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VRTX > SEC Filings for VRTX > Form 10-Q on 2-Aug-2013All Recent SEC Filings

Show all filings for VERTEX PHARMACEUTICALS INC / MA

Form 10-Q for VERTEX PHARMACEUTICALS INC / MA


2-Aug-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. Our two products are: 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, Australia, 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 for 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 second quarter 2013 revenues included INCIVEK net product revenues of $155.8 million and KALYDECO net product revenues of $99.0 million. As of June 30, 2013, we had cash, cash equivalents and marketable securities of $1.4 billion. Our net product revenues from sales of INCIVEK declined over the course of 2012 and in the first half 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. In the future, we expect that our ability to increase net product revenues will be dependent on the outcomes of ongoing label-expansion programs for KALYDECO monotherapy and on 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 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 (lumacaftor) for patients with two copies of 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, an HCV protease inhibitor and an HCV NS5A inhibitor.
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 clinical trial 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 on-going research programs, including 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, Australia, 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-corrector regimens in combination with ivacaftor in patients with one or two copies of the F508del mutation.
Ivacaftor (monotherapy)
We are conducting Phase 3 label-expansion clinical trials and a Phase 2 proof-of-concept clinical trial of ivacaftor monotherapy:
• We are conducting 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. In July 2013, we reported that patients in this clinical trial had statistically significant improvements in their lung function. We plan to submit a supplemental New Drug Application, or sNDA, to the U.S. Food and Drug Administration, or FDA, and a Marketing Authorization Application, or MAA, variation in the European Union in the second half of 2013 for the use of ivacaftor monotherapy in patients six years of age and older with gating mutations other than the G551D mutation.

• We are conducting a Phase 3 clinical trial evaluating ivacaftor in patients six years of age and older with CF who have the R117H mutation in the CFTR gene on at least one allele. We expect data from this clinical trial in the second half of 2013. If this clinical trial is successful, we plan to submit an sNDA to the FDA in early 2014 for the use of ivacaftor monotherapy in patients with CF who are six years of age and older who have the R117H mutation in the CFTR gene on at least one allele.

• We are conducting 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 have completed the pharmacokinetic portion of this clinical trial and have selected a dose to evaluate for the 24-week dosing period, which is now underway. We expect data from this clinical trial in mid-2014.

• 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. We expect data from this clinical trial in the first half of 2014.

If we are able to establish that all of 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 are conducting 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. We expect to complete enrollment of patients in these clinical trials in the second half of 2013. 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. If these trials are successful, we plan to submit a New Drug Application, or NDA, to the FDA in 2014. 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, in the second half of 2013 we plan to begin evaluation 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 in a Phase 2 clinical trial. In the second half of 2013, we also plan to begin enrollment in 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.


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VX-661
We are preparing to evaluate a four-week regimen of VX-661 in combination with ivacaftor in patients with one copy of the F508del mutation and one copy of the G551D mutation in a Phase 2 clinical trial. The evaluation of this regimen is supported by in vitro data presented at the European Cystic Fibrosis Society Conference by our researchers that showed increased chloride transport in human bronchial epithelial cells with one copy of the F508del mutation and one copy of the G551D mutation, with the combination of a corrector compound and ivacaftor as compared to the use of ivacaftor alone. Our strategy is to evaluate multiple first-generation correctors, including VX-661 and VX-983, in combination with ivacaftor to identify regimens that may provide benefit to patients with the F508del mutation.
Dual-Correctors in Combination with Ivacaftor We have an active research program focused on identifying additional corrector compounds that could be included in future dual-corrector regimens in combination with ivacaftor in patients with one or two copies of the F508del mutation. The potential use of a dual-corrector regimen in combination with ivacaftor is supported by in vitro data presented at the European Cystic Fibrosis Society Conference that showed a combination of two CFTR correctors and ivacaftor increased chloride transport in human bronchial epithelial cells with one or two copies of the F50del mutation, as compared to the use of a single CFTR corrector in combination with ivacaftor. Our goal is to advance a second-generation CFTR corrector compound into clinical development by the end of 2014.
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 Sciences, Inc.'s, or 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 2013. The top-line results reported by Gilead and Janssen from Phase 3 clinical trials suggest that the safety and efficacy 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, interferon-free 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 of 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 that include our HCV nucleotide analogue VX-135 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 currently are evaluating VX-135 in combination with RBV, Janssen's HCV protease inhibitor simeprevir and Bristol-Myers Squibb's, or BMS's, NS5A replicon complex inhibitor daclatasvir.
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.


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Recent Developments
Ivacaftor - Phase 3 Label-expansion Clinical Trial In July 2013, we disclosed data from a Phase 3 label-expansion clinical trial that enrolled 39 patients six years of age and older with CF who have at least one non-G551D CFTR gating mutation. The clinical trial met its primary endpoint of absolute change from baseline in percent predicted forced expiratory volume in one second, or FEV1. Patients in this clinical trial received either ivacaftor or placebo for eight weeks, followed by a four-week washout period. After the washout period, patients who received placebo in the first eight weeks received ivacaftor for the final eight weeks, and patients who received ivacaftor for the first eight weeks received placebo for the final eight weeks. The primary analysis was conducted at week 20 of the clinical trial. 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. After the 20 week cross-over period, patients were eligible to receive ivacaftor as part of a 16 week open-label dosing period.
In this clinical trial, the mean absolute treatment difference in percent predicted FEV1 between treatment with ivacaftor and placebo was 10.7% (p<0.0001) and the mean relative treatment difference in percent predicted FEV1 was 14.2% (p<0.0001) through the 8-week treatment period. The mean absolute and relative percent predicted FEV1 improvements during ivacaftor treatment (within-group) were 7.5% (p<0.0001) and 10.8% (p<0.0001), respectively. Additionally, treatment with ivacaftor in this clinical trial resulted in statistically significant improvements in weight gain and improvements in patient-reported quality of life as measured by the respiratory domain of the Cystic Fibrosis Questionnaire Revised (CFQ-R). The safety and tolerability results observed in this clinical trial were consistent with those observed in prior Phase 3 clinical trials of ivacaftor monotherapy in patients with CF who have the G551D mutation. The most commonly observed adverse events, regardless of treatment assignment, included pulmonary exacerbation, cough, headache and abdominal pain, each occurring more frequently while patients received placebo than while patients received ivacaftor.
Based on these data, we plan to submit an sNDA in the United States and an MAA variation in the European Union in the second half of 2013 for the use of ivacaftor monotherapy in patients with CF six years of age and older who have at least one non-G551D CFTR gating mutation. We estimate that approximately 400 patients six years of age and older with CF have a non-G551D gating mutation worldwide.
VX-135
In July 2013, the FDA placed a partial clinical hold on our ongoing Phase 2 clinical trial in the United States in which we are evaluating VX-135 in combination with RBV in patients with genotype 1 HCV infection. The partial clinical hold prevents us from evaluating a 200 mg dose of VX-135 in the United States following observation of reversible elevated liver enzymes in patients who received 400 mg of VX-135 in combination with RBV in a Phase 2 clinical trial in Europe.
Multiple clinical trials to evaluate potential all-oral treatment regimens that include VX-135 are ongoing, as follows:
• U.S. Clinical Trial of VX-135 in Combination with Ribavirin. Dosing of 100 mg of VX-135 in combination with RBV as part of a 12-week Phase 2 clinical trial in the United States is ongoing, and evaluation of this dose group is continuing as planned. Ten patients with genotype 1 HCV infection are enrolled in this dose group, and all patients have now completed at least ten weeks of treatment. We expect complete safety and efficacy results from the 100 mg arm of this clinical trial to be available in the second half of 2013. Under the partial clinical hold, we plan to complete evaluation of the 100 mg dose of VX-135 but will not evaluate a 200 mg dose of VX-135 in the United States without authorization from the FDA. At the request of the FDA, we expect to complete submission of additional clinical, preclinical and pharmacokinetic data in the fourth quarter of 2013.

• European Clinical Trial of VX-135 in Combination with Ribavirin. Dosing of 100 mg and 200 mg of VX-135 in combination with RBV as part of a 12-week Phase 2 clinical trial in Europe is complete, and all patients are in the post-treatment follow-up period. Ten patients with genotype 1 HCV infection were enrolled in each dose group, and all 20 patients completed 12 weeks of treatment. Both the 100 mg and 200 mg doses were well tolerated, no serious adverse events have been reported and no liver or cardiac safety issues have been identified in these dose groups. All patients in these dose groups achieved undetectable HCV RNA during the 12-week dosing period, and 70 percent and 80 percent of patients in the 100 mg and 200 mg dosing arms, respectively, had undetectable HCV RNA levels within four weeks of initiating treatment. HCV RNA levels were undetectable at the end of the treatment period in all patients with available data. Complete safety and efficacy results from the 100 mg and 200 mg arms of this clinical trial are expected to be available in the second half of 2013.

Following completion of enrollment in the 100 mg and 200 mg arms of the European clinical trial, the clinical trial design was amended to add the evaluation of a 400 mg dose of VX-135 in combination with RBV in ten patients with


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genotype 1 HCV infection. Elevated liver enzymes were observed in three of the ten patients in this dose group, including one serious adverse event, and the 400 mg arm of the clinical trial was discontinued. Following the discontinuation of dosing, liver enzyme levels returned to baseline in all three patients.
• Clinical Trial of 100 mg and 200 mg Doses of VX-135 in Combination with Daclatasvir. We, in collaboration with BMS, recently initiated dosing of VX-135 in combination with daclatasvir, an NS5A replication complex inhibitor being developed by BMS, in a Phase 2 clinical trial in New Zealand. The first part of this clinical trial will evaluate 100 mg and 200 mg doses of VX-135 in combination with daclatasvir for 12 weeks in approximately 20 patients who have genotype 1 HCV infection. Pending data from the first part of the clinical trial, we and BMS plan to expand this clinical trial to enroll additional patients with either genotype 1 or 3 HCV infection. Safety and efficacy data from the first part of this clinical trial are expected to be available in early 2014.

• VX-135 in Combination with Simeprevir. A drug-drug interaction clinical trial of VX-135 in combination with simeprevir in healthy volunteers is complete. A clinical trial to evaluate the combination of VX-135 and simeprevir is planned for the second half of 2013 in patients who have genotype 1 HCV infection, pending availability of additional data. Simeprevir, or TMC435, is an investigational HCV protease inhibitor being jointly developed by Janssen R&D Ireland and Medivir AB.

Termination of GlaxoSmithKline Collaboration In June 2013, we and GlaxoSmithKline plc mutually decided to cease the collaboration for a Phase 2 clinical trial of VX-135 and GSK 2336805 and prioritize other projects. The preclinical and early-stage clinical data support continued development of VX-135 and of GSK 2336805. 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/          Six Months Ended         Increase/      Increase/
                             June 30,             (Decrease)     (Decrease)             June 30,             (Decrease)     (Decrease)
                        2013          2012            $              %             2013          2012            $              %
                                  (in thousands)                                            (in thousands)
Revenues             $ 310,750     $ 418,305     $ (107,555 )       (26 )%     $  639,118     $ 857,042     $ (217,924 )       (25 )%
Operating costs and
expenses               367,683       429,075        (61,392 )       (14 )%      1,134,339       776,163        358,176          46  %
Other items, net        (4,779 )     (23,698 )      (18,919 )       (80 )%        120,882       (27,471 )          n/a         n/a
Net loss (income)
attributable to
noncontrolling
interest (Alios)         4,547       (30,463 )          n/a         n/a             9,158       (26,749 )          n/a         n/a
Net income (loss)
attributable to
Vertex               $ (57,165 )   $ (64,931 )   $   (7,766 )       (12 )%     $ (365,181 )   $  26,659            n/a         n/a

Net Income (Loss) Attributable to Vertex Net loss attributable to Vertex was $(57.2) million in the second quarter of 2013 compared to net loss attributable to Vertex of $(64.9) million in the second quarter of 2012. Our revenues decreased in the second quarter of 2013 as compared to the second quarter of 2012 due to decreased INCIVEK net product revenues partially offset by increased KALYDECO net product revenues and increased INCIVO royalties. Our operating expenses decreased in the second quarter of 2013 as compared to the second quarter of 2012 due to a $78.0 million write-off in the second quarter of 2012 for excess and obsolete INCIVEK inventories and decreased sales, general and administrative expenses partially offset by increased research and development expenses.
For the first half of 2013, net loss attributable to Vertex was $(365.2) million as compared to net income attributable to Vertex of $26.7 million for the first half of 2012. Our revenues decreased in the first half of 2013 as compared to the first half of 2012 due to decreased INCIVEK net product revenues partially offset by increased KALYDECO net product revenues and increased INCIVO royalties. Our operating costs and expenses increased from $776.2 million in the first half of 2012 to $1.1 billion in the first half of 2013. The increase in operating expenses from the first half of 2012 to the first half of 2013 was primarily due to a $412.9 million intangible asset impairment charge for VX-222 recorded in the first quarter of 2013 partially offset by the $78.0 million write-off in the second quarter of 2012 for excess and obsolete INCIVEK inventories.
Stock-based compensation expense was $41.4 million and $31.4 million in the second quarter of 2013 and 2012, respectively, and $72.6 million and $59.1 million in the first half of 2013 and 2012, respectively. Net Income (Loss) Attributable to Vertex per Diluted Share Net loss attributable to Vertex was $(0.26) per diluted share in the second quarter of 2013 as compared to net loss attributable to Vertex of $(0.31) per diluted share in the second quarter of 2012. Net loss attributable to Vertex was $(1.67) per diluted share in the first half of 2013 compared to net income attributable to Vertex of $0.12 in first half of 2012. Common Shares Outstanding
Our shares of outstanding common stock increased by 14.9 million shares from 217.3 million shares on December 31, 2012 to 232.2 million shares on June 30, 2013 due to the approximately 8.3 million shares of common stock we issued in connection with the conversions of our 3.35% convertible senior subordinated notes due 2015, or 2015 Notes, and the approximately 6.6 million shares of common stock we issued pursuant to our employee equity programs.


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