Vertex Pharmaceuticals Inc 10-Q for FY2020 Q2

Vertex Pharmaceuticals Inc (VRTX)

10-Q 2020-07-31 For: 2020-06-30

Added on April 02, 2026

About this 10-Q

Vertex Pharmaceuticals Inc filed this 10-Q on July 31, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).

Headline figures

Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $1.52B; up 62.0% from $941.29M a year earlier
Net income: $837.27M; up 213.1% from net income of $267.43M a year earlier
Diluted EPS: $3.18; up 208.7% from $1.03 a year earlier

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	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenues:
Product revenues, net	$	1,524,485	$	940,380	$	3,039,592	$	1,797,633
Collaborative and royalty revenues	—		913		—		2,095
Total revenues	1,524,485		941,293		3,039,592		1,799,728
Costs and expenses:
Cost of sales	184,520		135,740		347,017		230,832
Research and development expenses	420,928		379,091		869,456		718,581
Sales, general and administrative expenses	191,804		156,502		374,062		303,547
Change in fair value of contingent consideration	9,200		—		10,800		—
Total costs and expenses	806,452		671,333		1,601,335		1,252,960
Income from operations	718,033		269,960		1,438,257		546,768
Interest income	4,243		18,076		16,819		33,691
Interest expense	(13,871)		(14,837)		(28,007)		(29,705)
Other income, net	116,365		53,939		55,235		96,549
Income before (benefit from) provision for income taxes	824,770		327,138		1,482,304		647,303
(Benefit from) provision for income taxes	(12,500)		59,711		42,281		111,245
Net income	$	837,270	$	267,427	$	1,440,023	$	536,058

Net income per common share:
Basic	$	3.22	$	1.04	$	5.54	$	2.09
Diluted	$	3.18	$	1.03	$	5.46	$	2.06
Shares used in per share calculations:
Basic	259,637		256,154		260,013		255,941
Diluted	263,403		259,822		263,746		260,015


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net income	$	837,270	$	267,427	$	1,440,023	$	536,058
Other comprehensive loss:
Unrealized holding gains on marketable securities, net	2,714		451		1,950		1,047
Unrealized losses on foreign currency forward contracts, net of tax of $4.7 million, $1.8 million, $(0.3) million and $3.3 million, respectively	(19,680)		(5,776)		(898)		(5,998)
Foreign currency translation adjustment	(10,538)		(3,876)		(13,200)		1,091
Total other comprehensive loss	(27,504)		(9,201)		(12,148)		(3,860)
Comprehensive income	$	809,766	$	258,226	$	1,427,875	$	532,198


	June 30,		December 31,
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	4,831,332	$	3,109,322
Marketable securities	619,437		698,972
Accounts receivable, net	791,768		633,518
Inventories	219,218		167,502
Prepaid expenses and other current assets	232,565		213,515
Total current assets	6,694,320		4,822,829
Property and equipment, net	728,357		745,080
Goodwill	1,002,158		1,002,158
Intangible assets	400,000		400,000
Deferred tax assets	1,214,968		1,190,815
Other assets	176,564		157,583
Total assets	$	10,216,367	$	8,318,465
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	101,451	$	87,610
Accrued expenses	1,545,407		1,116,912
Other current liabilities	151,782		130,305
Total current liabilities	1,798,640		1,334,827
Long-term finance lease liabilities	522,067		538,576
Long-term contingent consideration	187,300		176,500
Other long-term liabilities	189,118		183,318
Total liabilities	2,697,125		2,233,221
Commitments and contingencies	—		—
Shareholders’ equity:
Preferred stock, $0.01 par value; 1,000 shares authorized; none issued and outstanding	—		—
Common stock, $0.01 par value; 500,000 shares authorized, 260,124 and 258,993 shares issued and outstanding, respectively	2,601		2,589
Additional paid-in capital	7,943,717		7,937,606
Accumulated other comprehensive loss	(14,121)		(1,973)
Accumulated deficit	(412,955)		(1,852,978)
Total shareholders’ equity	7,519,242		6,085,244
Total liabilities and shareholders’ equity	$	10,216,367	$	8,318,465


	Three Months Ended
	Common Stock					Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Shareholders’ Equity
	Shares	Amount
Balance at March 31, 2019	256,351	$	2,561	$	7,475,909	$	6,000	$	(2,761,157)	$	4,723,313
Other comprehensive loss, net of tax	—	—		—		(9,201)		—		(9,201)
Net income	—	—		—		—		267,427		267,427
Repurchase of common stock	(296)	(3)		(52,007)		—		—		(52,010)

Issuance of common stock under benefit plans	616	7		50,494		—		—		50,501
Stock-based compensation expense	—	—		89,935		—		—		89,935
Balance at June 30, 2019	256,671	$	2,565	$	7,564,331	$	(3,201)	$	(2,493,730)	$	5,069,965

Balance at March 31, 2020	259,079	$	2,591	$	7,695,905	$	13,383	$	(1,250,225)	$	6,461,654
Other comprehensive loss, net of tax	—	—		—		(27,504)		—		(27,504)
Net income	—	—		—		—		837,270		837,270

Common stock withheld for employee tax obligations	(11)	—		(3,080)		—		—		(3,080)
Issuance of common stock under benefit plans	1,056	10		132,771		—		—		132,781
Stock-based compensation expense	—	—		118,121		—		—		118,121
Balance at June 30, 2020	260,124	$	2,601	$	7,943,717	$	(14,121)	$	(412,955)	$	7,519,242

	Six Months Ended
	Common Stock					Additional  Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total  Shareholders’ Equity
	Shares	Amount
Balance at December 31, 2018	255,172	$	2,546	$	7,421,476	$	659	$	(2,989,478)	$	4,435,203
Cumulative effect adjustment for adoption of new accounting guidance	—	—		—		—		(40,310)		(40,310)
Other comprehensive loss, net of tax	—	—		—		(3,860)		—		(3,860)
Net income	—	—		—		—		536,058		536,058
Repurchase of common stock	(833)	(9)		(150,008)		—		—		(150,017)
Common stock withheld for employee tax obligations	(27)	—		(5,832)		—		—		(5,832)
Issuance of common stock under benefit plans	2,359	28		114,517		—		—		114,545
Stock-based compensation expense	—	—		184,178		—		—		184,178
Balance at June 30, 2019	256,671	$	2,565	$	7,564,331	$	(3,201)	$	(2,493,730)	$	5,069,965

Balance at December 31, 2019	258,993	$	2,589	$	7,937,606	$	(1,973)	$	(1,852,978)	$	6,085,244
Other comprehensive loss, net of tax	—	—		—		(12,148)		—		(12,148)
Net income	—	—		—		—		1,440,023		1,440,023
Repurchase of common stock	(1,404)	(14)		(300,012)		—		—		(300,026)
Common stock withheld for employee tax obligations	(586)	(6)		(139,241)						(139,247)
Issuance of common stock under benefit plans	3,121	32		210,343		—		—		210,375
Stock-based compensation expense	—	—		235,021		—		—		235,021
Balance at June 30, 2020	260,124	$	2,601	$	7,943,717	$	(14,121)	$	(412,955)	$	7,519,242


	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities:
Net income	$	1,440,023	$	536,058
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	232,895		183,478
Depreciation expense	53,518		54,838
Increase in fair value of contingent consideration	10,800		—
Deferred income taxes	8,963		87,358
Gains on equity securities	(65,116)		(100,078)
Other non-cash items, net	16,307		6,006
Changes in operating assets and liabilities:
Accounts receivable, net	(164,139)		(55,870)
Inventories	(64,386)		(25,174)
Prepaid expenses and other assets	(28,923)		(17,580)
Accounts payable	14,697		(28,074)
Accrued expenses	369,851		113,968
Other liabilities	29,735		33,603
Net cash provided by operating activities	1,854,225		788,533
Cash flows from investing activities:
Purchases of available-for-sale debt securities	(126,577)		(263,636)
Maturities of available-for-sale debt securities	145,395		228,707
Sale of equity securities	127,874		—
Expenditures for property and equipment	(37,314)		(34,399)
Investment in equity securities	(5,800)		(20,000)
Net cash provided by (used in) investing activities	103,578		(89,328)
Cash flows from financing activities:
Issuances of common stock under benefit plans	213,058		114,092
Repurchases of common stock	(300,026)		(150,017)
Payments in connection with common stock withheld for employee tax obligations	(139,247)		(5,832)
Payments on finance leases	(20,730)		(18,926)
Proceeds related to finance leases	5,833		1,002
Advance from collaborator	3,500		7,500
Repayments of advanced funding	(1,793)		(2,823)
Net cash used in financing activities	(239,405)		(55,004)
Effect of changes in exchange rates on cash	(3,379)		(808)
Net increase in cash and cash equivalents	1,715,019		643,393
Cash, cash equivalents and restricted cash—beginning of period	3,120,681		2,658,253
Cash, cash equivalents and restricted cash—end of period	$	4,835,700	$	3,301,646

Supplemental disclosure of cash flow information:
Cash paid for interest	$	27,347	$	27,109
Cash paid for income taxes	$	36,813	$	10,902
Issuances of common stock from employee benefit plans receivable	$	137	$	539


Common Stock, par value $0.01 per share			260,467,334			Outstanding at July 23, 2020


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.


	As of June 30, 2020														As of December 31, 2019
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(in thousands)
Financial instruments carried at fair value (asset positions):
Cash equivalents:
Money market funds	$	2,476,713	$	2,476,713	$	—	$	—	$	791,039	$	791,039	$	—	$	—
Corporate debt securities	4,835		—		4,835		—		6,070		—		6,070		—
Commercial paper	93,107		—		93,107		—		29,472		—		29,472		—
Marketable securities:
Corporate equity securities	219,327		209,214		10,113		—		282,084		261,797		20,287		—
Government-sponsored enterprise securities	11,253		11,253		—		—		12,733		12,733		—		—
Corporate debt securities	293,976		—		293,976		—		301,799		—		301,799		—
Commercial paper	94,881		—		94,881		—		102,356		—		102,356		—
Prepaid expenses and other current assets:
Foreign currency forward contracts	8,054		—		8,054		—		9,725		—		9,725		—
Other assets:
Foreign currency forward contracts	44		—		44		—		—		—		—		—
Total financial assets	$	3,202,190	$	2,697,180	$	505,010	$	—	$	1,535,278	$	1,065,569	$	469,709	$	—

Financial instruments carried at fair value (liability positions):
Other current liabilities:
Foreign currency forward contracts	$	(4,871)	$	—	$	(4,871)	$	—	$	(5,533)	$	—	$	(5,533)	$	—
Long-term contingent consideration	(187,300)		—		—		(187,300)		(176,500)		—		—		(176,500)
Other long-term liabilities:
Foreign currency forward contracts	(1,462)		—		(1,462)		—		(1,821)		—		(1,821)		—
Total financial liabilities	$	(193,633)	$	—	$	(6,333)	$	(187,300)	$	(183,854)	$	—	$	(7,354)	$	(176,500)



	Six Months Ended June 30, 2020
	(in thousands)
Balance at December 31, 2019	$	176,500
Increase in fair value of contingent payments	10,800
Balance at June 30, 2020	$	187,300


	As of June 30, 2020														As of December 31, 2019
	Amortized Cost		Gross  Unrealized  Gains		Gross  Unrealized  Losses		Fair Value		Amortized Cost		Gross  Unrealized  Gains		Gross  Unrealized  Losses		Fair Value
	(in thousands)
Cash equivalents:
Money market funds	$	2,476,713	$	—	$	—	$	2,476,713	$	791,039	$	—	$	—	$	791,039
Corporate debt securities	4,836		—		(1)		4,835		6,070		—		—		6,070
Commercial paper	93,084		23		—		93,107		29,470		3		(1)		29,472
Total cash equivalents	2,574,633		23		(1)		2,574,655		826,579		3		(1)		826,581
Marketable securities:
Government-sponsored enterprise securities	11,198		55		—		11,253		12,689		44		—		12,733
Corporate debt securities	292,085		1,897		(6)		293,976		301,458		391		(50)		301,799
Commercial paper	94,396		492		(7)		94,881		102,240		121		(5)		102,356
Total marketable debt securities	397,679		2,444		(13)		400,110		416,387		556		(55)		416,888
Corporate equity securities	67,054		152,273		—		219,327		113,829		168,255		—		282,084
Total marketable securities	$	464,733	$	154,717	$	(13)	$	619,437	$	530,216	$	168,811	$	(55)	$	698,972


			Unrealized Holding Gains (Losses), Net of Tax
	Foreign Currency Translation Adjustment		On Available-For-Sale Debt Securities		On Foreign Currency Forward Contracts		Total
	(in thousands)
Balance at December 31, 2019	$	(895)	$	503	$	(1,581)	$	(1,973)
Other comprehensive (loss) income before reclassifications	(13,200)		1,950		11,079		(171)
Amounts reclassified from accumulated other comprehensive income (loss)	—		—		(11,977)		(11,977)
Net current period other comprehensive (loss) income	(13,200)		1,950		(898)		(12,148)
Balance at June 30, 2020	$	(14,095)	$	2,453	$	(2,479)	$	(14,121)

Balance at December 31, 2018	$	(11,227)	$	(536)	$	12,422	$	659
Other comprehensive income before reclassifications	1,091		1,047		5,793		7,931
Amounts reclassified from accumulated other comprehensive income (loss)	—		—		(11,791)		(11,791)
Net current period other comprehensive income (loss)	1,091		1,047		(5,998)		(3,860)
Balance at June 30, 2019	$	(10,136)	$	511	$	6,424	$	(3,201)


	As of June 30, 2020		As of December 31, 2019
Foreign Currency	(in thousands)
Euro	$	633,770	$	501,197
British pound sterling	150,407		87,032
Australian dollar	89,443		89,705
Canadian dollar	57,578		50,452
Total foreign currency forward contracts	$	931,198	$	728,386


As of June 30, 2020
Assets				Liabilities
Classification	Fair Value		Classification	Fair Value
(in thousands)
Prepaid expenses and other current assets	$	8,054	Other current liabilities	$	(4,871)
Other assets	44		Other long-term liabilities	(1,462)
Total assets	$	8,098	Total liabilities	$	(6,333)


	As of June 30, 2020
	Gross Amounts Recognized		Gross Amounts Offset		Gross Amounts Presented		Gross Amounts Not Offset		Legal Offset
Foreign currency forward contracts	(in thousands)
Total assets	$	8,098	$	—	$	8,098	$	(6,333)	$	1,765
Total liabilities	(6,333)		—		(6,333)		6,333		—


	As of June 30, 2020
	Unrecognized Expense		Weighted-average  Recognition Period
	(in thousands)		(in years)
Type of award:
Restricted stock units (including PSUs)	$	473,493	2.08
Stock options	$	91,779	2.15
ESPP share issuances	$	6,489	0.59


	As of June 30, 2020		As of December 31, 2019
	(in thousands)
Matures within one year	$	2,939,879	$	1,137,942
Matures after one year through five years	34,886		105,527
Total	$	2,974,765	$	1,243,469


	As of June 30, 2020		As of December 31, 2019
	(in thousands)
Raw materials	$	30,162	$	26,247
Work-in-process	134,889		107,021
Finished goods	54,167		34,234
Total	$	219,218	$	167,502


	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)
$33.82–$40.00	67	1.27	$	37.85	67	$	37.85
$40.01–$60.00	166	2.20	$	47.20	166	$	47.20
$60.01–$80.00	107	3.77	$	74.83	105	$	74.83
$80.01–$100.00	1,095	5.92	$	88.92	889	$	89.33
$100.01–$120.00	132	4.64	$	109.27	130	$	109.20
$120.01–$140.00	288	5.23	$	129.41	286	$	129.43
$140.01–$160.00	784	7.61	$	155.49	340	$	155.39
$160.01–$180.00	619	8.02	$	168.32	252	$	165.43
$180.01–$200.00	1,307	8.40	$	185.32	365	$	184.82
$200.01–$286.27	23	9.92	$	286.27	23	$	286.27
Total	4,588	6.89	$	139.99	2,623	$	121.00


	Three Months Ended June 30,						Increase/(Decrease)						Six Months Ended June 30,				Increase/(Decrease)
	2020		2019		$		%		2020		2019		$		%
	(in thousands, except percentages)
TRIKAFTA	$	917,715	$	—	$	917,715	**		$	1,812,948	$	—	$	1,812,948	**
SYMDEKO/SYMKEVI	171,729		361,832		(190,103)		(53)	%	344,888		682,107		(337,219)		(49)	%
ORKAMBI	231,981		316,441		(84,460)		(27)	%	466,119		609,448		(143,329)		(24)	%
KALYDECO	203,060		262,107		(59,047)		(23)	%	415,637		506,078		(90,441)		(18)	%
Total product revenues, net	$	1,524,485	$	940,380	$	584,105	62	%	$	3,039,592	$	1,797,633	$	1,241,959	69	%

													** Not meaningful


Exhibit Number			Exhibit Description
3.2			Amended and Restated By-Laws of Vertex Pharmaceuticals Incorporated (incorporated by reference to Exhibit 3.2 to our Quarterly Report on Form 10-Q filed on May 1, 2020).
10.1			Employment Agreement, dated as of April 1, 2020, between Vertex Pharmaceuticals Incorporated and Dr. Jeffrey M. Leiden (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on April 1, 2020).*
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 - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
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
104			Cover Page Interactive Data File––the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
			* Management contract, compensatory plan or agreement.


	Vertex Pharmaceuticals Incorporated

July 31, 2020	By:	/s/ Charles F. Wagner, Jr.
		Charles F. Wagner, Jr.
		Executive Vice President, Chief Financial Officer (principal financial officer and duly authorized officer)


Date:	July 31, 2020	/s/ Reshma Kewalramani

		Reshma Kewalramani
		Chief Executive Officer and President