x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2013 | |
or | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO |
Massachusetts | 04-3039129 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
130 Waverly Street, Cambridge, Massachusetts | 02139-4242 |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer x | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company) |
Common Stock, par value $0.01 per share | 232,812,301 |
Class | Outstanding at July 26, 2013 |
Page | ||
VERTEX PHARMACEUTICALS INCORPORATED Condensed Consolidated Statements of Operations (unaudited) (in thousands, except per share amounts) | |||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Revenues: | |||||||||||||||
Product revenues, net | $ | 254,789 | $ | 373,273 | $ | 522,170 | $ | 748,648 | |||||||
Royalty revenues | 49,120 | 33,480 | 92,693 | 72,461 | |||||||||||
Collaborative revenues | 6,841 | 11,552 | 24,255 | 35,933 | |||||||||||
Total revenues | 310,750 | 418,305 | 639,118 | 857,042 | |||||||||||
Costs and expenses: | |||||||||||||||
Cost of product revenues (Note H) | 24,695 | 104,549 | 55,650 | 130,467 | |||||||||||
Royalty expenses | 13,236 | 9,874 | 25,024 | 23,167 | |||||||||||
Research and development expenses | 222,455 | 196,544 | 440,550 | 392,915 | |||||||||||
Sales, general and administrative expenses | 106,521 | 117,514 | 199,400 | 228,660 | |||||||||||
Restructuring expense | 776 | 594 | 815 | 954 | |||||||||||
Intangible asset impairment charge (Note I) | — | — | 412,900 | — | |||||||||||
Total costs and expenses | 367,683 | 429,075 | 1,134,339 | 776,163 | |||||||||||
Income (loss) from operations | (56,933 | ) | (10,770 | ) | (495,221 | ) | 80,879 | ||||||||
Other income (expense), net | (6,578 | ) | (3,635 | ) | (11,230 | ) | (7,376 | ) | |||||||
Income (loss) before provision for (benefit from) income taxes | (63,511 | ) | (14,405 | ) | (506,451 | ) | 73,503 | ||||||||
Provision for (benefit from) income taxes | (1,799 | ) | 20,063 | (132,112 | ) | 20,095 | |||||||||
Net income (loss) | (61,712 | ) | (34,468 | ) | (374,339 | ) | 53,408 | ||||||||
Net loss (income) attributable to noncontrolling interest (Alios) | 4,547 | (30,463 | ) | 9,158 | (26,749 | ) | |||||||||
Net income (loss) attributable to Vertex | $ | (57,165 | ) | $ | (64,931 | ) | $ | (365,181 | ) | $ | 26,659 | ||||
Net income (loss) per share attributable to Vertex common shareholders: | |||||||||||||||
Basic | $ | (0.26 | ) | $ | (0.31 | ) | $ | (1.67 | ) | $ | 0.13 | ||||
Diluted | $ | (0.26 | ) | $ | (0.31 | ) | $ | (1.67 | ) | $ | 0.12 | ||||
Shares used in per share calculations: | |||||||||||||||
Basic | 222,053 | 211,344 | 218,795 | 209,681 | |||||||||||
Diluted | 222,053 | 211,344 | 218,795 | 212,957 |
VERTEX PHARMACEUTICALS INCORPORATED Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) (in thousands) | |||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Net income (loss) | $ | (61,712 | ) | $ | (34,468 | ) | $ | (374,339 | ) | $ | 53,408 | ||||
Changes in other comprehensive income (loss): | |||||||||||||||
Unrealized holding gains (losses) on marketable securities, net of tax | (170 | ) | 105 | (159 | ) | 255 | |||||||||
Foreign currency translation adjustment | 89 | (150 | ) | (521 | ) | 125 | |||||||||
Total changes in other comprehensive income (loss) | (81 | ) | (45 | ) | (680 | ) | 380 | ||||||||
Comprehensive income (loss) | (61,793 | ) | (34,513 | ) | (375,019 | ) | 53,788 | ||||||||
Comprehensive loss (income) attributable to noncontrolling interest (Alios) | 4,547 | (30,463 | ) | 9,158 | (26,749 | ) | |||||||||
Comprehensive income (loss) attributable to Vertex | $ | (57,246 | ) | $ | (64,976 | ) | $ | (365,861 | ) | $ | 27,039 |
VERTEX PHARMACEUTICALS INCORPORATED Condensed Consolidated Balance Sheets (unaudited) (in thousands, except share and per share amounts) | |||||||
June 30, | December 31, | ||||||
2013(1) | 2012(1) | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 531,247 | $ | 489,407 | |||
Marketable securities, available for sale | 899,449 | 831,808 | |||||
Restricted cash and cash equivalents (Alios) | 58,288 | 69,983 | |||||
Accounts receivable, net | 164,866 | 143,250 | |||||
Inventories | 19,509 | 30,464 | |||||
Prepaid expenses and other current assets | 43,231 | 24,673 | |||||
Total current assets | 1,716,590 | 1,589,585 | |||||
Restricted cash | 122 | 31,934 | |||||
Property and equipment, net | 581,738 | 433,609 | |||||
Intangible assets | 250,600 | 663,500 | |||||
Goodwill | 30,992 | 30,992 | |||||
Other assets | 4,287 | 9,668 | |||||
Total assets | $ | 2,584,329 | $ | 2,759,288 | |||
Liabilities and Shareholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 48,570 | $ | 101,292 | |||
Accrued expenses | 260,849 | 264,884 | |||||
Deferred revenues, current portion | 32,900 | 27,566 | |||||
Accrued restructuring expense, current portion | 5,047 | 4,758 | |||||
Capital lease obligations, current portion | 10,664 | 13,707 | |||||
Other liabilities, current portion | 23,622 | 20,417 | |||||
Total current liabilities | 381,652 | 432,624 | |||||
Deferred revenues, excluding current portion | 84,066 | 96,242 | |||||
Accrued restructuring expense, excluding current portion | 17,005 | 18,570 | |||||
Capital lease obligations, excluding current portion | 28,088 | 15,170 | |||||
Convertible senior subordinated notes (due 2015) | — | 400,000 | |||||
Deferred tax liability | 149,706 | 280,367 | |||||
Construction financing lease obligation | 359,100 | 268,031 | |||||
Other liabilities, excluding current portion | 16,049 | 13,902 | |||||
Total liabilities | 1,035,666 | 1,524,906 | |||||
Commitments and contingencies | |||||||
Redeemable noncontrolling interest (Alios) | 39,214 | 38,530 | |||||
Shareholders’ equity: | |||||||
Preferred stock, $0.01 par value; 1,000,000 shares authorized; none issued and outstanding at June 30, 2013 and December 31, 2012 | — | — | |||||
Common stock, $0.01 par value; 300,000,000 shares authorized at June 30, 2013 and December 31, 2012; 232,176,564 and 217,286,868 shares issued and outstanding at June 30, 2013 and December 31, 2012, respectively | 2,300 | 2,149 | |||||
Additional paid-in capital | 5,208,431 | 4,519,448 | |||||
Accumulated other comprehensive loss | (1,230 | ) | (550 | ) | |||
Accumulated deficit | (3,887,048 | ) | (3,521,867 | ) | |||
Total Vertex shareholders’ equity | 1,322,453 | 999,180 | |||||
Noncontrolling interest (Alios) | 186,996 | 196,672 | |||||
Total shareholders’ equity | 1,509,449 | 1,195,852 | |||||
Total liabilities and shareholders’ equity | $ | 2,584,329 | $ | 2,759,288 |
(1) | Amounts include the assets and liabilities of Vertex’s variable interest entity (“VIE”), Alios BioPharma, Inc. (“Alios”). Vertex’s interests and obligations with respect to the VIE’s assets and liabilities are limited to those accorded to Vertex in its agreement with Alios. See Note C, "Collaborative Arrangements," to these condensed consolidated financial statements for amounts. |
VERTEX PHARMACEUTICALS INCORPORATED Condensed Consolidated Statements of Shareholders’ Equity and Noncontrolling Interest (unaudited) (in thousands) | ||||||||||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Total Vertex Shareholders’ Equity | Noncontrolling Interest (Alios) | Total Shareholders’ Equity | Redeemable Noncontrolling Interest (Alios) | |||||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||||||||
Balance, December 31, 2011 | 209,304 | $ | 2,072 | $ | 4,200,659 | $ | (1,053 | ) | $ | (3,414,835 | ) | $ | 786,843 | $ | 141,633 | $ | 928,476 | $ | 37,036 | |||||||||||||||
Unrealized holding gains (losses) on marketable securities, net of tax | 255 | 255 | 255 | |||||||||||||||||||||||||||||||
Foreign currency translation adjustment | 125 | 125 | 125 | |||||||||||||||||||||||||||||||
Net income (loss) | 26,659 | 26,659 | 26,749 | 53,408 | ||||||||||||||||||||||||||||||
Issuance of common stock under benefit plans | 6,131 | 61 | 163,271 | 163,332 | 145 | 163,477 | ||||||||||||||||||||||||||||
Stock-based compensation expense | 59,345 | 59,345 | 271 | 59,616 | ||||||||||||||||||||||||||||||
Tax benefit from equity compensation | 1,214 | 1,214 | — | 1,214 | ||||||||||||||||||||||||||||||
Change in liquidation value of noncontrolling interest | (878 | ) | (878 | ) | 878 | |||||||||||||||||||||||||||||
Balance, June 30, 2012 | 215,435 | $ | 2,133 | $ | 4,424,489 | $ | (673 | ) | $ | (3,388,176 | ) | $ | 1,037,773 | $ | 167,920 | $ | 1,205,693 | $ | 37,914 | |||||||||||||||
Balance, December 31, 2012 | 217,287 | $ | 2,149 | $ | 4,519,448 | $ | (550 | ) | $ | (3,521,867 | ) | $ | 999,180 | $ | 196,672 | $ | 1,195,852 | $ | 38,530 | |||||||||||||||
Unrealized holding gains (losses) on marketable securities, net of tax | (159 | ) | (159 | ) | (159 | ) | ||||||||||||||||||||||||||||
Foreign currency translation adjustment | (521 | ) | (521 | ) | (521 | ) | ||||||||||||||||||||||||||||
Net income (loss) | (365,181 | ) | (365,181 | ) | (9,158 | ) | (374,339 | ) | ||||||||||||||||||||||||||
Issuance of common stock under benefit plans | 6,614 | 68 | 213,733 | 213,801 | (72 | ) | 213,729 | |||||||||||||||||||||||||||
Convertible senior subordinated notes (due 2015) conversion | 8,276 | 83 | 402,182 | 402,265 | — | 402,265 | ||||||||||||||||||||||||||||
Stock-based compensation expense | 73,068 | 73,068 | 238 | 73,306 | ||||||||||||||||||||||||||||||
Change in liquidation value of noncontrolling interest | (684 | ) | (684 | ) | 684 | |||||||||||||||||||||||||||||
Balance, June 30, 2013 | 232,177 | $ | 2,300 | $ | 5,208,431 | $ | (1,230 | ) | $ | (3,887,048 | ) | $ | 1,322,453 | $ | 186,996 | $ | 1,509,449 | $ | 39,214 |
VERTEX PHARMACEUTICALS INCORPORATED Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) | |||||||
Six Months Ended June 30, | |||||||
2013 | 2012 | ||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | (374,339 | ) | $ | 53,408 | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization expense | 21,245 | 17,225 | |||||
Stock-based compensation expense | 72,625 | 59,067 | |||||
Other non-cash based compensation expense | 5,857 | 5,469 | |||||
Intangible asset impairment charge | 412,900 | — | |||||
Deferred income taxes | (130,661 | ) | 19,310 | ||||
Write-down of inventories to net realizable value | 5,083 | 78,000 | |||||
Other non-cash items, net | 755 | 130 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable, net | (18,462 | ) | (2,483 | ) | |||
Inventories | 6,620 | (34,288 | ) | ||||
Prepaid expenses and other current assets | (18,152 | ) | (40,053 | ) | |||
Accounts payable | (53,374 | ) | (15,313 | ) | |||
Accrued expenses and other liabilities | 11,316 | 9,310 | |||||
Excess tax benefit from share-based payment arrangements | — | (1,214 | ) | ||||
Accrued restructuring expense | (1,276 | ) | (1,483 | ) | |||
Deferred revenues | (6,842 | ) | (25,764 | ) | |||
Net cash provided by (used in) operating activities | (66,705 | ) | 121,321 | ||||
Cash flows from investing activities: | |||||||
Purchases of marketable securities | (898,706 | ) | (777,604 | ) | |||
Sales and maturities of marketable securities | 830,906 | 502,188 | |||||
Expenditures for property and equipment | (18,408 | ) | (21,698 | ) | |||
Decrease (increase) in restricted cash | 31,812 | — | |||||
Decrease (increase) in restricted cash and cash equivalents (Alios) | 11,695 | (4,146 | ) | ||||
Decrease (increase) in other assets | 414 | (485 | ) | ||||
Net cash used in investing activities | (42,287 | ) | (301,745 | ) | |||
Cash flows from financing activities: | |||||||
Excess tax benefit from share-based payment arrangements | — | 1,214 | |||||
Issuances of common stock from employee benefit plans | 207,872 | 158,003 | |||||
Payments to redeem secured notes (due 2015) | (158 | ) | — | ||||
Payments on capital lease obligations | (12,246 | ) | — | ||||
Payments on construction financing lease obligation | (44,115 | ) | — | ||||
Net cash provided by financing activities | 151,353 | 159,217 | |||||
Effect of changes in exchange rates on cash | (521 | ) | (52 | ) | |||
Net increase (decrease) in cash and cash equivalents | 41,840 | (21,259 | ) | ||||
Cash and cash equivalents—beginning of period | 489,407 | 475,320 | |||||
Cash and cash equivalents—end of period | $ | 531,247 | $ | 454,061 | |||
Supplemental disclosure of cash flow information: | |||||||
Cash paid for interest | $ | 6,700 | $ | 6,700 | |||
Conversion of convertible senior subordinated notes (due 2015) for common stock | 399,842 | — | |||||
Interest on converted convertible senior subordinated notes (due 2015) offset to additional paid-in capital | 6,700 | — | |||||
Unamortized debt issuance costs of converted convertible subordinated notes (due 2015) offset to additional paid-in capital | 4,230 | — | |||||
Capitalization of construction in-process related to construction financing lease obligation | 130,222 | 104,341 | |||||
Assets acquired under capital lease | 21,576 | 29,072 |
A. | Basis of Presentation and Accounting Policies |
B. | Product Revenues, Net |
Trade Allowances | Rebates, Chargebacks and Discounts | Product Returns | Other Incentives | Total | |||||||||||||||
(in thousands) | |||||||||||||||||||
Balance at December 31, 2012 | $ | 5,416 | $ | 63,560 | $ | 2,852 | $ | 3,565 | $ | 75,393 | |||||||||
Provision related to current period sales | 19,880 | 99,540 | 2,029 | 6,394 | 127,843 | ||||||||||||||
Adjustments related to prior period sales | 348 | 3,380 | 8,247 | (136 | ) | 11,839 | |||||||||||||
Credits/payments made | (22,404 | ) | (103,142 | ) | (2,116 | ) | (6,831 | ) | (134,493 | ) | |||||||||
Balance at June 30, 2013 | $ | 3,240 | $ | 63,338 | $ | 11,012 | $ | 2,992 | $ | 80,582 |
C. | Collaborative Arrangements |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
(in thousands) | (in thousands) | ||||||||||||||
Royalty revenues (INCIVO) | $ | 44,070 | $ | 27,970 | $ | 83,114 | $ | 60,854 | |||||||
Collaborative revenues: | |||||||||||||||
Amortized portion of up-front payment | $ | 3,107 | $ | 3,107 | $ | 6,214 | $ | 6,214 | |||||||
Net reimbursement (payment) for telaprevir development costs | 37 | (927 | ) | 9 | (2,066 | ) | |||||||||
Reimbursement for manufacturing services | — | — | 10,299 | 4,449 | |||||||||||
Total collaborative revenues attributable to the Janssen collaboration | $ | 3,144 | $ | 2,180 | $ | 16,522 | $ | 8,597 | |||||||
Total revenues attributable to the Janssen collaboration | $ | 47,214 | $ | 30,150 | $ | 99,636 | $ | 69,451 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
(in thousands) | (in thousands) | ||||||||||||||
Collaborative revenues attributable to the CFFT collaboration | $ | 4,244 | $ | 4,527 | $ | 7,803 | $ | 8,457 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
(in thousands) | (in thousands) | ||||||||||||||
Loss (income) before provision for (benefit from) income taxes | $ | 6,824 | $ | 4,467 | $ | 12,121 | $ | 9,491 | |||||||
Decrease (increase) in fair value of contingent milestone and royalty payments | 80 | (56,170 | ) | 2,820 | (55,200 | ) | |||||||||
Provision for (benefit from) income taxes | (2,357 | ) | 21,240 | (5,783 | ) | 18,960 | |||||||||
Net loss (income) attributable to noncontrolling interest (Alios) | $ | 4,547 | $ | (30,463 | ) | $ | 9,158 | $ | (26,749 | ) |
As of June 30, 2013 | As of December 31, 2012 | ||||||
(in thousands) | |||||||
Restricted cash and cash equivalents (Alios) | $ | 58,288 | $ | 69,983 | |||
Prepaid expenses and other current assets | 4,115 | 672 | |||||
Property and equipment, net | 1,478 | 1,728 | |||||
Intangible assets | 250,600 | 250,600 | |||||
Goodwill | 4,890 | 4,890 | |||||
Other assets | 861 | 861 | |||||
Accounts payable | 1,666 | 1,054 | |||||
Accrued expenses | 5,294 | 6,099 | |||||
Deferred tax liability | 149,706 | 152,781 | |||||
Other liabilities, excluding current portion | 1,078 | 1,625 | |||||
Redeemable noncontrolling interest (Alios) | 39,214 | 38,530 | |||||
Noncontrolling interest (Alios) | 186,996 | 196,672 |
D. | Net Income (Loss) Per Share Attributable to Vertex Common Shareholders |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
(in thousands, except per share amounts) | |||||||||||||||
Basic net income (loss) attributable to Vertex per common share calculation: | |||||||||||||||
Net income (loss) attributable to Vertex common shareholders | $ | (57,165 | ) | $ | (64,931 | ) | $ | (365,181 | ) | $ | 26,659 | ||||
Less: Undistributed earnings allocated to participating securities | — | — | — | (260 | ) | ||||||||||
Net income (loss) attributable to Vertex common shareholders—basic | $ | (57,165 | ) | $ | (64,931 | ) | $ | (365,181 | ) | $ | 26,399 | ||||
Basic weighted-average common shares outstanding | 222,053 | 211,344 | 218,795 | 209,681 | |||||||||||
Basic net income (loss) attributable to Vertex per common share | $ | (0.26 | ) | $ | (0.31 | ) | $ | (1.67 | ) | $ | 0.13 | ||||
Diluted net income (loss) attributable to Vertex per common share calculation: | |||||||||||||||
Net income (loss) attributable to Vertex common shareholders | $ | (57,165 | ) | $ | (64,931 | ) | $ | (365,181 | ) | $ | 26,659 | ||||
Less: Undistributed earnings allocated to participating securities | — | — | — | (256 | ) | ||||||||||
Net income (loss) attributable to Vertex common shareholders—diluted | $ | (57,165 | ) | $ | (64,931 | ) | $ | (365,181 | ) | $ | 26,403 | ||||
Weighted-average shares used to compute basic net income (loss) per common share | 222,053 | 211,344 | 218,795 | 209,681 | |||||||||||
Effect of potentially dilutive securities: | |||||||||||||||
Stock options | — | — | — | 3,188 | |||||||||||
Other | — | — | — | 88 | |||||||||||
Weighted-average shares used to compute diluted net income (loss) per common share | 222,053 | 211,344 | 218,795 | 212,957 | |||||||||||
Diluted net income (loss) attributable to Vertex per common share | $ | (0.26 | ) | $ | (0.31 | ) | $ | (1.67 | ) | $ | 0.12 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||
(in thousands) | (in thousands) | ||||||||||
Stock options | 16,802 | 18,771 | 16,802 | 10,624 | |||||||
Convertible senior subordinated notes | — | 8,192 | — | 8,192 | |||||||
Unvested restricted stock and restricted stock units | 2,600 | 2,087 | 2,600 | 8 |
E. | Fair Value Measurements |
Level 1: | Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. |
Level 3: | Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability. |
Fair Value Measurements as of June 30, 2013 | |||||||||||||||
Fair Value Hierarchy | |||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||
(in thousands) | |||||||||||||||
Financial assets carried at fair value: | |||||||||||||||
Cash equivalents: | |||||||||||||||
Money market funds | $ | 300,472 | $ | 300,472 | $ | — | $ | — | |||||||
U.S. Treasury securities | 680 | 680 | — | — | |||||||||||
Marketable securities: | |||||||||||||||
U.S. Treasury securities | 3,050 | 3,050 | — | — | |||||||||||
Government-sponsored enterprise securities | 598,411 | 598,411 | — | — | |||||||||||
Commercial paper | 192,878 | — | 192,878 | — | |||||||||||
Corporate debt securities | 105,110 | — | 105,110 | — | |||||||||||
Total | $ | 1,200,601 | $ | 902,613 | $ | 297,988 | $ | — |
F. | Marketable Securities |
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
(in thousands) | |||||||||||||||
As of June 30, 2013 | |||||||||||||||
Cash and cash equivalents: | |||||||||||||||
Cash and money market funds | $ | 530,567 | $ | — | $ | — | $ | 530,567 | |||||||
U.S. Treasury securities | 680 | — | — | 680 | |||||||||||
Total cash and cash equivalents | $ | 531,247 | $ | — | $ | — | $ | 531,247 | |||||||
Marketable securities: | |||||||||||||||
U.S. Treasury securities (due within 1 year) | $ | 3,050 | $ | — | $ | — | $ | 3,050 | |||||||
Government-sponsored enterprise securities (due within 1 year) | 598,440 | 17 | (46 | ) | 598,411 | ||||||||||
Commercial paper (due within 1 year) | 192,702 | 176 | — | 192,878 | |||||||||||
Corporate debt securities (due within 1 year) | 105,220 | — | (110 | ) | 105,110 | ||||||||||
Total marketable securities | $ | 899,412 | $ | 193 | $ | (156 | ) | $ | 899,449 | ||||||
Total cash, cash equivalents and marketable securities | $ | 1,430,659 | $ | 193 | $ | (156 | ) | $ | 1,430,696 | ||||||
As of December 31, 2012 | |||||||||||||||
Cash and cash equivalents: | |||||||||||||||
Cash and money market funds | $ | 489,407 | $ | — | $ | — | $ | 489,407 | |||||||
Total cash and cash equivalents | $ | 489,407 | $ | — | $ | — | $ | 489,407 | |||||||
Marketable securities: | |||||||||||||||
U.S. Treasury securities (due within 1 year) | $ | 111,350 | $ | 2 | $ | (2 | ) | $ | 111,350 | ||||||
Government-sponsored enterprise securities (due within 1 year) | 440,181 | 49 | (5 | ) | 440,225 | ||||||||||
Commercial paper (due within 1 year) | 225,294 | 155 | — | 225,449 | |||||||||||
Corporate debt securities (due within 1 year) | 15,429 | 1 | (1 | ) | 15,429 | ||||||||||
Corporate debt securities (due after 1 year through 5 years) | 39,358 | 10 | (13 | ) | 39,355 | ||||||||||
Total marketable securities | $ | 831,612 | $ | 217 | $ | (21 | ) | $ | 831,808 | ||||||
Total cash, cash equivalents and marketable securities | $ | 1,321,019 | $ | 217 | $ | (21 | ) | $ | 1,321,215 |
G. | Accumulated Other Comprehensive Income (Loss) |
Foreign Currency Translation Adjustment | Unrealized Holding Gains (Losses) on Marketable Securities, Net of Tax | Total | ||||||||||
(in thousands) | ||||||||||||
Balance at December 31, 2012 | $ | (746 | ) | $ | 196 | $ | (550 | ) | ||||
Other comprehensive income (loss) before reclassifications | (521 | ) | (159 | ) | (680 | ) | ||||||
Amounts reclassified from accumulated other comprehensive income (loss) | — | — | — | |||||||||
Net current period other comprehensive income (loss) | (521 | ) | (159 | ) | (680 | ) | ||||||
Balance at June 30, 2013 | $ | (1,267 | ) | $ | 37 | $ | (1,230 | ) |
H. | Inventories |
As of June 30, 2013 | As of December 31, 2012 | ||||||
(in thousands) | |||||||
Raw materials | $ | 3,103 | $ | 3,754 | |||
Work-in-process | 4,655 | 11,317 | |||||
Finished goods | 11,751 | 15,393 | |||||
Total | $ | 19,509 | $ | 30,464 |
I. | Intangible Assets and Goodwill |
J. | Convertible Senior Subordinated Notes |
K. | Long-term Obligations |
Year | (in thousands) | |||
2013 | $ | 3,468 | ||
2014 | 14,053 | |||
2015 | 11,585 | |||
2016 | 5,048 | |||
2017 | 5,048 | |||
2018 | 4,627 | |||
Total payments | 43,829 | |||
Less: amount representing interest | (5,077 | ) | ||
Present value of payments | $ | 38,752 |
L. | Stock-based Compensation Expense |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
(in thousands) | (in thousands) | ||||||||||||||
Stock-based compensation expense by type of award: | |||||||||||||||
Stock options | $ | 29,949 | $ | 22,683 | $ | 49,623 | $ | 40,905 | |||||||
Restricted stock and restricted stock units | 9,732 | 7,253 | 19,110 | 14,539 | |||||||||||
ESPP share issuances | 2,051 | 1,742 | 4,573 | 4,172 | |||||||||||
Less stock-based compensation expense capitalized to inventories | (382 | ) | (299 | ) | (681 | ) | (549 | ) | |||||||
Total stock-based compensation expense included in costs and expenses | $ | 41,350 | $ | 31,379 | $ | 72,625 | $ | 59,067 | |||||||
Stock-based compensation expense by line item: | |||||||||||||||
Research and development expenses | $ | 25,740 | $ | 19,777 | $ | 45,089 | $ | 36,981 | |||||||
Sales, general and administrative expenses | 15,610 | 11,602 | 27,536 | 22,086 | |||||||||||
Total stock-based compensation expense included in costs and expenses | $ | 41,350 | $ | 31,379 | $ | 72,625 | $ | 59,067 |
As of June 30, 2013 | |||||
Unrecognized Expense, Net of Estimated Forfeitures | Weighted-average Recognition Period | ||||
(in thousands) | (in years) | ||||
Type of award: | |||||
Stock options | $ | 162,669 | 2.75 | ||
Restricted stock and restricted stock units | 78,790 | 2.44 | |||
ESPP share issuances | 2,298 | 0.48 |
Options Outstanding | Options Exercisable | ||||||
Range of Exercise Prices | Number Outstanding | Weighted-average Remaining Contractual Life | Weighted-average Exercise Price | Number Exercisable | Weighted-average Exercise Price | ||
(in thousands) | (in years) | (per share) | (in thousands) | (per share) | |||
$ 9.07–$20.00 | 547 | 2.91 | $15.39 | 547 | $15.39 | ||
$20.01–$30.00 | 1,149 | 6.18 | $29.38 | 839 | $29.21 | ||
$30.01–$40.00 | 8,026 | 5.87 | $36.48 | 4,684 | $35.71 | ||
$40.01–$50.00 | 4,860 | 9.18 | $46.32 | 361 | $47.01 | ||
$50.01–$60.00 | 1,916 | 7.82 | $53.68 | 733 | $54.65 | ||
$60.01–$70.00 | 47 | 8.86 | $63.29 | 9 | $63.23 | ||
$70.01-$80.00 | 72 | 9.88 | $77.73 | — | $— | ||
$80.01-$84.18 | 186 | 9.92 | $81.55 | 165 | $81.54 |
M. | Sale of HIV Protease Inhibitor Royalty Stream |
N. | Income Taxes |
O. | Restructuring Liability |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
(in thousands) | |||||||||||||||
Liability, beginning of the period | $ | 22,459 | $ | 25,473 | $ | 23,328 | $ | 26,313 | |||||||
Cash payments | (3,849 | ) | (3,725 | ) | (7,422 | ) | (7,411 | ) | |||||||
Cash received from subleases | 2,666 | 2,488 | 5,331 | 4,974 | |||||||||||
Restructuring expense | 776 | 594 | 815 | 954 | |||||||||||
Liability, end of the period | $ | 22,052 | $ | 24,830 | $ | 22,052 | $ | 24,830 |
P. | Legal Proceedings |
Q. | Contingencies |
R. | Guarantees |
• | 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. |
• | 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. |
• | 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. |
Three Months Ended June 30, | Increase/ (Decrease) | Increase/ (Decrease) | Six Months Ended June 30, | Increase/ (Decrease) | Increase/ (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 |
Three Months Ended June 30, | Increase/ (Decrease) | Increase/ (Decrease) | Six Months Ended June 30, | Increase/ (Decrease) | Increase/ (Decrease) | ||||||||||||||||||||||||
2013 | 2012 | $ | % | 2013 | 2012 | $ | % | ||||||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||||||
Product revenues, net | $ | 254,789 | $ | 373,273 | $ | (118,484 | ) | (32 | )% | $ | 522,170 | $ | 748,648 | $ | (226,478 | ) | (30 | )% | |||||||||||
Royalty revenues | 49,120 | 33,480 | 15,640 | 47 | % | 92,693 | 72,461 | 20,232 | 28 | % | |||||||||||||||||||
Collaborative revenues | 6,841 | 11,552 | (4,711 | ) | (41 | )% | 24,255 | 35,933 | (11,678 | ) | (32 | )% | |||||||||||||||||
Total revenues | $ | 310,750 | $ | 418,305 | $ | (107,555 | ) | (26 | )% | $ | 639,118 | $ | 857,042 | $ | (217,924 | ) | (25 | )% |
Three Months Ended June 30, | Increase/ (Decrease) | Increase/ (Decrease) | Six Months Ended June 30, | Increase/ (Decrease) | Increase/ (Decrease) | ||||||||||||||||||||||||
2013 | 2012 | $ | % | 2013 | 2012 | $ | % | ||||||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||||||
INCIVEK | $ | 155,816 | $ | 327,739 | $ | (171,923 | ) | (52 | )% | $ | 361,370 | $ | 684,666 | $ | (323,296 | ) | (47 | )% | |||||||||||
KALYDECO | 98,973 | 45,534 | 53,439 | 117 | % | 160,800 | 63,982 | 96,818 | 151 | % | |||||||||||||||||||
Total product revenues, net | $ | 254,789 | $ | 373,273 | $ | (118,484 | ) | (32 | )% | $ | 522,170 | $ | 748,648 | $ | (226,478 | ) | (30 | )% |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
(in thousands) | (in thousands) | ||||||||||||||
Janssen | $ | 3,144 | $ | 2,180 | $ | 16,522 | $ | 8,597 | |||||||
Mitsubishi Tanabe | — | 4,845 | — | 18,879 | |||||||||||
CFFT and other | 3,697 | 4,527 | 7,733 | 8,457 | |||||||||||
Total collaborative revenues | $ | 6,841 | $ | 11,552 | $ | 24,255 | $ | 35,933 |
Three Months Ended June 30, | Increase/ (Decrease) | Increase/ (Decrease) | Six Months Ended June 30, | Increase/ (Decrease) | Increase/ (Decrease) | ||||||||||||||||||||||||
2013 | 2012 | $ | % | 2013 | 2012 | $ | % | ||||||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||||||
Cost of product revenues | $ | 24,695 | $ | 104,549 | $ | (79,854 | ) | (76 | )% | $ | 55,650 | $ | 130,467 | $ | (74,817 | ) | (57 | )% | |||||||||||
Royalty expenses | 13,236 | 9,874 | 3,362 | 34 | % | 25,024 | 23,167 | 1,857 | 8 | % | |||||||||||||||||||
Research and development expenses | 222,455 | 196,544 | 25,911 | 13 | % | 440,550 | 392,915 | 47,635 | 12 | % | |||||||||||||||||||
Sales, general and administrative expenses | 106,521 | 117,514 | (10,993 | ) | (9 | )% | 199,400 | 228,660 | (29,260 | ) | (13 | )% | |||||||||||||||||
Restructuring expense | 776 | 594 | 182 | 31 | % | 815 | 954 | (139 | ) | (15 | )% | ||||||||||||||||||
Intangible asset impairment charge | — | — | n/a | n/a | 412,900 | — | 412,900 | n/a | |||||||||||||||||||||
Total costs and expenses | $ | 367,683 | $ | 429,075 | $ | (61,392 | ) | (14 | )% | $ | 1,134,339 | $ | 776,163 | $ | 358,176 | 46 | % |
Three Months Ended June 30, | Increase/ (Decrease) | Increase/ (Decrease) | Six Months Ended June 30, | Increase/ (Decrease) | Increase/ (Decrease) | ||||||||||||||||||||||||
2013 | 2012 | $ | % | 2013 | 2012 | $ | % | ||||||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||||||
Research expenses | $ | 64,740 | $ | 58,495 | $ | 6,245 | 11 | % | $ | 126,083 | $ | 119,488 | $ | 6,595 | 6 | % | |||||||||||||
Development expenses | 157,715 | 138,049 | 19,666 | 14 | % | 314,467 | 273,427 | 41,040 | 15 | % | |||||||||||||||||||
Total research and development expenses | $ | 222,455 | $ | 196,544 | $ | 25,911 | 13 | % | $ | 440,550 | $ | 392,915 | $ | 47,635 | 12 | % |
Three Months Ended June 30, | Increase/ (Decrease) | Increase/ (Decrease) | Six Months Ended June 30, | Increase/ (Decrease) | Increase/ (Decrease) | ||||||||||||||||||||||||
2013 | 2012 | $ | % | 2013 | 2012 | $ | % | ||||||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||||||
Research Expenses: | |||||||||||||||||||||||||||||
Salary and benefits | $ | 22,935 | $ | 19,007 | $ | 3,928 | 21 | % | $ | 44,595 | $ | 38,822 | $ | 5,773 | 15 | % | |||||||||||||
Stock-based compensation expense | 7,849 | 6,714 | 1,135 | 17 | % | 14,675 | 12,950 | 1,725 | 13 | % | |||||||||||||||||||
Laboratory supplies and other direct expenses | 11,425 | 10,300 | 1,125 | 11 | % | 22,075 | 22,213 | (138 | ) | (1 | )% | ||||||||||||||||||
Contractual services | 5,609 | 5,119 | 490 | 10 | % | 11,256 | 10,679 | 577 | 5 | % | |||||||||||||||||||
Infrastructure costs | 16,922 | 17,355 | (433 | ) | (2 | )% | 33,482 | 34,824 | (1,342 | ) | (4 | )% | |||||||||||||||||
Total research expenses | $ | 64,740 | $ | 58,495 | $ | 6,245 | 11 | % | $ | 126,083 | $ | 119,488 | $ | 6,595 | 6 | % |
Three Months Ended June 30, | Increase/ (Decrease) | Increase/ (Decrease) | Six Months Ended June 30, | Increase/ (Decrease) | Increase/ (Decrease) | ||||||||||||||||||||||||
2013 | 2012 | $ | % | 2013 | 2012 | $ | % | ||||||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||||||
Development Expenses: | |||||||||||||||||||||||||||||
Salary and benefits | $ | 45,248 | $ | 35,040 | $ | 10,208 | 29 | % | $ | 88,395 | $ | 69,145 | $ | 19,250 | 28 | % | |||||||||||||
Stock-based compensation expense | 17,891 | 13,063 | 4,828 | 37 | % | 30,414 | 24,031 | 6,383 | 27 | % | |||||||||||||||||||
Laboratory supplies and other direct expenses | 10,563 | 9,968 | 595 | 6 | % | 21,527 | 19,529 | 1,998 | 10 | % | |||||||||||||||||||
Contractual services | 50,422 | 52,174 | (1,752 | ) | (3 | )% | 104,962 | 99,263 | 5,699 | 6 | % | ||||||||||||||||||
Drug supply costs | 5,376 | 954 | 4,422 | 464 | % | 14,976 | 8,976 | 6,000 | 67 | % | |||||||||||||||||||
Infrastructure costs | 28,215 | 26,850 | 1,365 | 5 | % | 54,193 | 52,483 | 1,710 | 3 | % | |||||||||||||||||||
Total development expenses | $ | 157,715 | $ | 138,049 | $ | 19,666 | 14 | % | $ | 314,467 | $ | 273,427 | $ | 41,040 | 15 | % |
Three Months Ended June 30, | Increase/ (Decrease) | Increase/ (Decrease) | Six Months Ended June 30, | Increase/ (Decrease) | Increase/ (Decrease) | ||||||||||||||||||||||||
2013 | 2012 | $ | % | 2013 | 2012 | $ | % | ||||||||||||||||||||||
(in thousands) | (in thousands) | ||||||||||||||||||||||||||||
Sales, general and administrative expenses | $ | 106,521 | $ | 117,514 | $ | (10,993 | ) | (9 | )% | $ | 199,400 | $ | 228,660 | $ | (29,260 | ) | (13 | )% |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
(in thousands) | (in thousands) | ||||||||||||||
Loss (income) before provision for (benefit from) income taxes | $ | 6,824 | $ | 4,467 | $ | 12,121 | $ | 9,491 | |||||||
Decrease (increase) in fair value of contingent milestone and royalty payments | 80 | (56,170 | ) | 2,820 | (55,200 | ) | |||||||||
Provision for (benefit from) income taxes | (2,357 | ) | 21,240 | (5,783 | ) | 18,960 | |||||||||
Net loss (income) attributable to noncontrolling interest (Alios) | $ | 4,547 | $ | (30,463 | ) | $ | 9,158 | $ | (26,749 | ) |
• | expectations regarding the amount of, timing of and trends with respect to our revenues, costs and expenses and other gains and losses, including those related to net product revenues from sales of INCIVEK and KALYDECO and royalty revenues from net sales of INCIVO and to the intangible assets associated with the Alios collaboration; |
• | our expectations regarding clinical trials, development timelines and regulatory authority filings and submissions for ivacaftor, VX-135, VX-509, VX-661, VX-809 and VX-983; |
• | our expectations regarding the timing of data from our clinical trials of ivacaftor monotherapy and VX-809 (lumacaftor) in combination with ivacaftor, the possibility of using that data to support regulatory submissions and the timing of those potential submissions; |
• | our ability to successfully market INCIVEK and/or KALYDECO or any of our other drug candidates for which we obtain regulatory approval; |
• | our expectations regarding the timing and structure of clinical trials of our drugs and drug candidates, including, ivacaftor, VX-135, VX-509, VX-661, VX-809 and VX-983, and the expected timing of our receipt of data from our ongoing and planned clinical trials; |
• | our expectation that we will complete submission to the FDA of additional clinical, preclinical and pharmacokinetic data from ongoing VX-135 clinical trials in the fourth quarter of 2013; |
• | the data that will be generated by ongoing and planned clinical trials and the ability to use that data to support regulatory filings; |
• | our beliefs regarding the support provided by clinical trials and preclinical and nonclinical studies of our drug candidates for further investigation, clinical trials or potential use as a treatment; |
• | the focus of our drug development efforts and our financial and management resources and our plan to continue investing in our research and development programs and our strategy to develop our drug candidates, alone or with third party-collaborators; |
• | the establishment, development and maintenance of collaborative relationships; |
• | potential business development activities; |
• | our ability to use our research programs to identify and develop new drug candidates to address serious diseases and significant unmet medical needs; |
• | our estimates regarding obligations associated with a lease of a facility in Kendall Square, Cambridge, Massachusetts; and |
• | our liquidity and our expectations regarding the possibility of raising additional capital. |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs | ||||
April 1, 2013 to April 30, 2013 | 15,073 | $ | 0.01 | — | — | |||
May 1, 2013 to May 31, 2013 | 36,928 | $ | 0.01 | — | — | |||
June 1, 2013 to June 30, 2013 | 42,241 | $ | 0.01 | — | — |
• | Form of Non-Qualified Stock Option Agreement under 2013 Stock and Option Plan; |
• | Form of Restricted Stock Agreement under 2013 Stock and Option Plan; and |
• | Form of Restricted Stock Unit Agreement under 2013 Stock and Option Plan. |
• | Form of Non-Qualified Stock Option Agreement under Amended and Restated 2006 Stock and Option Plan; |
• | Form of Restricted Stock Agreement under Amended and Restated 2006 Stock and Option Plan; and |
• | Form of Restricted Stock Unit Agreement under Amended and Restated 2006 Stock and Option Plan. |
Exhibit Number | Exhibit Description |
10.1 | 2013 Stock and Option Plan. (1)(2) |
10.2 | Form of Non-Qualified Stock Option Agreement under 2013 Stock and Option Plan. (2) |
10.3 | Form of Restricted Stock Agreement under 2013 Stock and Option Plan. (2) |
10.4 | Form of Restricted Stock Unit Agreement under 2013 Stock and Option Plan (2) |
10.5 | Form of Non-Qualified Stock Option Agreement under Amended and Restated 2006 Stock and Option Plan (granted on or after July 30, 2013). (2) |
10.6 | Form of Restricted Stock Agreement under Amended and Restated 2006 Stock and Option Plan (granted on or after July 30, 2013). (2) |
10.7 | Form of Restricted Stock Unit Agreement under Amended and Restated 2006 Stock and Option Plan (granted on or after July 30, 2013). (2) |
31.1 | Certification of the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification of the Chief Executive Officer and the Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS | XBRL Instance |
101.SCH | XBRL Taxonomy Extension Schema |
101.CAL | XBRL Taxonomy Extension Calculation |
101.LAB | XBRL Taxonomy Extension Labels |
101.PRE | XBRL Taxonomy Extension Presentation |
101.DEF | XBRL Taxonomy Extension Definition |
Vertex Pharmaceuticals Incorporated | ||
August 2, 2013 | By: | /s/ Ian F. Smith |
Ian F. Smith | ||
Executive Vice President and Chief Financial Officer (principal financial officer and duly authorized officer) |
(1) | For Section 16 Officers, replace bracketed language with the following: “By accepting this Agreement, the Participant agrees and acknowledges that (i) the Company promptly will withhold from the Participant's pay the amount of taxes the Company is required to withhold upon any vesting of Shares pursuant to this Agreement, and (ii) the Participant shall make immediate payment to the Company in the amount of any tax required to be withheld by the Company in excess of the Participant's pay available for such withholding.” |
(1) | For Section 16 Officers, replace bracketed language with the following: “By accepting this Agreement, the Participant agrees and acknowledges that (i) the Company promptly will withhold from the Participant's pay the amount of taxes the Company is required to withhold upon any vesting of Shares pursuant to this Agreement, and (ii) the Participant shall make immediate payment to the Company in the amount of any tax required to be withheld by the Company in excess of the Participant's pay available for such withholding.” |
1. | I have reviewed this Quarterly Report on Form 10-Q of Vertex Pharmaceuticals Incorporated; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | 8/2/2013 | /s/ Jeffrey M. Leiden |
Jeffrey M. Leiden | ||
Chief Executive Officer and President |
1. | I have reviewed this Quarterly Report on Form 10-Q of Vertex Pharmaceuticals Incorporated; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | 8/2/2013 | /s/ Ian F. Smith |
Ian F. Smith | ||
Executive Vice President and Chief Financial Officer |
Date: | 8/2/2013 | |
/s/ Jeffrey M. Leiden | ||
Jeffrey M. Leiden | ||
Chief Executive Officer and President | ||
Date: | 8/2/2013 | |
/s/ Ian F. Smith | ||
Ian F. Smith | ||
Executive Vice President and Chief Financial Officer |
Convertible Senior Subordinated Notes
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3 Months Ended |
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Jun. 30, 2013
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Debt Disclosure [Abstract] | |
Convertible Senior Subordinated Notes | Convertible Senior Subordinated Notes In 2010, the Company completed an offering of $400.0 million in aggregate principal amount of 3.35% convertible senior subordinated notes due 2015 (the "2015 Notes"). This offering resulted in $391.6 million of net proceeds to the Company. The underwriting discount and other expenses of $8.4 million were recorded as debt issuance costs and were included in other assets on the Company’s condensed consolidated balance sheets. The 2015 Notes were convertible at any time, at the option of the holder, into common stock at a price equal to approximately $48.83 per share, or 20.4794 shares of common stock per $1,000 principal amount of the 2015 Notes. If the closing price of the Company’s common stock exceeded 130% of the conversion price for at least 20 trading days within a period of 30 consecutive trading days, the Company had the right to redeem the 2015 Notes at its option at a redemption price equal to 100% of the principal amount of the 2015 Notes to be redeemed. In the second quarter of 2013, the Company's common stock exceeded 130% of the conversion price of the 2015 Notes for at least 20 trading days within a period of 30 consecutive trading days, and the Company notified the holders of the 2015 Notes that it would redeem the 2015 Notes on June 17, 2013. In response to the Company's call of the 2015 Notes for redemption, in accordance with the provisions of the 2015 Notes, the holders of $399.8 million in aggregate principal amount of 2015 Notes elected to convert their 2015 Notes into the Company's common stock at the conversion price of approximately $48.83 per share. As a result of these conversions, the Company issued 8,188,448 shares of common stock. The remaining $0.2 million in aggregate principal amount of 2015 Notes was redeemed on June 17, 2013. Pursuant to the terms of the 2015 Notes, the Company made an additional payment of $16.75 per $1,000 principal amount, payable in shares of the Company’s common stock, to the holders of the 2015 Notes that converted or redeemed their 2015 Notes after the Company called the 2015 Notes for redemption. These payments resulted in the issuance of an additional 87,109 shares of the Company's common stock. In the second quarter of 2013, the Company recognized an aggregate of $6.7 million in interest expense related to the 2015 Notes. Unamortized debt issuance costs for the 2015 Notes of $4.2 million were recorded as an offset to additional paid-in capital. |
Income Taxes (Details) (USD $)
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3 Months Ended | 6 Months Ended | ||||||||
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Jun. 30, 2013
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Jun. 30, 2012
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Jun. 30, 2013
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Jun. 30, 2012
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Dec. 31, 2012
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Tax Carryforwards | ||||||||||
Provision for (benefit from) income taxes | $ (1,799,000) | $ 20,063,000 | $ (132,112,000) | $ 20,095,000 | ||||||
Current State and Local Tax Expense (Benefit) | 1,100,000 | |||||||||
Intangible asset impairment charge | 0 | 0 | 412,900,000 | 0 | ||||||
Deferred federal income tax expense (benefit) | 127,600,000 | |||||||||
Deferred tax liability | 149,706,000 | [1] | 149,706,000 | [1] | 280,367,000 | [1] | ||||
Federal income tax net operating loss carryfowards | 2,600,000,000 | |||||||||
Federal income tax credit carryforwards | 98,000,000 | |||||||||
State income tax net operating loss carryforwards | 1,500,000,000 | |||||||||
State income tax credit credit carryforwards | 60,300,000 | |||||||||
Total Vertex Shareholders' Equity
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Tax Carryforwards | ||||||||||
Provision for (benefit from) income taxes | 600,000 | 1,200,000 | ||||||||
Noncontrolling Interest (Alios)
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Tax Carryforwards | ||||||||||
Provision for (benefit from) income taxes | (2,400,000) | 21,200,000 | 19,000,000 | |||||||
Alios Bio Pharma Inc
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Tax Carryforwards | ||||||||||
Provision for (benefit from) income taxes | (2,357,000) | 21,240,000 | (5,783,000) | 18,960,000 | ||||||
Deferred tax liability | 149,706,000 | 149,706,000 | 152,781,000 | |||||||
Income taxes payable | $ 0 | $ 0 | ||||||||
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Collaborative Arrangements
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Jun. 30, 2013
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Collaborative Arrangements | Collaborative Arrangements Janssen Pharmaceutica, N.V. In 2006, the Company entered into a collaboration agreement with Janssen Pharmaceutica, N.V. ("Janssen") for the development, manufacture and commercialization of telaprevir, which Janssen began marketing under the brand name INCIVO in certain of its territories in September 2011. Under the collaboration agreement, Janssen agreed to be responsible for 50% of the drug development costs incurred under the development program for the parties’ territories (North America for the Company, and the rest of the world, other than specified countries in Asia, for Janssen) and has exclusive rights to commercialize telaprevir in its territories including Europe, South America, the Middle East, Africa and Australia. Janssen pays the Company a tiered royalty averaging in the mid-20% range as a percentage of net sales of INCIVO in Janssen’s territories. Janssen is required under the agreement to use diligent efforts to maximize net sales of INCIVO in its territories through its commercial marketing, pricing and contracting strategies. Janssen is responsible for certain third-party royalties on net sales of INCIVO in its territories. Janssen made a $165.0 million up-front license payment to the Company in 2006. The up-front license payment is being amortized over the Company’s estimated period of performance under the collaboration agreement. As of June 30, 2013, there were $37.3 million in deferred revenues related to this up-front license payment that the Company expects to recognize over the remaining estimated period of performance. The Company's estimates regarding the period of performance under the Janssen agreement have changed in the past, and due to the evolving nature of the landscape for treatments for HCV infection, the estimated period of performance may change in the future. Under the collaboration agreement, Janssen agreed to make contingent milestone payments for successful development, approval and launch of telaprevir as a product in its territories. At the inception of the agreement, the Company determined that all of these contingent milestones were substantive and would result in revenues in the period in which the milestone was achieved. The Company has earned $350.0 million of these contingent milestone payments and does not expect to receive any further milestone payments under this agreement. Under the Janssen collaboration agreement, each party incurs internal and external reimbursable expenses related to the telaprevir development program and is reimbursed by the other party for 50% of these expenses. The Company recognizes the full amount of the reimbursable costs it incurs as research and development expenses on its condensed consolidated statements of operations. The Company recognizes the amounts that Janssen is obligated to pay the Company with respect to reimbursable expenses, net of reimbursable expenses incurred by Janssen, as collaborative revenues. In the three and six months ended June 30, 2012, Janssen incurred more reimbursable costs than the Company, and the net amounts payable by the Company to reimburse Janssen were recorded as a reduction of collaborative revenues. Each of the parties is responsible for drug supply in its territories. During the six months ended June 30, 2013 and 2012, the Company provided Janssen certain services through the Company’s third-party manufacturing network for telaprevir. Reimbursements from Janssen for these manufacturing services were recorded as collaborative revenues. Janssen may terminate the collaboration agreement upon the later of (i) one year’s advance notice and (ii) such period as may be required to assign and transfer to the Company specified filings and approvals. The agreement also may be terminated by either party for a material breach by the other, subject to notice and cure provisions. Unless earlier terminated, the agreement will continue in effect until the expiration of Janssen’s royalty obligations, which expire on a country-by-country basis on the later of (a) the last-to-expire patent covering INCIVO or (b) ten years after the first commercial sale in the country. In the European Union, the Company has a patent covering the composition-of-matter of INCIVO that expires in 2026. During the three and six months ended June 30, 2013 and 2012, the Company recognized the following revenues attributable to the Janssen collaboration:
Mitsubishi Tanabe Pharma Corporation The Company has a collaboration agreement (the “MTPC Agreement”) with Mitsubishi Tanabe Pharma Corporation ("Mitsubishi Tanabe") pursuant to which Mitsubishi Tanabe has a fully-paid license to manufacture and commercialize TELAVIC (the brand name under which Mitsubishi Tanabe is marketing telaprevir) in Japan and other specified countries in Asia. The parties entered into the MTPC Agreement in 2004 and amended it in 2009. Pursuant to the MTPC Agreement, Mitsubishi Tanabe provided financial and other support for the development and commercialization of telaprevir, made a $105.0 million payment in connection with the 2009 amendment of the collaboration agreement and made a $65.0 million commercial milestone payment recognized as collaborative revenues in 2011. There are no further payments under this collaboration agreement. Mitsubishi Tanabe is responsible for its own development and manufacturing costs in its territory. Mitsubishi Tanabe may terminate the MTPC Agreement at any time without cause upon 60 days’ prior written notice to the Company. The MTPC Agreement also may be terminated by either party for a material breach by the other, subject to notice and cure provisions. Unless earlier terminated, the MTPC Agreement will continue in effect until the expiration of the last-to-expire patent covering telaprevir in Mitsubishi Tanabe's territories. In Japan, the Company has a patent covering the composition-of-matter of telaprevir that expires in 2021. The $105.0 million payment that the Company received in 2009 in connection with the amendment to the MTPC Agreement was a nonrefundable, up-front license fee, and revenues related to the 2009 payment were recognized on a straight-line basis over the period of performance of the Company’s obligations under the amended agreement. The final deferred revenues related to the 2009 up-front license payment were recognized in April 2012. In connection with the amendment to the MTPC Agreement, the Company supplied manufacturing services to Mitsubishi Tanabe, until April 2012, through the Company’s third-party manufacturing network for telaprevir. The Company recognized no collaborative revenues attributable to the Mitsubishi Tanabe collaboration in 2013 and $4.8 million and $18.9 million in collaborative revenues attributable to the Mitsubishi Tanabe collaboration in the three and six months ended June 30, 2012, respectively. Cystic Fibrosis Foundation Therapeutics Incorporated In April 2011, the Company entered into an amendment (the “April 2011 Amendment”) to its existing collaboration agreement with Cystic Fibrosis Foundation Therapeutics Incorporated (“CFFT”) pursuant to which CFFT agreed to provide financial support for (i) development activities for VX-661, a corrector compound discovered under the collaboration, and (ii) additional research and development activities directed at discovering new corrector compounds. The Company entered into the original collaboration agreement with CFFT in 2004 and amended it several times prior to 2011 to, among other things, provide partial funding for its cystic fibrosis drug discovery and development efforts. In 2006, the Company received a $1.5 million milestone payment from CFFT. There are no additional milestones payable by CFFT to the Company pursuant to the collaboration agreement, as amended. Under the April 2011 Amendment, CFFT agreed to provide the Company with up to $75.0 million in funding over approximately five years for corrector-compound research and development activities. The Company retains the right to develop and commercialize KALYDECO (ivacaftor), VX-809, VX-661 and any other compounds discovered during the course of the research collaboration with CFFT. During the three and six months ended June 30, 2013 and 2012, the Company recognized the following revenues attributable to the CFFT collaboration:
In the original agreement, as amended prior to the April 2011 Amendment, the Company agreed to pay CFFT tiered royalties calculated as a percentage, ranging from single digits to sub-teens, of annual net sales of any approved drugs discovered during the research term that ended in 2008, including KALYDECO, VX-809 and VX-661. The April 2011 Amendment provides for a tiered royalty in the same range on net sales of corrector compounds discovered during the research term that began in 2011. In each of the third quarter of 2012 and first quarter of 2013, CFFT earned a commercial milestone payment of $9.3 million from the Company upon achievement of certain sales levels for KALYDECO. These milestones were reflected in the Company's cost of product revenues. There are no additional commercial milestone payments payable by the Company to CFFT related to sales levels for KALYDECO. The Company also is obligated to make up to two one-time commercial milestone payments to CFFT upon achievement of certain sales levels for corrector compounds such as VX-809 or VX-661. The Company began marketing KALYDECO in the United States in the first quarter of 2012 and began marketing KALYDECO in certain countries in the European Union in the third quarter of 2012. The Company has royalty obligations to CFFT for each compound commercialized pursuant to this collaboration until the expiration of patents covering that compound. The Company has patents in the United States and European Union covering the composition-of-matter of ivacaftor that expire in 2027 and 2025, respectively, subject to potential patent life extensions. CFFT may terminate its funding obligations under the collaboration, as amended, in certain circumstances, in which case there will be a proportional adjustment to the royalty rates and commercial milestone payments for certain corrector compounds. The collaboration also may be terminated by either party for a material breach by the other, subject to notice and cure provisions. Alios BioPharma, Inc. License and Collaboration Agreement In June 2011, the Company entered into a license and collaboration agreement (the “Alios Agreement”) with Alios, a privately-held biotechnology company. The Company and Alios are collaborating on the research, development and commercialization of an HCV nucleotide analogue discovered by Alios, ALS-2200 (now formulated as VX-135), which is designed to act on the HCV polymerase. Under the terms of the Alios Agreement, the Company received exclusive worldwide rights to ALS-2200 (VX-135) and ALS-2158, a second HCV nucleotide analogue discovered by Alios that was only developed pursuant to the Alios Agreement through the third quarter of 2012. Upon entering into the Alios Agreement, the Company paid Alios a $60.0 million up-front payment. As of June 30, 2013, Alios had earned an aggregate of $60.0 million in development milestone payments pursuant to the Alios Agreement. The Alios Agreement provides for development milestone payments to Alios of up to an additional $312.5 million if VX-135 is approved and commercialized. In addition, Alios is eligible to receive commercial milestone payments of up to $750.0 million, as well as tiered royalties on net sales of approved drugs. Alios and the Company began clinical development of ALS-2200 (VX-135) in December 2011. The Company is responsible for all costs related to development, commercialization and manufacturing of compounds licensed to the Company pursuant to the Alios Agreement, provided funding to Alios to conduct the Phase 1 clinical trials associated with the Alios Agreement and provided funding for a research program that was directed to the discovery of additional HCV nucleotide analogues that act on the HCV polymerase. The Company may terminate the Alios Agreement (i) upon 30 days’ notice to Alios if the Company ceases development after VX-135 has experienced a technical failure and/or (ii) upon 60 days’ notice to Alios at any time after the Company completes specified Phase 2a clinical trials. The Alios Agreement also may be terminated by either party for a material breach by the other, and by Alios for the Company’s inactivity or if the Company challenges certain Alios patents, in each case subject to notice and cure provisions. Unless earlier terminated, the Alios Agreement will continue in effect until the expiration of the Company’s royalty obligations, which expire on a country-by-country basis on the later of (a) the date the last-to-expire patent covering a licensed product expires or (b) ten years after the first commercial sale in the country. Alios is continuing to operate as a separate entity, is engaged in other programs directed at developing novel drugs that are not covered by the Alios Agreement and maintains ownership of the underlying patent rights that are licensed to the Company pursuant to the Alios Agreement. Under applicable accounting guidance, the Company has determined that Alios is a VIE, that Alios is a business and that the Company is Alios’ primary beneficiary. The Company based these determinations on, among other factors, the significance to Alios of the licensed compounds and on the Company’s power, through the joint steering committee for the licensed compounds established under the Alios Agreement, to direct the activities that most significantly affect the economic performance of Alios. Accordingly, the Company consolidated Alios’ statements of operations and balance sheet with the Company’s consolidated financial statements beginning on June 13, 2011. However, the Company’s interests in Alios are limited to those accorded to the Company in the Alios Agreement. In particular, the Company did not acquire any equity interest in Alios, any interest in Alios’ cash and cash equivalents or any control over Alios’ activities that do not relate to the Alios Agreement. Alios does not have any rights to the Company’s assets except as provided in the Alios Agreement. Noncontrolling Interest (Alios) The Company records noncontrolling interest (Alios) on two lines on its condensed consolidated balance sheets. The noncontrolling interest (Alios) is reflected on two separate lines because Alios has both common shareholders and preferred shareholders that are entitled to redemption rights in certain circumstances. The Company records net loss (income) attributable to noncontrolling interest (Alios) on its condensed consolidated statements of operations, reflecting Alios' net loss (income) for the reporting period, adjusted for changes in the fair value of contingent milestone and royalty payments, which is evaluated each reporting period. A summary of net loss (income) attributable to noncontrolling interest (Alios) for the three and six months ended June 30, 2013 and 2012 is as follows:
The Company uses present-value models to determine the estimated fair value of the contingent milestone and royalty payments, based on assumptions regarding the probability of achieving the relevant milestones, estimates regarding the time to develop drug candidates, estimates of future product sales and the appropriate discount rates. The Company bases its estimate of the probability of achieving the relevant milestones on industry data for similar assets and its own experience. The discount rates used in the valuation model represent a measure of credit risk and market risk associated with settling the liability. Significant judgment is used in determining the appropriateness of these assumptions at each reporting period. Changes in these assumptions could have a material effect on the fair value of the contingent milestone and royalty payments. In the three and six months ended June 30, 2013, the fair value of the contingent milestone payments and royalties payable by the Company to Alios related to the HCV nucleotide analogue program decreased by $0.1 million and $2.8 million, respectively, which decreased net loss attributable to Vertex by a corresponding amount. In the three and six months ended June 30, 2012, the fair value of contingent milestone and royalty payments increased by $56.2 million and $55.2 million, respectively, primarily because the Company received positive clinical data from a Phase 1 clinical trial evaluating ALS-2200 (VX-135), which increased the probability that Alios would earn future payments from the Company under the Alios Agreement. If VX-135 continues to advance in clinical development, the Company expects it will record increases in the fair value of the contingent milestone and royalty payments in future periods. Changes in the fair value of these contingent milestone and royalty payments, and the effects of these changes on net income (loss) attributable to Vertex, may be material in future periods. Alios Balance Sheet Information The following table summarizes items related to Alios included in the Company’s condensed consolidated balance sheets:
The Company has recorded Alios’ cash and cash equivalents as restricted cash and cash equivalents (Alios) because (i) the Company does not have any interest in or control over Alios’ cash and cash equivalents and (ii) the Alios Agreement does not provide for these assets to be used for the development of the assets that the Company licensed from Alios pursuant to the Alios Agreement. Assets recorded as a result of consolidating Alios’ financial condition into the Company’s condensed consolidated balance sheets do not represent additional assets that could be used to satisfy claims against the Company’s general assets. |
Contingencies
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3 Months Ended |
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Jun. 30, 2013
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Commitments and Contingencies Disclosure [Abstract] | |
Contingencies | Contingencies The Company has certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a reserve for contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. There were no material contingent liabilities accrued as of June 30, 2013 or December 31, 2012. |
Contingencies Contingencies (Details) (USD $)
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Jun. 30, 2013
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Dec. 31, 2012
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Commitments and Contingencies Disclosure [Abstract] | ||
Material contingent liabilities accrued | $ 0 | $ 0 |
Long-term Obligations
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Jun. 30, 2013
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Long-term Debt and Capital Lease Obligations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term Obligations | Long-term Obligations Fan Pier Leases In 2011, the Company entered into two leases, pursuant to which the Company agreed to lease approximately 1.1 million square feet of office and laboratory space in two buildings (the "Buildings") that the landlord is building at Fan Pier in Boston, Massachusetts (the “Fan Pier Leases”). The Company expects to commence lease payments in December 2013 and to make payments for the period ending 15 years from the commencement date. The Company has an option to extend the term of the Fan Pier Leases for an additional ten years. Because the Company is involved in the construction project, including having responsibility to pay for a portion of the costs of finish work and structural elements of the Buildings, the Company is deemed for accounting purposes to be the owner of the Buildings during the construction period. Accordingly, the Company has recorded project construction costs incurred by the landlord as an asset and a related financing obligation in “Property and equipment, net” and “Construction financing lease obligation,” respectively, on the Company’s condensed consolidated balance sheets. The Company bifurcates its future lease payments pursuant to the Fan Pier Leases into (i) a portion that is allocated to the Buildings and (ii) a portion that is allocated to the land on which the Buildings are being constructed, which is recorded as rental expense. Although the Company will not begin making lease payments pursuant to the Fan Pier Leases until the commencement date, the portion of the lease obligations allocated to the land is treated for accounting purposes as an operating lease that commenced in 2011. Property and equipment, net, included $421.3 million and $290.7 million as of June 30, 2013 and December 31, 2012, respectively, related to construction costs for the Buildings at Fan Pier in Boston, Massachusetts. The construction financing lease obligation related to the Buildings at Fan Pier was $359.1 million and $268.0 million as of June 30, 2013 and December 31, 2012, respectively. As of June 30, 2013 and December 31, 2012, the primary difference between the amounts recorded in property and equipment, net and the construction financing lease obligation represented the cost of finish work and structural elements of the Buildings that the Company was responsible for paying to date. Once the landlord completes the construction of the Buildings, the Company will evaluate the Fan Pier Leases in order to determine whether or not the Fan Pier Leases meet the criteria for “sale-leaseback” treatment. If the Fan Pier Leases meet the “sale-leaseback” criteria, the Company will remove the asset and the related liability from its consolidated balance sheet and treat the Fan Pier Leases as either operating or capital leases based on the Company’s assessment of the accounting guidance. The Company expects that upon completion of construction of the Buildings the Fan Pier Leases will not meet the “sale-leaseback” criteria. If the Fan Pier Leases do not meet “sale-leaseback” criteria, the Company will treat the Fan Pier Leases as a financing obligation and will depreciate the asset over its estimated useful life. Capital Leases The Company has outstanding capital leases for equipment, leasehold improvements and software licenses with terms through 2018. The capital leases bear interest at rates ranging from 4% to 7% per year. The following table sets forth the Company’s future minimum payments due under capital leases as of June 30, 2013:
Financing Arrangements In the first half of 2013, the Company began supporting $31.9 million in irrevocable stand-by letters of credit issued in support of property leases and other similar agreements with an unsecured credit facility with a one-year term. The Company previously had cash-collateralized these stand-by letters of credit. As a result of this credit facility, the restricted cash reflected on the Company's condensed consolidated balance sheets decreased by $31.8 million net of other activity recorded during the period and the Company's cash and cash equivalents increased by a corresponding amount. |
Long-term Obligations (Details) (USD $)
|
3 Months Ended | 6 Months Ended | |||||
---|---|---|---|---|---|---|---|
Jun. 30, 2011
leases
building
squarefeet
|
Jun. 30, 2013
|
Dec. 31, 2012
|
|||||
Long-term Debt and Capital Lease Obligations [Abstract] | |||||||
Line of Credit Facility, Current Borrowing Capacity | $ 31,900,000 | ||||||
Debt Instrument, Interest Rate, Low of Range | 4.00% | ||||||
Debt Instrument, Interest Rate, High of Range | 7.00% | ||||||
Number of leases (leases) | 2 | ||||||
Area of leased property (in square feet) | 1,100,000 | ||||||
Number of buildings under lease agreement (buildings) | 2 | ||||||
Initial term of lease agreement (in years) | 15 years | ||||||
Optional term of lease agreement (in years) | 10 years | ||||||
Construction in progress | 421,300,000 | 290,700,000 | |||||
Construction financing lease obligation | 359,100,000 | [1] | 268,031,000 | [1] | |||
Change in Restricted Cash Balance as Result of Transactions | $ 31,800,000 | ||||||
|
Product Revenues, Net (Details) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended |
---|---|
Jun. 30, 2013
|
|
Product Revenue Allowance and Reserve [Roll Forward] | |
Product revenue allowance and reserve, beginning balance | $ 75,393 |
Provision related to current period sales | 127,843 |
Adjustments related to prior period sales | 11,839 |
Credits/payments made | (134,493) |
Product revenue allowance and reserve, ending balance | 80,582 |
Trade Allowances [Member]
|
|
Product Revenue Allowance and Reserve [Roll Forward] | |
Product revenue allowance and reserve, beginning balance | 5,416 |
Provision related to current period sales | 19,880 |
Adjustments related to prior period sales | 348 |
Credits/payments made | (22,404) |
Product revenue allowance and reserve, ending balance | 3,240 |
Rebates Chargebacks and Discounts [Member]
|
|
Product Revenue Allowance and Reserve [Roll Forward] | |
Product revenue allowance and reserve, beginning balance | 63,560 |
Provision related to current period sales | 99,540 |
Adjustments related to prior period sales | 3,380 |
Credits/payments made | (103,142) |
Product revenue allowance and reserve, ending balance | 63,338 |
Product Returns [Member]
|
|
Product Revenue Allowance and Reserve [Roll Forward] | |
Product revenue allowance and reserve, beginning balance | 2,852 |
Provision related to current period sales | 2,029 |
Adjustments related to prior period sales | 8,247 |
Credits/payments made | (2,116) |
Product revenue allowance and reserve, ending balance | 11,012 |
Other Incentives [Member]
|
|
Product Revenue Allowance and Reserve [Roll Forward] | |
Product revenue allowance and reserve, beginning balance | 3,565 |
Provision related to current period sales | 6,394 |
Adjustments related to prior period sales | (136) |
Credits/payments made | (6,831) |
Product revenue allowance and reserve, ending balance | $ 2,992 |
Product Revenues, Net (Tables)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Product Revenues [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of product revenues and allowances and reserve categories | The following table summarizes activity in each of the product revenue allowance and reserve categories for the six months ended June 30, 2013:
|
Basis of Presentation and Accounting Policies (Policies)
|
3 Months Ended |
---|---|
Jun. 30, 2013
|
|
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying condensed consolidated financial statements are unaudited and have been prepared by Vertex Pharmaceuticals Incorporated ("Vertex" or the "Company") in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The condensed consolidated financial statements reflect the operations of (i) the Company, (ii) its wholly-owned subsidiaries and (iii) Alios BioPharma, Inc. (“Alios”), a collaborator that is a variable interest entity (a “VIE”) for which the Company is deemed under applicable accounting guidance to be the primary beneficiary. All material intercompany balances and transactions have been eliminated. The Company operates in one segment, pharmaceuticals. Certain information and footnote disclosures normally included in the Company's annual financial statements have been condensed or omitted. These interim financial statements, in the opinion of management, reflect all normal recurring adjustments (including accruals) necessary for a fair presentation of the financial position and results of operations for the interim periods ended June 30, 2013 and 2012. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2012, which are contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 that was filed with the Securities and Exchange Commission (the "SEC") on March 1, 2013 (the "2012 Annual Report on Form 10-K") |
Use of Estimates | Use of Estimates and Summary of Significant Accounting Policies The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the amounts of revenues and expenses during the reported periods. Significant estimates in these condensed consolidated financial statements have been made in connection with the calculation of revenues, inventories, research and development expenses, stock-based compensation expense, restructuring expense, the fair value of intangible assets, noncontrolling interest (Alios) and the income tax provision. The Company bases its estimates on historical experience and various other assumptions, including in certain circumstances future projections, that management believes to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known. The Company's significant accounting policies are described in Note A, "Nature of Business and Accounting Policies," in the 2012 Annual Report on Form 10-K. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements For a discussion of recent accounting pronouncements please refer to Note A, "Nature of Business and Accounting Policies—Recent Accounting Pronouncements," in the 2012 Annual Report on Form 10-K. The Company did not adopt any new accounting pronouncements during the six months ended June 30, 2013 that had a material effect on the Company's condensed consolidated financial statements. |
Intangible Assets and Goodwill (Details) (USD $)
|
3 Months Ended | 6 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Dec. 31, 2012
|
||||||
Indefinite-Lived Intangible Assets [Line Items] | ||||||||||
Intangible assets | $ 250,600,000 | [1] | $ 250,600,000 | [1] | $ 663,500,000 | [1] | ||||
Intangible asset impairment charge | 0 | 0 | 412,900,000 | 0 | ||||||
Deferred federal income tax expense (benefit) | 127,600,000 | |||||||||
Asset impairment charges | 285,300,000 | |||||||||
Extraordinary Item, Earnings Per Share Impact, Net | $ 1.30 | |||||||||
Goodwill | 30,992,000 | [1] | 30,992,000 | [1] | 30,992,000 | [1] | ||||
Goodwill, period increase (decrease) | 0 | 0 | ||||||||
Research and Development Arrangement | VX-222Asset [Member]
|
||||||||||
Indefinite-Lived Intangible Assets [Line Items] | ||||||||||
Intangible assets | 0 | 0 | 412,900,000 | |||||||
VX-222Asset [Member]
|
||||||||||
Indefinite-Lived Intangible Assets [Line Items] | ||||||||||
Intangible asset impairment charge | 412,900,000 | |||||||||
Alios Bio Pharma Inc
|
||||||||||
Indefinite-Lived Intangible Assets [Line Items] | ||||||||||
Goodwill | 4,890,000 | 4,890,000 | 4,890,000 | |||||||
Alios Bio Pharma Inc | Research and Development Arrangement
|
||||||||||
Indefinite-Lived Intangible Assets [Line Items] | ||||||||||
Intangible assets | $ 250,600,000 | |||||||||
|
Long-term Obligations Schedule of Capital Lease Obligations (Tables)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Captital Lease Obligations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Future Minimum Lease Payments for Capital Lease |
|
Net Income (Loss) Per Share Attributable to Vertex Common Shareholders (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Basic net income (loss) attributable to Vertex per common share calculation: | ||||
Net income (loss) attributable to Vertex common shareholders | $ (57,165) | $ (64,931) | $ (365,181) | $ 26,659 |
Less: Undistributed earnings allocated to participating securities | 0 | 0 | 0 | (260) |
Net income (loss) attributable to Vertex common shareholders—basic | (57,165) | (64,931) | (365,181) | 26,399 |
Weighted-average shares used to compute basic net income (loss) per common share (shares) | 222,053 | 211,344 | 218,795 | 209,681 |
Basic net income (loss) attributable to Vertex per common share (usd per share) | $ (0.26) | $ (0.31) | $ (1.67) | $ 0.13 |
Diluted net income (loss) attributable to Vertex per common share calculation: | ||||
Net income (loss) attributable to Vertex common shareholders | (57,165) | (64,931) | (365,181) | 26,659 |
Less: Undistributed earnings allocated to participating securities | 0 | 0 | 0 | (256) |
Net income (loss) attributable to Vertex common shareholders—diluted | $ (57,165) | $ (64,931) | $ (365,181) | $ 26,403 |
Weighted-average shares used to compute basic net income (loss) per common share (shares) | 222,053 | 211,344 | 218,795 | 209,681 |
Effect of potentially dilutive securities: | ||||
Stock options (shares) | 0 | 0 | 0 | 3,188 |
Other (shares) | 0 | 0 | 0 | 88 |
Weighted-average shares used to compute diluted net income (loss) per common share (shares) | 222,053 | 211,344 | 218,795 | 212,957 |
Diluted net income (loss) attributable to Vertex per common share (usd per share) | $ (0.26) | $ (0.31) | $ (1.67) | $ 0.12 |
Stock options
|
||||
Effect of potentially dilutive securities: | ||||
Antidilutive securities excluded from computation of earnings per share (in shares) | 16,802 | 18,771 | 16,802 | 10,624 |
Convertible senior subordinated notes
|
||||
Effect of potentially dilutive securities: | ||||
Antidilutive securities excluded from computation of earnings per share (in shares) | 0 | 8,192 | 0 | 8,192 |
Unvested restricted stock and restricted stock units
|
||||
Effect of potentially dilutive securities: | ||||
Antidilutive securities excluded from computation of earnings per share (in shares) | 2,600 | 2,087 | 2,600 | 8 |
Long-term Debt Obligations (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
---|---|
Debt Disclosure [Abstract] | |
2013 | $ 3,468 |
2014 | 14,053 |
2015 | 11,585 |
2016 | 5,048 |
2017 | 5,048 |
2018 | 4,627 |
Total payments | 43,829 |
Less: amount representing interest | (5,077) |
Present value of payments | $ 38,752 |
Marketable Securities (Tables)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Cash and Cash Equivalents [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of cash, cash equivalents and marketable securities | A summary of the Company’s cash, cash equivalents and marketable securities is shown below:
|
Marketable Securities (Details 2) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Dec. 31, 2012
|
||||
---|---|---|---|---|---|---|
Cash and Cash Equivalents [Abstract] | ||||||
Cash equivalents (Alios) | $ 58,288 | [1] | $ 69,983 | [1] | ||
|
Guarantees
|
3 Months Ended |
---|---|
Jun. 30, 2013
|
|
Guarantees [Abstract] | |
Guarantees | Guarantees As permitted under Massachusetts law, the Company’s Articles of Organization and By-laws provide that the Company will indemnify certain of its officers and directors for certain claims asserted against them in connection with their service as an officer or director. The maximum potential amount of future payments that the Company could be required to make under these indemnification provisions is unlimited. However, the Company has purchased directors’ and officers’ liability insurance policies that could reduce its monetary exposure and enable it to recover a portion of any future amounts paid. No indemnification claims currently are outstanding, and the Company believes the estimated fair value of these indemnification arrangements is minimal. The Company customarily agrees in the ordinary course of its business to indemnification provisions in agreements with clinical trial investigators and sites in its drug development programs, sponsored research agreements with academic and not-for-profit institutions, various comparable agreements involving parties performing services for the Company, and its real estate leases. The Company also customarily agrees to certain indemnification provisions in its drug discovery, development and commercialization collaboration agreements. With respect to the Company’s clinical trials and sponsored research agreements, these indemnification provisions typically apply to any claim asserted against the investigator or the investigator’s institution relating to personal injury or property damage, violations of law or certain breaches of the Company’s contractual obligations arising out of the research or clinical testing of the Company’s compounds or drug candidates. With respect to lease agreements, the indemnification provisions typically apply to claims asserted against the landlord relating to personal injury or property damage caused by the Company, to violations of law by the Company or to certain breaches of the Company’s contractual obligations. The indemnification provisions appearing in the Company’s collaboration agreements are similar to those for the other agreements discussed above, but in addition provide some limited indemnification for its collaborator in the event of third-party claims alleging infringement of intellectual property rights. In each of the cases above, the indemnification obligation generally survives the termination of the agreement for some extended period, although the Company believes the obligation typically has the most relevance during the contract term and for a short period of time thereafter. The maximum potential amount of future payments that the Company could be required to make under these provisions is generally unlimited. The Company has purchased insurance policies covering personal injury, property damage and general liability that reduce its exposure for indemnification and would enable it in many cases to recover all or a portion of any future amounts paid. The Company has never paid any material amounts to defend lawsuits or settle claims related to these indemnification provisions. Accordingly, the Company believes the estimated fair value of these indemnification arrangements is minimal. The Company entered into an underwriting agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated dated September 23, 2010 (the “Underwriting Agreement”), relating to the public offering and sale of the 2015 Notes. The Underwriting Agreement requires the Company to indemnify the underwriter against any loss it may suffer by reason of the Company’s breach of any representation or warranty relating to the public offering, the Company’s failure to perform certain covenants in the Underwriting Agreement, the inclusion of any untrue statement of material fact in the prospectus used in connection with the offering, the omission of any material fact needed to make those materials not misleading, and any actions taken by the Company or its representatives in connection with the offering. The representations, warranties, covenants and indemnification provisions in the Underwriting Agreement are of a type customary in agreements of this sort. The Company believes the estimated fair value of this indemnification arrangement is minimal. |
Condensed Consolidated Statements of Shareholders' Equity and Noncontrolling Interest (USD $)
In Thousands, except Share data, unless otherwise specified |
Total
|
Total Vertex Shareholders' Equity
|
Common Stock
|
Additional Paid-in Capital
|
Accumulated Other Comprehensive Income (Loss)
|
Accumulated Deficit
|
Noncontrolling Interest (Alios)
|
Redeemable Noncontrolling Interest (Alios)
|
|||
---|---|---|---|---|---|---|---|---|---|---|---|
Balance at Dec. 31, 2011 | $ 928,476 | $ 786,843 | $ 2,072 | $ 4,200,659 | $ (1,053) | $ (3,414,835) | $ 141,633 | $ 37,036 | |||
Balance (shares) at Dec. 31, 2011 | 209,304,000 | ||||||||||
Increase (Decrease) in Stockholders' Equity | |||||||||||
Unrealized holding gains (losses) on marketable securities, net of tax | 255 | 255 | 255 | ||||||||
Foreign currency translation adjustment | 125 | 125 | 125 | ||||||||
Net income (loss) attributable to Vertex common shareholders | 26,659 | 26,659 | |||||||||
Net income (loss) | 53,408 | 26,659 | 26,749 | ||||||||
Issuances of common stock: | |||||||||||
Benefit plans (shares) | 6,131,000 | ||||||||||
Benefit plans | 163,477 | 163,332 | 61 | 163,271 | 145 | ||||||
Stock-based compensation expense | 59,616 | 59,345 | 59,345 | 271 | |||||||
Tax benefit from equity compensation | 1,214 | 1,214 | 1,214 | 0 | |||||||
Change in liquidation value of noncontrolling interest | (878) | (878) | 878 | ||||||||
Balance at Jun. 30, 2012 | 1,205,693 | 1,037,773 | 2,133 | 4,424,489 | (673) | (3,388,176) | 167,920 | 37,914 | |||
Balance (shares) at Jun. 30, 2012 | 215,435,000 | ||||||||||
Balance at Dec. 31, 2012 | 1,195,852 | [1] | 999,180 | 2,149 | 4,519,448 | (550) | (3,521,867) | 196,672 | 38,530 | ||
Balance (shares) at Dec. 31, 2012 | 217,287,000 | ||||||||||
Increase (Decrease) in Stockholders' Equity | |||||||||||
Unrealized holding gains (losses) on marketable securities, net of tax | (159) | (159) | (159) | ||||||||
Foreign currency translation adjustment | (521) | (521) | (521) | ||||||||
Net income (loss) attributable to Vertex common shareholders | (365,181) | ||||||||||
Net income (loss) | (374,339) | (365,181) | (9,158) | ||||||||
Issuances of common stock: | |||||||||||
Benefit plans (shares) | 6,614,000 | ||||||||||
Benefit plans | 213,729 | 213,801 | 68 | 213,733 | (72) | ||||||
Convertible senior subordinated notes (due 2015) conversion | 8,276,000 | ||||||||||
Stock Issued During Period, Value, Conversion of Convertible Securities | 402,265 | 402,265 | 83 | 402,182 | 0 | ||||||
Stock-based compensation expense | 73,306 | 73,068 | 73,068 | 238 | |||||||
Change in liquidation value of noncontrolling interest | (684) | (684) | 684 | ||||||||
Balance at Jun. 30, 2013 | $ 1,509,449 | [1] | $ 1,322,453 | $ 2,300 | $ 5,208,431 | $ (1,230) | $ (3,887,048) | $ 186,996 | $ 39,214 | ||
Balance (shares) at Jun. 30, 2013 | 232,177,000 | ||||||||||
|
Basis of Presentation and Accounting Policies
|
3 Months Ended |
---|---|
Jun. 30, 2013
|
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Accounting Policies [Abstract] | |
Basis of Presentation and Accounting Policies | Basis of Presentation and Accounting Policies Basis of Presentation The accompanying condensed consolidated financial statements are unaudited and have been prepared by Vertex Pharmaceuticals Incorporated ("Vertex" or the "Company") in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The condensed consolidated financial statements reflect the operations of (i) the Company, (ii) its wholly-owned subsidiaries and (iii) Alios BioPharma, Inc. (“Alios”), a collaborator that is a variable interest entity (a “VIE”) for which the Company is deemed under applicable accounting guidance to be the primary beneficiary. All material intercompany balances and transactions have been eliminated. The Company operates in one segment, pharmaceuticals. Certain information and footnote disclosures normally included in the Company's annual financial statements have been condensed or omitted. These interim financial statements, in the opinion of management, reflect all normal recurring adjustments (including accruals) necessary for a fair presentation of the financial position and results of operations for the interim periods ended June 30, 2013 and 2012. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2012, which are contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2012 that was filed with the Securities and Exchange Commission (the "SEC") on March 1, 2013 (the "2012 Annual Report on Form 10-K"). Use of Estimates and Summary of Significant Accounting Policies The preparation of condensed consolidated financial statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the amounts of revenues and expenses during the reported periods. Significant estimates in these condensed consolidated financial statements have been made in connection with the calculation of revenues, inventories, research and development expenses, stock-based compensation expense, restructuring expense, the fair value of intangible assets, noncontrolling interest (Alios) and the income tax provision. The Company bases its estimates on historical experience and various other assumptions, including in certain circumstances future projections, that management believes to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known. The Company's significant accounting policies are described in Note A, "Nature of Business and Accounting Policies," in the 2012 Annual Report on Form 10-K. Recent Accounting Pronouncements For a discussion of recent accounting pronouncements please refer to Note A, "Nature of Business and Accounting Policies—Recent Accounting Pronouncements," in the 2012 Annual Report on Form 10-K. The Company did not adopt any new accounting pronouncements during the six months ended June 30, 2013 that had a material effect on the Company's condensed consolidated financial statements. |
Net Income (Loss) Per Share Attributable to Vertex Common Shareholders
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Jun. 30, 2013
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income (Loss) Per Share Attributable to Vertex Common Stockholders | Net Income (Loss) Per Share Attributable to Vertex Common Shareholders The following table sets forth the computation of basic and diluted net income (loss) attributable to Vertex per common share in conformity with the two-class method for the three and six months ended June 30, 2013 and 2012:
The Company did not include the securities described in the following table in the computation of the diluted net income (loss) attributable to Vertex per common share calculations because the effect would have been anti-dilutive during each such period:
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Product Revenues, Net
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3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Product Revenues [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Product Revenues, Net | Product Revenues, Net The Company sells its products principally to a limited number of major and selected regional wholesalers and specialty pharmacy providers in North America that subsequently resell the products to patients and health care providers, as well as government-owned and supported customers in Europe (collectively, its “Customers”). The Company recognizes net revenues from product sales upon delivery as long as (i) there is persuasive evidence that an arrangement exists between the Company and the Customer, (ii) collectibility is reasonably assured and (iii) the price is fixed or determinable. In order to conclude that the price is fixed or determinable, the Company must be able to (i) calculate its gross product revenues from sales to Customers and (ii) reasonably estimate its net product revenues upon delivery to its Customer's locations. The Company calculates gross product revenues based on the price that the Company charges its Customers. The Company estimates its net product revenues by deducting from its gross product revenues (a) trade allowances, such as invoice discounts for prompt payment and customer fees, (b) estimated government and private payor rebates, chargebacks and discounts, (c) estimated reserves for expected product returns and (d) estimated costs of incentives offered to certain indirect customers, including patients. The following table summarizes activity in each of the product revenue allowance and reserve categories for the six months ended June 30, 2013:
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Fair Value Measurements (Details) (USD $)
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Jun. 30, 2013
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Financial assets carried at fair value: | |
Cash equivalents (Alios) | $ 56,500,000 |
Recurring basis | Total
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Financial assets carried at fair value: | |
Total | 1,200,601,000 |
Recurring basis | Total | Money market funds
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Financial assets carried at fair value: | |
Cash equivalents: | 300,472,000 |
Recurring basis | Total | U.S. Treasury securities
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Financial assets carried at fair value: | |
Cash equivalents: | 680,000 |
Marketable securities: | 3,050,000 |
Recurring basis | Total | Government-sponsored enterprise securities
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Financial assets carried at fair value: | |
Marketable securities: | 598,411,000 |
Recurring basis | Total | Commercial paper
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Financial assets carried at fair value: | |
Marketable securities: | 192,878,000 |
Recurring basis | Total | Corporate debt securities
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Financial assets carried at fair value: | |
Marketable securities: | 105,110,000 |
Recurring basis | Level 1
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Financial assets carried at fair value: | |
Total | 902,613,000 |
Recurring basis | Level 1 | Money market funds
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Financial assets carried at fair value: | |
Cash equivalents: | 300,472,000 |
Recurring basis | Level 1 | U.S. Treasury securities
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Financial assets carried at fair value: | |
Cash equivalents: | 680,000 |
Marketable securities: | 3,050,000 |
Recurring basis | Level 1 | Government-sponsored enterprise securities
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Financial assets carried at fair value: | |
Marketable securities: | 598,411,000 |
Recurring basis | Level 1 | Commercial paper
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Financial assets carried at fair value: | |
Marketable securities: | 0 |
Recurring basis | Level 1 | Corporate debt securities
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Financial assets carried at fair value: | |
Marketable securities: | 0 |
Recurring basis | Level 2
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Financial assets carried at fair value: | |
Total | 297,988,000 |
Recurring basis | Level 2 | Money market funds
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Financial assets carried at fair value: | |
Cash equivalents: | 0 |
Recurring basis | Level 2 | U.S. Treasury securities
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Financial assets carried at fair value: | |
Cash equivalents: | 0 |
Marketable securities: | 0 |
Recurring basis | Level 2 | Government-sponsored enterprise securities
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Financial assets carried at fair value: | |
Marketable securities: | 0 |
Recurring basis | Level 2 | Commercial paper
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Financial assets carried at fair value: | |
Marketable securities: | 192,878,000 |
Recurring basis | Level 2 | Corporate debt securities
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Financial assets carried at fair value: | |
Marketable securities: | 105,110,000 |
Recurring basis | Level 3
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Financial assets carried at fair value: | |
Total | 0 |
Recurring basis | Level 3 | Money market funds
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Financial assets carried at fair value: | |
Cash equivalents: | 0 |
Recurring basis | Level 3 | U.S. Treasury securities
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Financial assets carried at fair value: | |
Cash equivalents: | 0 |
Marketable securities: | 0 |
Recurring basis | Level 3 | Government-sponsored enterprise securities
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Financial assets carried at fair value: | |
Marketable securities: | 0 |
Recurring basis | Level 3 | Commercial paper
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Financial assets carried at fair value: | |
Marketable securities: | 0 |
Recurring basis | Level 3 | Corporate debt securities
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Financial assets carried at fair value: | |
Marketable securities: | $ 0 |
Collaborative Arrangements (Tables)
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Jun. 30, 2013
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Collaborator revenues | During the three and six months ended June 30, 2013 and 2012, the Company recognized the following revenues attributable to the CFFT collaboration:
During the three and six months ended June 30, 2013 and 2012, the Company recognized the following revenues attributable to the Janssen collaboration:
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Summary of activity related to net loss (income) attributable to noncontrolling interest (Alios) | A summary of net loss (income) attributable to noncontrolling interest (Alios) for the three and six months ended June 30, 2013 and 2012 is as follows:
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Summary of Alios' items included in the Company's consolidated balance sheets | The following table summarizes items related to Alios included in the Company’s condensed consolidated balance sheets:
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Accumulated Other Comprehensive Income (Loss) (Tables)
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Jun. 30, 2013
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Accumulated Other Comprehensive Income (Loss) [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss) | The following table summarizes the changes in accumulated other comprehensive income (loss) by component, net of tax:
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Basis of Presentation and Accounting Policies (Details)
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3 Months Ended |
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Jun. 30, 2013
segment
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Accounting Policies [Abstract] | |
Number of operating segments | 1 |
Restructuring Liability (Details 2) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2013
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Jun. 30, 2012
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Jun. 30, 2013
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Jun. 30, 2012
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Restructuring activities | ||||
Liability, beginning of the period | $ 24,830 | $ 22,459 | $ 25,473 | |
Cash payments | (3,849) | (3,725) | (7,422) | (7,411) |
Cash received from subleases | 2,666 | 2,488 | 5,331 | 4,974 |
Restructuring expense | $ 776 | $ 594 | $ 815 | $ 954 |