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 second 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, acquired in-process research and
development, or AIPR&D, and selling, general and administrative, or SG&A, expenses
decreased to $877.3 million in the second quarter of 2022
as compared to
billion in the second quarter of 2021. The decrease was
primarily due to a
million upfront payment we made in the second quarter of 2021 to CRISPR in
connection with an amendment to our exa-cel collaboration partially offset by the
progression of several product candidates into mid- to late-stage clinical
development. Cost of sales was 12% and 13% of our net product revenues in the
second quarter of 2022 and 2021, respectively.
Cash Our cash, cash equivalent and marketable securities
increased to
of June 30, 2022 as compared to $7.5 billion as of
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. •We have completed the Phase 3 study of TRIKAFTA/KAFTRIO in children 2 to 5 years old. We expect to present results from this trial at a medical forum later in 2022 and to submit global regulatory filings later this year.
•In April,
•We have filed a supplemental New Drug Application with theU.S. Food and Drug Administration , or FDA, and a marketing authorization application with theEuropean Medicines Agency , or EMA, for the use of ORKAMBI in children 12 months to less than 24 months old. The FDA has assigned a Prescription Drug User Fee Act (PDUFA) target date ofSeptember 4, 2022 .
•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 people with CF 12 years of age and older. Sites across both studies are open and enrolling, and enrollment in both trials is expected to be completed in late 2022 or early 2023. We also initiated a study of VX-121/tezacaftor/VX-561 in children with CF 6 to 11 years of age. •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, exa-cel (formerly known as CTX001), for the treatment of sickle cell disease, or SCD, and transfusion-dependent beta thalassemia, or TDT. Enrollment is complete in the ongoing clinical trials evaluating exa-cel in SCD and TDT, and two additional Phase 3 studies of exa-cel have been initiated in pediatric patients, one in TDT and a second in SCD. InJune 2022 , data from 75 people with follow-up ranging from 1.2 to 37.2 months after exa-cel infusion were presented at theEuropean Hematology Association Congress and continued to support the profile of exa-cel as a one-time functional cure for people with TDT and SCD, showing consistent and durable benefit with longer term data. •We have completed discussions with the EMA and theUnited Kingdom's Medicines and Healthcare products Regulatory Agency on the submission package for exa-cel and are on track to submit for regulatory approvals of exa-cel for SCD and TDT inEurope and theUnited Kingdom by the end of 2022. Discussions with the FDA are ongoing. APOL1-Mediated Kidney Disease •Based on positive Phase 2 data for inaxaplin (formerly known as VX-147), our small molecule for the treatment of APOL1-mediated focal segmental glomerulosclerosis, or FSGS, we initiated pivotal development of inaxaplin in a single Phase 2/3 study in patients with two APOL1 mutations and proteinuric kidney disease. 23
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•The FDA granted inaxaplin Breakthrough Therapy designation for APOL1-mediated FSGS and the EMA granted inaxaplin Priority Medicines, or PRIME, designation for APOL1-mediated kidney disease, or AMKD.
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 initiate Phase 3 development of VX-548 for the treatment of acute pain in the fourth quarter of 2022.
•The FDA granted VX-548 Breakthrough Therapy designation for the treatment of moderate to severe acute pain.
•We intend to initiate a Phase 2 study of VX-548 in neuropathic pain by the end of 2022.
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. The VX-880 Phase 1/2 clinical trial has resumed enrollment in theU.S. following a clinical hold imposed by the FDA. •Earlier this year, we provided data on the first two T1D patients dosed in this clinical trial, including that both patients had achieved glucose-responsive insulin production, improvements in glycemic control, and reductions in exogenous insulin requirements. Additional data presented atAmerican Diabetes Association Scientific Sessions Conference also demonstrated significant increases in the blood-glucose time-in-range compared to the baseline, following treatment with 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 Deficiency
•We are working to address the underlying genetic cause of alpha-1 antitrypsin, or AAT, deficiency by developing novel small molecule correctors of Z-AAT protein folding, with the 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 •We are investigating a novel approach to treating Duchenne muscular dystrophy, or 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. We expect to submit an IND for this program in 2023.
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.
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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. 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. 25
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Table of Contents 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 the second quarter of 2022, we acquired Catalyst Biosciences, Inc.'s, or Catalyst's, portfolio of protease medicines that target the complement system and related intellectual property. InJuly 2022 , we announced that we had entered into a definitive agreement under which we will acquireViaCyte Inc. , a privately held biotechnology company with tools, technologies and assets with potential to accelerate development of our T1D programs.
We expect to continue to identify and evaluate potential acquisitions and may include larger transactions or later-stage assets.
Collaboration and In-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. 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.,Obsidian Therapeutics, Inc. , and Verve 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 acquired in-process 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. 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 the first half of 2022 and 2021, our AIPR&D included$63.9 million and$960.1 million , respectively, related to upfront, contingent milestone, or other payments pursuant to our business development transactions, including the collaborations, licenses of third-party technologies, and asset acquisitions described above. 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. None of our out-license agreements had a significant impact on our condensed consolidated statement of operations during the first half of 2022 and 2021. Strategic Investments In connection with our business development activities, we have periodically made equity investments in our collaborators. As ofJune 30, 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. 26
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RESULTS OF OPERATIONS
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
(inmillions, except percentages and per share amounts) Revenues
$ 2,196.2 $ 1,793.4 22%$ 4,293.7 $ 3,517.7 22% Operating costs and expenses 1,089.9 1,831.3 (40)% 2,146.5 2,667.8 (20)% Income (loss) from operations 1,106.3 (37.9) ** 2,147.2 849.9 153% Other non-operating expense, net (81.9) (6.3) ** (168.0) (73.2) 130% Provision for (benefit from) income taxes 213.9 (111.2) ** 406.6 56.6 ** Net income$ 810.5 $ 67.0 **$ 1,572.6 $ 720.1 118%
Net income per diluted common share $ 3.13
$ 6.09$ 2.75 Diluted shares used in per share calculations 258.7 261.0 258.3 261.5 ** Not meaningful Revenues Three Months Ended June 30, Six Months Ended June 30, 2022 2021 Change 2022 2021 Change (in millions, except percentages) TRIKAFTA/KAFTRIO$ 1,893.2 $ 1,255.6 51%$ 3,654.8 $ 2,448.8 49% SYMDEKO/SYMKEVI 42.7 133.5 (68)% 107.5 258.6 (58)% ORKAMBI 121.6 221.0 (45)% 253.7 439.7 (42)% KALYDECO 138.7 183.3 (24)% 277.7 369.6 (25)% Product revenues, net 2,196.2 1,793.4 22% 4,293.7 3,516.7 22% Other revenues - - ** - 1.0 ** Total revenues$ 2,196.2 $ 1,793.4 22%$ 4,293.7 $ 3,517.7 22% ** Not meaningful Product Revenues, Net In the second quarter and first half of 2022, our net product revenues increased by$402.8 million and$777.0 million , or 22% as compared to the second quarter and first half of 2021, respectively, primarily due to the strong launches of TRIKAFTA/KAFTRIO in multiple countries internationally and the strong performance of TRIKAFTA in theU.S. , including theJune 2021 launch of TRIKAFTA for children with CF 6 through 11 years of age. Decreases in revenues for our products other than TRIKAFTA/KAFTRIO were primarily the result of patients switching from these medicines to TRIKAFTA/KAFTRIO. Our net product revenues from theU.S. and from ex-U.S. markets were as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 Change 2022 2021 Change (in millions, except percentages) United States$ 1,415.1 $ 1,256.9 13%$ 2,783.3 $ 2,510.4 11% ex-U.S. 781.1 536.5 46% 1,510.4 1,006.3 50% Product revenues, net$ 2,196.2 $ 1,793.4 22%$ 4,293.7 $ 3,516.7 22% 27
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Other Revenues
We earned a collaborative milestone of$1.0 million in the first half of 2021 and did not have any "Other revenues" in the first half of 2022. Our "Other revenues" have historically fluctuated significantly from one period to another based on our collaborative out-license activities and may continue to fluctuate in the future. Operating Costs and Expenses ` Three Months Ended June 30, Six Months Ended June 30, 2022 2021 Change 2022 2021 Change (in millions, except percentages) Cost of sales$ 261.8 $ 228.0 15%$ 507.6 $ 420.3
21%
Research and development expenses 600.1 448.7 34% 1,201.2 903.0
33%
Acquired in-process research and development expenses 61.9 958.4 (94)% 63.9 960.1
(93)%
Selling, general and administrative expenses 215.3 194.6 11% 430.5 386.7
11%
Change in fair value of contingent consideration (49.2) 1.6 ** (56.7) (2.3) ** Total costs and expenses$ 1,089.9 $ 1,831.3 (40)%$ 2,146.5 $ 2,667.8 (20)% ** Not meaningful Beginning with the second quarter of 2022, we are classifying upfront, contingent milestone, or other payments pursuant to our business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions as "Acquired in-process research and development expenses," or "AIPR&D," in our condensed consolidated statements of operations. To conform prior periods to our current presentation, we have reclassified$958.4 million and$960.1 million from "Research and development expenses" to "AIPR&D" for the three and six months endedJune 30, 2021 , respectively.
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 13% in the second quarter of 2022 and 2021, respectively. Our cost of sales as a percentage of our net product revenues was 12% in each of the first half of 2022 and 2021, respectively.
Research and Development Expenses
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
(in millions, except percentages)
Research expenses $ 160.9 $ 122.3 32% $ 304.7 $ 250.4 22%
Development expenses 439.2 326.4 35% 896.5 652.6 37%
Total research and development
expenses $ 600.1 $ 448.7 34% $ 1,201.2 $ 903.0 33%
Our research and development expenses include internal and external costs
incurred for research and development of our products and product candidates. 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
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outsourced research by individual program. 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.
SinceJanuary 2020 , we have incurred approximately$6.1 billion in total research and development and AIPR&D 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 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 June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
(in millions, except percentages)
Research Expenses:
Salary and benefits $ 38.1 $ 33.2 15% $ 78.3 $ 67.9 15%
Stock-based compensation expense 19.5 18.0 8% 42.4 39.0 9%
Outsourced services and other direct
expenses 44.0 39.0 13% 83.5 79.1 6%
Intangible asset impairment charge 13.0 - ** 13.0 - **
Infrastructure costs 46.3 32.1 44% 87.5 64.4 36%
Total research expenses $ 160.9 $ 122.3 32% $ 304.7 $ 250.4 22%
** Not meaningful
Our research expenses have been increasing over the last several years as we
have invested in our pipeline and expanded our cell and genetic therapy
capabilities, resulting in increased headcount and infrastructure. We expect to
continue to invest in our research programs with a focus on creating
transformative medicines for serious diseases.
Development Expenses
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
(in millions, except percentages)
Development Expenses:
Salary and benefits $ 101.0 $ 79.1 28% $ 210.9 $ 163.6 29%
Stock-based compensation expense 50.0 44.6 12% 107.5 96.4 12%
Outsourced services and other direct
expenses 210.6 144.0 46% 423.3 276.8 53%
Infrastructure costs 77.6 58.7 32% 154.8 115.8 34%
Total development expenses $ 439.2 $ 326.4 35% $ 896.5 $ 652.6 37%
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Our development expenses increased by$112.8 million and$243.9 million , or 35% and 37%, in the second quarter and first half of 2022 as compared to the second quarter and first half of 2021, respectively, primarily due to increased 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 half of 2022 and 2021, costs related to our CF programs represented the largest portion of our development costs.
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
(in millions, except percentages)
Acquired in-process research and
development expenses $ 61.9 $ 958.4 (94)% $ 63.9 $ 960.1 (93)%
AIPR&D in the second quarter and first half of 2022 was primarily related to a
$60.0 million payment to Catalyst to acquire their complement portfolio and
related intellectual property. AIPR&D in the second quarter and first half of
2021 included the $900.0 million upfront payment to CRISPR. Our AIPR&D has
historically fluctuated, and is expected to continue to fluctuate, from one
period to another due to upfront, contingent milestone, and other payments
pursuant to our business development transactions, including collaborations,
licenses of third-party technologies, and asset acquisitions.
Selling, General and Administrative Expenses
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
(in millions, except percentages)
Selling, general and administrative
expenses $ 215.3 $ 194.6 11% $ 430.5 $ 386.7 11%
Selling, general and administrative expenses increased by 11% in each of the
second quarter and first half of 2022 as compared to the second quarter and
first half 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 former Exonics equity holders decreased by$49.2 million and$56.7 million in the second quarter and first half of 2022, respectively, primarily the result of revision to the scope of certain gene-editing programs in the second quarter of 2022. The fair value of contingent consideration increased by$1.6 million and decreased by$2.3 million in the second quarter and first half of 2021, respectively.
Other Non-Operating Income (Expense), Net
Interest Income
Interest income was$10.8 million and$1.1 million in the second quarter of 2022 and 2021, respectively, and$12.4 million and$2.6 million in the first half of 2022 and 2021, respectively. Our future interest income is dependent on the amount of, and prevailing market interest rates on, our outstanding cash equivalents and available-for-sale debt securities.
Interest Expense
Interest expense was$14.6 million and$15.5 million in the second quarter of 2022 and 2021, respectively, and$29.5 million and$31.2 million in the first half of 2022 and 2021, respectively. The majority of our interest expense in these periods was related to imputed interest expense associated with our leased corporate headquarters inBoston . 30
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Other Income (Expense), Net
Other income (expense), net was expense of$78.1 million and income of$8.1 million in the second quarter of 2022 and 2021, respectively, and expense of$150.9 million and$44.6 million in the first half of 2022 and 2021, respectively. The vast majority of these amounts relate to net unrealized gains or losses resulting from changes in the fair value of our strategic investments. As ofJune 30, 2022 , the fair value of our investments in publicly traded companies was$71.1 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$213.9 million and$406.6 million in the second quarter and first half of 2022, respectively, a benefit from income taxes of$111.2 million in the second quarter of 2021 and a provision for income taxes of$56.6 million in the first half of 2021. Our effective tax rate of 21% for the first half of 2022 was similar to theU.S. statutory rate. Our effective tax rate of 7% for the first half of 2021 was lower than theU.S. statutory rate primarily due to a$99.7 million discrete tax benefit associated with an increase in theU.K.'s corporate tax rate from 19% to 25%, which was enacted inJune 2021 and will become effective inApril 2023 .
Net Income
Our net income increased to$810.5 million and$1.6 billion in the second quarter and first half of 2022, respectively, as compared to$67.0 million and$720.1 million in the second quarter and first half of 2021, respectively, primarily due to the$900.0 million upfront payment we made to CRISPR in the second quarter of 2021 and increased product revenues. These increases in net income were partially offset by increased cost of sales, development expenses to progress several product candidates into mid- to late-stage clinical development, selling, general and administrative expenses to support the commercialization of our medicines and increased support for our pipeline product candidates and income taxes. We also incurred significant unrealized losses on our strategic investments in second quarter and first half of 2022.
LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the components of our financial condition as of
As of June 30, 2022 As of December 31, 2021 Change
(in millions, except percentages)
Cash, cash equivalents and marketable
securities $ 9,253.4 $ 7,524.9 23%
Working Capital:
Total current assets 11,503.5 9,560.6 20%
Total current liabilities (2,556.2) (2,142.0) 19%
Total working capital $ 8,947.3 $ 7,418.6 21%
Working Capital
As of
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Cash Flows
Six Months Ended June 30,
2022 2021
(in millions)
Net cash provided by (used in):
Operating activities $ 2,096.0 $ 721.3
Investing activities $ (112.5) $ (154.0)
Financing activities $ (47.7) $(485.1) Operating Activities Cash provided by operating activities were$2.1 billion in the first half of 2022 as compared to$721.3 million in the first half of 2021, primarily due to a$852.5 million increase in our net income resulting from the$900.0 million upfront payment to CRISPR that was recorded within "Acquired in-process research and development expenses" in the first half of 2021 and changes to accrued expenses and accounts receivable due to increased product revenues.
Investing Activities
Cash used in investing activities were
Financing Activities
Cash used in financing activities were$47.7 million and$485.1 million in the first half of 2022 and 2021, respectively. In the first half of 2022, the largest portion of our financing activities were payments related to our employee stock benefit plans. In the first half 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 ofJune 30, 2022 , we had cash, cash equivalents and marketable securities of$9.3 billion , which represented an increase of$1.7 billion 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 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
As ofJune 30, 2022 , we could borrow up to a total of$2.5 billion pursuant to two revolving credit facilities and could repay and reborrow amounts under these revolving credit agreements without penalty. Subject to certain conditions, we could 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 could prohibit or limit our ability to access these sources of liquidity. As ofJune 30, 2022 , both facilities were undrawn, and we were in compliance with these covenants. InJuly 2022 , we terminated the$500.0 million revolving credit facility that we entered into in 2019 and entered into a new$500.0 million revolving credit facility, which matures inJuly 2027 . The$2.0 billion revolving credit facility that we entered into in 2020 matures inSeptember 2022 .
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
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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
•Cash paid for income taxes.
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, licensing arrangements and acquisitions. We may enter into additional business development transactions, including acquisitions, collaborations, licensing arrangements and equity investments, that require additional capital. For example, inJuly 2022 , we entered into an agreement to acquireViaCyte for approximately$320.0 million in cash. •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 2027.
•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 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 six months endedJune 30, 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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