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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the quarterly period ended March 31, 2000
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the transition period from to
Commission File Number 000-19319
VERTEX PHARMACEUTICALS INCORPORATED
(Exact name of registrant as specified in its charter)
Massachusetts 04-3039129
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
130 WAVERLY STREET, CAMBRIDGE, MASSACHUSETTS 02139-4242
-------------------------------------------------------
(Address of principal executive offices, including zip code)
(617) 577-6000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 26,216,297
- -------------------------------------- --------------------------------
Class Outstanding at May 11, 2000
VERTEX PHARMACEUTICALS INCORPORATED
INDEX
Page
----
PART I. - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Report of Independent Accountants 3
Condensed Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 4
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. - OTHER INFORMATION 13
Exhibits 13
Signatures 14
-2-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Vertex Pharmaceuticals
Incorporated:
We have reviewed the accompanying condensed consolidated balance sheets of
Vertex Pharmaceuticals Incorporated and its subsidiaries as of March 31,
2000, and the related condensed consolidated statements of operations for
each of the three-month periods ended March 31, 2000 and 1999, and the
condensed consolidated statements of cash flows for the three-month periods
ended March 31, 2000 and 1999. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated interim financial statements
for them to be in conformity with generally accepted accounting principles.
We have previously audited in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1999, and the
related consolidated statement of operations, stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
February 16, 2000, except as to the information in Note R for which the date is
February 28, 2000, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1999, is
fairly stated, in all material respects in relation to the consolidated balance
sheet from which it has been derived.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 28, 2000
-3-
VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 191,750 $ 31,548
Short-term investments 155,498 156,254
Accounts receivable 4,506 5,956
Prepaid expenses 1,997 1,439
--------- ---------
Total current assets 353,751 195,197
Restricted cash 9,788 9,788
Property and equipment, net 25,210 24,480
Investment in equity affiliate 2,295 2,276
Other assets 5,887 704
--------- ---------
Total assets $ 396,931 $ 232,445
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 13,767 $ 14,152
Deferred revenue -- 2,000
Obligations under capital lease and debt 2,272 2,366
--------- ---------
Total current liabilities 16,039 18,518
--------- ---------
Obligations under capital leases and debt,
excluding current portion 179,155 4,693
--------- ---------
Total liabilities 195,194 23,211
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value;1,000,000 authorized
none issued
Commonstock, $.01 par value; 100,000,000 authorized; issued and
outstanding - 26,171,877 shares in 2000
and 25,685,364 shares in 1999 262 257
Additional paid-in capital 409,934 400,888
Deferred compensation (101) (114)
Accumulated other comprehensive income (loss) (1,372) (970)
Accumulated deficit (206,986) (190,827)
--------- ---------
Total stockholders' equity 201,737 209,234
--------- ---------
Total liabilities and stockholders' equity $ 396,931 $ 232,445
========= =========
The accompanying notes are an integral part of
these condensed consolidated financial statements.
-4-
VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---- ----
Revenues:
Royalties and product sales $ 2,619 --
Collaborative and other research and development 4,904 $ 3,963
-------- --------
Total revenues 7,523 3,963
-------- --------
Costs and expenses:
Royalties and product costs 872 --
Research and development 18,604 18,605
Sales, general and administrative 6,608 5,772
-------- --------
Total costs and expenses 26,084 24,377
-------- --------
Net loss from operations (18,561) (20,414)
Interest income, net 2,383 2,982
Gain/(loss) in equity affiliate 19 (122)
-------- --------
Net Loss $(16,159) $(17,554)
======== ========
Basic and diluted loss per common share $ (0.62) $ (0.69)
Basic and diluted weighted average number of
common shares outstanding 25,964 25,389
======== ========
The accompanying notes are an integral part of
these condensed consolidated financial statements.
-5-
VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---- ----
Cash flows from operating activities:
Net loss $ (16,159) $ (17,554)
Adjustment to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 1,924 1,244
Amortization of deferred compensation 51 15
Equity compensation for services rendered 13 13
Realized (gains)/losses on short-term
investments 134 (70)
Loss(gain) in equity affiliate (19) 122
Changes in assets and liabilities:
Accounts Receivable 1,450 43
Prepaid expenses (558) 584
Accounts payable and accrued
expenses (385) 762
Deferred revenue (2,000) --
--------- ---------
Net cash used by
operating activities (15,549) (14,841)
--------- ---------
Cash flows from investing activities:
Purchases of short-term investments (63,570) (150,309)
Sales and maturities of short-term investments 63,938 166,943
Expenditures for property and equipment (2,654) (2,460)
Restricted cash -- (1,460)
Investment in equity affiliate -- (3,000)
Other assets 126 219
--------- ---------
Net cash provided (used) by
investing activities (2,160) 9,933
--------- ---------
Cash flows from financing activities:
Repayment of capital lease obligations and debt (632) (705)
Proceeds from the sale of convertible notes 175,000 --
Costs associated with sale of convertible
subordinated notes (5,309) --
Proceeds from other issuances of common stock 9,000 1,268
--------- ---------
Net cash provided by
financing activities 178,059 563
--------- ---------
Effect of exchange rate changes on cash (148) (14)
--------- ---------
Increase/decrease in cash and cash equivalents 160,202 (4,359)
Cash and cash equivalents at beginning of period 31,548 24,169
--------- ---------
Cash and cash equivalents at end of period $ 191,750 $ 19,810
========= =========
The accompanying notes are an integral part of
these condensed consolidated financial statements.
-6-
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are
unaudited and have been prepared by Vertex Pharmaceuticals Incorporated (the
"Company") in accordance with generally accepted accounting principles.
Certain information and footnote disclosures normally included in the
Company's annual financial statements have been condensed or omitted. Certain
prior year amounts have been reclassified to conform with current year
presentation. The interim financial statements, in the opinion of management,
reflect all adjustments (including normal recurring accruals) necessary for a
fair statement of the results for the interim periods ended March 31, 2000 and
1999.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year,
although the Company expects to incur a substantial loss for the year ended
December 31, 2000. These interim financial statements should be read in
conjunction with the audited financial statements for the year ended December
31, 1999, which are contained in the Company's 1999 Annual Report to its
shareholders and in its Form 10-K filed with the Securities and Exchange
Commission.
2. ACCOUNTING POLICIES
DEBT ISSUANCE COSTS
Debt issuance costs are deferred and amortized on a straight line
basis over the term of the related debt issuance.
BASIC AND DILUTED LOSS PER COMMON SHARE
Basic loss per share is based upon the weighted average number of
common shares outstanding during the period. Diluted loss per share is based
upon the weighted average number of common shares outstanding during the
period plus additional weighted average common equivalent shares outstanding
during the period when the effect is not anti-dilutive. Common equivalent
shares result from the assumed exercise of outstanding stock options, the
proceeds of which are then assumed to have been used to repurchase
outstanding stock using the treasury stock method, and the assumed conversion
of convertible notes. Common equivalent shares have not been included in the
per share calculations as the effect would be anti-dilutive. Total potential
common equivalent shares, at March 31, 2000, consist of 6,285,637 stock
options outstanding with a weighted average exercise price of $24.11 and
notes convertible into 2,170,140 shares of common stock at a conversion price
of $80.64 per share (See Note 4). Total potential common equivalent shares at
March 31, 1999 consist of 5,182,014 stock options outstanding with a weighted
average price of $22.76.
-7-
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. COMPREHENSIVE INCOME
For the quarters ended March 31, 2000 and 1999 total comprehensive loss was as
follows (in thousands):
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
Net loss $(16,159) $(17,554)
Other comprehensive income (loss):
Unrealized holding gains (losses) on investments (254) 222
Foreign currency translation adjustment (148) (11)
-------- --------
Total other comprehensive income (loss) (402) 211
-------- --------
Total comprehensive loss $(16,561) $(17,343)
======== ========
4. LONG-TERM DEBT
On March 14, 2000 the Company issued $175,000,000 of Convertible
Subordinated Notes, due 2007. The notes are convertible, at the option of the
holder, into common stock at a price equal to $80.64 per share, subject to
adjustment under certain circumstances. The notes bear an interest rate of 5%
per annum and the company is required to make semi-annual interest payments
on the outstanding principal balance of the notes on March 15 and September
15 of each year. The notes are redeemable by the Company at any time after
March 17, 2003 at specific redemption prices. Total amortization expense
associated with the debt issuance costs was $31,000 for the three-month
period ended March 31, 2000.
5. LEGAL PROCEEDINGS
Chiron Corporation ("Chiron") filed suit on July 30, 1998 against
Vertex and Eli Lilly and Company in the United States District Court for the
Northern District of California, alleging infringement by the defendants of
three U.S. patents issued to Chiron. The infringement action relates to
research activities by the defendants in the hepatitis C viral protease field
and the alleged use of inventions claimed by Chiron in connection with that
research. Chiron has requested damages in an unspecified amount, as well as
an order permanently enjoining the defendants from unlicensed use of the
claimed Chiron inventions. During 1999, Chiron requested and was granted a
reexamination by the U.S. Patent and Trademark Office of all three of the
patents involved in the suit. Chiron also requested and, over the opposition
of Vertex and Lilly, was granted a stay in the infringement lawsuit, pending
the outcome of the patent reexamination. While the length of the stay, the
outcome of the reexamination, the effect of that outcome on the lawsuit and
the final outcome of the lawsuit cannot be determined, Vertex maintains that
the plaintiff's claims are without merit and intends to defend the lawsuit,
if and when it resumes, vigorously.
6. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements,"
("SAB 101") which clarifies the Securities and Exchange Commission's views
related to revenue recognition and disclosure. The effective date of this
bulletin was deferred to no later than the quarter ending June 30, 2000. The
Company will adopt SAB 101 in the second quarter of 2000 and is presently
determining the effect it will have on the financial statements, although the
amount could be material to net financial results.
In March 2000, the FASB issued Interpretation No. 44 "Accounting for
Certain Transactions involving Stock Compensation", which provides guidance
for issues that have arisen in applying AFB No. 25, "Accounting for Stock
Issued to Employees". This Interpretation, which is effective July 1, 2000,
applies prospectively to new awards, exchanges of awards in a business
combination, modifications to outstanding awards, and changes in grantee
status that occur on or after July 1, 2000, except for the provisions related
to repricings and the definition of an employee which apply to awards issued
after December 31, 1998. The Company is evaluating the impact of adoption of
this Interpretation; however, it is not expected to have a material impact on
net financial results.
-8-
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. SUBSEQUENT EVENT
On May 8, 2000 the Company and Novartis Pharma AG (Novartis) entered
into an agreement to collaborate on the discovery, development and
commercialization of small molecule drugs directed towards targets in the
kinase protein family. Under the agreement, Novartis agreed to pay the
Company approximately $800,000,000 in pre-commercial payments, comprised of
$15,000,000 paid upon signing of the agreement, up to $200,000,000 in product
research funding over six years and up to approximately $600,000,000 in
further license fees, milestone payments and cost reimbursements. These
amounts are based on development of eight drug candidates. Vertex will have
the responsibility for drug discovery and clinical proof-of-concept testing
of drug candidates. Novartis will have exclusive worldwide development,
manufacturing and marketing rights to clinically and commercially relevant
drug candidates that it accepts for development from the Company. Vertex will
receive royalties on any products that are marketed as part of the
collaboration. Subject to certain conditions, the Company will have
co-promotion rights in the United States and Europe. Novartis may terminate
this agreement without cause after four years upon one year's written notice.
The agreement is subject to approval under the Hart Scott Rodino Antitrust
Improvements Act of 1976.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT CAN CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE DESCRIBED. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE BUT ARE NOT
LIMITED TO THOSE DESCRIBED IN THE SECTION OF OUR ANNUAL REPORT ON FORM 10-K
ENTITLED "RISK FACTORS." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS WHICH SPEAK ONLY AS OF THE DATE HEREOF. WE
UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR REVISE THESE FORWARD-LOOKING
STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF.
We discover, develop and market small molecule drugs that address major
unmet medical needs. We have eight drug candidates in clinical development to
treat viral diseases, inflammation, cancer, autoimmune diseases and neurological
disorders. We have created our pipeline using a proprietary approach,
information-driven drug design, that integrates multiple technologies in
biology, chemistry and biophysics aimed at increasing the speed and success rate
of drug discovery.
Our first approved product is Agenerase-TM- (amprenavir), an HIV
protease inhibitor, which we co-promote with Glaxo Wellcome plc ("Glaxo
Wellcome"). We are earning a royalty from Glaxo Wellcome from sales of
Agenerase. Agenerase has received approval in other countries, including Japan
where the drug is sold under the trade name Prozei-TM-. Approval of Agenerase is
pending in other countries, including the European Union, where the drug is
being made available through early access programs.
We have incurred operating losses since our inception and expect to
incur a loss for the fiscal year ending December 31, 2000. We expect that
operating losses will continue beyond fiscal year 2000 even if significant
royalties are realized on Agenerase sales because we are planning to make
significant investments in research and development for our other potential
products. We expect that losses will fluctuate from quarter to quarter and that
such fluctuations may be substantial.
-9-
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999.
The net loss for the three months ended March 31, 2000 was $16,159,000
or $0.62 per share compared to $17,554,000 or $0.69 per share for the same
period in 1999.
Total revenues increased to $7,523,000 in the first quarter of
2000 from $3,963,000 in the first quarter of 1999. In the first quarter of 2000,
royalty and product sales revenue was $2,619,000 and collaborative and other
research and development revenue was $4,904,000. In the first quarter of 1999,
prior to the launch of Agenerase, we earned $3,963,000 in revenue from
collaborative agreements.
Royalty and product sales revenue consists of Agenerase royalty revenue
from Glaxo Wellcome. Agenerase royalty revenue is based upon worldwide net sales
of Agenerase as provided by Glaxo Wellcome.
The increase in collaborative and other research and development
revenue in the first quarter of 2000 as compared with the first quarter of 1999
is principally due to the recognition of approximately $900,000 in product
research funding from Taisho Pharmaceutical Co. Ltd. of Japan in connection with
an agreement signed in the fourth quarter of 1999. The balance of collaborative
and other research and development revenue represents research support payments
from Eli Lilly, Schering AG and Kissei Pharmaceutical Company for both 2000
and 1999.
Total costs and expenses increased to $26,084,000 in the first quarter
of 2000 from $24,377,000 in the first quarter of 1999. Royalties and product
costs of $872,000 in the first quarter of 2000 consist of royalty payments to
G.D. Searle on the sales of Agenerase.
Research and development expenses remained relatively unchanged in the
first quarter of 2000 as compared with the first quarter of 1999. We continue to
expand our research and development operations both in the US and the UK
although, in the first quarter of 2000, the expenses associated with the
expansion are partially offset by a decrease in external development activities
associated with certain drug candidates. We anticipate that research and
development expenses will increase as personnel are added and additional
research and development activities are expanded to accommodate existing
collaborations and additional commitments we may undertake in the future.
Sales, general and administrative expenses increased to $6,608,000 in
the first quarter of 2000 from $5,772,000 in the first quarter of 1999. The
increase in sales, general and administrative expenses reflects the impact of
personnel additions and increased legal and patent expenses. Legal and patent
expenses increased due to continued protection of our intellectual property and
general business activities. We expect that sales, general and administrative
expenses will continue to increase as we continue to grow.
Net interest income decreased to $2,383,000 for the first quarter of
2000 from $2,982,000 in the first quarter of 1999. The decrease was primarily
due to lower levels of cash and investments for the majority of the first
quarter of 2000 as compared with the same period of 1999.
Using the equity method of accounting, we recorded $19,000 as our share
of the income in Altus Biologics Inc.("Altus") for the three month period ending
March 31, 2000, compared with $122,000 as our share of Altus' loss for the same
period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Our operations have been funded principally through strategic
collaborative agreements, public offerings and private placements of our equity
and debt securities, equipment lease financing, and
-10-
investment income. With the approval and launch of Agenerase, in April 1999,
we began receiving product royalty revenues. In March 2000, we issued
$175,000,000 of Convertible Subordinated Notes. We have continued to increase
and advance products in our research and development pipeline. Consequently,
we expect to incur losses on a quarterly and annual basis as we continue to
develop existing and future compounds and to conduct clinical trials of
potential drugs. We also expect to incur substantial administrative and
commercialization expenditures in the future and additional expenses related
to filing, prosecution, defense and enforcement of patent and other
intellectual property rights.
We expect to finance these substantial cash needs with royalties from
the sale of Agenerase, existing cash and investments of $347,248,000 at
March 31, 2000, together with investment income earned thereon, future payments
under our existing and future collaborative agreements, and facilities and
equipment financing. To the extent that funds from these sources are not
sufficient to fund our activities, it will be necessary to raise additional
funds through public offerings or private placements of securities or other
methods of financing. There can be no assurance that such financing will
be available on acceptable terms, if at all.
Our aggregate cash and investments increased by $159,446,000 during
the three months ended March 31, 2000 to $347,248,000. Cash used by
operations, principally to fund research and development activities, was
$15,549,000 during the same period. Deferred revenue decreased in the first
quarter of 2000 due to the timing of research support payments from certain
collaborators. We continue to invest in equipment and leasehold improvements
for facilities to meet the operating needs associated with the growth in our
headcount. Property and equipment expenditures were $2,654,000 for the first
three months of 2000. Cash provided by financing activities for the first
quarter of 2000 was $178,059,000. We received $169,691,000 in net proceeds
from the issuance of the $175,000,000 Convertible Subordinated Notes in March
of 2000. Deferred Debt Issuance Costs are included in other assets on the
balance sheet. Additionally, exercises of employee stock options in the first
quarter of 2000 resulted in a $9,000,000 increase to common stock and
additional paid in capital.
LEGAL PROCEEDINGS
Chiron Corporation ("Chiron") filed suit on July 30, 1998 against
Vertex and Eli Lilly and Company ("Lilly") in the United States District
Court for the Northern District of California, alleging infringement of three
U.S. patents issued to Chiron. During 1999, Chiron requested and was granted
a reexamination by the U.S. Patent and Trademark Office of all three of the
patents involved in the suit. Chiron also requested and, over the opposition
of Vertex and Lilly, was granted a stay in the infringement lawsuit, pending
the outcome of the patent reexamination. While the length of the stay, the
outcome of the reexamination, the effect of that outcome on the lawsuit and
the final outcome of the lawsuit cannot be determined, we believe, based on
information currently available, that the ultimate outcome of the action will
not have a material impact on our consolidated financial position.
SUBSEQUENT EVENT
On May 8, 2000 we entered into an agreement with Novartis Pharma AG
(Novartis) to collaborate on the discovery, development and commercialization
of small molecule drugs directed towards targets in the kinase protein
family. Under the agreement, Novartis agreed to pay us approximately
$800,000,000 in pre-commercial payments, comprised of $15,000,000 paid upon
signing of the agreement, up to $200,000,000 in product research funding over
six years and up to approximately $600,000,000 in further license fees,
milestone payments and cost reimbursements. These amounts are based on
development of eight drug candidates. We will have the responsibility for
drug discovery and clinical proof-of-concept testing of drug candidates.
Novartis will have exclusive worldwide development, manufacturing and
marketing rights to clinically and commercially relevant drug candidates that
it accepts for development from us. We will receive royalties on any products
that are marketed as part of the collaboration. Subject to certain
conditions, we will have co-promotion rights in the United States and Europe.
Novartis may terminate this agreement without cause after four years upon one
year's written notice. The agreement is subject to approval under the Hart
Scott Rodino Antitrust Improvements Act of 1976.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements," ("SAB 101") which clarifies the Securities and Exchange
Commission's views related to revenue recognition and disclosure. The
effective date of this bulletin was deferred to no later than the quarter
ending June 30, 2000. We will adopt SAB 101 in the second quarter of 2000 and
are presently determining the effect it will have on our financial
statements, although the amount could be material to net financial results.
In March 2000, the FASB issued Interpretation No. 44 "Accounting for
Certain Transactions involving Stock Compensation", which provides guidance
for issues that have arisen in applying AFB No. 25, "Accounting for Stock
Issued to Employees". This Interpretation, which is effective July 1, 2000,
applies prospectively to new awards, exchanges of awards in a business
combination, modifications to outstanding awards, and changes in grantee
status that occur on or after July 1, 2000, except for the provisions related
to repricings and the definition of an employee which apply to awards issued
after December 31, 1998. We are evaluating the impact of adoption of this
Interpretation; however, it is not expected to have a material impact on our
net financial results.
-11-
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There are no material changes to our assessment of market risk as
disclosed in our Annual Report on Form 10-K for the year ended December 31,
1999.
-12-
PART II.
OTHER INFORMATION
Item 6. EXHIBITS:
4.1 Indenture between Vertex Pharmaceuticals Incorporated, as
Issuer, and State Street Bank and Trust Company, as Trustee,
dated as of March 14, 2000 (filed herewith).
4.2 Resale Registration Rights Agreement among Vertex
Pharmaceuticals Incorporated, and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith incorporated, Bear Stearns & Co.
Inc., Credit Suisse First Boston Corporation, FleetBoston
Robertson Stephens Inc., SG Cowen Securities Corporation, as
Representatives of the several Initial Purchasers, dated March
14, 2000 (filed herewith).
10.1 Research and Early Development Agreement between Vertex
Pharmaceuticals Incorporated and Novartis Pharma AG dated May
8, 2000 (with certain confidential information deleted) (filed
herewith).
27 Financial Data Schedule (Submitted as an exhibit only in the
electronic format of this Quarterly Report on Form 10-Q
submitted to the Securities and Exchange Commission).
99 Letter of Independent Accountants.
REPORTS ON FORM 8-K:
On March 27, 2000, we filed a Report on Form 8-K dated March 3, 2000,
reporting the offer and sale of our Convertible Subordinated Notes.
-13-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERTEX PHARMACEUTICALS INCORPORATED
Date: May 15, 2000
--------------------------------------------
Thomas G. Auchincloss, Jr.
Vice President of Finance and Treasurer
(Principal Financial Officer)
Date: May 15, 2000
--------------------------------------------
Johanna Messina Power
Assistant Controller
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