Vertex Pharmaceuticals Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Vertex is a pharmaceutical company focused on cystic fibrosis (CF) medicines and a developing pipeline in other diseases. Financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $1,793.4 million | $1,524.5 million | $3,517.7 million | $3,039.6 million |
| Operating income (loss) | $(38.0) million | $718.0 million | $849.9 million | $1,438.3 million |
| Net income | $66.9 million | $837.3 million | $720.1 million | $1,440.0 million |
| Diluted earnings per share | $0.26 | $3.18 | $2.75 | $5.46 |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $721.3 million | $1,854.2 million |
Q2 revenue grew 18%; first-half revenue grew 16%. Growth was led by TRIKAFTA/KAFTRIO, up 37% in Q2 and 35% for the first half. Q2 product revenue was $1,255.6 million for TRIKAFTA/KAFTRIO, $221.0 million for ORKAMBI, $183.3 million for KALYDECO and $133.5 million for SYMDEKO/SYMKEVI.
Profit fell sharply year over year, principally because Q2 R&D included a $900 million upfront payment to CRISPR Therapeutics for the amended CTX001 collaboration. Q2 R&D expense was $1,407.1 million versus $420.9 million; first-half R&D was $1,863.1 million versus $869.5 million. Q2 cost of sales was 12.7% of product revenue, compared with 12.1% a year earlier; first-half figures were 12.0% and 11.4%. First-half other expense also reflected a $41.7 million loss related to strategic investments, versus a $65.1 million gain in the prior-year period. A $111.2 million Q2 income-tax benefit partly offset the impact on quarterly net income.
Liquidity, cash flow and obligations
At June 30, 2021, cash, cash equivalents and marketable securities totaled $6,708.0 million, versus $6,658.9 million at December 31, 2020. Working capital was $6,621.1 million. First-half operating cash flow was $721.3 million; investing activities used $154.0 million and financing activities used $485.1 million, including $425.0 million of share repurchases. Capital expenditures were $120.8 million.
Total liabilities were $3,025.3 million. The filing reports no borrowings under its revolving credit facilities; up to $2.5 billion was available under two facilities, subject to their terms and covenants. Finance lease liabilities were $524.9 million long-term, with operating lease liabilities of $368.9 million long-term. Vertex reported covenant compliance and said existing liquidity and product cash flows were expected to fund operations for at least 12 months.
Material developments, outlook and risks
- Under the amended CRISPR agreement, Vertex leads worldwide CTX001 development, manufacturing and commercialization. Vertex paid $900 million in Q2; CRISPR may receive a further $200 million upon the first U.S. or European marketing approval. Beginning July 1, 2021, CTX001 net profits and losses are allocated 60% to Vertex and 40% to CRISPR. The companies shared expenses equally through June 30.
- Management expected to reach target enrollment in CTX001 trials in Q3 2021, with regulatory filings possible in 18–24 months. More than 45 participants had been dosed. These are forward-looking expectations, not assured outcomes.
- The FDA approved TRIKAFTA for eligible children ages 6–11 in June. Management cited continued European KAFTRIO uptake and ongoing efforts to expand access and reimbursement.
- Management planned to start a Phase 3 program for the VX-121 combination in the second half of 2021. It expected VX-147 Phase 2 data in the second half of 2021 and initial VX-880 data in 2022. The VX-548 acute-pain program had begun Phase 2; bunionectomy-trial data were expected by early 2022.
- Vertex discontinued plans to advance VX-864 into late-stage development: although the Phase 2 primary endpoint and proof of mechanism were achieved, management judged the treatment effect unlikely to produce substantial clinical benefit. The company planned to advance other Z-AAT correctors into clinical testing in 2022.
- Management said COVID-19 had not affected medicine demand or supply to date, but continued to monitor the pandemic. Key risks include clinical and regulatory uncertainty, reimbursement and market access, collaboration and milestone obligations, foreign exchange, and volatility in strategic investment values. The filing reported no material legal proceedings, no material changes to previously disclosed risk factors, and no material accrued contingencies beyond contingent consideration.
Important facts for investors to verify
- Whether TRIKAFTA/KAFTRIO growth and expanded reimbursement continue to offset declining sales of older CF medicines.
- CTX001 trial progress, safety and efficacy results, regulatory timing, and the financial implications of the revised 60/40 economics and potential $200 million milestone.
- Underlying R&D spending and profitability excluding the one-time $900 million CRISPR payment, alongside future pipeline investment needs.
- Cash generation, the planned use of the new $1.5 billion repurchase authorization through December 2022, and any changes in credit-facility usage.
- Strategic-investment valuation swings, foreign-exchange effects and the stated clinical and regulatory milestones, all of which may differ from management’s expectations.