Vertex Pharmaceuticals Inc. — Q1 2022 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated. Vertex is a pharmaceutical company whose established business is focused on cystic fibrosis (CF), while it advances programs in other serious diseases. Financial amounts are in millions of U.S. dollars unless indicated.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $2,097.5 | $1,724.3; up 22% |
| Net income | $762.1 | $653.1; up 17% |
| Diluted EPS | $2.96 | $2.49 |
| Operating income | $1,040.9 | $887.8; up 17% |
| Operating margin | 49.6% | 51.5% |
| Net cash from operations | $956.2 | $921.0 |
| Cash, cash equivalents and marketable securities | $8,238.1 at March 31, 2022 | $7,524.9 at December 31, 2021 |
| Working capital | $8,181.1 at March 31, 2022 | $7,418.6 at December 31, 2021 |
Net product revenue was $2,097.5, up 22%. TRIKAFTA/KAFTRIO revenue rose 48% to $1,761.6; U.S. revenue increased 9% to $1,368.2 and ex-U.S. revenue increased 55% to $729.3. Revenue from SYMDEKO/SYMKEVI, ORKAMBI and KALYDECO declined, primarily as patients switched to TRIKAFTA/KAFTRIO.
Operating costs and expenses rose 26% to $1,056.6. Cost of sales increased 28% to $245.8; it was 12% of net product revenue versus 11% a year earlier. R&D rose 32% to $603.1, mainly from increased development activity in advancing pipeline programs. SG&A rose 12% to $215.2. Other expense, net increased to $72.8 from $52.7, largely reflecting unrealized losses on strategic equity investments ($75.6 versus $52.3). The 20% effective tax rate was unchanged.
Operating cash flow was $956.2; investing cash outflow was $51.0 and financing cash outflow was $95.4. Cash and cash equivalents were $7,600.1 and marketable securities were $638.0 at quarter-end. Vertex reported finance lease liabilities of $495.5 current classification not specified in the excerpt, and long-term finance lease liabilities of $495.5; the balance sheet lists long-term finance lease liabilities, with no separate current finance lease amount. Long-term operating lease liabilities were $377.0. The company reported no borrowings under its revolving credit facilities. Total current assets were $10,361.3 and current liabilities $2,180.2.
Material changes and operating developments
- Revenue growth was driven by TRIKAFTA/KAFTRIO launches internationally and U.S. performance, including the 2021 launch for children ages 6–11. The older CF products declined as patients transitioned to the triple-combination regimen.
- R&D expense increased by $147.1, with development expense up 40% to $457.3, reflecting clinical-trial costs for programs including the VX-121 CF combination, pain and type 1 diabetes.
- Cash, cash equivalents and marketable securities increased $713.2 from year-end, principally due to operating cash generation. Q1 2021 financing cash use was higher, including $424.9 of share repurchases; no shares were repurchased under the 2021 program in Q1 2022.
- Other expense includes volatile fair-value changes in strategic investments. The filing reported $155.3 fair value for publicly traded equity investments at March 31, 2022.
Outlook, commentary and risks
Management said existing cash, cash equivalents and marketable securities, together with product cash flows, were expected to fund operations for at least the next 12 months. The filing gives no specific revenue or earnings guidance.
- Management expected to file an FDA supplemental application in 2022 for TRIKAFTA/KAFTRIO in children ages 2–5, after completing Phase 3 enrollment; it also planned an ORKAMBI filing in Europe in Q2 2022 for children ages 12–23 months.
- CTX001 enrollment was complete in ongoing trials for severe sickle cell disease and transfusion-dependent beta thalassemia; Vertex anticipated updated data and regulatory submissions in late 2022. VX-548, a non-opioid acute-pain candidate, could enter pivotal development in the second half of 2022, subject to regulatory discussions.
- VX-880, a type 1 diabetes cell-replacement program, was on clinical hold in the U.S. by the FDA. Vertex reported early proof-of-concept observations but noted the program remained in development.
- Management reported that COVID-19 had not materially affected product demand or supply chains, while continuing to monitor effects on trials, manufacturing and access to resources.
- Key risks include clinical and regulatory uncertainty, reimbursement and market access, manufacturing and supply-chain execution, competition, and volatility in strategic investment values. Development timelines and results are uncertain; actual results may differ materially from forward-looking statements.
- U.S. tax law changes requiring R&D costs to be amortized rather than deducted when incurred were expected to substantially increase cash taxes beginning in 2022. The company also had up to $2.5 billion available across two revolving facilities, neither drawn as of quarter-end; the $2.0 billion facility was scheduled to mature in September 2022.
The filing reported no material legal proceedings, no material changes to the risk factors in the 2021 Form 10-K, and no material accrued contingencies other than contingent consideration. The company was in compliance with credit-facility covenants.
Important facts for investors to verify
- Whether TRIKAFTA/KAFTRIO growth and international reimbursement continue to offset declines in older CF products.
- Progress, trial data, regulatory filings and potential timing for CTX001, VX-548, CF label expansions and other pipeline programs, including the FDA clinical hold on VX-880.
- Whether rising development and commercialization costs, royalties and higher cash taxes affect margins and cash generation.
- Quarterly changes in strategic-investment fair values and the resulting volatility in other expense.
- Liquidity and financing developments, including the September 2022 maturity of the $2.0 billion revolving facility and the remaining $499.7 million authorization under the 2021 share repurchase program.