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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 pr 15(d) of the Securities and
Exchange Act of 1934 For the quarterly period ended March 31, 1997
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 0-19319
Vertex Pharmaceuticals Incorporated
(Exact name of registrant as specified in its charter)
Massachusetts 04-3039129
(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
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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 24,721,133
Class Outstanding at May 6, 1997
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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, 1997 and December 31, 1996 4
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and 1996 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. - Other Information 10
Signatures 11
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Vertex Pharmaceuticals
Incorporated:
We have reviewed the accompanying condensed balance sheet of Vertex
Pharmaceuticals Incorporated as of March 31, 1997, and the related condensed
consolidated statements of operations and cash flows for the three-month
period then ended. 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 financial statements for them to be in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 22, 1997
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VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
MARCH 31, DECEMBER 31,
1997 1996
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ASSETS
Current assets:
Cash and cash equivalents................................... $ 84,927 $ 34,851
Short-term investments...................................... 190,157 95,508
Prepaid expenses and other current assets................... 1,687 1,791
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Total current assets................................... 276,771 132,150
Restricted cash.................................................. 2,316 2,316
Property and equipment, net...................................... 10,109 8,663
Other assets..................................................... 445 370
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Total assets........................................... $289,641 $ 143,499
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Obligations under capital lease............................. $ 2,839 $ 2,910
Accounts payable and accrued expenses....................... 6,262 4,146
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Total current liabilities.............................. 9,101 7,056
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Obligations under capital leases, excluding current
portion..................................................... 5,333 5,617
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Total liabilities...................................... 14,434 12,673
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Stockholders' equity:
Common stock................................................ 247 211
Additional paid-in capital.................................. 377,976 227,510
Equity adjustments.......................................... (306) 49
Accumulated deficit......................................... (102,710) (96,944)
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Total stockholders' equity............................. 275,207 130,826
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Total liabilities and stockholders' equity............. $289,641 $ 143,499
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The accompanying notes are an integral part of
these condensed consolidated financial statements.
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VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended March 31,
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1997 1996
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Revenues:
Collaborative and other research and development............ $ 4,660 $ 2,473
Interest income............................................. 2,258 1,278
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Total revenues......................................... 6,918 3,751
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Costs and expenses:
Research and development.................................... 10,314 9,337
General and administrative.................................. 2,218 1,763
Interest.................................................... 152 119
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Total costs and expenses............................... 12,684 11,219
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Net loss......................................................... $ (5,766) $ (7,468)
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Net loss per common share........................................ $ (0.26) $ (0.43)
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Weighted average number of common shares outstanding............. 21,975 17,332
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The accompanying notes are an integral part of
these condensed consolidated financial statements.
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VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended March 31,
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1997 1996
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Cash flows from operating activities:
Net loss.......................................... $(5,766) $ (7,468)
Adjustment to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization................. 814 828
Changes in assets and liabilities:
Prepaid expenses and other current assets..... 104 (371)
Accounts payable and accrued expenses......... 2,116 (2,315)
Deferred revenue.............................. -- 1,000
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Net cash provided (used) by operating
activities................................ (2,732) (8,326)
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Cash flows from investing activities:
Short-term investments............................ (94,997) 1,267
Expenditures for property and equipment........... (2,260) (579)
Other assets...................................... (75) (939)
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Net cash provided (used) by investing
activities................................. (97,332) (251)
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Cash flows from financing activities:
Proceeds from public offering of common stock..... 148,810 ----
Other issuances of common stock................... 1,692 870
Proceeds from equipment sale/leaseback............ 343 ----
Repayment of capital lease obligations............ (698) (504)
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Net cash provided (used) by financing
activities................................. 150,147 366
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Effect of exchange rate changes on cash................ (7) (1)
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Decrease in cash and cash equivalents.................. 50,076 (8,212)
Cash and cash equivalents at beginning of period....... 34,851 28,390
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Cash and cash equivalents at end of period............. $84,927 $ 20,178
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The accompanying notes are an integral part of
these condensed consolidated financial statements.
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VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are
unaudited and have been prepared by 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. 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, 1997 and
1996.
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, 1997. These interim financial statements should be read in
conjunction with the audited financial statements for the year ended December
31, 1996, which are contained in the Company's 1996 Annual Report to its
shareholders and in its Form 10-K filed with the Securities and Exchange
Commission.
2. CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with maturities of three months or less at the date
of purchase to be cash equivalents. Changes in cash and cash equivalents may
be affected by shifts in investment portfolio maturities as well as by actual
net cash receipts or disbursements.
3. NET LOSS PER COMMON SHARE
The net loss per common share is computed based upon the weighted average
number of common shares outstanding. Common equivalent shares are not
included in the per-share calculations where the effect of their inclusion
would be anti-dilutive.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share"
which modifies the way in which earnings per share ("EPS") is calculated and
disclosed. SFAS 128 is effective for financial statements for periods ending
after December 15, 1997. The adoption of SFAS 128 is not expected to have a
material impact on the Company's EPS calculation.
4. PUBLIC OFFERING OF COMMON STOCK
On March 12, 1997, the Company completed a public offering of 3,450,000
shares of its common stock. The Company anticipates using the net proceeds of
$148,810,000 primarily to fund research and product development programs,
including clinical trials, and for general corporate purposes.
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VERTEX PHARMACEUTICALS INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is engaged in the discovery, development and
commercialization of novel, small molecule pharmaceuticals for the treatment
of major diseases for which there are currently limited or no effective
treatments. The Company is a leader in the use of structure-based drug
design, an approach to drug discovery that integrates advanced biology,
biophysics and chemistry. The Company is conducting nine significant
pharmaceutical research and development programs to develop pharmaceuticals
for the treatment of viral diseases, multidrug resistance in cancer,
hemoglobin disorders, autoimmune diseases, inflammatory diseases and
neurodegenerative disorders. Three of these programs are in the development
phase, and the other six are in the research phase. During the first quarter
of 1997, Vertex's partner, Glaxo Wellcome plc ("Glaxo Wellcome"), initiated
Phase III clinical trials of VX-478 (141W94), the lead compound in the
Company's HIV program. Kissei Pharmaceutical Co., Ltd. ("Kissei") is also
developing VX-478 as Vertex's partner for the HIV program in the Far East.
Vertex recently expanded Phase II clinical trials of VX-710, the Company's
lead compound in its cancer multidrug resistance program. Vertex initiated a
Phase II study of the administration of VX-710 in combination with paclitaxel
in patients with breast cancer. In addition, BioChem Therapeutic Inc
("BioChem"),Vertex's partner for development and marketing of VX-710 in
Canada initiated a Phase II study of VX-710 and doxorubicin in patients with
soft tissue sarcoma. The Company, together with its partners Alpha
Therapeutic ("Alpha") and Ravizza Farmaceutici Sp.A. ("Ravizza"), also
continued development of VX-366 in its hemoglobin disorders program.
To date, the Company has not received any revenues from the sale of
pharmaceutical products and does not expect to receive such revenues in the
near future, if ever. The Company has incurred since its inception, and
expects to incur over the next several years, significant operating losses as
a result of expenditures for its research and development programs. The
Company expects that losses will fluctuate from quarter to quarter and that
such fluctuations may be substantial.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 Compared with Three Months Ended March
31, 1996.
For the first quarter of 1997, the Company's total revenues were
$6,918,000 as compared to $3,751,000 during the same period in 1996. From
quarter to quarter, the Company s revenues fluctuate as a result of changes
in the timing and amount of partner research support payments, partner
reimbursements of Vertex drug development costs, and payments for the
achievement of various research and development milestones. Revenues for the
first quarter in 1997 included a $2,000,000 payment from Kissei. This payment
from Kissei was associated with an ongoing Phase II clinical trial of
Vertex's HIV protease inhibitor, VX-478, as single-drug therapy for HIV
infection. The other factor contributing to the increase in quarterly revenue
for the three months ended March 31, 1997 compared to the three months ended
March 31, 1996 was higher investment income from increased cash and
short-term investments, including the proceeds of public offerings of the
Company's stock in August 1996 and March 1997. In the first quarter of 1997,
the Company received $4,237,000 in revenue from its collaborative agreements,
$2,258,000 in interest received on invested funds and $423,000 from
government grants and other revenue. In the first quarter of 1996, the
Company received $2,281,000 in revenue from its collaborative agreements,
$1,278,000 in interest received on invested funds and $192,000 from
government grants and other revenue.
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The Company's total costs and expenses increased to $12,684,000 in the
first quarter of 1997, from $11,219,000 during the same period in 1996.
Research and development expenses were $10,314,000 in the first quarter of
1997 as compared to $9,337,000 during the same period in 1996. The Company
experienced higher research costs associated with an increase in the number
of research employees as well as certain project specific activities. General
and administrative expenses increased during the first quarter of 1997 to
$2,218,000 from $1,763,000 in the first quarter of 1996 due primarily to an
increase in costs associated with patent protection for the Company's
intellectual property as well as an increase in marketing efforts by the
Company's subsidiary, Altus Biologics Inc. Interest expense increased to
$152,000 in the first quarter of 1997 as compared to $119,000 during the same
period in 1996 due to higher levels of equipment financing.
The Company incurred a net loss of $5,766,000 or $.26 per share in the
first quarter of 1997 as compared to a net loss of $7,468,000 or $.43 per
share in the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have been funded principally through strategic
collaborative agreements, public offerings and private placements of the
Company's equity securities, equipment lease financing, government grants and
interest income. The Company expects to incur increased research and
development and related supporting expenses and, consequently, continued
losses on a quarterly and annual basis as it continues to develop existing
and future compounds and to conduct clinical trials of potential drugs. The
Company also expects to incur substantial administrative and
commercialization expenditures in the future and additional expenses related
to the filing, prosecution, defense and enforcement of patent and other
intellectual property rights.
The Company expects to finance these substantial cash needs with its
existing cash and investments at March 31, 1997 of approximately $275
million, together with interest earned thereon, future payments under its
existing collaborative agreements, and facilities and equipment financing. To
the extent that funds from these sources are not sufficient to fund the
Company's 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.
In March 1997, the Company completed a public offering of 3,450,000
shares of its common stock, which included an over-allotment option exercised
by the underwriters for 450,000 shares, at a price to the public of $45.50
per share, with net proceeds to the Company of approximately $148,810,000.
The Company plans to use these proceeds primarily to fund research and
product development programs, including clinical trials, and for general
corporate purposes.
The Company's aggregate cash and investments increased by $144,725,000
during the three months ended March 31, 1997 to $275,084,000, principally due
to the public offering completed in March 1997. Cash used by operations,
principally to fund research and development activities, was $2,732,000
during the same period. The Company also expended $2,260,000 during this
period to acquire property and equipment, principally for research equipment
and facilities. During the first quarter of 1997 the Company entered into
equipment lease financing in the aggregate amount of $343,000 and repaid
$698,000 of its lease obligations.
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PART II.
OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
None
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
None
Item 5. Other Information:
None
Item 6. Exhibits:
27 Financial Data Schedule. (Exhibit 27 is 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 February 25, 1997 the Company filed its Financial Statements for
the year ended December 31, 1996 with the Securities and Exchange
Commission in a Current Report on Form 8-K.
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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 12, 1997 /s/ Thomas G. Auchincloss, Jr
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Thomas G. Auchincloss, Jr.
Vice President of Finance and Treasurer
(Principal Financial Officer)
Date: May 12, 1997 /s/ Hans D. van Houte
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Hans D. van Houte
Controller
(Principal Accounting Officer)
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