VERTEX PHARMACEUTICALS INCORPORATED OVERVIEW
We invest in scientific innovation to create transformative medicines for people with serious diseases with a focus on specialty markets. We have four approved medicines to treat cystic fibrosis, or CF, a life-threatening genetic disease, and are focused on increasing the number of people with CF eligible and able to receive our medicines through label expansions, approval of new medicines, and expanded reimbursement. We are broadening our pipeline into additional disease areas through internal research efforts and accessing external innovation through business development transactions. Our triple combination regimen, TRIKAFTA/KAFTRIO (elexacaftor/tezacaftor/ivacaftor and ivacaftor), was approved in 2019 inthe United States , orU.S. , and in 2020 in theEuropean Union , or E.U. Collectively, our four medicines are being used by the majority of the approximately 83,000 people with CF inNorth America ,Europe , andAustralia . We are evaluating our medicines in additional patient populations, including younger children, with the goal of having small molecule treatments for approximately 90% of people with CF. We also are pursuing genetic therapies for the remaining people with CF who may not be helped by our current CF medicines.
Beyond CF, we continue to research and develop product candidates for the treatment of serious diseases, including sickle cell disease, beta thalassemia, APOL1-mediated kidney disease, type 1 diabetes, pain, alpha-1 antitrypsin deficiency, Duchenne muscular dystrophy, and myotonic dystrophy type 1.
Financial Highlights
Revenues In the first quarter of 2022, our net product revenues continued to increase due
to the strong launches of TRIKAFTA/KAFTRIO in multiple countries internationally
and the strong performance of TRIKAFTA in the U.S. ,
including the
of TRIKAFTA for children with CF 6 through 11 years of age.
Expenses Our total research and development, or R&D, and selling, general and
administrative, or SG&A, expenses increased to $818.3 million in the first quarter
of 2022 as compared to $648.1 million in the first quarter of 2021 primarily due
to the progression of several product candidates into mid- to late-stage clinical
development. In the first quarter of 2022, cost of sales was 12% of our net
product revenues.
Cash Our cash, cash equivalent and marketable securities
increased to
of March 31, 2022 as compared to $7.5 billion as of
due to our net product revenues and profitability.
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Table of Contents Business Updates Marketed Products We expect to continue to grow our CF business by increasing the number of people with CF eligible and able to receive our medicines and providing improved treatment options for people who are already eligible for one of our medicines. Recent and anticipated progress in activities supporting these efforts is included below. •In January, theEuropean Commission and theU.K.'s Medicines and Healthcare products Regulatory Agency granted marketing authorization for KAFTRIO in the treatment of children with CF 6 through 11 years of age who have at least one F508del mutation in the CFTR gene. •We filed a supplemental New Drug Application, or sNDA, with theU.S. Food and Drug Administration , or FDA, for ORKAMBI for its use in children with CF 12 months to less than 24 months of age. We plan to submit regulatory filings inEurope in the second quarter of 2022.
•We completed enrollment in our Phase 3 study of TRIKAFTA/KAFTRIO in children with CF 2 through 5 years of age. We plan to file an sNDA with the FDA in 2022.
•We entered into a reimbursement agreement with the Australian Pharmaceutical Benefits Scheme for TRIKAFTA for the treatment of people with CF 12 years of age and older who have at least one F508del mutation in the CFTR gene.
•Health Canada granted marketing authorization for TRIKAFTA in the treatment of children with CF 6 through 11 years of age.
•TRIKAFTA/KAFTRIO is now approved and reimbursed or accessible in more than 25 countries.
Pipeline We continue to advance a pipeline of potentially transformative small molecule and cell and genetic therapies aimed at treating serious diseases. Recent and anticipated progress in activities supporting these efforts is included below.
Cystic Fibrosis
•We are conducting two Phase 3 global, randomized, double-blind, active-controlled clinical trials evaluating our new once-daily investigational triple combination of VX-121/tezacaftor/VX-561 in patients with CF. Sites across both studies are open and enrolling, and enrollment in both trials is expected to be completed in late 2022 or early 2023. •In collaboration with Moderna, we are developing CF mRNA therapeutics for the treatment of people with CF who do not produce any CFTR protein. We have completed IND-enabling studies and expect to submit an Investigational New Drug Application, or IND, for this program in the second half of 2022.
Beta Thalassemia and Sickle Cell Disease
•We are evaluating the use of a non-viral ex vivo CRISPR gene-editing therapy, CTX001, for the treatment of severe sickle cell disease, or SCD, and transfusion-dependent beta thalassemia, or TDT. Enrollment is complete in the ongoing clinical trials evaluating CTX001 in severe SCD and TDT, and two new Phase 3 studies of CTX001 have been initiated in pediatric patients with SCD and TDT. We anticipate presenting updated data for this program later this year and making regulatory submissions for CTX001 in late 2022.
APOL1-Mediated Kidney Disease
•Based on positive Phase 2 data for VX-147, our small molecule for the treatment
of APOL1-mediated focal segmental glomerulosclerosis, or FSGS, we initiated
pivotal development of VX-147 in a single Phase 2/3 study in patients with
APOL1-mediated kidney disease with two APOL1 mutations and proteinuric kidney
disease.
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Pain
•We have discovered multiple selective small molecule inhibitors of NaV1.8 with the objective of creating a new class of pain medicines that have the potential to provide effective pain relief. In March, we announced positive Phase 2 data for VX-548, a NaV 1.8 inhibitor, for the non-opioid treatment of acute pain. We expect to advance VX-548 into pivotal development in the second half of 2022, following discussions with regulators.
Type 1 Diabetes
•VX-880 is a stem cell-derived, allogeneic, fully differentiated, insulin-secreting islet cell replacement therapy, used in combination with immunosuppression to protect the implanted cells. VX-880 is being evaluated in a Phase 1/2 clinical trial as a potential treatment for type 1 diabetes, or T1D. This program has been placed on clinical hold in theU.S. by the FDA. •We recently announced updated results for the first T1D patient in this clinical trial, as well as initial results from the second patient dosed, establishing proof-of-concept for VX-880 in the treatment of T1D. The results demonstrated restoration of islet cell function and rapid improvements in multiple measures. We also announced an update regarding a third patient treated with VX-880, who has received the full target dose of VX-880. VX-880 safety data to date is generally consistent with the immunosuppressive regimen used in the study and the perioperative period. •We continue to advance additional programs in T1D, in which these same stem cell-derived, fully differentiated, insulin-secreting islet cells are encapsulated and implanted in an immunoprotective device or modified to produce hypoimmune stem cells islets with the goal of eliminating the need for immunosuppression. We are conducting IND-enabling studies for the cells and device program, and we expect to submit an IND for this program in 2022.
Alpha-1 Antitrypsin, or AAT, Deficiency
•We are working to address the underlying genetic cause of AAT deficiency by developing novel small molecule correctors of Z-AAT protein folding, with a goal of enabling the secretion of functional AAT into the blood and addressing both the lung and the liver aspects of AAT deficiency. We plan to advance one or more small molecule Z-AAT correctors into the clinic in 2022.
Duchenne Muscular Dystrophy (DMD)
•We are investigating a novel approach to treating DMD which delivers CRISPR/Cas9 gene-editing technology to muscle cells with the goal of restoring near-full length dystrophin protein expression by targeting specific mutations in the dystrophin gene that cause the disease. We have advanced our first in vivo gene-editing therapy for DMD into IND-enabling studies.
Our Business Environment
Our net product revenues come from the sale of our medicines for the treatment
of CF. Our CF strategy involves continuing to develop and obtain approval and
reimbursement for treatment regimens that will provide benefits to all people
with CF and increasing the number of people with CF eligible and able to receive
our medicines, including through label expansions, expanded reimbursement, and
the development of new medicines. We are actively pursuing a pipeline of product
candidates for the treatment of serious diseases outside of CF. Our strategy is
to combine transformative advances in the understanding of human disease biology
and the science of therapeutics in order to discover and develop new medicines.
This approach includes advancing multiple compounds from each program, spanning
multiple modalities, into early clinical trials and evaluating patient data to
inform discovery and development of additional compounds, with the goal of
bringing first-in-class and best-in-class therapies to patients, and to provide
durable clinical and commercial success.
In pursuit of new product candidates and therapies in specialty markets, we
invest in research and development. We believe that pursuing research in diverse
areas allows us to balance the risks inherent in product development and may
provide product candidates that will form our pipeline in future years. To
supplement our internal research programs, we acquire technologies and programs
and collaborate with biopharmaceutical and technology companies, leading
academic research institutions, government laboratories, foundations and other
organizations, as needed, to advance research in our areas of therapeutic
interest and to access technologies needed to execute on our strategy.
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Discovery and development of a new pharmaceutical or biological product is a difficult and lengthy process that requires significant financial resources along with extensive technical and regulatory expertise. Most potential drug or biological products never progress into development, and most products that do advance into development never receive marketing approval. Our investments in product candidates are subject to considerable risks. We closely monitor the results of our discovery, research, clinical trials and nonclinical studies and frequently evaluate our product development programs in light of new data and scientific, business and commercial insights, with the objective of balancing risk and potential. This process can result in rapid changes in focus and priorities as new information becomes available and as we gain additional understanding of our ongoing programs and potential new programs, as well as those of our competitors. Our business also requires ensuring appropriate manufacturing and reimbursement of our products. As we advance our product candidates through clinical development toward commercialization and market and sell our approved products, we build and maintain our supply chain and quality assurance resources. We rely on a global network of third parties and our internal capabilities to manufacture and distribute our products for commercial sale and post-approval clinical trials and to manufacture and distribute our product candidates for clinical trials. In addition to establishing supply chains for each new approved product, we adapt our supply chain for existing products to include additional formulations or to increase scale of production for existing products as needed. The processes for cell and genetic therapies can be more complex than those required for small molecule drugs and require different systems, equipment, facilities and expertise. We are focused on ensuring the stability of the supply chains for our current products, as well as for our pipeline programs.
Sales of our products depend, to a large degree, on the extent to which our
products are reimbursed by third-party payors, such as government health
programs, commercial insurance and managed health care organizations.
Reimbursement for our products, including our potential pipeline therapies,
cannot be assured and may take significant periods of time to obtain. We
dedicate substantial management and other resources in order to obtain and
maintain appropriate levels of reimbursement for our products from third-party
payors, including governmental organizations in the
In theU.S. , we have worked successfully with third-party payors in order to promptly obtain appropriate levels of reimbursement for our CF medicines. We plan to continue to engage in discussions with numerous commercial insurers and managed health care organizations, along with government health programs that are typically managed by authorities in the individual states, to ensure that payors recognize the significant benefits that our medicines provide and provide patients with appropriate levels of access to our medicines now and in the future. In ex-U.S. markets, we seek government reimbursement for our medicines on a country-by-country or region-by-region basis, as required. This is necessary for each new medicine, as well as for label expansions for our current medicines. We expect to continue to focus significant resources to obtain expanded reimbursement for our CF medicines and, ultimately, pipeline therapies inU.S. and ex-U.S. markets. COVID-19 We continue to monitor the impacts of the COVID-19 global pandemic on our business, including in our clinical trials, manufacturing facilities and capabilities, and ability to access necessary resources. COVID-19 has not materially affected our supply chain or the demand for our medicines, and we believe that we will be able to continue to supply all of our approved medicines to patients globally. We adjusted our business operations in response to COVID-19 and have continued to monitor local COVID-19 trends and government guidance for each of our site locations. We are utilizing a site-specific approach to assess and permit employee access to our sites. Currently, our sites are open to certain employees where appropriate and permitted by local laws and guidelines. Strategic Transactions Acquisitions As part of our business strategy, we seek to acquire products, product candidates and other technologies and businesses that are aligned with our corporate and research and development strategies and complement and advance our ongoing research and development efforts. In 2019, we invested significantly in business development transactions designed to augment our pipeline, including the acquisition ofSemma Therapeutics, Inc. , or Semma, a privately-held company focused on the use of stem cell-derived human islets as a treatment for T1D, andExonics Therapeutics, Inc. , or Exonics, a privately-held company focused on creating transformative gene-editing therapies to repair mutations that cause DMD and other severe neuromuscular diseases, including myotonic dystrophy type 1, or DM1. We expect to continue to identify and evaluate potential acquisitions and may include larger transactions or later-stage assets. 23
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Collaboration and Licensing Arrangements
We enter into arrangements with third parties, including collaboration and licensing arrangements, for the development, manufacture and commercialization of products, product candidates and other technologies that have the potential to complement our ongoing research and development efforts. We expect to continue to identify and evaluate collaboration and licensing opportunities that may be similar to or different from the collaborations and licenses that we have engaged in previously. In-License Agreements We have entered into collaborations with biotechnology and pharmaceutical companies in order to acquire rights or to license product candidates or technologies that enhance our pipeline and/or our research capabilities. Over the last several years, we entered into collaboration agreements with a number of companies, includingArbor Biotechnologies, Inc. , CRISPR Therapeutics AG, Kymera Therapeutics, Inc.,Mammoth Biosciences, Inc. , Moderna, Inc., andObsidian Therapeutics, Inc. Generally, when we in-license a technology or product candidate, we make upfront payments to the collaborator, assume the costs of the program and/or agree to make contingent payments, which could consist of milestone, royalty and option payments. Most of these collaboration payments are expensed as research and development expenses; however, depending on many factors, including the structure of the collaboration, the significance of the in-licensed product candidate to the collaborator's operations and the other activities in which our collaborators are engaged, the accounting for these transactions can vary significantly.
Out-License Agreements
We also have out-licensed internally developed programs to collaborators who are leading the development of these programs. Pursuant to these out-licensing arrangements, our collaborators are responsible for the research, development, and commercialization costs associated with these programs, and we are entitled to receive contingent milestone and/or royalty payments. As a result, we do not expect to incur significant expenses in connection with these programs and have the potential for future collaborative and royalty revenues resulting from these programs. In the first quarter of 2022 and 2021, our research and development expenses included$2.0 million and$1.7 million , respectively, related to upfront, contingent milestone, or other payments pursuant to our business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions. None of our out-license agreements had a significant impact on our condensed consolidated statement of operations during the three months endedMarch 31, 2022 and 2021.
Strategic Investments
In connection with our business development activities, we have periodically made equity investments in our collaborators. As ofMarch 31, 2022 , we held strategic equity investments in certain public and private companies, and we expect to make additional strategic equity investments in the future. While we invest the majority of our cash, cash equivalents and marketable securities in instruments that meet specific credit quality standards and limit our exposure to any one issue or type of instrument, our strategic investments are maintained and managed separately from our other cash, cash equivalents and marketable securities. As discussed below in "Other Income (Expense), Net" in our Results of Operations, any changes in the fair value of equity investments with readily determinable fair values (including publicly traded securities) are recorded to other income (expense), net in our condensed consolidated statement of operations. 24
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RESULTS OF OPERATIONS
Three Months Ended March 31,
2022 2021 % Change
(in millions, except percentages and per share amounts)
Revenues $ 2,097.5 $ 1,724.3 22%
Operating costs and expenses 1,056.6 836.5 26%
Income from operations 1,040.9 887.8 17%
Other non-operating expense, net (86.1) (66.9) 29%
Provision for income taxes 192.7 167.8 15%
Net income $ 762.1 $ 653.1 17%
Net income per diluted common share $ 2.96 $ 2.49
Diluted shares used in per share calculations 257.9 261.9
Revenues
Three Months Ended March 31,
2022 2021 % Change
(in millions, except percentages)
TRIKAFTA/KAFTRIO $ 1,761.6 $ 1,193.2 48%
SYMDEKO/SYMKEVI 64.8 125.1 (48)%
ORKAMBI 132.1 218.7 (40)%
KALYDECO 139.0 186.3 (25)%
Product revenues, net $ 2,097.5 $ 1,723.3 22%
Other revenues - 1.0 **
Total revenues $ 2,097.5 $ 1,724.3 22%
** Not meaningful
Product Revenues, Net
In the first quarter of 2022, our net product revenues increased by
$374.2 million , or 22%, as compared to the first quarter of 2021, primarily due
to the strong launches of TRIKAFTA/KAFTRIO in multiple countries internationally
and the strong performance of TRIKAFTA in the U.S. , including the June 2021
launch of TRIKAFTA for children with CF 6 through 11 years of age. Decreases in
revenues for our products other than TRIKAFTA/KAFTRIO were primarily the result
of patients switching from these medicines to TRIKAFTA/KAFTRIO.
Our net product revenues from the U.S. and from ex-U.S. markets were as follows:
Three Months Ended March 31,
2022 2021 % Change
(in millions, except percentages)
United States $ 1,368.2 $ 1,253.4 9%
ex-U.S. 729.3 469.9 55%
Product revenues, net $ 2,097.5 $ 1,723.3 22%
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Other Revenues
We earned a collaborative milestone of$1.0 million in the first quarter of 2021 and did not have any other revenues in the first quarter of 2022. Our other revenues have historically fluctuated significantly from one period to another based on our collaborative out-license activities and may continue to fluctuate in the future. Operating Costs and Expenses ` Three Months Ended March 31, 2022 2021 % Change (in millions, except percentages) Cost of sales$ 245.8 $ 192.3 28% Research and development expenses 603.1 456.0
32%
Selling, general and administrative expenses 215.2 192.1
12%
Change in fair value of contingent consideration (7.5) (3.9) 92% Total costs and expenses$ 1,056.6 $ 836.5 26% Cost of Sales Our cost of sales primarily consists of third-party royalties payable on net sales of our products as well as the cost of producing inventories. Pursuant to our agreement with theCystic Fibrosis Foundation our tiered third-party royalties on sales of TRIKAFTA/KAFTRIO, SYMDEKO/SYMKEVI, KALYDECO, and ORKAMBI, calculated as a percentage of net sales, range from the single digits to the sub-teens, with royalties on sales of TRIKAFTA/KAFTRIO slightly lower than for our other products. Over the last several years, our cost of sales has been increasing due to increased net product revenues. Our cost of sales as a percentage of our net product revenues was 12% and 11% in the first quarter of 2022 and 2021, respectively.
Research and Development Expenses
Three Months Ended March 31,
2022 2021 % Change
(in millions, except percentages)
Research expenses $ 145.8 $ 129.8 12%
Development expenses 457.3 326.2 40%
Total research and development expenses $ 603.1 $ 456.0 32%
Our research and development expenses include internal and external costs
incurred for research and development of our products and product candidates and
expenses related to certain technologies that we acquire or license through
business development transactions. We do not assign our internal costs, such as
salary and benefits, stock-based compensation expense, laboratory supplies and
other direct expenses and infrastructure costs, to individual products or
product candidates, because the employees within our research and development
groups typically are deployed across multiple research and development programs.
We assign external costs of services provided to us by clinical research
organizations and other outsourced research by individual program. Apart from
upfront, contingent milestone, or other payments related to technologies that we
have acquired or licensed through our business development transactions, our
internal costs are significantly greater than our external costs. All research
and development costs for our products and product candidates are expensed as
incurred.
Since January 2020 , we have incurred approximately $5.5 billion in research and
development expenses associated with product discovery and development. The
successful development of our product candidates is highly uncertain and subject
to a number of risks. In addition, the duration of clinical trials may vary
substantially according to the type, complexity and novelty of the product
candidate and the disease indication being targeted. The FDA and comparable
agencies in foreign countries impose substantial requirements on the
introduction of therapeutic pharmaceutical products, typically requiring lengthy
and detailed laboratory and clinical testing procedures, sampling activities and
other costly and time-consuming procedures. Data obtained from nonclinical and
clinical activities at any step in the testing process may be adverse and lead
to
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discontinuation or redirection of development activities. Data obtained from
these activities also are susceptible to varying interpretations, which could
delay, limit or prevent regulatory approval. The duration and cost of discovery,
nonclinical studies and clinical trials may vary significantly over the life of
a project and are difficult to predict. Therefore, accurate and meaningful
estimates of the ultimate costs to bring our product candidates to market are
not available.
Any estimates regarding development and regulatory timelines for our product
candidates are highly subjective and subject to change. Until we have data from
Phase 3 clinical trials, we cannot make a meaningful estimate regarding when, or
if, a clinical development program will generate revenues and cash flows.
Research Expenses
Three Months Ended March 31,
2022 2021 % Change
(in millions, except percentages)
Research Expenses:
Salary and benefits $ 40.2 $ 34.7 16%
Stock-based compensation expense 22.9 21.0 9%
Outsourced services and other direct expenses 39.5 40.1 (1)%
Upfront and milestone expenses 2.0 1.7 18%
Infrastructure costs 41.2 32.3 28%
Total research expenses $ 145.8 $ 129.8 12%
We expect to continue to invest in our research programs with a focus on
creating transformative medicines for serious diseases. Our research expenses
have historically fluctuated, and are expected to continue to fluctuate, from
one period to another due to upfront, milestone, and other payments related to
technologies that we have acquired or licensed through our business development
transactions. Our research expenses, apart from these payments, have been
increasing over the last several years as we have invested in our pipeline and
expanded our cell and genetic therapy capabilities.
Development Expenses
Three Months Ended March 31,
2022 2021 % Change
(in millions, except percentages)
Development Expenses:
Salary and benefits $ 109.9 $ 84.5 30%
Stock-based compensation expense 57.5 51.8 11%
Outsourced services and other direct expenses 212.7 132.8 60%
Infrastructure costs 77.2 57.1 35%
Total development expenses $ 457.3 $ 326.2 40%
Our development expenses increased by $131.1 million , or 40%, in the first
quarter of 2022 as compared to the first quarter of 2021, primarily due to costs
to support clinical trials associated with our advancing pipeline programs,
including our CF triple combination of VX-121/tezacaftor/VX-561, pain and T1D.
We are investing in both our internal headcount and infrastructure and also
leveraging outsourced services to support these programs. In the first quarter
of 2022 and 2021, costs related to our CF programs represented the largest
portion of our development costs.
Selling, General and Administrative Expenses
Three Months Ended March 31,
2022 2021 % Change
(in millions, except percentages)
Selling, general and administrative expenses $ 215.2 $ 192.1 12%
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Selling, general and administrative expenses increased by 12% in the first quarter of 2022 as compared to the first quarter of 2021, primarily due to the continued investment to support the commercialization of our medicines and increased support for our pipeline product candidates.
Contingent Consideration
The fair value of contingent consideration potentially payable to Exonics'
former equity holders decreased by
Other Non-Operating Income (Expense), Net
Interest Income
Interest income was
Interest Expense
Interest expense was
Other Income (Expense), Net
Other income (expense), net was expense of$72.8 million and$52.7 million in the first quarter of 2022 and 2021, respectively, primarily related to net unrealized losses of$75.6 million and$52.3 million in the first quarter of 2022 and 2021, respectively, resulting from changes in the fair value of our strategic investments. As ofMarch 31, 2022 , the fair value of our investments in publicly traded companies was$155.3 million . To the extent that we continue to hold strategic investments in publicly traded companies, we will record other income (expense) related to these strategic investments on a quarterly basis. We expect that due to the volatility of the stock price of biotechnology companies, our other income (expense), net will fluctuate in future periods based on increases or decreases in the fair value of our strategic investments.
Income Taxes
We recorded provisions for income taxes of$192.7 million and$167.8 million in the first quarter of 2022 and 2021, respectively. Our effective tax rate of 20% for each of the first quarter of 2022 and 2021 was lower than theU.S. statutory rate primarily due to excess tax benefits related to stock-based compensation.
Net Income
Our net income increased to$762.1 million in the first quarter of 2022 as compared to$653.1 million in the first quarter of 2021 primarily due to increased operating income resulting from our product revenues partially offset by increased cost of sales, development expenses to progress several product candidates into mid- to late-stage clinical development, and selling, general and administrative expenses to support the commercialization of our medicines and increased support for our pipeline product candidates. 28
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LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the components of our financial condition as of
As of March 31, 2022 As of December 31, 2021 % Change
(in millions, except percentages)
Cash, cash equivalents and marketable
securities $ 8,238.1 $ 7,524.9 9%
Working Capital:
Total current assets 10,361.3 9,560.6 8%
Total current liabilities (2,180.2) (2,142.0) 2%
Total working capital $ 8,181.1 $ 7,418.6 10%
Working Capital
As of March 31, 2022 , total working capital was $8.2 billion , which represented
an increase of $762.5 million from $7.4 billion as of December 31, 2021 . The
increase in total working capital in the first quarter of 2022 was primarily
related to $956.2 million of cash provided by operations.
Cash Flows
Three Months Ended March 31,
2022 2021
(in millions)Net cash provided by (used in):
Operating activities $ 956.2 $ 921.0
Investing activities $ (51.0) $ (74.3)
Financing activities $ (95.4) $ (518.7)
Operating Activities
Cash provided by operating activities were $956.2 million in the first quarter
of 2022 as compared to $921.0 million in the first quarter of 2021, primarily
due to a $109.0 million increase in our net income resulting from increased
product revenues partially offset by commensurate increase in accounts
receivable.
Investing Activities
Cash used in investing activities were$51.0 million and$74.3 million in the first quarter of 2022 and 2021, respectively. These investing activities were primarily related to purchases of property and equipment.
Financing Activities
Cash used in financing activities were$95.4 million and$518.7 million in the first quarter of 2022 and 2021, respectively. In the first quarter of 2022, the largest portion of our financing activities related to payments related to our employee stock benefit plans. In the first quarter of 2021, the largest portion of our financing activities were share repurchases pursuant to our share repurchase programs totaling$424.9 million .
Sources and Uses of Liquidity
As ofMarch 31, 2022 , we had cash, cash equivalents and marketable securities of$8.2 billion , which represented an increase of$713.2 million from$7.5 billion as ofDecember 31, 2021 . We intend to rely on our existing cash, cash equivalents and marketable securities together with cash flows from product sales as our primary source of liquidity. We expect that cash flows from our products together with our current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months. The adequacy of our available funds to meet our future operating and capital requirements will depend on many factors, including the amounts of future revenues generated by 29
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our products, and the potential introduction of one or more of our other product candidates to the market, the level of our business development activities and the number, breadth, cost and prospects of our research and development programs.
Credit Facilities & Financing Strategy
We may borrow up to a total of$2.5 billion pursuant to two revolving credit facilities. We may repay and reborrow amounts under these revolving credit agreements without penalty. Subject to certain conditions, we may request that the borrowing capacity for each of the credit agreements be increased by an additional$500.0 million , for a total of$3.5 billion collectively. Negative covenants in our credit agreement may prohibit or limit our ability to access these sources of liquidity. As ofMarch 31, 2022 , we were in compliance with these covenants. We may also raise additional capital by borrowing under credit agreements, through public offerings or private placements of our securities or securing new collaborative agreements or other methods of financing. We will continue to manage our capital structure and will consider all financing opportunities, whenever they may occur, that could strengthen our long-term liquidity profile. There can be no assurance that any such financing opportunities will be available on acceptable terms, if at all.
Future Capital Requirements
We have significant future capital requirements, including:
•Expected operating expenses to conduct research and development activities and to operate our organization.
•Facility and finance lease obligations.
•Royalties we pay to the
•Starting in 2022, our cash paid for income taxes will substantially increase due to the elimination of the option in theU.S. to deduct research and development expenses in the period they are incurred and instead, as required by the Tax Cuts and Job Act of 2017, amortize them over a five year period if they are from theU.S. and fifteen years if they are from foreign jurisdictions.
In addition, we have significant potential future capital requirements including:
•We have entered into certain business development-related agreements with third parties that include the funding of certain research, development, and commercialization efforts. Certain of our transactions, including collaborations, licensing arrangements, and asset acquisitions, include the potential for future milestone and royalty payments by us upon the achievement of pre-established developmental and regulatory targets and/or commercial targets. Our obligation to fund these research and development and commercialization efforts and to pay these potential milestone and royalties is contingent upon continued involvement in the programs and/or the lack of any adverse events that could cause the discontinuance of the programs associated with our collaborations and acquisitions. We may enter into additional business development transactions, including acquisitions, collaborations and equity investments, that require additional capital. •To the extent we borrow amounts under our existing credit agreements, we would be required to repay any outstanding principal amounts in the third quarter of 2022 or 2024.
•As of
There have not been any material changes to our future capital requirements
disclosed in our Annual Report on Form 10-K for the year ended
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements prepared in accordance with generally accepted accounting principles in theU.S. The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported 30
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amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. These items are monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are reflected in reported results for the period in which the change occurs. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate. During the three months endedMarch 31, 2022 , there were no material changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , which was filed with theSEC onFebruary 9, 2022 .
RECENT ACCOUNTING PRONOUNCEMENTS
For a discussion of recent accounting pronouncements, please refer to Note A, "Basis of Presentation and Accounting Policies."
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