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[DewDiligence]

VRTX Reports 2Q06 Results

[No news here, but it’s a good recap of what transpired during the second quarter. No change to financial guidance for the year.

VX-950 now has a generic name: telaprevir, which sounds like a treatment for a virus you pick up from a public telephone.

Please see actual PR for financial tables.]

http://biz.yahoo.com/prnews/060726/new038.html?.v=37

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Wednesday July 26, 4:02 pm ET

- VX-950 Global Phase 2b Clinical Development Plan On Track -

- Collaboration with Janssen Pharmaceutica, a Johnson & Johnson Company, Adds Important Strengths and Development Capabilities for VX-950 -

CAMBRIDGE, Mass., July 26 /PRNewswire-FirstCall/ -- Vertex Pharmaceuticals Incorporated (Nasdaq: VRTX ) today reported consolidated financial results for the quarter ended June 30, 2006.

"In the second quarter, Vertex made significant advances across its business, particularly with VX-950, our investigational hepatitis C virus protease inhibitor," said Joshua Boger, Ph.D., President and CEO of Vertex Pharmaceuticals. "We reported additional data on the safety and antiviral activity of VX-950 at two major medical conferences and initiated a global Phase 2b clinical development program for VX-950."

"In June, we entered into a major collaboration with Janssen Pharmaceutica, a Johnson & Johnson company, for the development and commercialization of VX-950 in Europe and other regions. Through this agreement, Janssen demonstrated their support for the clinical and commercial potential of VX-950, and we have added important strengths and capabilities that enhance the commercial potential of VX-950," continued Dr. Boger.

Second Quarter Results

The non-GAAP loss, before charges for stock-based compensation and restructuring, for the quarter ended June 30, 2006 was $65.6 million, or $0.60 per share, compared to a non-GAAP loss, before charges, of $41.6 million, or $0.51 per share for the quarter ended June 30, 2005. The increase in the Company's second quarter 2006 non-GAAP loss resulted from increased development investment as the Company continued to advance its proprietary drug candidates.

For the quarter ended June 30, 2006, the Company's net loss on a GAAP basis was $77.7 million, or $0.72 per share. This included stock-based compensation expense of approximately $11.6 million and restructuring expense of approximately $0.4 million. The net loss on a GAAP basis for the quarter ended June 30, 2005 was $41.0 million, or $0.50 per share. The 2005 GAAP net loss includes stock-based compensation expense of approximately $1.1 million, and a credit to restructuring expense of approximately $1.7 million.

Total revenues for the quarter ended June 30, 2006 were $29.7 million compared to $32.3 million for the second quarter of 2005. Revenues continue to be comprised of HIV product royalties and R&D collaborations.

Research and development expenses for the quarter ended June 30, 2006 were $91.3 million, including $9.8 million of stock-based compensation, compared to $59.4 million, including $0.9 million of stock-based compensation, for the second quarter of 2005. The increase primarily relates to development investment to support the global Phase 2b development program for VX-950 for HCV, and increased charges for stock-based compensation compared to the prior year as a result of the adoption of FAS 123R on January 1, 2006.

Sales, general and administrative (SG&A) expenses for the quarter ended June 30, 2006 were $14.4 million, including $1.9 million of stock-based compensation, compared to $10.8 million, including $0.2 million of stock-based compensation, for the second quarter of 2005.

Other income, net, for the quarter ended June 30, 2006 was $1.6 million, compared to other expense, net, of $2.4 million for the second quarter in 2005. This increase resulted from the Company's reduction of outstanding debt in 2005 and higher investment returns.

At June 30, 2006, Vertex had approximately $315.9 million in cash, cash equivalents and available for sale securities. This amount does not include the up-front payment of $165 million received from Janssen Pharmaceutica in July. Vertex ended the second quarter with $42.1 million in principal amount of convertible debt due September 2007 and $118.0 million in principal amount of convertible debt due February 2011.

Full Year 2006 Financial Guidance

This section contains forward-looking guidance about the financial outlook for Vertex Pharmaceuticals. Vertex today updated certain aspects of its 2006 financial guidance, which was initially provided in its February 7, 2006 press release and reiterated in its Form 10-Q filed with the Securities and Exchange Commission (SEC) on May 10, 2006.

"As a result of significant progress made in the VX-950 development program throughout the first half of 2006, we are expanding and increasing our investment into VX-950 to support the global Phase 2b clinical development program," stated Ian Smith, Executive Vice President and Chief Financial Officer of Vertex. "Additionally, we signed a significant collaboration with Janssen Pharmaceutica, which enhances Vertex's financial strength and adds important capabilities and resources to the development of VX-950."

Vertex is revising upward its guidance for 2006 year end cash and cash equivalents and available for sale securities from $300 million to $400 million, primarily as a result of the $165 million upfront payment that the Company received as part of the VX-950 collaboration with Janssen.

Additionally, Vertex has expanded its VX-950 global Phase 2b program based on continued positive data from early clinical trials, and the Company now expects that its R&D expense for the full year 2006, inclusive of $31 million of stock-based compensation expense, will increase by $25 million from a range of $350 to $370 million to a range of $375 to $395 million.

With the increased R&D investment, the Company now expects that its non-GAAP loss for the full 2006 year, excluding restructuring charges and stock-based compensation expense, will increase from a range of $165 to $185 million to a range of $180 to $195 million. The Company now expects that the full year 2006 GAAP loss will increase from $205 to $225 million to $222 to $237 million. The 2006 GAAP loss includes an estimate of stock-based compensation expense of approximately $38 million, and restructuring expense of approximately $4 million as a result of imputed interest charges relating to the restructuring accrual.

Vertex's guidance for 2006 total revenues and SG&A expense remains unchanged.

Second Quarter Achievements and 2006 Objectives

* Continue to advance proprietary Vertex compounds:

VX-950 (telaprevir)

* In June, Vertex and Janssen Pharmaceutica, a Johnson & Johnson company, entered into an agreement to develop and commercialize VX-950 in Europe, South America, the Middle East, Africa and Australia. Under terms of the agreement, Vertex could receive as much as $545 million in upfront license and milestone payments. Key financial terms include:

* Upfront and milestones: In July, Vertex received an upfront payment of $165 million following the signing of the contract, and could receive a further $380 million in additional milestone payments, based on the successful development and approval of VX-950, and launch in Janssen Pharmaceutica's territory.

* Royalties: a tiered royalty averaging a mid-20 percent range of net sales in Janssen's territory. In addition, Janssen will be responsible for certain third party royalties in its territory.

* Drug development costs: reimbursement of 50 percent of drug development costs incurred by Vertex.

* Commercial supply responsibilities: Vertex and Janssen will be responsible for drug supply in their respective territories.

* Under the agreement, Vertex retains exclusive commercial rights to VX-950 in North America and will continue to lead the global development plan for VX-950.

* Vertex initiated a Phase 2b global development program for VX-950. The 260-patient PROVE 1 clinical trial was initiated in the U.S. in May. Vertex expects to complete enrollment of 260 patients in the PROVE 1 clinical trial in the third quarter. The 320-patient PROVE 2 clinical trial has been initiated in Europe. In the second half of the year, Vertex expects to begin a 400-patient clinical trial of VX-950 in treatment-experienced patients with HCV. By the end of the first quarter of 2007, the Company expects to have enrolled approximately 1000 patients in VX-950 clinical trials.

* During the second quarter, clinical investigators presented data at two major medical meetings, EASL and DDW, that indicated that VX-950 produced dramatic antiviral results in clinical studies of 14 days and 28 days in combination with currently used treatments for hepatitis C with no serious adverse events noted. Vertex expects that additional VX-950 clinical data will be presented at medical meetings in the second half of 2006.

* Vertex announced today that Mitsubishi Pharma Corporation has begun the first Phase 1 clinical trial of VX-950 in the Far East.

* Vertex also announced today that the generic name for VX-950 is telaprevir.

VX-702

* To manage resources and focus on VX-950 development and commercialization, Vertex is revising its development plans for VX-702. Vertex now plans to start a large Phase 2 clinical trial of VX-702 on a background of methotrexate in patients with rheumatoid arthritis (RA) in 2007. Vertex continues to expect to file an investigational new drug (IND) application for VX-702 with the U.S. FDA in the second half of 2006. The first study under the IND will be the required QTc study. Vertex successfully completed dosing of VX-702 and methotrexate in a drug-drug interaction study in patients with RA in the second quarter.

VX-770

* Vertex has completed dosing in the first two cohorts of healthy volunteers in the single-dose Phase 1 clinical trial for VX-770, a novel, oral drug candidate that specifically targets a key mechanism underlying the progression of cystic fibrosis (CF). Vertex will evaluate multiple doses of VX-770 in healthy volunteers and assess single doses of VX-770 in patients with CF as part of this study in the second half of 2006.

* Continue to advance collaborator-led compounds:

VX-680

* Vertex announced that its collaborator Merck has begun patient enrollment in a Phase 2 clinical study of VX-680 (MK-0457), an investigational drug candidate targeting Aurora kinase, in patients with advanced lung cancer. Earlier this year, Merck also began a Phase 2 clinical trial of VX-680 in patients with advanced colorectal cancer. A Phase 2 clinical trial of VX-680 in patients with hematologic cancers is ongoing.

brecanavir (VX-385)

* Brecanavir is a novel HIV protease inhibitor currently being evaluated in a Phase 2b study as part of a collaboration with GlaxoSmithKline (GSK). We expect GSK to initiate Phase 3 development of brecanavir in 2007.

…Conference Call and Webcast: Second Quarter 2006 Financial Results:

Vertex Pharmaceuticals will host a conference call today, July 26, 2006 at 5:00 p.m. EDT to review financial results and recent developments. This call will be broadcast via the Internet at http://www.vrtx.com in the investor center. Alternatively, to listen to the call on the telephone, dial 800-374-0296 (U.S. and Canada) or 706-634-2224 (International). Vertex is also providing a podcast MP3 file available for download on the Vertex website, http://www.vrtx.com.

The call will be available for replay via telephone commencing July 26, 2006 at 8:00 p.m. EDT running through 5:00 p.m. EDT on August 2, 2006. The replay phone number for the U.S. and Canada is 800-642-1687. The international replay number is 706-645-9291 and the conference ID number is 2716674. Following the live webcast, an archived version will be available on Vertex's website until 5:00 p.m. ET on August 9, 2006.
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