VERTEX PHARMACEUTICALS INCORPORATED OVERVIEW
We are a global biotechnology company that invests in scientific innovation to
create transformative medicines for people with serious diseases, with a focus
on specialty markets. We have four approved medicines that treat the underlying
cause of cystic fibrosis ("CF"), a life-threatening genetic disease, and we
continue to focus on developing additional treatments for CF. Beyond CF, we have
a pipeline that includes mid- and late-stage clinical programs in sickle cell
disease, beta thalassemia, acute and neuropathic pain, APOL1-mediated kidney
disease, type 1 diabetes, and alpha-1 antitrypsin deficiency, and earlier-stage
programs in diseases such as muscular dystrophies.
Our triple combination regimen, TRIKAFTA/KAFTRIO
(elexacaftor/tezacaftor/ivacaftor and ivacaftor), was approved in 2019 in the
United States ("U.S.") and in 2020 in the European Union ("E.U."). Collectively,
our four medicines are being used to treat more than two-thirds of the
approximately 88,000 people with CF in North America , Europe , and Australia . We
are evaluating our medicines in additional patient populations, including
younger children, with the goal of having small molecule treatments for all
people who have at least one mutation in their cystic fibrosis transmembrane
conductance regulator ("CFTR") gene that is responsive to our CFTR modulators.
We also are pursuing messenger ribonucleic acid ("mRNA") and genetic therapies
for people with CF who do not make CFTR protein and, as a result, cannot benefit
from our current CF medicines.
In addition, we are preparing for near-term launches of potential new products
in sickle cell disease ("SCD"), beta thalassemia, CF and acute pain. We recently
completed regulatory submissions in the U.S. , E.U. and the United Kingdom
("U.K.") for exagamglogene autotemcel ("exa-cel") for the treatment of SCD and
transfusion-dependent beta thalassemia ("TDT").
Financial Highlights
Revenues In the first quarter of 2023, our net product revenues increased to
as compared to $2.1 billion in the first quarter of 2022 primarily due to the
strong uptake of TRIKAFTA/KAFTRIO in multiple countries internationally and
continued performance of TRIKAFTA in the U.S. Expenses Our total research and development ("R&D"), acquired in-process research and
development ("AIPR&D"), and selling, general and administrative ("SG&A") expenses
increased to $1.3 billion in the first quarter of 2023 as
compared to
million in the first quarter of 2022. The increase was primarily due to increased
AIPR&D and the progression of several product candidates in mid- to late-stage
clinical development. Cost of sales was 11% and 12% of our net product revenues in
the first quarter of 2023 and 2022, respectively.
Cash Our total cash, cash equivalents and marketable securities
increased to
billion as of March 31, 2023 as compared to $10.9 billion as of
primarily due to our net product revenues and operating cash flows partially
offset by our upfront payments to Entrada Therapeutics, Inc. ("Entrada") and
CRISPR Therapeutics AG ("CRISPR"), and repurchases of our common stock.
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Table of Contents Business Updates Marketed Products We expect to grow our CF business with (i) continued uptake by patients in countries where we are early in our launch, such as those with recently achieved reimbursement agreements, (ii) label expansions, including into younger patient groups, (iii) the development of mRNA therapies for people with CF who are not eligible for our approved CFTR modulators, and (iv) growth in the number of people living with CF. Recent progress in activities supporting continued uptake and label expansions is included below. •TheU.S. Food and Drug Administration ("FDA") approved TRIKAFTA in children with CF 2 to 5 years of age with at least one F508del mutation in the CFTR gene or a mutation in the CFTR gene that is responsive to TRIKAFTA. We have completed regulatory submissions with theEuropean Medicines Agency ("EMA"), the Medicines and Healthcare products Regulatory Agency ("MHRA") in theU.K. ,Health Canada , and theTherapeutic Goods Administration inAustralia for the use of KAFTRIO/TRIKAFTA in children with CF 2 to 5 years of age. •We received a positive opinion from theEMA Committee for Medicinal Products for Human Use for the use of ORKAMBI in children with CF 1 year to less than 2 years of age with two copies of the F508del mutation in the CFTR gene. •We have submitted a supplemental new drug application to the FDA and marketing authorization applications ("MAAs") to the EMA, MHRA, andHealth Canada for the use of KALYDECO in children with CF from 1 month to less than 4 months of age. KALYDECO has been granted Priority Review designation in theU.S.
•TRIKAFTA/KAFTRIO is approved and reimbursed or accessible in more than 30
countries outside the
Potential Near-Term Launch Opportunities
We are preparing for the following near-term launches of potential new products:
Exa-cel in SCD and TDT
•We recently completed rolling submissions of our biologics licensing
applications ("BLAs") for exa-cel in the
•In the fourth quarter of 2022, we completed submissions for exa-cel with the EMA and MHRA in the E.U. andU.K. , respectively. The EMA and MHRA have validated the MAAs, and exa-cel has been granted Priority Medicines and Orphan Drug designations in the E.U. In theU.K. , exa-cel has been granted an Innovation Passport under theInnovative Licensing and Access Pathway from the MHRA.
Vanzacaftor/tezacaftor/deutivacaftor in CF
•In the fourth quarter of 2022, we completed enrollment in the pivotal SKYLINE 102 and SKYLINE 103 clinical trials, which evaluate the efficacy and safety of our new once-daily investigational triple combination vanzacaftor/tezacaftor/deutivacaftor relative to TRIKAFTA in people with CF 12 years of age and older. We expect to complete these clinical trials by the end of 2023. In parallel, we have initiated a study of vanzacaftor/tezacaftor/deutivacaftor in children with CF 6 to 11 years of age, known as the RIDGELINE clinical trial, and we expect to complete this clinical trial by the end of 2023. VX-548 in Acute Pain •We continue to enroll the Phase 3 pivotal program for our lead compound, VX-548, for the treatment of moderate to severe acute pain, and we expect to complete the pivotal program in late 2023 or early 2024. VX-548 has been granted Breakthrough Therapy and Fast Track designations in theU.S. for moderate to severe acute pain. 22
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Pipeline
We continue to advance a pipeline of potentially transformative small molecule, mRNA, and cell and genetic therapies aimed at treating serious diseases. Recent and anticipated progress in activities supporting these efforts is included below.
Cystic Fibrosis
•In collaboration with Moderna, we are developing VX-522, a CFTR mRNA therapeutic for the treatment of people with CF who do not produce any CFTR protein. We have initiated a single-ascending dose clinical trial for VX-522 in people with CF, which is active and enrolling patients. We expect to complete this single-ascending dose clinical trial and initiate a multiple-ascending dose clinical trial in 2023. The FDA has granted Fast Track designation for VX-522.
Beta Thalassemia and Sickle Cell Disease
•We are evaluating the use of exa-cel, a non-viral ex vivo CRISPR gene-editing therapy, for the treatment of SCD and TDT.
•Dosing in the Phase 3 CLIMB-111 and CLIMB 121 clinical trials evaluating exa-cel continues, as does the CLIMB 131 long-term follow-up clinical trial in patients 12 years of age and older.
•Two additional Phase 3 clinical trials evaluating exa-cel in children with SCD or TDT 5 to 11 years of age are ongoing.
Neuropathic Pain
•We have discovered multiple selective small molecule inhibitors of NaV1.8, with the objective of creating a new class of pain medicines that provide effective non-opioid pain relief, without abuse potential. •We continue to enroll and dose patients in a Phase 2 dose-ranging clinical trial evaluating VX-548 in diabetic peripheral neuropathy, a common form of chronic peripheral neuropathic pain. We expect to complete this clinical trial in late 2023 or early 2024.
APOL1-Mediated Kidney Disease
•Inaxaplin is our small molecule for the treatment of APOL1-mediated kidney
disease ("AMKD"), including APOL1-mediated focal segmental glomerulosclerosis
("FSGS"). We continue to enroll and dose patients in the pivotal program for
inaxaplin, a single Phase 2/3 clinical trial, and we expect to complete the
Phase 2B dose-ranging portion of the trial in 2023.
•The FDA granted inaxaplin Breakthrough Therapy designation for APOL1-mediated FSGS and the EMA granted inaxaplin Orphan Drug and PRIME designations for AMKD.
Type 1 Diabetes
•VX-880 is a stem cell-derived, fully differentiated, insulin-producing islet
cell replacement therapy, using standard immunosuppression to protect the
implanted cells. A clinical trial is ongoing to evaluate VX-880 as a potential
treatment for type 1 diabetes ("T1D"), and proof-of-concept has been achieved.
We have completed enrollment and dosing in Part B of the Phase 1/2 clinical
trial and we expect to begin Part C of the trial with concurrent dosing. The EMA
granted VX-880 PRIME designation.
•We continue to advance additional programs in T1D, in which these same stem
cell-derived, fully differentiated, insulin-producing islet cells are
encapsulated and implanted in an immunoprotective device or are modified to
produce hypoimmune cells with the goal of eliminating the need for
immunosuppression. The Investigational New Drug Application in the U.S. , and the
Clinical Trial Application ("CTA") in Canada for VX-264, the cells and device
program, have been cleared, and we plan to begin enrollment and dosing in a
Phase 1/2 clinical trial in the near term.
•Our hypoimmune cell research program continues to progress.
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•A Phase 1/2 clinical trial evaluating VCTX-211, a hypoimmune cell program usingViaCyte cells that originated under the CRISPR andViaCyte collaboration, is active and enrolling patients.
Alpha-1 Antitrypsin Deficiency
•We are working to address the underlying genetic cause of alpha-1 antitrypsin
("AAT") deficiency ("AATD"). We are 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 AATD.
We continue to enroll and dose healthy volunteers in a Phase 1 clinical trial
for VX-634, which is the first in a series of next-wave investigational
molecules with significantly improved potency and drug-like properties as
compared to our previous AAT correctors.
•We initiated a second Phase 2 clinical trial of VX-864, a first-generation AAT
corrector, to assess the impact of longer-term treatment on the liver, as well
as the levels of functional AAT in the plasma. This Phase 2 clinical trial
continues to enroll and dose patients.
Additional Earlier Stage R&D Programs
Consistent with our overall strategy, we are taking a portfolio approach to all
of our programs, with additional assets in CF, SCD, TDT, pain, AMKD, T1D and
AATD in earlier stages of development.
We are also advancing preclinical assets in new disease areas, such as DMD and
myotonic dystrophy type 1 ("DM1"). Additionally, we are working on preclinical
molecules with the potential to expand our leadership in existing disease areas,
including assets targeting gentler conditioning for exa-cel and NaV1.7
inhibitors in pain.
Investments in External Innovation
Recent investments in external innovation are included below:
•We announced a new licensing agreement for the use of CRISPR's gene-editing technology, known as CRISPR/Cas9, to accelerate the development of our hypoimmune cell therapies for T1D.
•We closed our previously announced strategic collaboration and licensing
agreement with Entrada Therapeutics, Inc. ("Entrada"), focused on discovering
and developing intracellular Endosomal Escape Vehicle ("EEV") therapeutics for
DM1.
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 advancing our pipeline of product
candidates for the treatment of serious diseases outside of CF. Our strategy is
to combine transformative advances in the understanding of causal human biology
and the science of therapeutics to discover and develop innovative medicines.
This approach includes advancing multiple compounds from each program, spanning
multiple modalities, into early clinical trials to obtain patient data that can
inform selection of the most promising compounds for later-stage development,
and to inform discovery and development of additional compounds. We aim to
rapidly follow our first-in-class therapies that achieve proof-of-concept with
potential best-in-class candidates 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.
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. Across the industry,
most potential drug or biological products never progress into development, and
most products that do advance into development never
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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 additional investments in 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 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 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. We cannot, however, predict how recent changes in the law, including through the Inflation Reduction Act of 2022, will affect our ability to negotiate successfully with third-party payors 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. Strategic Transactions Acquisitions As part of our business strategy, we seek to acquire technologies, products, product candidates and other 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 for$60.0 million . In the third quarter of 2022, we acquiredViaCyte , a privately held biotechnology company with intellectual property, tools, technologies and assets with potential to accelerate development of our T1D programs, for$315.0 million .
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, Entrada, ImmunoGen, Inc., 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 25
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payments. Most of these collaboration payments are expensed as AIPR&D; however, depending on many factors, including the structure of the collaboration, the stage of development of the acquired technology, 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
InMarch 2023 , we entered into a non-exclusive license agreement for the use of CRISPR's CRISPR-Cas9 gene-editing technology to accelerate the development of our hypoimmune cell therapies for T1D, and made a$100.0 million upfront payment to CRISPR.
In the first quarter of 2023 and 2022, our AIPR&D included$347.1 million , which primarily related to our upfront payments to Entrada and CRISPR, and$2.0 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 income during the first quarter of 2023 and 2022. Strategic Equity Investments In connection with our business development activities, we have periodically made equity investments in our collaborators. As ofMarch 31, 2023 , we held strategic equity investments in certain public and private companies, and we expect to make additional strategic equity investments in the future. 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 equity 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 income. 26
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RESULTS OF OPERATIONS
Three Months Ended March
31,
2023 2022 Change
(inmillions, except percentages and per share amounts) Product revenues, net
$ 2,374.8 $ 2,097.5 13% Operating costs and expenses 1,595.8 1,056.6 51% Income from operations 779.0 1,040.9 (25)% Other non-operating income (expense), net 112.5 (86.1) ** Provision for income taxes 191.7 192.7 (1)% Net income $ 699.8$ 762.1 (8)% Net income per diluted common share $ 2.69 $ 2.96 Diluted shares used in per share calculations 260.3 257.9 ** Not meaningful Product Revenues, net Three Months Ended March 31, 2023 2022 Change (in
millions, except percentages)
TRIKAFTA/KAFTRIO$ 2,096.7 $ 1,761.6 19% KALYDECO 125.0 139.0 (10)% ORKAMBI 122.5 132.1 (7)% SYMDEKO/SYMKEVI 30.6 64.8 (53)% Product revenues, net$ 2,374.8 $ 2,097.5 13% In the first quarter of 2023, our net product revenues increased by$277.3 million , or 13%, as compared to the first quarter of 2022, primarily due to the strong uptake of TRIKAFTA/KAFTRIO in multiple countries internationally and the continued performance of TRIKAFTA in theU.S. Decreases in revenues for our products other than TRIKAFTA/KAFTRIO were primarily the result of patients switching from these medicines to TRIKAFTA/KAFTRIO. Our net product revenues from theU.S. and from ex-U.S. markets were as follows: Three Months Ended March 31, 2023 2022 Change (in
millions, except percentages)
United States$ 1,403.8 $ 1,368.2 3% ex-U.S. 971.0 729.3 33% Product revenues, net$ 2,374.8 $ 2,097.5 13% 27
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Operating Costs and Expenses
Three Months Ended March
31,
2023 2022 Change
(in millions, except percentages)
Cost of sales $ 266.9 $ 245.8 9%
Research and development expenses 742.6 601.1 24%
Acquired in-process research and development
expenses 347.1 2.0 **
Selling, general and administrative expenses 241.1 215.2 12%
Change in fair value of contingent
consideration (1.9) (7.5) **
Total costs and expenses $ 1,595.8 $ 1,056.6 51%
** Not meaningful
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 the Cystic 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 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 11% and 12% in the first quarter of 2023 and 2022,
respectively.
Research and Development Expenses
Three Months Ended March
31,
2023 2022 Change
(in millions, except percentages)
Research expenses $ 166.8 $ 143.8 16%
Development expenses 575.8 457.3 26%
Total research and development expenses $ 742.6 $ 601.1 24%
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 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.
Since January 2021 , we have incurred approximately $6.8 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.
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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,
2023 2022 Change
(in millions, except percentages)
Research Expenses:
Salary and benefits $ 45.5 $ 40.2 13%
Stock-based compensation expense 20.2 22.9 (12)%
Outsourced services and other direct expenses 53.6 39.5 36%
Infrastructure costs 47.5 41.2 15%
Total research expenses $ 166.8 $ 143.8 16%
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, outside services and other direct expenses and infrastructure costs associated with our research facilities. 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 March
31,
2023 2022 Change
(in millions, except percentages)
Development Expenses:
Salary and benefits $ 144.2 $ 109.9 31%
Stock-based compensation expense 56.1 57.5 (2)%
Outsourced services and other direct expenses 295.3 212.7 39%
Infrastructure costs 80.2 77.2 4%
Total development expenses $ 575.8 $ 457.3 26%
Our development expenses increased by
Three Months Ended March
31,
2023 2022 Change
(in millions, except percentages)
Acquired in-process research and development
expenses $ 347.1 $ 2.0 **
** Not meaningful
AIPR&D in the first quarter of 2023 was primarily related to our upfront
payments of $225.1 million to Entrada and $100.0 million to CRISPR. Our AIPR&D
has historically fluctuated, and is expected to continue to fluctuate, from one
period
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to another due to upfront, contingent milestone, and other payments pursuant to our existing and future business development transactions, including collaborations, licenses of third-party technologies, and asset acquisitions.
Selling, General and Administrative Expenses
Three Months Ended March
31,
2023 2022 Change
(in millions, except percentages)
Selling, general and administrative expenses $ 241.1 $ 215.2 12%
Selling, general and administrative expenses increased by 12% in the first quarter of 2023 as compared to the first quarter of 2022, 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 our contingent consideration decreased by
Other Non-Operating Income (Expense), Net
Interest Income
Interest income increased to$122.6 million in the first quarter of 2023, as compared to$1.6 million in the first quarter of 2022, primarily due to increased market interest rates and increased cash equivalents and available-for-sale debt securities. 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
Other Income (Expense), Net
Other income (expense), net was income of$1.3 million and expense of$72.8 million in the first quarter of 2023 and 2022, respectively. The vast majority of these amounts relate to net unrealized gains or losses resulting from changes in the fair value of our strategic equity investments. As ofMarch 31, 2023 , the fair value of our investments in publicly traded companies was$148.1 million . To the extent that we continue to hold strategic equity investments in publicly traded companies, we will record other income (expense) related to these 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 equity investments.
Income Taxes
Our effective tax rate fluctuates from period to period due to the global nature of our operations. The factors that most significantly impact our effective tax rate include changes in tax laws, variability in the allocation of our taxable earnings among multiple jurisdictions, the amount and characterization of our research and development expenses, the levels of certain deductions and credits, adjustments to the value of our uncertain tax positions, acquisitions and third-party collaboration and licensing transactions. We recorded provisions for income taxes of$191.7 million and$192.7 million in the first quarter of 2023 and 2022, respectively. Our effective tax rate of 21.5% in the first quarter of 2023 was higher than theU.S. statutory rate primarily due to an increase in our unrecognized tax benefits partially offset by excess tax benefits related to stock-based compensation. Our effective tax rate of 20.2% in the first quarter of 2022 was lower than theU.S. statutory rate primarily due to excess tax benefits related to stock-based compensation. 30
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LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes the components of our financial condition as of
As of March 31, 2023 As of December 31, Change
2022
(in millions, except percentages)
Total cash, cash equivalents and marketable
securities $ 11,495.6 $ 10,890.7 6%
Working Capital:
Total current assets $ 12,965.7 $ 13,234.8 (2)%
Total current liabilities (3,026.2) (2,742.1) 10%
Total working capital $ 9,939.5 $ 10,492.7 (5)%
Working Capital
As of March 31, 2023 , total working capital was $9.9 billion , which represented
a decrease of $553.2 million from $10.5 billion as of December 31, 2022 . The
decrease in total working capital in the first quarter of 2023 was primarily
related to increased investment in long-term marketable securities and
repurchases of our common stock partially offset by $899.9 million of cash
provided by operations.
Cash Flows
Three Months Ended March 31,
2023 2022
(in millions)Net cash provided by (used in):
Operating activities $ 899.9 $ 956.2
Investing activities $ (1,833.6) $ (51.0)
Financing activities $ (294.7) $ (95.4)
Operating Activities
Cash provided by operating activities were $899.9 million in the first quarter
of 2023 as compared to $956.2 million in the first quarter of 2022, primarily
due to a $62.3 million decrease in net income resulting from increased AIPR&D
partially offset by increased net product revenues.
Investing Activities
Cash used in investing activities were$1.8 billion and$51.0 million in the first quarter of 2023 and 2022, respectively. In the first quarter of 2023, the largest portion of our investing activities were purchases of marketable securities. In the first quarter of 2022, the largest portion of our investing activities were purchases of property and equipment.
Financing Activities
Cash used in financing activities were$294.7 million and$95.4 million in the first quarter of 2023 and 2022, respectively. In the first quarter of 2023, the largest portions of our financing activities were payments related to our employee stock benefit plans and repurchases of our common stock pursuant to our Share Repurchase Program. In the first quarter of 2022, the largest portion of our financing activities were payments related to our employee stock benefit plans.
Sources and Uses of Liquidity
As ofMarch 31, 2023 , we had total cash, cash equivalents and marketable securities of$11.5 billion , which represented an increase of$604.9 million from$10.9 billion as ofDecember 31, 2022 . 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. 31
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We expect that cash flows from our product sales 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 our future product sales, and the potential introduction of one or more of our other product candidates to the market, 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$500.0 million pursuant to a revolving credit facility that we entered into inJuly 2022 and could repay and reborrow amounts under this revolving credit agreement without penalty. Subject to certain conditions, we could request that the borrowing capacity be increased by an additional$500.0 million , for a total of$1.0 billion . Negative covenants in our credit agreement could prohibit or limit our ability to access this source of liquidity. As ofMarch 31, 2023 , the facility was undrawn, and 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, manufacture and commercialize our existing and future products, 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.
•To the extent we borrow amounts under our existing credit agreement, we would be required to repay any outstanding principal amounts in 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 the
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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 three months endedMarch 31, 2023 , 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, 2022 , which was filed with theSEC onFebruary 10, 2023 .
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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