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VRTX > SEC Filings for VRTX > Form 10-Q on 7-Nov-2013All Recent SEC Filings

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Form 10-Q for VERTEX PHARMACEUTICALS INC / MA


7-Nov-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: KALYDECO (ivacaftor), which is approved 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; and INCIVEK (telaprevir), which is approved in the United States and Canada for the treatment of adults with genotype 1 hepatitis C virus, or HCV, infection. 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.
Our third quarter 2013 revenues included KALYDECO net product revenues of $101.1 million and INCIVEK net product revenues of $85.6 million. As of September 30, 2013, we had cash, cash equivalents and marketable securities of $1.4 billion. Our net product revenues from sales of INCIVEK have declined rapidly over the course of 2013, including a 45% decline in INCIVEK net product revenues in the third quarter of 2013 as compared to the second quarter of 2013. We expect this trend to continue due to reduced demand for current therapies for HCV infection, the anticipated introduction of new competitive therapies in the fourth quarter of 2013 and the reduction in our promotion and support for INCIVEK as a result of the restructuring plan that we implemented in October 2013. In the future, we expect that our net product revenues will be dependent on continued sales of KALYDECO as a monotherapy, the outcomes of ongoing label-expansion programs for ivacaftor monotherapy and the Phase 3 clinical trials of ivacaftor and VX-809 (lumacaftor), and the potential introduction of one or more of our other drug candidates to the market.
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 seeking to maintain a strong financial position. 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. We have submitted 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 for the use of ivacaftor monotherapy in patients six years of age and older with gating mutations other than the G551D mutation. We have completed enrollment in an international pivotal Phase 3 development program to evaluate combinations of ivacaftor and our investigational CFTR corrector lumacaftor for patients with two copies of the most prevalent genetic mutation that causes CF.
HCV - We are seeking to develop an all-oral, interferon-free treatment regimen that is 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 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 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. In October 2013, we announced that this clinical trial had met its primary endpoints, which were measured after 12 weeks of treatment. We expect 24-week data from this clinical trial in early 2014. 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, cancer and multiple sclerosis.


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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. KALYDECO is currently available to eligible patients in the United States, England, Scotland, Northern Ireland, Wales, the Republic of Ireland, France, Germany, the Netherlands, Austria, Denmark, Sweden, Norway and Greece. We are in active discussions with relevant agencies in Australia and Canada regarding public reimbursement of KALYDECO in these countries. In October 2013, we presented data from an ongoing rollover clinical trial of patients six years of age and older who have the G551D mutation on at least one allele of the CFTR gene. The data from this clinical trial showed that 144 weeks of continuous treatment with KALYDECO provided durable treatment effects in lung function (FEV1), weight and other measures and a consistent safety profile to what was observed in the 48-week Phase 3 clinical trials that supported approval of KALYDECO. 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 evaluating ivacaftor in patients six years of age and older with CF with gating mutations other than the G551D mutation in a Phase 3 clinical trial. In July 2013, we reported that patients in this clinical trial had statistically significant improvements in their lung function (FEV1) and other measures of disease. The safety and tolerability results from 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. We submitted an sNDA to the FDA in September 2013 and an MAA variation in the European Union in October 2013 for the use of ivacaftor monotherapy in patients with CF six years of age and older who have gating mutations other than the G551D mutation. We estimate that in North America, Europe and Australia approximately 400 patients with CF six years of age and older have at least one non-G551D gating mutation.

• We are conducting a fully-enrolled 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 to be available at the end of 2013. If this clinical trial is successful, we plan to submit an sNDA to the FDA in early 2014 and an MAA variation in the European Union in the second quarter of 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 estimate that in North America, Europe and Australia approximately 1,100 patients with CF six years of age and older have at least one copy of the R177H mutation in their CFTR gene. Patients diagnosed with CF who have the R117H mutation exhibit a range of severity and signs and symptoms of the disease, with an average life expectancy in the 50s.

• We are conducting a fully-enrolled Phase 3 clinical trial in which we are evaluating a pediatric formulation of ivacaftor as a treatment for children with CF two to five years of age with gating mutations in the CFTR gene, including the G551D mutation. We expect data from this clinical trial in the second quarter of 2014. If this clinical trial is successful, we plan to submit an sNDA in the second half of 2014. We estimate that in North America, Europe and Australia approximately 300 patients with CF two to five years of age have a gating mutation.

• We are conducting a fully-enrolled proof-of-concept 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 second quarter of 2014. We estimate that in North America, Europe and Australia more than 3,000 patients with CF six years of age and older have non-R117H CFTR mutations that result in residual function.


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Lumacaftor in Combination with Ivacaftor We have completed enrollment of patients in an international pivotal Phase 3 clinical program to evaluate combinations of lumacaftor 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, which are referred to as TRAFFIC and TRANSPORT, that are designed to support approval of the combination of lumacaftor and ivacaftor for patients 12 years of age and older. Each Phase 3 clinical trial was designed to enroll approximately 500 patients with CF who are homozygous for the F508del mutation, for a total of approximately 1,000 patients. TRAFFIC and TRANSPORT have the same design and together are being conducted at approximately 200 clinical trial sites in North America, Europe and Australia. We expect data from TRAFFIC and TRANSPORT in mid-2014. If these clinical trials are successful, we plan to submit a New Drug Application, or NDA, to the FDA and an MAA in the European Union in the second half 2014.
We also are enrolling patients in a Phase 2 clinical trial to evaluate lumacaftor 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 and European Union in patients six to eleven years of age, following registration in patients 12 years of age and older.
We recently began enrollment in an 8-week exploratory Phase 2 clinical trial of lumacaftor in combination with ivacaftor in patients with CF who are 18 years of age and older and who have one copy of the F508del mutation in their CFTR gene and one copy of a mutation in their CFTR gene that is not expected to respond to either ivacaftor or lumacaftor alone. This clinical trial will evaluate a twice-daily administration of lumacaftor (400 mg) and ivacaftor (250 mg) and is designed to provide additional safety and lung function data on the combination of ivacaftor and lumacaftor in heterozygous patients.
We estimate that in North America, Europe and Australia more than 28,000 patients with CF six years of age and older have two copies of the F508del mutation, and more than 17,000 patients with CF six years of age and older have one copy of the F508del mutation and one copy of a non-F508del mutation that is not expected to respond to ivacaftor monotherapy treatment. VX-661
We recently began enrollment in a Phase 2 clinical trial to evaluate a four-week regimen of VX-661 in combination with ivacaftor in patients with CF who have one copy of the F508del mutation and one copy of the G551D mutation. 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. This clinical trial is intended to evaluate whether the addition of a corrector to treatment with KALYDECO can further enhance the clinical benefit received from KALYDECO alone in patients with the G551D and F508del mutation in their CFTR genes. We expect data from this clinical trial in the first quarter of 2014. We are preparing to conduct a 12-week clinical trial of VX-661 in combination with ivacaftor to evaluate the combination in patients with CF who have two copies of the F508del following recent discussions with regulatory authorities. This clinical trial is designed to provide safety, efficacy and dose-response information to characterize VX-661 for further clinical development. We expect to begin enrollment in this clinical trial in the first quarter of 2014 pending protocol approval from regulatory agencies. VX-983
Based on the emerging profiles for VX-661 and VX-983, we have prioritized VX-661 and do not intend to further develop VX-983.


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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 currently market INCIVEK/INCIVO (telaprevir) in 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 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 FDA advisory committees have unanimously recommended approval of both sofosbuvir and simeprevir. It is anticipated that each of these drug candidates will be approved as a treatment for genotype 1 HCV infection in combination with pegylated-interferon, or peg-IFN, and ribavirin, or RBV, in the fourth quarter of 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 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 or 12 weeks or less in duration 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. We expect that the market for any specific HCV treatment regimen, including INCIVEK triple-combination therapy, will 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. 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. In July 2013, the FDA placed a partial clinical hold on VX-135 in the United States, which is being evaluated in a Phase 2 clinical trial 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. Further evaluation of VX-135 in the United States is subject to the resolution of the partial clinical hold. We intend to provide further data to the FDA, including sustained viral response data from the ongoing clinical trials described below of VX-135 and RBV and VX-135 and daclatasvir, through the first half of 2014. We, in collaboration with BMS, are evaluating VX-135 in combination with daclatasvir, an NS5A replication complex inhibitor being developed by BMS, in a Phase 2 clinical trial in New Zealand. Safety and efficacy data from the first part of this clinical trial are expected to be available in early 2014 to inform future development plans for this combination regimen.
We have completed dosing of VX-135 in combination with RBV in two clinical trials that were conducted to generate safety data for VX-135 in combination with RBV and were not intended to evaluate the combination of VX-135 and RBV as a therapeutic regimen.
• We recently completed 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. This clinical trial enrolled 10 patients with genotype 1 HCV infection in each 100 mg and 200 mg 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 were reported and no liver or cardiac safety issues were identified. 70 percent and 80 percent of patients in the 100 mg and 200 mg dosing arms, respectively, had undetectable HCV RNA


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levels within four weeks of initiating treatment. Sustained viral response rates 12 weeks after completion of treatment, or SVR12 rates, were 10 percent and 50 percent for the 100 mg and 200 mg groups, respectively. This clinical trial also evaluated a 400 mg dose of VX-135 in combination with RBV in 10 patients, which was discontinued following the observation of elevated liver enzymes in 3 of 10 patients in this dose group.
• We have completed 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. The 100 mg dose group enrolled 10 patients with genotype 1 HCV infection. All 10 patients completed 12 weeks of treatment. The 100 mg dose was well tolerated, no serious adverse events were reported and no liver or cardiac safety issues were identified. All patients achieved undetectable HCV RNA levels during the 12-week dosing period, and 60 percent of patients had undetectable HCV RNA levels within four weeks of initiating treatment. The sustained viral response rate four weeks after completion of treatment was 10 percent.

A drug-drug interaction clinical trial of VX-135 in combination with Janssen's HCV protease inhibitor simeprevir in healthy volunteers is complete. We are discussing with Janssen the design of additional clinical trials of VX-135 in combination with simeprevir in patients with genotype 1 HCV infection. 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 2014 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 an all-oral treatment regimen or regimens that include VX-135, independently or with a collaborator, it is likely that our all-oral treatment regimen(s) would compete directly with one or more previously approved all-oral treatment regimens.
Autoimmune Diseases
VX-509 is an investigational oral drug candidate intended to inhibit Janus kinase 3, or JAK3, which is involved in the modulation of lymphocyte that are central to autoimmune disease pathology. We are evaluating VX-509 in a double-blind, randomized, placebo-controlled 24-week Phase 2b clinical trial that enrolled and dosed 358 people with rheumatoid arthritis, or RA, who had active disease despite methotrexate treatment. Patients in the clinical trial continued to receive stable doses of methotrexate during the clinical trial. Up to 20 percent of the patients in the clinical trial could have previously been treated with a single tumor necrosis factor (TNF) inhibitor. Patients in the clinical trial were randomized to receive placebo or one of four dose regimens of VX-509 (100 mg once daily (QD), 150 mg once daily, 200 mg once daily or 100 mg given twice daily (BID)) for 24 weeks.
The primary endpoints of the clinical trial were the proportion of patients who achieved a 20 percent improvement in signs and symptoms of RA, as measured by the ACR improvement criteria, or ACR20, response at week 12 and the change from baseline in Disease Activity Score for 28 joints, or DAS28, at week 12. Additional secondary endpoints were used to evaluate the clinical activity of VX-509, including the proportion of patients who achieved 50 percent and 70 percent improvement in signs and symptoms of RA, or ACR50 and ACR70, respectively, at week 12. In all VX-509 treatment arms, the proportion of patients achieving ACR20 and ACR50 and the decrease from baseline in DAS28 were significantly greater than in placebo. The three highest dose groups showed ACR20 responses of between 58 percent and 68 percent, compared to 18 percent for placebo, and statistically significant ACR70 responses versus placebo.

In the clinical trial, adverse events led to discontinuation in 6.6 percent and 8.5 percent of patients in the VX-509 and placebo groups, respectively. Through 12 weeks, adverse event rates were 51.2 percent for the pooled VX-509 treatment group compared to 38.0 percent for those who received placebo, and the majority of adverse events observed in the clinical trial were mild to moderate. The most common adverse events in the pooled VX-509 treatment group were headache (8.0 percent), hypercholesterolemia (3.8 percent) and nasopharyngitis (3.5 percent). The safety profile of VX-509 was comparable across all treatment groups. Serious adverse events occurred in equal proportions of patients across the pooled VX-509 and placebo treatment groups (5.6 percent). Infections occurred in 22.0 percent of patients in the pooled VX-509 treatment group compared to 15.5 percent in the placebo group, and serious infections occurred in 2.8 percent of patients in the VX-509 group compared to 1.4 percent for placebo. One death, deemed unrelated to study drug, occurred in the VX-509 100 mg BID group and was due to cardiac failure. Elevations in transaminase levels and decreases in median neutrophil and lymphocyte counts were observed in the VX-509 groups and were generally mild.
The clinical trial is ongoing, and we expect 24-week data to be available in early 2014.


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Workforce Reduction
On October 29, 2013, we announced a reduction of our workforce primarily related to the support of INCIVEK following the continued and rapid decline in the number of people being treated with INCIVEK as other new medicines for the treatment of HCV infection near approval. This action resulted from our decision to focus our investment on future opportunities in cystic fibrosis and other research and development programs, including VX-135 as part of an all-oral regimen for HCV infection.
As part of this restructuring, we are eliminating approximately 370 full-time positions globally, representing approximately a 15% reduction in our workforce. The eliminated positions included the portion of our U.S. field-based sales force focused on promoting INCIVEK. Approximately 175 positions are being eliminated in Massachusetts. Following the changes, we expect to have approximately 1,800 employees worldwide, including approximately 1,300 in Massachusetts. We estimate that we will incur aggregate restructuring charges of approximately $35.0 million to $45.0 million, including $20.0 million to $25.0 million for employee severance and benefit costs, $6.0 million to $8.0 million in assets associated with this restructuring that have become impaired and $9.0 million to $12.0 million for other costs. 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 September 30,        Increase/       Increase/         Nine Months Ended September 30,         Increase/      Increase/
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