placebo, of 9.0 percent (p=0.01) and 7.5 percent (p=0.02), respectively, at Day 28. Improvements in FEV1 were observed early in treatment, and the mean relative FEV1 improvements, versus placebo, for the highest combination group (VX-661 150 mg in combination with ivacaftor 150 mg) were statistically significant at Days 14, 21 and 28. The mean relative FEV1 across the combination dose groups returned toward baseline during the post-treatment 28-day washout period. Additional lung function results are provided in the table below:

                                   Mean Relative Change in     Mean Absolute Change in
                                 Percent Predicted FEV1 From Percent Predicted FEV1 From
                                          Baseline                    Baseline
 Mean Changes in Lung Function                   28 Days                     28 Days
                                  Day 0 - 28  Post-Treatment  Day 0 - 28  Post-Treatment
                                              (Within-Group               (Within-Group
                                                  Mean)*                      Mean)*
Placebo (n=23) (within group)     0.03 (NS)        1.6        -0.4 (NS)        0.6

Combination Treatment Arms       vs. Placebo                 vs. Placebo
 VX-661 (10 mg) + ivacaftor (150
mg) (n=17)                         4.1 (NS)        1.7         2.3 (NS)        0.8
 VX-661 (30 mg) + ivacaftor (150
mg) (n=17)                         5.4 (NS)        1.2         3.4 (NS)        0.5
 VX-661 (100 mg) + ivacaftor
(150 mg) (n=15)                  9.0 (p=0.01)      1.7       4.8 (p=0.01)      0.5
 VX-661 (150 mg) + ivacaftor
(150 mg) (n=16)                  7.5 (p=0.02)      1.4       4.5 (p=0.01)      0.7

NS = Not Statistically Significant
* The statistical analysis plan (SAP) for this clinical trial did not include statistical comparisons for the 28-day washout period In the dose group that evaluated 100 mg of VX-661 in combination with ivacaftor, 66.7 percent (10/15) of patients had a 5 percent or greater relative improvement (within subject) in lung function at Day 28. In the dose group that evaluated 150 mg of VX-661 in combination with ivacaftor, 56.3 percent (9/16) of patients had a 5 percent or greater relative improvement (within subject) in lung function at Day 28. 21.7 percent (5/23) of patients who received placebo had a 5 percent or greater relative improvement (within subject) in lung function at Day 28.
Results for VX-661 Monotherapy Dosing
Mean absolute and relative increases in lung function were observed in all of the VX-661 monotherapy dosing groups (10, 30, 100 and 150 mg), both within group and versus placebo, at Day 28. These increases were variable, not dose dependent and not statistically significant in any of the monotherapy dosing groups.

                                     Mean Relative Change   Mean Absolute Change
   Mean Changes in Lung Function     in Percent Predicted   in Percent Predicted
                                      FEV1 From Baseline     FEV1 from Baseline
                                          Day 0 - 28             Day 0 - 28
Placebo (n=23) (within group)             0.03 (NS)              -0.4 (NS)

Monotherapy Treatment Arms               vs. Placebo            vs. Placebo
 VX-661 (10 mg) (n=7)                      4.5 (NS)               3.6 (NS)
 VX-661 (30 mg) (n=8)                      0.1 (NS)               0.5 (NS)
                                           3.1 (NS)
 VX-661 (100 mg) (n=8)                                            1.9 (NS)
                                           4.2 (NS)
 VX-661 (150 mg) (n=9)                                            2.7 (NS)

NS = Not Statistically Significant


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VX-983
In addition to VX-809 and VX-661, we have advanced VX-983, a third CFTR corrector compound, into clinical development. We are evaluating VX-983 in a Phase 1 multiple-ascending-dose clinical trial in healthy volunteers. In the second half of 2013, we plan to initiate a clinical trial to evaluate VX-983 in combination with ivacaftor over 28 days in patients with CF who have two copies of the F508del CFTR mutation.
Bristol-Myers Squibb Agreement
In April 2013, we entered into a non-exclusive agreement with Bristol-Myers Squibb Company, or BMS, to conduct Phase 2 clinical trials of once-daily all-oral treatment regimens containing VX-135 and BMS's NS5A inhibitor daclatasvir for the treatment of HCV infection. Pursuant to the agreement, we plan to conduct two Phase 2 clinical trials to evaluate VX-135 in combination with daclatasvir. We plan to initiate the first clinical trial in the second quarter of 2013 in treatment-naïve patients with genotype 1 HCV infection. We plan to begin the subsequent clinical trial in treatment-naïve patients infected with genotype 1, 2 or 3 HCV infection, including those with cirrhosis, in the second half of 2013, pending data from the initial clinical trial. We also plan to conduct co-formulation activities to evaluate the potential for development of a once-daily fixed-dose combination regimen. No further clinical development activities are covered by this agreement beyond the Phase 2 clinical trials. VX-787 - Phase 2 Clinical Trial
In March 2013, we announced results from a randomized, double-blind, placebo-controlled Phase 2 clinical trial that enrolled and dosed 104 healthy people (72 in the VX-787 arms; 32 in the placebo arm) ages 18 to 45 who volunteered to be experimentally exposed to an attenuated form of live H3N2 influenza A virus. In this clinical trial, we evaluated four dosing regimens of VX-787 given once daily for five days beginning 24 hours after infection with the influenza virus. The clinical trial met its primary endpoint, and patients treated with VX-787 had a statistically significant decrease in the amount of virus in nasal secretions (viral shedding) over the seven-day dosing period as compared to patients who received placebo. Patients in the highest VX-787 dose group experienced influenza-like symptoms for a median of 1.9 days, compared to 3.7 days in the placebo group. In addition, 93 percent of patients in this dose group showed no clinical symptoms of influenza after three days of treatment, compared to 41 percent of patients in the placebo group. In this clinical trial, VX-787 was generally well-tolerated, and all patients completed treatment. There were no serious adverse events or adverse events that led to discontinuation of treatment. Overall, the most frequently reported class of adverse events in the VX-787 and placebo arms were those typically associated with influenza-like illness. We plan to explore collaborative opportunities to support further development of VX-787.
Intangible Asset Impairment Charge
In the first quarter of 2013, we recorded a $412.9 million intangible asset impairment charge based on a determination that the fair value of our indefinite-lived in-process research and development asset related to VX-222 had decreased to zero. In connection with this impairment charge, we recorded a credit of $127.6 million in our provision for income taxes, and the net effect of this impairment charge was an increase in the net loss attributable to Vertex of $285.3 million. We do not plan to initiate any new clinical trials of VX-222.
Regulatory Compliance
Our marketing of pharmaceutical products, which began in 2011, is subject to extensive and complex laws and regulations. We have a corporate compliance program designed to actively identify, prevent and mitigate risk through the implementation of compliance policies and systems and the promotion of a culture of compliance. Among other laws, regulations and standards, we are subject to various U.S. federal and state and comparable foreign laws pertaining to health care fraud and abuse, including anti-kickback and false claims statutes, and laws prohibiting the promotion of drugs for unapproved, or off-label, uses. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. False claims laws prohibit anyone from presenting for payment to third-party payors, including Medicare and Medicaid, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed or claims for medically unnecessary items or services. We expect to continue to devote substantial resources to maintain, administer and expand these compliance programs globally.


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RESULTS OF OPERATIONS
                                            Three Months Ended         Increase/       Increase/
                                                 March 31,             (Decrease)     (Decrease)
                                            2013           2012            $               %
                                                      (in thousands)
Revenues                                $  328,368     $  438,737     $ (110,369 )        (25 )%
Operating costs and expenses               766,656        347,088        419,568          121  %
Other items, net                           125,661         (3,773 )          n/a          n/a
Net loss (income) attributable to
noncontrolling interest (Alios)              4,611          3,714            897           24  %
Net income (loss) attributable to
Vertex                                  $ (308,016 )   $   91,590            n/a          n/a

Net Income (Loss) Attributable to Vertex Net loss attributable to Vertex was $(308.0) million in the first quarter of 2013 compared to net income attributable to Vertex of $91.6 million in the first quarter of 2012. The net loss attributable to Vertex in the first quarter of 2013 was primarily attributable to an impairment charge of $412.9 million in the first quarter of 2013, which was included in operating costs and expenses. Partially offsetting this impairment charge was a benefit from income taxes of $127.6 million, which is included in other items, net. The net effect of the impairment charge and the benefit from income taxes was to increase net loss attributable to Vertex in the first quarter of 2013 by $285.3 million. Our decreased revenues in the first quarter of 2013 as compared to the first quarter of 2012 were due to decreased INCIVEK net product revenues partially offset by increased KALYDECO net product revenues and increased INCIVO royalties. Our operating costs and expenses, excluding the impairment charge incurred in 2013, increased in 2013 as compared to 2012, principally due to increased research and development expenses partially offset by decreased sales, general and administrative expenses.
Our operating costs and expenses in the three months ended March 31, 2013 and 2012 included $31.3 million and $27.7 million, respectively, of stock-based compensation expense.
Net Income (Loss) Attributable to Vertex per Diluted Share Net loss attributable to Vertex was $(1.43) per diluted share in the first quarter of 2013 as compared to net income attributable to Vertex of $0.43 per diluted share in the first quarter of 2012. In the first quarter of 2013, the increase to the net loss attributable to Vertex related to the $412.9 million impairment charge, net of the $127.6 million benefit from income taxes, was $285.3 million, and net increase to the Company's net loss per share attributable to Vertex common shareholders was $1.32 per share. Revenues

                                             Three Months Ended
                                                 March 31,              Increase/(Decrease)     Increase/(Decrease)
                                            2013            2012                 $                       %
                                                           (in thousands)
Product revenues, net                   $   267,381     $  375,375     $          (107,994 )            (29 )%
Royalty revenues                             43,573         38,981                   4,592               12  %
Collaborative revenues                       17,414         24,381                  (6,967 )            (29 )%
Total revenues                          $   328,368     $  438,737     $          (110,369 )            (25 )%

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