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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: MARCH 31, 1996 Commission File Number 0-19319
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
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(Address of principal executive offices, including zip code)
(617) 577-6000
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(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 17,368,453
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Class Outstanding at May 9, 1996
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VERTEX PHARMACEUTICALS INCORPORATED
INDEX
PAGE
PART I. - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. - OTHER INFORMATION 9
SIGNATURES 10
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VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 31, December 31,
1996 1995
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ASSETS
Current assets:
Cash and cash equivalents $ 20,178 $ 28,390
Short-term investments 57,078 58,588
Prepaid expenses and other current assets 1,330 959
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Total current assets 78,586 87,937
Restricted cash 2,316 2,316
Property and equipment, net 7,591 7,840
Other assets 1,827 888
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Total assets $ 90,320 $ 98,981
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Obligations under capital lease $ 2,112 $ 2,075
Accounts payable and accrued expenses 4,210 6,525
Deferred revenue 1,197 197
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Total current liabilities 7,519 8,797
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Obligations under capital leases, excluding
current portion 4,371 4,912
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Total liabilities 11,890 13,709
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Stockholders' equity:
Common stock 174 173
Additional paid-in capital 142,907 142,038
Equity adjustments (244) ---
Accumulated deficit (64,407) (56,939)
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Total stockholders' equity 78,430 85,272
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Total liabilities and stockholders' equity $ 90,320 $ 98,981
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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 share and per share data)
Three Months Ended March 31,
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1996 1995
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Revenues:
Collaborative and other research and development $ 2,473 $ 5,053
Interest income 1,278 1,280
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Total revenues 3,751 6,333
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Costs and expenses:
Research and development 9,337 9,362
General and administrative 1,763 1,558
Interest 119 116
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Total costs and expenses 11,219 11,036
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Net loss $ (7,468) $ (4,703)
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Net loss per common share $ (0.43) $ ( 0.27)
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Weighted average number of common shares
outstanding 17,331,896 17,189,676
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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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1996 1995
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Cash flows from operating activities:
Net loss $(7,468) $ (4,703)
Adjustment to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 828 984
Changes in assets and liabilities:
Prepaid expenses and other
current assets (371) (1,144)
Accounts payable and accrued
expenses (2,315) (112)
Deferred revenue 1,000 ---
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Net cash provided (used) by
operating activities (8,326) (4,975)
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Cash flows from investing activities:
Short-term investments 1,267 (12,780)
Deposit to collateralize letter of credit --- (2,316)
Expenditures for property and equipment (579) (548)
Other assets (939) (22)
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Net cash provided (used) by
investing activities (251) (15,666)
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Cash flows from financing activities:
Other issuances of common stock 870 165
Proceeds from equipment sale/leaseback --- 697
Repayment of capital lease obligations (504) (432)
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Net cash provided (used) by
financing activities 366 430
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Effect of exchange rate changes on cash (1) 2
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Decrease in cash and cash equivalents (8,212) (20,209)
Cash and cash equivalents at beginning of period 28,390 71,643
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Cash and cash equivalents at end of period $20,178 $ 51,434
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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 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, 1996 and 1995.
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, 1996. These interim financial statements should be read in
conjunction with the audited financial statements for the year ended December
31, 1995, which are contained in the Company's 1995 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.
4. SUBSEQUENT EVENT - LICENSE AGREEMENT WITH BIOCHEM PHARMA INC.
On May 9, 1996, Vertex signed an exclusive license and supply agreement
with BioChem Pharma Inc. for development and marketing in Canada of VX-710,
Vertex's lead multidrug resistance reversal agent. Under the development
agreement, BioChem Pharma will pay Vertex an initial licensing fee, and make
payments for development and commercialization milestones. BioChem Pharma will
fund development of VX-710 in Canada, including planned Phase II clinical trials
in two different cancer indications. Vertex will supply Biochem Pharma's
clinical and commercial drug supply needs. BioChem Pharma will pay Vertex a
portion of its net sales which will cover Vertex's cost of supplying material
and will provide a profit to Vertex.
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VERTEX PHARMACEUTICALS INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Vertex Pharmaceuticals Incorporated ("Vertex" or "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 seven
significant pharmaceutical research and development programs to develop
pharmaceuticals for the treatment of viral diseases, multidrug resistance in
cancer, hemoglobin disorders, inflammation, autoimmune diseases and organ
transplant rejection. Three of these programs are in the development phase, and
the other four are in the research phase. During the first quarter of 1996,
Glaxo Wellcome plc. conducted Phase I/II clinical trials to assess the safety,
pharmacokinetics and initial efficacy of VX-478, the lead compound from 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. Phase
I/II clinical trials of VX-710, the Company's lead compound in its Cancer
Multidrug Resistance Program, continued according to plan. The Company recently
entered into a collaboration with BioChem Pharma (International) Inc.
("BioChem") for the development and commercialization of VX-710 in Canada. The
Company, together with its partners Alpha Therapeutic Corporation ("Alpha") and
Ravizza Farmaceutici S.p.A., 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 ,if any,
for several years. 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, 1996 COMPARED WITH THREE MONTHS ENDED MARCH
31, 1995. For the first quarter of 1996, the Company's total revenues were
$3,751,000 as compared to $6,333,000 during the same period in 1995. 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. The quarterly
revenue decline for the three months ended March 31, 1996 compared to the three
months ended March 31, 1995 was principally due to the conclusion of research
funding requirements of the Chugai Pharmaceutical Co., Ltd. and Kissei
collaborative agreements in April and December 1995, respectively. These two
collaborations generated $1,938,000 of revenue during the first quarter of 1995.
In the first quarter of 1996, the Company earned $2,281,000 in revenue from its
collaborative agreements, $1,278,000 in interest earned on invested funds and
$192,000 from government grants and other revenue. In the first quarter of 1995,
revenues consisted of $4,921,000 earned under collaborative agreements,
$1,280,000 in interest earned on invested funds and $132,000 from government
grants.
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The Company's total costs and expenses increased to $11,219,000 in the
first quarter of 1996, from $11,036,000 during the same period in 1995. Research
and development expenses were $9,337,000 in the first quarter of 1996 as
compared to $9,362,000 during the same period in 1995. The Company experienced
higher research costs associated with an increase in the number of research
employees which was largely offset by lower contracted development costs. While
development activities associated with the Company's clinical candidates have
been increasing, these costs and activities have largely been borne by Vertex's
partners. General and administrative expenses increased during the first quarter
of 1996 to $1,763,000 from $1,558,000 in the first quarter of 1995 due primarily
to an increase in costs associated with patent protection for the Company's
intellectual property as well as an increase in Altus Biologics' marketing
efforts. Interest expense was $119,000 in the first quarter of 1996 as compared
to $116,000 during the same period in 1995.
The Company incurred a net loss of $7,468,000 or $.43 per share in the
first quarter of 1996 as compared to a net loss of $4,703,000 or $.27 per share
in the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, 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 developing
existing and future compounds as well as undertaking clinical trials of
potential drugs. The Company also expects to incur substantial administrative
and commercialization expenditures in the future and increased 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 through
existing cash and investments, 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.
On May 9, 1996, the Company entered into a collaborative agreement with
BioChem Pharma (International) Inc. for the development and commercialization of
VX-710, the Company's lead compound in its cancer multidrug resistance program.
Under the collaborative agreement, BioChem has exclusive rights to develop and
commercialize VX-710 in Canada. BioChem is obligated to pay the Company an
initial license fee and make payments for development and commercialization
milestones. In addition, BioChem is obligated to bear the costs of development
of VX-710 under the collaboration. The Company will supply BioChem's
requirements of bulk and finished forms of VX-710. BioChem will make payments to
the Company for those materials based on sales of products by BioChem, which
will cover Vertex's cost of supplying materials and provide a profit to Vertex.
BioChem has the right to terminate the agreement without cause upon six months
notice, at any time after May 8, 1997. Termination will relieve BioChem of any
further payment obligations under the agreement and will end any license granted
to BioChem from Vertex thereunder.
The Company's aggregate cash and investments decreased by $9,722,000 during
the three months ended March 31, 1996 to $77,256,000. Cash used by operations,
principally to fund research and development activities, was $8,326,000 during
the same period.
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PART II.
OTHER INFORMATION
Item 1. Legal Proceedings:
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None
Item 2. Changes in Securities:
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None
Item 3. Defaults Upon Senior Securities:
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None
Item 4. Submission of Matters to a Vote of Security Holders:
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None
Item 5. Other Information:
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None
Item 6. Exhibits:
10.1 License Agreement and Supply Agreement, both dated May 9, 1996,
between the Company and BioChem Pharma (International) Inc. (filed
herewith with certain confidential information omitted)
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.)
Reports on Form 8-K:
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None
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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 14, 1996 /s/ Thomas G. Auchincloss, Jr.
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Thomas G. Auchincloss, Jr.
Senior Director of Finance and Treasurer
(Principal Financial Officer)
/s/ Hans D. van Houte
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Hans D. van Houte
Controller
(Principal Accounting Officer)
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