<PAGE> 1
Filed pursuant to Rule 424(b)(1)
Registration No. 333-07607
3,000,000 Shares
[LOGO] VERTEX PHARMACEUTICALS INCORPORATED
Common Stock
------------------------------
All of the shares of Common Stock, $.01 par value per share (the "Common
Stock"), offered hereby are being sold by Vertex Pharmaceuticals Incorporated
("Vertex" or the "Company"). The Common Stock is quoted on the Nasdaq National
Market under the symbol "VRTX." The last sale price of the Common Stock on
August 8, 1996, as reported by the Nasdaq National Market, was $24.44 per share.
------------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
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<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------
Per Share....................................... $24.00 $1.38 $22.62
Total(3)........................................ $72,000,000 $4,140,000 $67,860,000
================================================================================================
<FN>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $500,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 450,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such additional shares
are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $82,800,000, $4,761,000 and
$78,039,000, respectively. See "Underwriting."
</TABLE>
------------------------------
The shares of Common Stock are offered by the several Underwriters named
herein when, as and if received and accepted by them, and subject to their right
to reject orders in whole or in part and subject to certain other conditions. It
is expected that delivery of the certificates for the shares will be made at the
offices of Cowen & Company, New York, New York on or about August 14, 1996.
------------------------------
COWEN & COMPANY
ROBERTSON, STEPHENS & COMPANY
BEAR, STEARNS & CO. INC.
August 8, 1996
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
SEE "UNDERWRITING."
------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company pursuant to the Exchange
Act may be inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N.W., Washington D.C. 20549 and at the
Commission's Regional Offices at Seven World Trade Center, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of such materials can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Company's Common Stock is quoted
on the Nasdaq National Market, and such reports, proxy statements and other
information can be inspected at the offices of Nasdaq Operations, 1735 K Street,
N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby. This Prospectus, which constitutes
part of the Registration Statement, omits certain of the information contained
in the Registration Statement and the exhibits and schedules thereto on file
with the Commission pursuant to the Securities Act and the rules and regulations
of the Commission thereunder. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. The Registration
Statement, including exhibits and schedules thereto, may be inspected and copied
at the facilities of the Commission referred to above.
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by the Company (File
No. 0-19319) with the Commission are incorporated herein by reference:(a) Annual
Report on Form 10-K for the fiscal year ended December 31, 1995; (b) Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996; (c) Quarterly Report
on Form 10-Q/A for the quarter ended March 31, 1996 filed with the Commission on
May 22, 1996; (d) Quarterly Report on Form 10-Q/A-2 for the quarter ended March
31, 1996 filed with the Commission on July 23, 1996; (e) the description of the
Company's Common Stock which is contained in its Registration Statement on Form
8-A filed with the Commission on May 30, 1991; and (f) the description of rights
to purchase Series A Junior Participating Preferred Stock, par value $.01 per
share, contained in the Company's Registration Statement on Form 8-A filed with
the Commission on May 30, 1991.
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents. Any statement contained in a document, all
or a portion of which is incorporated by reference herein, shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained or incorporated by reference herein modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Upon written or oral request, the Company will provide without charge to
each person to whom this Prospectus is delivered a copy of any or all of such
documents which are incorporated herein by reference (other than exhibits to
such documents unless such exhibits are specifically incorporated by reference
into the documents that this Prospectus incorporates). Requests for such copies
should be directed to Thomas G. Auchincloss, Jr., Senior Director of Finance and
Treasurer, Vertex Pharmaceuticals Incorporated, 130 Waverly Street, Cambridge,
Massachusetts 02139-4211, (617) 577-6000.
------------------------
Vertex[Registered Trademark], the Vertex logo and CLEC[Registered
Trademark] are registered trademarks and ChiroCLEC[Trademark] and
PeptiCLEC[Trademark] are trademarks of Vertex.
Unless the context requires otherwise, "Vertex" or the "Company" refers to
Vertex Pharmaceuticals Incorporated and its subsidiaries.
2
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere or incorporated by reference
in this Prospectus. Except as otherwise noted, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option.
Investors should consider carefully the information set forth under the heading
"Risk Factors."
THE COMPANY
Vertex is engaged in the discovery, development and commercialization of
novel, small molecule pharmaceuticals for the treatment of diseases for which
there are currently limited or no effective treatments. The Company is a leader
in the use of structure-based drug design, an approach to drug discovery that
integrates advanced biology, biophysics and chemistry in a coordinated and
simultaneous fashion. The Company believes that this integrated approach is
applicable to therapeutic targets in a broad range of diseases. Vertex's goal is
to create a portfolio of highly specific, proprietary, small molecule drugs
based on its knowledge of the atomic structure of proteins involved in the
control of disease processes. The Company's drug candidates for the treatment of
human immunodeficiency virus ("HIV") infection and acquired immune deficiency
syndrome ("AIDS"), multidrug resistance ("MDR") in cancer and two genetic
hemoglobin disorders are currently undergoing human clinical studies. In
addition, the Company has research programs aimed at developing orally available
small molecule compounds to treat inflammatory conditions, autoimmune diseases,
neurodegenerative diseases and hepatitis C infection.
The Company currently has products undergoing clinical studies in the
following disease areas:
HIV Infection and AIDS: Vertex is developing orally deliverable antiviral
drugs to treat HIV infection and AIDS. The Company is collaborating with Glaxo
Wellcome plc. ("Glaxo Wellcome") and Kissei Pharmaceutical Co., Ltd. ("Kissei")
in the development of its HIV protease inhibitor compounds. In December 1995,
Glaxo Wellcome began multi-center Phase I/II clinical trials in the United
States and Europe to assess the safety and initial efficacy of Vertex's lead
drug candidate, VX-478 (141W94), in HIV-positive individuals. In July 1996,
Glaxo Wellcome provided the Company with preliminary data from the first three
groups of patients in the Phase I/II trials, who received doses of 300 mg (2x
daily), 300 mg (3x daily) and 900 mg (2x daily), respectively. This data
suggests that VX-478 was well-tolerated and produced a dose-dependent antiviral
effect across the three groups. The preliminary data from the 900 mg group (2x
daily) suggests that VX-478 produced significant and sustained reductions of HIV
in the blood and increased CD4 counts. The data from these trials is preliminary
and incomplete, is based on a small number of patients and does not include all
10 patients in the 900 mg group. Glaxo Wellcome currently plans to conduct
additional multi-center Phase II clinical trials of VX-478 alone and in
combination with reverse transcriptase inhibitors. If results of these trials
are favorable, Vertex expects that Glaxo Wellcome will initiate pivotal trials
of VX-478 by the end of 1996. In Japan, Kissei completed a multiple dose,
five-day Phase I trial of VX-478 in healthy volunteers. Vertex expects that
Kissei will begin Phase II/III efficacy trials in 1997 in HIV-positive patients
that will be designed based on clinical data from Glaxo Wellcome.
Cancer MDR: Vertex is developing novel compounds to treat and prevent the
occurrence of drug resistance associated with the failure of cancer chemotherapy
by inhibiting cellular mechanisms responsible for MDR. Certain cellular
mechanisms cause chemotherapeutic drug resistance in a broad range of human
cancers, including in a variety of solid tumors of the liver, breast, ovary,
lung and colon/rectum and in a number of blood cancers. The Company is currently
conducting two Phase I/II clinical trials of its initial MDR clinical candidate,
VX-710, in combination with either doxorubicin or paclitaxel. Preliminary
results of the VX-710/doxorubicin combination suggest that the regimen was
well-tolerated and that VX-710 was blocking the targeted protein implicated in
MDR. In June 1996, Vertex commenced a Phase II multi-center clinical trial to
assess the safety and efficacy of the co-administration of VX-710 and
doxorubicin in patients with liver cancer. The Company is collaborating with
BioChem Pharma (International) Inc. ("BioChem") for the development and
commercialization of VX-710 in Canada. BioChem is planning to initiate by the
end of 1996 Phase II clinical trials of VX-710 in combination with paclitaxel in
patients with ovarian cancer and in combination with doxorubicin in patients
with soft tissue sarcoma. In April 1996, the Company commenced a
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<PAGE> 4
Phase I/II dose escalating clinical trial with a second MDR inhibitor, VX-853,
an orally administered compound, in combination with doxorubicin in patients
with solid tumors.
Hemoglobin Disorders: Vertex is developing drugs to treat sickle cell
disease and beta thalassemia, inherited blood disorders for which treatment is
currently limited. Vertex completed a Phase I double blind, placebo-controlled
safety trial of its orally administered compound, VX-366, in healthy volunteers
in late 1994. Vertex is collaborating with Alpha Therapeutic Corporation
("Alpha") and Ravizza Farmaceutici S.p.A. ("Ravizza") on the development of
VX-366. In 1995, Ravizza completed a pilot Phase II trial of VX-366 in Italy in
patients with beta thalassemia. In 1996, Alpha plans to begin a Phase II
clinical trial of VX-366 in patients with sickle cell disease.
The Company's most advanced research programs are in the following disease
areas:
Inflammation: Vertex is developing novel drugs to treat acute and chronic
inflammatory diseases. The Company is collaborating with Roussel Uclaf, a
company of the Hoechst Marion Roussel Group ("Roussel") for the development of
compounds to block interleukin-1 beta converting enzyme ("ICE"), which mediates
the production and release of the inflammatory cytokine IL-1 beta. Vertex and
Roussel have generated lead classes of ICE inhibitors for further evaluation.
Vertex expects to select one or more compounds for development within the next
six to 12 months.
Immunosuppression: The Company is conducting research to design orally
available drugs that Vertex believes could inhibit the growth of lymphocytes by
blocking inosine monophosphate dehydrogenase ("IMPDH"), an enzyme which controls
DNA synthesis in lymphocytes. The activation and proliferation of lymphocytes
are associated with transplant rejection and a variety of autoimmune diseases,
including asthma, rheumatoid arthritis and systemic lupus. Vertex scientists
have solved the structure of IMPDH and identified novel lead classes of IMPDH
inhibitors. Vertex expects to select a compound for development within the next
six to 12 months.
Additional Research Programs: The Company recently commenced research to
evaluate existing compounds from its library that may potentially stimulate
nerve growth, for the treatment of neurodegenerative disorders. The Company is
also conducting research to design orally available drugs to act as inhibitors
of hepatitis C protease for the treatment of hepatitis C infection and as
inhibitors of MAP kinases, for the treatment of inflammatory diseases.
The Company believes it has developed a technological advantage in the
process of drug discovery and development due to its ability to integrate a
variety of disciplines and techniques to design synthetic compounds based on the
detailed three dimensional structure of protein targets. The Company also
believes that its structure-based drug design approach improves the chances for
accelerated discovery, optimization and development of novel synthetic compounds
that are specific to the drug target and have desirable pharmacokinetics and
safety profiles.
In addition to the Company's core scientific platform for drug discovery,
the Company has established capabilities in product development, including
preclinical testing, formulation and process chemistry. The Company also is
manufacturing through third parties each of its lead compounds for use in
preclinical and clinical trials.
The Company's research and development strategy is to identify therapeutic
areas in which there is (i) an unmet clinical need for effective therapies, (ii)
evidence that interaction with known protein targets will produce a therapeutic
effect and (iii) evidence that the protein targets will be appropriate for
structural analysis using Vertex's scientific approach. The Company's business
strategy is to form collaborations with pharmaceutical companies in programs for
which they can provide resources and access to competencies complementary to
Vertex's in-house capabilities.
Vertex has its headquarters and research facilities at 130 Waverly Street,
Cambridge, Massachusetts 02139, and its telephone number is (617) 577-6000. The
Company was incorporated under the laws of the Commonwealth of Massachusetts in
1989.
4
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<TABLE>
THE OFFERING
<S> <C>
Common Stock offered......................... 3,000,000 shares
Common Stock to be outstanding after the
offering................................... 20,358,458 shares(1)
Use of proceeds.............................. For research and product development
programs, including clinical trials, and
other general corporate purposes.
Nasdaq National Market symbol................ VRTX
<FN>
- ---------------
(1) Based upon shares of Common Stock outstanding as of March 31, 1996. Excludes
an aggregate of 3,177,357 shares of Common Stock reserved for issuance upon
exercise of outstanding options as of March 31, 1996.
</TABLE>
<TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
---------------------------------- -------------------
1993 1994 1995 1995 1996
------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Collaborative and other research and development
revenues................................................. $27,885 $ 19,571 $ 22,081 $ 5,053 $ 2,473
Interest income............................................ 1,409 3,574 5,453 1,280 1,278
------- -------- -------- ------- -------
Total revenues....................................... 29,294 23,145 27,534 6,333 3,751
Costs and expenses:
Research and development................................... 23,164 34,761 41,512 9,362 9,337
General and administrative................................. 3,520 5,540 7,069 1,558 1,763
Interest................................................... 493 439 481 116 119
------- -------- -------- ------- -------
Total costs and expenses............................. 27,177 40,740 49,062 11,036 11,219
------- -------- -------- ------- -------
Net (loss) profit before taxes............................... 2,117 (17,595) (21,528) (4,703) (7,468)
Tax provision................................................ 80 -- -- -- --
------- -------- -------- ------- -------
Net (loss) profit............................................ $ 2,037 $(17,595) $(21,528) $(4,703) $(7,468)
======= ======== ======== ======= =======
Net (loss) profit per common share........................... $ 0.16 $ (1.11) $ (1.25) $ (0.27) $ (0.43)
Weighted average number of common shares outstanding......... 12,451 15,818 17,231 17,190 17,332
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------
ACTUAL AS ADJUSTED(1)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments....................................... $ 77,256 $144,616
Total assets............................................................................ 90,320 157,680
Obligations under capital leases, excluding current portion............................. 4,371 4,371
Accumulated deficit..................................................................... (64,407) (64,407)
Total stockholders' equity.............................................................. 78,430 145,790
<FN>
- ---------------
(1) Adjusted to reflect the sale of the 3,000,000 shares of Common Stock offered
hereby, at a public offering price of $24.00 per share and net proceeds to
the Company of approximately $67,360,000.
</TABLE>
This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in "Risk Factors," as well as those
discussed elsewhere in this Prospectus.
5
<PAGE> 6
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should consider the following factors, in
addition to the other information in this Prospectus, in evaluating the Company
and its business before purchasing any shares of the Common Stock offered
hereby.
EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
The Company was founded in 1989 and has not generated any pharmaceutical
product sales. To achieve profitable operations, the Company, alone or with
others, must successfully develop, clinically test, market and sell its
products. Any products resulting from the Company's product development efforts
are not expected to be available for sale for a number of years, if at all.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Such reasons include the possibilities that the potential products
are found ineffective or cause harmful side effects during preclinical testing
or clinical trials, fail to receive necessary regulatory approvals, are
difficult or uneconomical to manufacture on a large scale, fail to achieve
market acceptance or are precluded from commercialization by proprietary rights
of third parties.
The products that the Company is pursuing will require extensive additional
development, testing and investment, as well as regulatory approvals, prior to
commercialization. No assurance can be given that the Company's product
development efforts will be successful, that required regulatory approvals will
be obtained or that any products, if introduced, will be commercially
successful. Further, the Company has no sales and marketing capabilities, and
even if the Company's products in development are approved for marketing, there
can be no assurance that the Company will be able to develop such capabilities.
In addition, only a limited number of drugs developed through structure-based
drug design have completed clinical trials successfully, been approved by the
U.S. Food and Drug Administration ("FDA") and been marketed. One of the
Company's potential products, VX-478, is an HIV protease inhibitor which has not
been tested extensively in large-scale clinical trials or in combination with
other approved or potential AIDS therapies. To date, HIV has been shown to
develop resistance to antiviral drugs, including currently marketed HIV protease
inhibitors. There can be no assurance that such disease resistance will not
limit the efficacy of the Company's HIV protease inhibitor. The clinical
efficacy of the suppression of mechanisms of action of MDR in chemotherapy in
the treatment of cancer is unproven, and, therefore, there can be no assurance
that the Company's MDR compounds in development will improve the efficacy of
chemotherapy. There also can be no assurance that drug candidates being pursued
by the Company will be safe and efficacious, will receive regulatory approvals
or will result in commercially successful products.
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining required regulatory approvals for the commercial sale of
products under development, the Company must demonstrate through preclinical
studies and clinical trials that such products are safe and efficacious for use
in each target indication. The results of preclinical and initial clinical
trials of products under development by the Company are not necessarily
predictive of results that will be obtained from large-scale clinical testing,
and there can be no assurance that clinical trials of products under development
will demonstrate the safety and efficacy of such products or will result in a
marketable product. The safety and efficacy of a therapeutic product under
development by the Company must be supported by extensive data from clinical
trials. A number of companies have suffered significant setbacks in advanced
clinical trials, despite promising results in earlier trials. The failure to
demonstrate adequately the safety and efficacy of a therapeutic drug under
development could delay or prevent regulatory approval of the product and could
have a material adverse effect on the Company. In addition, the FDA may require
additional clinical trials, which could result in increased costs and
significant development delays.
The administration of any product developed by the Company may produce
undesirable side effects in humans. The occurrence of such side effects could
interrupt, delay or halt clinical trials of such products and could ultimately
prevent their approval by the FDA or foreign regulatory authorities for any or
all targeted
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<PAGE> 7
indications. The Company or the FDA may suspend or terminate clinical trials at
any time if it is believed that the trial participants are being exposed to
unacceptable health risks. Even after approval by the FDA and foreign regulatory
authorities, products may later exhibit adverse effects that discourage
widespread use or necessitate their withdrawal from the market. There can be no
assurance that any products under development by the Company will be safe when
administered to patients.
The rate of completion of clinical trials of the Company's products is
dependent upon, among other factors, the rate of patient accrual. Patient
accrual is a function of many factors, including the size of the patient
population, the proximity of patients to clinical sites and the eligibility
criteria for the trial. Delays in planned patient enrollment in clinical trials
may result in increased costs, program delays or both, which could have a
material adverse effect on the Company. There can be no assurance that if
clinical trials are completed the Company will be able to submit a New Drug
Application ("NDA") or that any such application will be reviewed and approved
by the FDA in a timely manner, if at all. See "Business -- Government
Regulation."
DEPENDENCE ON COLLABORATIVE PARTNERS
The Company is engaged in research and development collaborations with
Glaxo Wellcome, Roussel, Kissei, Alpha and BioChem pursuant to which these
parties have agreed to fund portions of the Company's research and development
programs and/or to conduct certain research and development relating to
specified products, in exchange for certain technology, product and marketing
rights relating to those products. Some of the Company's current corporate
partners have certain rights to control the planning and execution of product
development and clinical programs, and there can be no assurance that such
corporate partners' rights to control aspects of such programs will not impede
the Company's ability to conduct such programs in accordance with the schedules
and in the manner currently contemplated by the Company for such programs.
If any of the Company's corporate collaborators were to terminate its
relationship with Vertex, it could have a material adverse effect on the
Company's ability to fund related and other programs and to develop, manufacture
and market any products that may have resulted from such collaboration. There
can be no assurance that these collaborations will be completed or successful,
or that the collaborative partners will not pursue alternative means of
developing treatments for the diseases targeted by their collaborative programs
with the Company. Glaxo Wellcome has the right to terminate the research
collaboration under its agreement with the Company without cause at any time
upon twelve months' notice and has the right to terminate the license
arrangements under its agreement with the Company without cause upon twelve
months' notice given at any time after December 16, 1996, provided such notice
is not given before the research collaboration has been terminated. Termination
by Glaxo Wellcome of the research collaboration under its agreement with the
Company will relieve Glaxo Wellcome of its obligation to make further research
support payments under the agreement. Termination by Glaxo Wellcome of the
license arrangements under the agreement will relieve it of its obligation to
make further commercialization and development milestone and royalty payments
and will end any license granted to Glaxo Wellcome by Vertex. Roussel has the
right to terminate its agreement with the Company without cause upon twelve
months' notice at any time. Termination by Roussel will relieve Roussel of any
further payment obligations under its agreement with the Company. In addition,
for a period of one year after any such termination, Roussel retains the right
to select one or more compounds for development and to license such compound or
compounds from Vertex, provided Roussel resumes research funding and
commercialization milestone payments and makes all such payments that would
otherwise have been due but for such termination. Alpha has the right to
terminate its agreement with the Company without cause upon six months' notice
at any time. Termination will relieve Alpha of any further payment obligations
under its agreement with the Company and will also terminate any license granted
to Alpha by Vertex. BioChem has the right to terminate its agreement with the
Company without cause upon six month's notice at any time after May 8, 1997.
Termination will relieve BioChem of any further payment obligations under its
agreement with the Company and will terminate any license granted to BioChem
thereunder.
The Company may seek additional collaborative arrangements to develop and
commercialize its products in the future. There can be no assurance that the
Company will be able to establish acceptable collaborative arrangements in the
future or that such collaborative arrangements will be successful. In addition,
there can be no assurance that collaborative partners will not pursue
alternative technologies or develop alternative
7
<PAGE> 8
compounds either on their own or in collaboration with others, including the
Company's competitors, as a means for developing treatments for the diseases
targeted by their collaborative programs with the Company or that disagreements
over rights to technology, other proprietary information or the course of the
research and development program will not occur. Such events could result in the
delay or cancellation of programs or product introduction even if regulatory
approvals are obtained. See "Business -- Corporate Collaborations."
EXTENSIVE GOVERNMENT REGULATION; UNCERTAINTY OF PRODUCT CLEARANCE AND APPROVAL
The FDA and comparable agencies in foreign countries impose substantial
requirements on the introduction of therapeutic pharmaceutical products through
lengthy and detailed laboratory and clinical testing procedures, sampling
activities and other costly and time-consuming procedures. Satisfaction of these
requirements typically takes several years or longer and may vary substantially
based upon the type, complexity and novelty of the pharmaceutical product. The
Company has had only limited experience in conducting preclinical testing and
human clinical trials. In addition, the Company has not received FDA or other
regulatory approvals for any of its product candidates. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations,
which could delay, limit or prevent regulatory approval. In addition, delays or
rejections may be encountered based on changes in, or additions to, regulatory
policies for drug approval during the period of product development and
regulatory review.
The effect of government regulation may be to delay or prevent the
commencement of clinical trials or marketing of Company products, if any are
developed and submitted for approval, for a considerable period of time, to
impose costly procedures upon the Company's activities and to provide a
competitive advantage to larger companies or companies more experienced in
regulatory affairs that compete with the Company. There can be no assurance that
FDA or other regulatory approval for clinical trials or marketing of any
products developed by the Company will be granted on a timely basis or at all.
Delay in obtaining or failure to obtain such approvals would adversely affect
the marketing of the Company's products and the Company's liquidity and capital
resources. Moreover, even if approval is granted, such approval may entail
limitations on the indicated uses for which a compound may be marketed. Even if
such regulatory approval is obtained, a marketed drug or compound and its
manufacturer are subject to continual review, and later discovery of previously
unknown problems with a product or manufacturer may result in restrictions on
such product or manufacturer, including withdrawal of the product from the
market. Failure to comply with applicable regulatory requirements can, among
other things, result in fines, suspensions of regulatory approvals, product
recalls, operating restrictions and criminal prosecution. Further, additional
government regulation may be established which could prevent or delay regulatory
approval of the Company's products.
The Company has obtained orphan drug status for VX-366 for the treatment of
beta thalassemia and sickle cell disease and may apply for orphan drug status
for certain indications of MDR in cancer. Orphan drug status may, under present
regulations, entitle the Company to certain marketing exclusivity and tax
benefits. While the marketing exclusivity of an orphan drug would prevent other
sponsors from obtaining approval of the same compound for the same indication,
it would not prevent chemically distinct drugs from being approved for the same
use. There can be no assurance that the Company will receive FDA orphan drug
status for any of its compounds under development for which the Company seeks
that status. Moreover, there can be no assurance that the scope of protection or
the level of exclusivity that is currently afforded by orphan drug status will
remain in effect in the future. See "Business -- Government Regulation."
The Company's research and development activities involve the controlled
use of hazardous materials, chemicals and various radioactive compounds. The
risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of an accident, the Company could be held
liable for any damages or fines that result, and the liability could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that statutes or regulations,
applicable to the Company's business which impose substantial additional costs
or otherwise materially adversely affect the Company's operations, will not be
adopted.
8
<PAGE> 9
UNCERTAINTY RELATED TO PATENTS AND PROPRIETARY INFORMATION
The Company's success will depend, in part, on its ability to obtain United
States and foreign patent protection for its products and their uses, to
preserve its trade secrets and to operate without infringing the proprietary
rights of third parties. Because of the substantial length of time and expense
associated with bringing new products through development and regulatory
approval to the marketplace, the pharmaceutical industry places considerable
importance on obtaining patents and maintaining trade secret protection for new
technologies, products and processes. Patent protection may not be available,
however, for compounds for use in medical indications, including the treatment
of HIV and MDR, without a demonstration of how to use the compounds and proof in
clinical trials that such compounds may be useful for such target indications.
As of August 1, 1996, the Company had eight United States patents and 49 pending
United States patent applications and a non-exclusive, worldwide license under
certain G.D. Searle & Company ("Searle") patent applications claiming HIV
protease inhibitors. The Company also has been granted an exclusive license
under four United States patents and one United States reissue application. The
Company also has filed foreign counterparts to some of its United States patents
and patent applications. There can be no assurance that patents will issue from
any of the Company's pending or future patent applications. There can be no
assurance that any issued, licensed, pending or future patent will not be
infringed by the products of others or provide sufficient protection to exclude
others from the Company's present or future technology or products. The Company
has in the past licensed and may in the future license patent rights from
others. There can be no assurance, however, that such licenses will provide
adequate protection for the Company's products.
Issued United States patents are presumed valid under United States patent
law. No assurance can be given, however, that one or more of the Company's
issued patents will not be declared invalid by a court. Legal standards relating
to the validity of patents and the proper scope of their claims in the
biopharmaceutical field are still evolving, and there is no consistent law or
policy regarding the valid breadth of claims in biopharmaceutical patents or the
effect of prior art on them. Furthermore, no assurance can be given as to the
degree of protection any patents will afford to the Company's technology or as
to the Company's ability to avoid infringing the claims of the patents held by
third parties. Further, there can be no assurance that a license to such patents
would be available on terms acceptable to the Company, if at all. There also can
be no assurance that any patents issued to or licensed by the Company will not
be infringed by others.
In addition to being a potential party to patent infringement litigation,
the Company could become involved in interference proceedings declared by the
United States Patent and Trademark Office. Defense and prosecution of patent
claims, as well as participation in interference proceedings, can be expensive
and time-consuming, even in those instances in which the outcome is favorable to
the Company. If the outcome of any such litigation or proceeding were adverse,
the Company could be subject to significant liabilities to third parties, could
be required to obtain licenses from third parties or could be required to cease
sales of the affected products, any of which could have a material adverse
effect on the Company.
The Company has licensed on an exclusive basis four United States patents
and one United States reissue application from Children's Hospital Medical
Center of Oakland (California) ("Children's Hospital"). Three of these patents
and the reissue application claim the use of compounds, including VX-366, in the
treatment of hemoglobin disorders, including sickle cell disease and beta
thalassemia. Because Children's Hospital did not foreign file the application
corresponding to the reissue application within one year of filing its
corresponding United States application, the Company's foreign patent rights may
be limited. In addition, there can be no assurance that others will not develop
independently substantially equivalent technology, obtain access to the
Company's know-how or be issued patents which may prevent the sale of the
Company's products or require licensing and the payment of significant fees or
royalties by the Company in order for it to carry on its business. Furthermore,
there can be no assurance that any such license will be available.
The Company's management and scientific personnel have been recruited from
other pharmaceutical and biotechnology companies and academic institutions. In
many cases these individuals are conducting research in similar areas with which
they were involved prior to joining Vertex. As a result, the Company, as well as
these individuals, could be subject to allegations of violation of trade secrets
and similar claims. See "--
9
<PAGE> 10
Dependence on Collaborative Partners" and "Business -- Corporate Collaborations"
and "-- Patents and Proprietary Information."
RAPID TECHNOLOGICAL CHANGE AND COMPETITION
The Company is engaged in pharmaceutical fields characterized by extensive
research efforts, rapid technological progress and intense competition. There
are many public and private companies, including pharmaceutical companies,
chemical companies and biotechnology companies, engaged in developing products
for the human therapeutic applications targeted by Vertex. Further, the Company
believes that interest in the application of structure-based drug design and
related technologies may continue and may accelerate as the technologies become
more widely understood. The Company is aware of efforts by others to develop
products in each of the areas in which the Company has products in development.
For example, Merck & Co., Inc., Abbott Laboratories, Inc. and Hoffmann-La Roche
have HIV protease inhibitors which have been approved by the FDA for marketing,
and a number of other companies have HIV protease inhibitors in development.
There also are a number of competitors that have products under development for
the treatment of MDR in cancer and for the treatment of hemoglobin disorders. In
order for the Company to compete successfully in these areas, it must
demonstrate improved safety, efficacy, ease of manufacturing and market
acceptance over its competitors. Furthermore, academic institutions,
governmental agencies and other public and private research organizations are
conducting research to develop technologies and products that may compete with
those under development by the Company. In addition, other technologies are, or
may in the future become, the basis for competing products. There can be no
assurance that the Company's competitors will not succeed in developing
technologies and products that are more effective than any being developed by
the Company or that would render the Company's technology and products obsolete
or noncompetitive.
Many of the Company's competitors have substantially greater financial,
technical and human resources than those of the Company. In addition, many of
the Company's competitors have significantly greater experience than the Company
in conducting preclinical testing and human clinical trials of new
pharmaceutical products, and in obtaining FDA and other regulatory approvals of
products. Accordingly, certain of the Company's competitors may succeed in
obtaining regulatory approval for products more rapidly than the Company. If the
Company obtains regulatory approval and commences commercial sales of its
products, it will also compete with respect to manufacturing efficiency and
sales and marketing capabilities, areas in which it currently has no experience.
See "Business -- Competition."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company expects to incur substantially increased research and
development and related supporting expenses as it designs and develops existing
and future compounds and undertakes clinical trials of potential drugs resulting
from such compounds. The Company also expects to incur substantial
administrative and commercialization expenditures in the future and substantial
expenses related to the filing, prosecution, defense and enforcement of patent
and other intellectual property claims. The Company's future capital
requirements will depend on many factors, including the progress of its research
and development programs, the scope and results of preclinical studies and
clinical trials, the cost, timing and outcome of regulatory reviews, the costs
involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the establishment of additional
collaborative arrangements and the cost of manufacturing facilities and of
commercialization activities and arrangements. The Company anticipates that it
will finance these substantial cash needs with the net proceeds of this offering
and its existing cash reserves, together with interest earned thereon, future
payments under its collaborative agreements with Glaxo Wellcome, Roussel,
Kissei, Alpha and BioChem, facilities and equipment financing and additional
collaborative agreements as drug candidates move into clinical trials. To the
extent that funds from these sources are not sufficient to fund the Company's
activities, it will be necessary to raise additional funds through public
offerings or private placements of debt or equity securities or other methods of
financing. Any equity financings could result in dilution to the Company's then
existing stockholders. Any debt financing, if available at all, may be on terms
which, among other things, restrict the Company's ability to pay dividends
(although
10
<PAGE> 11
the Company does not intend to pay dividends for the foreseeable future). If
adequate funds are not available, the Company may be required to curtail
significantly or discontinue one or more of its research, drug discovery or
development programs, including clinical trials, or attempt to obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies or products in
research or development. No assurance can be given that additional financing
will be available on acceptable terms, if at all. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
HISTORY OF OPERATING LOSSES AND ACCUMULATED DEFICIT
Vertex has incurred losses since its inception in January 1989. As of March
31, 1996, the Company's accumulated deficit was approximately $64.4 million.
Losses have resulted principally from costs incurred in research and development
of the Company's compounds in development, including clinical trials and
material manufacturing costs, the Company's other research programs and from
general and administrative costs. These costs have exceeded the Company's
revenues, which to date have been generated solely from collaborative
arrangements, interest income and research grants. While it is possible that the
Company could report operating profits intermittently as a result of the timing
of payments under its collaborative arrangements, the Company expects to incur
additional significant operating losses in the future and does not expect to
achieve profitability from sales of its products in development for several
years, if ever. The Company expects that losses will fluctuate from quarter to
quarter and that such fluctuations may be substantial. There can be no assurance
that the Company will ever achieve product revenues or profitable operations.
Based on the Internal Revenue Code of 1986, as amended, and changes in the
Company's ownership, utilization of net operating loss carryforwards and
research and development credits for federal income tax purposes may be subject
to annual limitations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
UNCERTAINTY RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT
The Company's ability to commercialize its products successfully will
depend in part on the extent to which appropriate reimbursement levels for the
cost of such products and related treatment are obtained from government
authorities, private health insurers and other organizations, such as health
maintenance organizations ("HMOs"). Third party payors and government
authorities are continuing efforts to contain or reduce the cost of health care.
For example, in certain foreign markets, pricing and/or profitability of
prescription pharmaceuticals are subject to government control. There can be no
assurance that similar controls will not be implemented in the United States.
Also, the trend toward managed health care in the United States and the
concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of health care services and products, may
result in lower prices for the Company's products. The cost containment measures
that health care providers are instituting and any proposed or future health
care reform measures could affect the Company's ability to sell its products and
may have a material adverse effect on the Company.
The success of the Company's products in the United States and other
significant markets will depend, in part, upon the extent to which a consumer
will be able to obtain reimbursement for the cost of such products from
government health administration authorities, third-party payors and other
organizations. Significant uncertainty exists as to the reimbursement status of
newly approved therapeutic products. Even if a product is approved for
marketing, there can be no assurance that adequate reimbursement will be
available. The Company is unable to predict what additional legislation or
regulation relating to the health care industry or third-party coverage and
reimbursement may be enacted in the future or what effect the legislation or
regulation would have on the Company's business. Failure to obtain reimbursement
could have a material adverse effect on the Company.
MANUFACTURING UNCERTAINTIES; RELIANCE ON THIRD PARTY MANUFACTURERS
The Company's ability to conduct clinical trials and its ability to
commercialize its products will depend in part upon its ability to manufacture
its products, either directly or through third parties, at a competitive
11
<PAGE> 12
cost and in accordance with FDA and other regulatory requirements. If the
Company is unable to do so, it could experience delays in the regulatory process
for its products under development, suffer potential negative financial and
competitive consequences and experience delays in the commercialization of its
products.
The Company currently does not have the capacity to manufacture its
potential products and is dependent on third party manufacturers or
collaborative partners for the production of its compounds for preclinical
research and clinical trial purposes. The Company expects to be dependent on
such manufacturers or collaborative partners for some or all commercial
production of any of its compounds that are approved for marketing. In the event
that the Company is unable to obtain contract manufacturing, or obtain such
manufacturing on commercially reasonable terms, it may not be able to conduct or
complete clinical trials or, if FDA approval is obtained, commercialize its
products as planned. The Company has no experience in manufacturing
pharmaceutical or other products or in conducting manufacturing testing programs
required to obtain FDA and other regulatory approvals, and there can be no
assurance that the Company will successfully develop such capabilities. See
"Business -- Manufacturing."
ABSENCE OF SALES AND MARKETING EXPERIENCE
The Company currently has no experience in marketing or selling
pharmaceutical products. The Company must either develop a marketing and sales
force or enter into arrangements with third parties to market and sell any of
its product candidates which are approved by the FDA. In the territories where
the Company retains marketing and co-promotion rights, there can be no assurance
that the Company will successfully develop its own sales and marketing
experience or that it will be able to enter into marketing and sales agreements
with others on acceptable terms, if at all. If the Company develops its own
marketing and sales capability, it will compete with other companies that
currently have experienced and well-funded marketing and sales operations. To
the extent that the Company has or enters into co-promotion or other sales and
marketing arrangements with other companies, any revenues to be received by the
Company will be dependent on the efforts of others, and there can be no
assurance that such efforts will be successful.
DEPENDENCE ON KEY MANAGEMENT AND QUALIFIED PERSONNEL
The Company is highly dependent upon the efforts of its senior management
and scientific team. The loss of the services of one or more members of the
senior management and scientific team might impede the achievement of the
Company's development objectives. Due to the specialized scientific nature of
the Company's business, the Company is also highly dependent upon its ability to
attract and retain qualified scientific, technical and key management personnel.
There is intense competition for qualified personnel in the areas of the
Company's activities, and there can be no assurance that the Company will be
able to continue to attract and retain qualified personnel necessary for the
development of its existing business and its expansion into areas and activities
requiring additional expertise, such as clinical testing, government approvals,
production and marketing. See "Management."
PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE
The Company's business will expose it to potential product liability risks
that are inherent in the testing, manufacturing and marketing of pharmaceutical
and other products developed by the Company. The use of the Company's products
in clinical trials also exposes the Company to the possibility of product
liability claims and possible adverse publicity. These risks will increase to
the extent the Company's products receive regulatory approval and are
commercialized. The Company maintains product liability insurance for clinical
trials. The Company does not currently have any other product liability
insurance. There can be no assurance that the Company will be able to maintain
its existing insurance or be able to obtain or maintain such additional
insurance as it may need in the future on acceptable terms or that the Company's
existing insurance or any such additional insurance will provide adequate
coverage against potential liabilities.
VOLATILITY OF SHARE PRICE; SHARES ELIGIBLE FOR FUTURE SALE; OPTION GRANTS
Market prices for securities of companies such as Vertex are highly
volatile, and the market for the securities of such companies, including the
Common Stock of the Company, has from time to time experienced significant price
and volume fluctuations that are unrelated to the operating performance of these
particular companies. Factors such as announcements of results of clinical
trials, technological innovations or
12
<PAGE> 13
new products by Vertex or its competitors, government regulatory action, public
concern as to the safety of products developed by the Company or others, patent
or proprietary rights developments and market conditions for pharmaceutical and
biotechnology stocks, in general, could have a significant adverse effect on the
future market price of the Common Stock.
As of March 31, 1996, there were approximately 1,993,066 shares of Common
Stock not previously sold in the public market eligible for sale under the
Securities Act without restriction as to volume, and, in addition, there are
approximately 749,260 shares of such Common Stock eligible for sale subject to
volume limitations. Future sales of such shares could have an adverse effect on
the market price of the Common Stock. The Directors and officers of the Company
and certain other stockholders holding in the aggregate approximately 1,096,500
shares of Common Stock have agreed not to sell their shares within 90 days
following the effective date of the Registration Statement of which this
Prospectus is a part. As of March 31, 1996, the Company had outstanding options
for the purchase of 3,177,357 shares of Common Stock at exercise prices ranging
from $6.48 per share to $28.125 per share. Options for the purchase of 1,238,681
shares of Common Stock were exercisable as of that date. See "Price Range of
Common Stock."
ANTI-TAKEOVER PROVISIONS
The Company's charter provides for staggered terms for the members of the
Board of Directors. The Company's By-laws grant the Directors a right to adjourn
annual meetings of stockholders, and certain provisions of the By-laws may be
amended only with an 80% stockholder vote. The Company has also adopted a
Stockholder Rights Plan, under which one preferred share purchase right (a
"Right") is associated with each share of Common Stock outstanding. The Rights
will not trade separately from the Common Stock until, and are exercisable only
upon, the acquisition or threatened acquisition through tender offer by a person
or group of 20% or more of the outstanding Common Stock. These charter and
By-law provisions and the Company's Stockholder Rights Plan may discourage
certain types of transactions involving an actual or potential change in control
of the Company which might be beneficial to the Company or its stockholders.
Shares of Preferred Stock may be issued by the Company in the future
without stockholder approval and upon such terms as the Board of Directors may
determine. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of discouraging a third party from
acquiring a majority of the outstanding Common Stock of the Company. The Company
has no present plans to issue any shares of Preferred Stock.
DILUTION
Purchasers of shares of Common Stock in this offering will experience
immediate and substantial dilution in net tangible book value per share.
Additional dilution is likely to occur upon exercise of outstanding stock
options. See "Dilution."
13
<PAGE> 14
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby are estimated to be approximately $67,360,000 ($77,539,000
if the Underwriters' over-allotment option is exercised in full), after
deducting the underwriting discounts and commissions and estimated offering
expenses.
The Company intends to use the net proceeds of this offering primarily to
fund research and product development programs, including clinical trials, and
for general corporate purposes. In addition, a portion of the net proceeds may
be used to acquire technology, products or companies that complement the
business of the Company, although no such acquisition transactions are planned
or are being negotiated as of the date of this Prospectus. The actual amounts
and timing of expenditures for each purpose, however, will depend on the
progress of the Company's research and development programs, technological
advances, determinations as to commercial potential of products, the terms of
any collaborative arrangements entered into by the Company for development and
licensing, regulatory approvals and other factors, many of which are beyond the
Company's control.
Pending such uses, the Company intends to invest the net proceeds of this
offering primarily in interest-bearing, investment-grade securities.
<TABLE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "VRTX." The following table sets forth the high and low last sale
prices for the Common Stock as reported on the Nasdaq National Market for the
periods indicated.
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
1994
First Quarter...................................................... $19 1/4 $12 1/4
Second Quarter..................................................... 15 1/4 11 3/4
Third Quarter...................................................... 15 1/2 10 1/2
Fourth Quarter..................................................... 15 11 1/8
1995
First Quarter...................................................... $16 3/4 $13
Second Quarter..................................................... 16 3/4 12 3/4
Third Quarter...................................................... 23 13 1/2
Fourth Quarter..................................................... 26 1/2 16 1/4
1996
First Quarter...................................................... $29 7/8 $22
Second Quarter..................................................... 38 26
Third Quarter (through August 8, 1996)............................. 33 23 1/4
</TABLE>
The last sale price of the Common Stock on August 8, 1996, as reported on
the Nasdaq National Market, was $24.44 per share. As of August 7, 1996, there
were 347 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate doing so in the foreseeable future. The Company
intends to retain future earnings, if any, for use in its business.
14
<PAGE> 15
CAPITALIZATION
<TABLE>
The following table sets forth the capitalization of the Company as of
March 31, 1996, and as adjusted to reflect the issuance and sale of the
3,000,000 shares of Common Stock offered hereby, after deducting the
underwriting discounts and commissions and estimated offering expenses.
<CAPTION>
MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Obligations under capital leases, excluding current portion........... $ 4,371 $ 4,371
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized, none
issued (1)....................................................... -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
17,358,458 shares issued and outstanding; 20,358,458 shares
issued and outstanding, as adjusted(2)........................... 174 204
Additional paid-in capital.......................................... 142,907 210,237
Equity adjustments.................................................. (244) (244)
Accumulated deficit................................................. (64,407) (64,407)
--------- --------
Total stockholders' equity....................................... 78,430 145,790
--------- --------
Total capitalization........................................ $ 82,801 $150,161
========= ========
<FN>
- ---------------
(1) Does not reflect shares of Series A Junior Participating Preferred Stock,
$.01 par value per share, issuable upon the exercise of Rights under the
Company's Stockholder Rights Plan.
(2) Excludes an aggregate of 3,177,357 shares of Common Stock reserved for
issuance upon exercise of outstanding options as of March 31, 1996.
</TABLE>
DILUTION
<TABLE>
The net tangible book value of the Company at March 31, 1996 was
$78,430,000, or $4.52 per share of Common Stock. Without taking into account
changes in net tangible book value after March 31, 1996 other than to give
effect to the sale of the 3,000,000 shares of Common Stock offered hereby, after
deducting the underwriting discounts and commissions and estimated offering
expenses, the Company's pro forma net tangible book value at March 31, 1996
would have been $145,790,000, or $7.16 per share. This represents an immediate
dilution in net tangible book value of $16.84 per share to new investors
purchasing shares in the offering and an immediate increase in net tangible book
value of $2.64 per share to existing stockholders. The following table
illustrates the per share dilution.
<S> <C> <C>
Public offering price per share........................................... $24.00
Net tangible book value before the offering............................. $ 4.52
Increase in net tangible book value attributable to this offering....... 2.64
Pro forma net tangible book value after the offering(1)................... 7.16
------
Dilution to new investors(2).............................................. $16.84
======
<FN>
- ---------------
(1) Pro forma net tangible book value per share represents the amount of total
tangible assets of the Company less total liabilities, divided by
20,358,458, the number of shares of Common Stock outstanding as of March 31,
1996, after giving effect to the sale of the 3,000,000 shares of Common
Stock offered hereby.
(2) Dilution is determined by subtracting pro forma net tangible book value per
share after the offering from the amount of cash paid by a new investor for
a share of Common Stock.
</TABLE>
15
<PAGE> 16
RECENT FINANCIAL RESULTS
On July 25, 1996, the Company reported its financial results for the
quarter and six months ended June 30, 1996. Vertex's net loss for the second
quarter was $22,325,000 or $1.28 per share, compared to $9,023,000 or $0.52 per
share in 1995. Expenses for the second quarter of 1996 include a one-time charge
of $15 million, which was the Company's portion of a $25 million fee paid by
Vertex and its development partner Glaxo Wellcome to obtain a non-exclusive,
worldwide license under certain G.D. Searle & Co. patent applications in the
area of HIV protease inhibition. Expenditures on research and development for
the second quarter were $9,490,000 versus $15,115,000 for the second quarter of
1995, which included manufacturing expenses associated with the Company's
clinical programs. Revenues for the quarter were $4,146,000 derived from
collaborative research and development and interest income, as compared to
$7,951,000 for the second quarter of 1995.
For the six months ended June 30, 1996, the Company reported a net loss of
$29,793,000 or $1.72 per share, with revenues from collaborative research and
development and interest income totaling $7,897,000. For the same period in
1995, Vertex reported a net loss of $13,726,000, or $0.80 per share, with
revenues from collaborative research and development and interest income
totaling $14,284,000.
At June 30, 1996, Vertex had approximately $60 million in cash and
marketable securities. In June, Glaxo Wellcome made a $5 million equity
investment in Vertex by purchasing 151,792 shares of Vertex Common Stock for
$32.94 per share.
16
<PAGE> 17
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data presented below for each of the five years
ended December 31, 1995 have been derived from the Company's consolidated
financial statements which have been audited by Coopers & Lybrand L.L.P.,
independent accountants. The financial data as of March 31, 1996 and for the
three months ended March 31, 1995 and 1996 have been derived from unaudited
financial statements. The unaudited financial statements include all
adjustments, consisting only of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the financial position and
results of operations for these periods. Results for a particular period are not
necessarily indicative of the results to be expected for a particular future
period, although the Company expects to incur a substantial loss for the year
ending December 31, 1996. See "Risk Factors -- History of Operating Losses and
Accumulated Deficit." This data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Financial Statements and related Notes incorporated herein by
reference. No dividends were declared or paid for any of the periods presented.
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, (UNAUDITED)
---------------------- ------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Collaborative and other research and
development revenues................... $ 3,233 $ 3,767 $27,885 $ 19,571 $ 22,081 $ 5,053 $ 2,473
Interest income.......................... 844 1,983 1,409 3,574 5,453 1,280 1,278
------- ------- -------- -------- ------- ------- -------
Total revenues.................... 4,077 5,750 29,294 23,145 27,534 6,333 3,751
Costs and expenses:
Research and development................. 7,679 11,505 23,164 34,761 41,512 9,362 9,337
General and administrative............... 1,138 2,278 3,520 5,540 7,069 1,558 1,763
Interest................................. 403 453 493 439 481 116 119
------- ------- -------- -------- ------- ------- -------
Total costs and expenses.......... 9,220 14,236 27,177 40,740 49,062 11,036 11,219
------- ------- -------- -------- ------- ------- -------
Net (loss) profit before taxes............. (5,143) (8,486) 2,117 (17,595) (21,528) (4,703) (7,468)
Tax provision.............................. -- -- 80 -- -- -- --
------- ------- -------- -------- ------- ------- -------
Net (loss) profit.......................... $(5,143) $(8,486) $ 2,037 $(17,595) $(21,528) $(4,703) $(7,468)
======= ======= ======== ======== ======= ======= =======
Net loss per common share.................. $ (0.64) $ (0.70) $ 0.16 $ (1.11) $ (1.25) $ (0.27) $ (0.43)
Weighted average number of common shares
outstanding.............................. 8,095 12,110 12,451 15,818 17,231 17,190 17,332
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------ MARCH 31,
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.............................. $ 51,489 $ 43,701 $ 52,103 $106,470 $ 86,978 $ 77,256
Total assets............................... 57,084 51,043 60,992 116,175 98,981 90,320
Obligations under capital leases, excluding
current portion.......................... 2,142 3,338 4,208 4,729 4,912 4,371
Accumulated deficit........................ (11,367) (19,853) (17,816) (35,411) (56,939) (64,407)
Total stockholders' equity................. 52,207 43,850 49,520 105,478 85,272 78,430
</TABLE>
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below, as well as those discussed under Risk
Factors and elsewhere in this Prospectus.
OVERVIEW
Since its inception, the Company has focused principally on drug discovery.
Recently, the Company has begun clinical development of several pharmaceutical
product candidates for the treatment of major diseases. To date, the Company has
not received any revenues from the sale of pharmaceutical products and does not
expect to receive such revenues for several years, if at all. To date,
substantially all of the Company's revenues have been derived from payments
received from the Company's collaborative partners. The Company has incurred
since its inception, and expects to incur over the next several years,
significant operating losses as a result of expenditures for its research and
development programs. The Company expects that losses will fluctuate from
quarter to quarter and that such fluctuations may be substantial. Factors that
may cause losses to fluctuate include, but are not limited to, the timing of
milestone and other payments, the receipt of license fees, if any, upon entering
into new collaborative agreements, the payment of license fees and the timing
and extent of development activities, including the conduct of clinical trials
and the manufacture of materials to be used in clinical trials.
RECENT DEVELOPMENT
In June 1996, the Company and Glaxo Wellcome obtained a non-exclusive,
worldwide license to certain Searle patent applications claiming HIV protease
inhibitors. The Company's payment of $15,000,000 for this license can be
expected to increase substantially the Company's loss for 1996 as compared to
the prior fiscal year. In connection with this transaction, Glaxo Wellcome
purchased 151,792 shares of the Company's Common Stock at a price of $32.94 per
share, with net proceeds to the Company of approximately $5,000,000. See
"-- Liquidity and Capital Resources."
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared with Three Months Ended March 31,
1995.
For the first quarter of 1996, the Company's total revenues were $3,751,000
as compared to $6,333,000 during the same period in 1995. The quarterly revenue
decline for the three months ended March 31, 1996 compared to the three months
ended March 31, 1995 was due principally to the conclusion of research funding
requirements of the Chugai Pharmaceutical Co., Ltd. ("Chugai") and Kissei
collaborative agreements in April and December 1995, respectively. These two
collaborations generated $1,938,000 of revenue during the first quarter of 1995.
In the first quarter of 1996, the Company earned $2,281,000 in revenue from its
collaborative agreements, $1,278,000 in interest earned on invested funds and
$192,000 from government grants and other revenue. In the first quarter of 1995,
revenues consisted of $4,921,000 earned under collaborative agreements,
$1,280,000 in interest earned on invested funds and $132,000 from government
grants.
The Company's total costs and expenses increased to $11,219,000 in the
first quarter of 1996, from $11,036,000 during the same period in 1995. Research
and development expenses were $9,337,000 in the first quarter of 1996 as
compared to $9,362,000 during the same period in 1995. The Company experienced
higher research costs associated with an increase in the number of research
employees which was largely offset by lower contracted development costs. While
development activities associated with the Company's clinical candidates have
been increasing, these costs and activities have largely been borne by Vertex's
partners. General and administrative expenses increased during the first quarter
of 1996 to $1,763,000 from $1,558,000 in the first quarter of 1995 due primarily
to an increase in costs associated with patent protection for the Company's
intellectual property as well as an increase in marketing efforts by Altus
Biologics Inc. ("Altus"), a subsidiary of the Company. Interest expense was
$119,000 in the first quarter of 1996 as compared to $116,000 during the same
period in 1995.
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<PAGE> 19
The Company incurred a net loss of $7,468,000 on weighted average shares
outstanding of 17,331,896 or $0.43 per share, in the three months ended March
31, 1996 compared to a net loss of $4,703,000 on weighted average shares
outstanding of 17,189,676, or $0.27 per share, in the three months ended March
31, 1995.
Year Ended December 31, 1995 Compared with Year Ended December 31, 1994.
The Company's total revenues increased to $27,534,000 in 1995 from
$23,145,000 in 1994. In 1995, revenues consisted of $21,587,000 under the
Company's collaborative agreements, $5,453,000 in interest earned on invested
funds and $494,000 in government grants and other income. Revenue from
collaborative agreements consisted of $10,053,000 from the Glaxo Wellcome
collaboration, $5,370,000 from the Kissei collaboration, $3,749,000 from the
Roussel collaboration, $1,915,000 from the Chugai collaboration and $500,000
from the Alpha collaboration. The research funding requirements of the Chugai
and Kissei collaborative agreements concluded in 1995, although Kissei continues
to have certain development funding obligations. In 1994, revenues consisted of
$19,327,000 from collaborative agreements, $3,574,000 in interest earned on
invested funds and $244,000 in government grants and other income. Revenue in
1994 from collaborative agreements consisted of $5,346,000 from the Glaxo
Wellcome collaboration, $5,498,000 from the Kissei collaboration, $3,514,000
from the Roussel collaboration and $4,969,000 from the Chugai collaboration.
The Company's total costs and expenses increased to $49,062,000 in 1995
from $40,740,000 in 1994. Research and development expenses increased 19% to
$41,512,000 in 1995 from $34,761,000 in 1994, due, in part, to the costs
associated with manufacturing drug product for use in ongoing clinical trials of
the Company's drug candidates and, to a lesser extent, increases in the
Company's research staff. General and administrative expenses increased by 28%
to $7,069,000 from $5,540,000 between 1995 and 1994. The increase in general and
administrative expense principally reflects the full year impact of personnel
additions and the opening of an office in the United Kingdom in 1994 to support
the Company's research and business development efforts. Also contributing to
the increase were costs associated with the addition of marketing and support
personnel for Altus. In addition, the Company experienced higher legal fees
associated with its patent activities. Interest expense increased 10% to
$481,000 in 1995 from $439,000 in 1994 as a result of higher levels of equipment
leasing.
The Company recorded a net loss of $21,528,000 on weighted average shares
outstanding of 17,230,827, or $1.25 per share, in 1995 compared to a net loss of
$17,595,000 on weighted average shares outstanding of 15,818,184, or $1.11 per
share, in 1994.
Year Ended December 31, 1994 Compared with Year Ended December 31, 1993.
The Company's total revenues decreased to $23,145,000 in 1994 from
$29,294,000 in 1993. In 1994, revenues consisted of $19,327,000 under the
Company's collaborative agreements, $3,574,000 in interest earned on invested
funds and $244,000 in government grants and other income. Revenue from
collaborations consisted of $5,346,000 from the Glaxo Wellcome collaboration,
$5,498,000 from the Kissei collaboration, $3,514,000 from the Roussel
collaboration and $4,969,000 from the Chugai collaboration. In 1993, revenues
consisted of $15,205,000 from the Glaxo Wellcome collaboration, $4,805,000 from
the Kissei collaboration, $3,500,000 from the Roussel collaboration and
$4,059,000 from the Chugai collaboration, $1,409,000 in interest earned on
invested funds and $316,000 from government grants and other income. Revenue
recognized from the Glaxo Wellcome collaboration in 1993 included a one-time,
$15,000,000 license fee paid to the Company pursuant to the collaborative
agreement.
The Company's total costs and expenses increased to $40,740,000 from
$27,177,000 in 1993. Research and development expenses increased 50% to
$34,761,000 in 1994 from $23,164,000 in 1993, principally due to the advancement
of drug candidates to clinical trials and the costs associated with the scale-up
and manufacturing of drug product for use in the clinical trials. In addition,
the Company hired 37 additional scientists and support personnel, which resulted
in a 35% increase in the size of the Company's research and development staff.
Research facilities were expanded and new equipment was purchased to accommodate
this growth. General and administrative expenses increased by 57% to $5,540,000
in 1994 from $3,520,000 in 1993,
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<PAGE> 20
reflecting increased staffing and business development efforts to support the
growth in both the research and clinical development organizations. In addition,
Altus increased its marketing efforts for sales of its cross linked enzyme
crystals or CLEC products. Interest expense decreased 11% to $439,000 in 1994
from $493,000 in 1993 as a result of more favorable interest rates on the
Company's lease lines.
The Company recorded a net loss of $17,595,000 on weighted average shares
outstanding of 15,818,184, or $1.11 per share, in 1994 compared to net income of
$2,037,000 on weighted average shares outstanding of 12,451,245, or $0.16 per
share, in 1993.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company's operations have been funded principally
through strategic collaborative agreements, public offerings and private
placements of the Company's equity securities, equipment lease financing and
government grants and interest income. The Company expects to incur increased
research and development and related supporting expenses and, consequently,
continued operating losses on a quarterly and annual basis as it continues
developing existing and future compounds, as well as undertaking clinical trials
of potential drugs. The Company also expects to incur substantial administrative
and commercialization expenditures in the future and increased expenses related
to the filing, prosecution, defense and enforcement of patent and other
intellectual property rights.
The Company expects to finance these substantial cash needs through the net
proceeds of this offering, existing cash and investments, together with interest
earned thereon, payments under its existing collaborative agreements and
facilities and equipment financing. To the extent that funds from these sources
are not sufficient to fund the Company's activities, it will be necessary to
raise additional funds through public offerings or private placements of
securities, potential additional corporate collaborations or other methods of
financing. There can be no assurance that such additional funds will be
available when needed or on terms acceptable to the Company.
The Company and Glaxo Wellcome are collaborating on the development of
compounds in connection with the Company's HIV Program. Under the collaborative
agreement, Glaxo Wellcome is obligated to pay the Company up to $42.0 million,
comprised of a $15.0 million initial license payment paid in 1993, $14.0 million
of product research funding over five years and $13.0 million of development and
commercialization milestone payments. From the inception of the agreement in
December 1993 through March 31, 1996, $22.8 million, including a $2.0 million
payment received in December 1995 upon commencement of a Phase I/II study, has
been recognized as revenue. Glaxo Wellcome is also obligated to pay to Vertex
additional development and commercialization milestone payments for subsequent
drug candidates. In addition, Glaxo Wellcome is required to bear the costs of
development in its territory of drug candidates under the collaboration. In 1994
and 1995, the Company received additional revenue related to reimbursements for
clinical development. Under the agreement, Glaxo Wellcome is also required to
pay Vertex a royalty on sales. Glaxo Wellcome has the right to terminate the
research collaboration without cause upon twelve months' notice given at any
time and has the right to terminate the license arrangements without cause upon
twelve months' notice given at any time after December 16, 1996, provided such
notice is not given before the research collaboration has been terminated.
Termination by Glaxo Wellcome of the research collaboration will relieve Glaxo
Wellcome of its obligation to make further research support payments under the
agreement. Termination by Glaxo Wellcome of the license arrangements under the
agreement will relieve it of its obligation to make further commercialization
and development milestone and royalty payments and will end any license granted
to Glaxo Wellcome by Vertex.
In June 1996, Vertex and Glaxo Wellcome obtained a non-exclusive, worldwide
license under certain Searle patent applications claiming HIV protease
inhibitors to permit Vertex and Glaxo Wellcome to develop, manufacture and
market VX-478 free of the risk of intellectual property claims by Searle. Vertex
and Glaxo Wellcome paid Searle $15.0 million and $10.0 million, respectively,
for the license. In addition, the terms of the license require Vertex to pay
Searle a royalty on sales. In connection with this transaction, Glaxo Wellcome
purchased 151,792 shares of the Company's Common Stock at a price of $32.94 per
share, with net proceeds to the Company of approximately $5.0 million.
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<PAGE> 21
The Company and Kissei are collaborating on the research and development of
compounds in connection with the Company's HIV Program. Under the collaborative
agreement, Kissei is obligated to pay the Company up to $20.0 million, comprised
of $9.8 million of product research funding through 1995, $7.0 million of
development milestone and territory option payments and a $3.2 million equity
investment. In December 1995, Vertex recognized $2.7 million in revenue, which
represented an option payment by Kissei for the rights to develop VX-478 in
several Far East countries in addition to Japan and the People's Republic of
China. From the inception of the agreement in April 1993 through March 31, 1996,
$17.8 million has been received, including $14.6 million recognized as revenue
and $3.2 million as an equity investment. In addition, the Company received
additional revenue related to reimbursements for clinical development in 1994.
Under the collaboration, Kissei is also required to pay Vertex a royalty on
sales.
The Company and Roussel are collaborating on the development of
interleukin-1 beta converting enzyme inhibitors as anti-inflammatory agents.
Under the collaborative agreement, Roussel is obligated to pay the Company up to
$30.5 million, comprised of $18.5 million of product research funding over five
years and $12.0 million of development and commercialization milestone payments.
From the inception of the agreement in September 1993 through March 31, 1996,
$11.5 million has been recognized as revenue. Roussel has the right to terminate
the agreement without cause upon twelve months' notice at any time. For a period
of one year after any such termination, Roussel retains the right to select one
or more compounds for development and to license such compound or compounds from
Vertex, provided Roussel resumes all research funding and commercialization
milestone payments and makes all such payments that would otherwise have been
due but for such termination. Otherwise, in the case of such termination, all
rights to compounds developed under the research and license agreements will
revert to Vertex.
The Company and Alpha are collaborating on the development and
commercialization of VX-366 for the treatment of sickle cell disease and beta
thalassemia. Under the collaborative agreement, Alpha is obligated to pay the
Company up to $5.0 million comprised of an initial license fee and payments for
development and commercialization milestones. From the inception of the
agreement in October 1995 through March 31, 1996, $500,000 has been recognized
as revenue. In addition, Alpha is obligated to bear the costs of development of
VX-366 under the collaboration. Alpha has the right to terminate the agreement
without cause upon six months' notice at any time. Termination will relieve
Alpha of any further payment obligations under the agreement and will end the
license granted to Alpha by Vertex.
In May 1996, the Company entered into a collaborative agreement with
BioChem for the development and commercialization of VX-710, the Company's lead
compound in its cancer multidrug resistance program, in Canada. Under the
collaborative agreement, BioChem has exclusive rights to develop and
commercialize VX-710 in Canada. BioChem is obligated to pay the Company up to
$4.0 million comprised of an initial license payment of $500,000 and development
and commercialization milestone payments. BioChem is also obligated to bear the
costs of development of VX-710 in Canada. The Company will supply BioChem's
requirements of bulk and finished forms of VX-710. BioChem will make payments to
the Company for those materials based on sales of products by BioChem, which
will cover Vertex's cost of supplying materials and will provide a profit to
Vertex. BioChem has the right to terminate the agreement without cause upon six
months notice at any time after May 8, 1997. Termination will relieve BioChem of
any further payment obligations under the agreement and will end any license
granted to BioChem by Vertex thereunder.
In March 1995, the Company signed a ten-year operating lease for additional
facilities. The Company has occupied approximately 45,000 square feet of space
under this lease and has agreed to occupy approximately 59,000 square feet in
total during the lease period in order to meet its longer-term expansion needs.
These costs will be funded, in whole or in part, either through existing cash
and investments or through other methods of financing. In addition, the Company
expects to continue its current practice of leasing most of its capital
equipment, provided such lease financing continues to be available to the
Company on commercially acceptable terms.
In February 1994, the Company sold 3,450,000 shares of Common Stock in an
underwritten public offering at a price to the public of $18.00 per share, with
net proceeds to the Company of approximately $58.1 million. In November 1994,
the Company sold an additional 1,200,000 shares of Common Stock in a private
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<PAGE> 22
placement to a subsidiary of BB Biotech A.G. at a price of $12.50 per share,
with net proceeds to the Company of approximately $15.0 million. In June 1996,
the Company sold 151,792 shares of Common Stock in a private placement to Glaxo
Wellcome at a price of $32.94 per share, with net proceeds to the Company of
approximately $5.0 million.
The Company will adopt the disclosure requirements of Statement of
Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for Stock-Based
Compensation" in 1996. FAS 123 requires that the Company disclose what the
effect would be on net income if it recognized compensation expense from grants
of incentive stock options to employees, and issuances of other equity
instruments, as they occur based on fair value accounting rules. The adoption of
FAS 123 will have no material impact on liquidity and capital resources.
The Company's aggregate cash and investments were $77,256,000 at March 31,
1996, a decrease of approximately $9,722,000 from December 31, 1995. Cash used
by operations was $8,326,000 in the three months ended March 31, 1996. During
the three months ended March 31, 1996, the Company expended $579,000 to acquire
property and equipment, principally for research and development. During the
same period, the Company repaid $504,000 of its equipment lease obligations. The
Company anticipates that its existing available cash and investments, including
the net proceeds from this offering, will be adequate to satisfy its working
capital requirements for its current and planned operations at least for the
next 12 months.
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<PAGE> 23
BUSINESS
Vertex is engaged in the discovery, development and commercialization of
novel, small molecule pharmaceuticals for the treatment of diseases for which
there are currently limited or no effective treatments. The Company is a leader
in the use of structure-based drug design, an approach to drug discovery that
integrates advanced biology, biophysics and chemistry in a coordinated and
simultaneous fashion. The Company believes that this integrated approach is
applicable to therapeutic targets in a broad range of diseases. Vertex's goal is
to create a portfolio of highly specific, proprietary, small molecule drugs
based on its knowledge of the atomic structure of proteins involved in the
control of disease processes. The Company's drug candidates for the treatment of
HIV infection and AIDS, MDR in cancer and two genetic hemoglobin disorders are
currently undergoing human clinical trials. In addition, the Company has
research programs aimed at developing orally available small molecule compounds
to treat inflammatory conditions, autoimmune diseases, hepatitis C infection and
neurodegenerative diseases.
STRUCTURE-BASED DRUG DESIGN
Drugs are natural or synthetic compounds that interact with a target
molecule, typically a protein, either to induce or to inhibit that molecule's
function within the human body. Traditionally, pharmaceutical products have been
discovered through the screening of thousands of compounds, either from existing
chemical libraries or from fermentation broths, against a predictive assay for a
particular disease target. The Company believes that traditional pharmaceutical
discovery is an essentially random process which is costly and inefficient.
Another method of pharmaceutical product development has emerged with advances
in biotechnology, which has led to the development of drugs based on the
isolation and production of human recombinant proteins. The Company believes
that this approach also has limitations because the resulting pharmaceuticals
are large molecules that cannot be administered orally, are difficult to
manufacture and have applications which are limited to the disease state in
which the protein is involved.
Vertex is developing pharmaceutical products using structure-based drug
design, which is distinct from the traditional pharmaceutical and
biotechnological approaches. By determining and modeling the three dimensional
atomic structure of a target protein, the Company intends to rationally design
or alter chemical compounds to specifically interact with the targeted protein.
The Company believes that its approach increases the chances for the discovery
of multiple lead compounds for selected protein targets, including targets for
which traditional drug discovery has met with limited success. Moreover, the
Company believes that its drug design process may accelerate optimization of
lead compounds, since modification of a lead compound may be undertaken with
knowledge of the relationship between the compound's structure and its desired
therapeutic effect, rather than through experimentation with randomly generated
modifications to that compound.
The Company's approach to structure-based design is an integrated approach
combining efforts in biology, biophysics and chemistry in a coordinated and
simultaneous fashion. To acquire structural information, Vertex applies advanced
biophysical and computational tools, including x-ray crystallography, nuclear
magnetic resonance spectroscopy and high resolution computer modeling. As
structural information is gathered, the Company uses combinatorial,
computational and medicinal chemistry to design and produce novel, highly
specific small molecule compounds that possess the characteristics required for
therapeutic benefit. To arrive at initial lead compounds, the Company may use
traditional approaches, such as screening chemical libraries, natural products
or combinatorial libraries in addition to using known chemical compounds or may
apply direct computational methods (de novo design). Throughout the process, the
Company develops biological assays and proprietary animal models, some of which
employ the latest advances in genomics techniques, in order to analyze the
function of target proteins. Using these tools, the Company optimizes compounds
for potency and pharmaceutical properties, including tolerability and
pharmacokinetics, and manufacturability. The Company selects clinical candidates
from among optimized compounds based on the results of in vitro and in vivo
tests designed to predict the compounds' safety and efficacy.
Vertex expects to employ all of its core technologies from the initial
phases of a program through the entire discovery process. Information generated
through the application of one scientific technique becomes part of the
information base from which further advances may be made by Vertex scientists
using other
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development techniques. Using its approach to structure-based drug design,
Vertex has demonstrated that it is able to solve atomic structures of target
proteins, generate lead compounds that bind to the target in vitro and optimize
those compounds to produce drug candidates with desirable pharmaceutical
attributes. The Company believes that its integrated structure-based approach to
drug discovery and the applicability of this approach to a broad range of
protein targets provides the Company with significant competitive advantages in
the discovery and development of novel therapeutics for a variety of diseases.
CORPORATE STRATEGY
Vertex is concentrating on the discovery and development of drugs for the
treatment of viral diseases, multidrug resistance in cancer, hemoglobin
disorders, inflammation, autoimmune diseases, organ transplant rejection and
neurodegenerative diseases. The Company's research and development strategy is
to identify therapeutic areas in which there is (i) an unmet clinical need for
effective therapies, (ii) evidence that interaction with known protein targets
will produce a therapeutic effect and (iii) evidence that the protein targets
will be appropriate for structural analysis using Vertex's scientific approach.
The Company's business strategy is to form collaborations with pharmaceutical
companies in programs for which they can provide resources and access to
competencies complementary to Vertex's in-house capabilities.
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<PAGE> 25
PRODUCT DEVELOPMENT AND RESEARCH PROGRAMS
The following table outlines the Company's most advanced product
development and research programs.
<TABLE>
<CAPTION>
COMPOUND/PROGRAM INDICATION(S) STATUS(1) COMMERCIAL RIGHTS
- --------------------- ----------------------- ------------- --------------------------
<S> <C> <C> <C>
VX-478 HIV/AIDS Phase I/II(2) Glaxo Wellcome/Kissei(3)
VX-710 Cancers susceptible to Phase II BioChem/Vertex(4)
MDR
VX-853 Cancers susceptible to Phase I/II Vertex
MDR
VX-366 Sickle cell disease and Phase II Alpha/Ravizza/Vertex(5)
beta thalassemia
ICE Inflammatory diseases Research Roussel/Vertex(6)
IMPDH Autoimmune diseases Research Vertex
Neuroimmunophilins Neurodegenerative Research Vertex
disorders
Hepatitis C Hepatitis C infection Research Vertex
MAP Kinases Inflammatory diseases Research Vertex
<FN>
- ---------------
(1) "Research" includes the discovery or creation of prototype compounds, in
vitro studies of those compounds and preliminary evaluation in animals.
"Phase I" clinical studies indicates that the compound is being tested in
healthy humans for safety, dose tolerance, absorption, bioavailability,
biodistribution, metabolism, excretion, clinical pharmacology and/or, if
possible, early information on efficacy. "Phase I/II" clinical studies
indicates that the compound is being tested in a limited patient population
for safety and preliminary indications of biological activity in patients
with the targeted disease. "Phase II" clinical studies indicates that the
compound is being tested in a limited patient population to assess the
efficacy of the drug for a specific indication, to determine dose tolerance
and the optimal dose range and to gather additional information relating to
safety and potential adverse effects. See "-- Government Regulation."
(2) VX-478 is currently in Phase I/II clinical trials in the U.S. and Europe and
has completed Phase I clinical trials in Japan.
(3) Glaxo Wellcome has worldwide rights except for the Far East. Kissei has
rights for the Far East. See "-- Corporate Collaborations -- Glaxo Wellcome
plc." and "-- Kissei Pharmaceutical Co., Ltd."
(4) BioChem has rights for VX-710 in Canada. Vertex retains worldwide rights for
VX-710, except for Canada. See "-- Corporate Collaborations -- BioChem
Pharma (International) Inc."
(5) Alpha has rights for VX-366 for North, Central and South America. Vertex
retains worldwide rights, except for North, Central and South America.
Vertex has an arrangement with Ravizza under which Ravizza is conducting
clinical studies and will share data with the Company and which includes a
framework for negotiation of an agreement for clinical development and
commercialization of compounds in Europe. See "-- Corporate Collaborations
-- Alpha Therapeutic Corporation" and "-- Ravizza Farmaceutici S.p.A."
(6) Roussel has rights for any ICE inhibitors developed for Europe, Africa and
the Middle East. Vertex and Roussel have joint rights for the Far East.
Vertex retains rights for the Americas and the rest of the world. See "--
Corporate Collaborations -- Roussel Uclaf, a company of the Hoechst Marion
Roussel Group."
</TABLE>
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<PAGE> 26
CLINICAL PROGRAMS
HIV PROGRAM
Overview
Vertex is developing orally deliverable antiviral drugs to treat HIV
infection and AIDS. The Company is collaborating with Glaxo Wellcome plc. and
Kissei Pharmaceutical Co., Ltd. in the development of its HIV protease inhibitor
compounds. Glaxo Wellcome is conducting multi-center Phase I/II clinical trials
in the United States and Europe to assess the safety and initial efficacy of the
Company's lead drug candidate, VX-478, in HIV-positive individuals. In Japan,
Kissei completed in 1995 single dose and multiple dose, five-day Phase I
clinical trials in healthy volunteers.
Background
As of June 30, 1995, approximately 475,000 cases of AIDS had been reported
to the U.S. Centers for Disease Control and Prevention, and the current
population of surviving AIDS patients in the U.S. was estimated to be
approximately 180,000. The U.S. Public Health Service estimates that more than
1,000,000 additional people in the U.S. are infected with HIV. In 1995, the
World Health Organization reported that approximately 1,170,000 AIDS cases had
been reported worldwide, but it estimated that the actual total number of cases
was over 4,500,000.
AIDS is caused by infection with HIV. HIV infection causes severe
immunosuppression and, eventually, death by attacking and destroying T-cells,
which coordinate much of the network of normal immune responses. Progression
from HIV infection to AIDS may take many years. Currently, there are two classes
of antiviral drugs approved for the treatment of AIDS, reverse transcriptase
inhibitors and protease inhibitors. AZT, ddI, ddC and 3TC are drugs that act by
inhibiting reverse transcriptase, an enzyme required for viral replication. The
clinical utility of each of these drugs is limited by significant side effects
and by the development of viral resistance. While certain of the reverse
transcriptase inhibitors may be used alone, the clinical utility of these drugs
may be improved if drugs are administered in combination to reduce the dosage
requirement for each drug, which can reduce significant side effects. Such
combination therapy also can delay the onset of viral resistance. Due to the
limitations of AZT and other reverse transcriptase inhibitors, there has been
significant interest in developing anti-HIV agents that work by alternative
mechanisms, such as HIV protease inhibitors which act by blocking another viral
enzyme involved in HIV replication. Recently, the FDA approved for marketing HIV
protease inhibitors developed by Merck & Co., Inc., Hoffmann-La Roche and Abbott
Laboratories, Inc.
The Company believes that the market for protease inhibitors is competitive
and that a protease inhibitor must possess several characteristics in order to
be clinically useful and to gain market acceptance. These characteristics
include efficacy, high bioavailability and pharmacokinetics (i.e., high
absorption into and sustained presence in the bloodstream), the ability to
penetrate the brain and lymph systems from the bloodstream, an acceptable
resistance profile, a favorable side effect profile and practical manufacture.
The Company believes that it has applied its drug discovery approach to the
design of VX-478 in such a way that the drug candidate may offer these
characteristics.
Clinical Status
Vertex's HIV and AIDS program is focused on the development of a highly
specific protease inhibitor designed to effectively block the replication of HIV
and to possess key competitive characteristics. In December 1995, Glaxo Wellcome
began multi-center Phase I/II clinical trials in the United States and Europe to
assess the safety and efficacy of VX-478. The protocol calls for VX-478 to be
administered orally at doses of 300 mg (2x daily), 300 mg (3x daily), 900 mg (2x
daily) and 1200 mg (2x daily) for four weeks. Glaxo Wellcome has completed
treating a total of approximately 30 HIV positive patients, with approximately
10 patients in each of the first three groups. Dosing of the fourth group of 10
patients is currently in progress. Antiviral efficacy will be measured based on
viral load and CD4 counts, two generally accepted measurements of viral
infection levels. Glaxo Wellcome currently plans to conduct additional
multi-center Phase II clinical trials of VX-478 alone and in combination with
AZT/3TC and another reverse transcriptase inhibitor in development by Glaxo
Wellcome. If results of these trials are favorable, Vertex expects that Glaxo
Wellcome
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<PAGE> 27
will initiate pivotal trials for VX-478 by the end of 1996. There can be no
assurance that pivotal clinical trials will commence or will result in the
submission or approval of an NDA for VX-478.
In July 1995, Glaxo Wellcome reported results of a Phase I trial of VX-478
administered in escalating single doses of 150 mg, 300 mg, 600 mg, 900 mg and
1200 mg. The placebo-controlled trial, which began in February 1995, involved 18
HIV-positive individuals. Trial results indicated that VX-478 was
well-tolerated, with no significant adverse experiences or laboratory test
abnormalities observed. The amount of VX-478 detected in the blood was directly
proportional to the doses administered. In this trial, at eight hours following
administration, the level of VX-478 detected in the bloodstream for each dose
was significantly above the IC90 level required for viral inhibition in vitro.
IC90, a commonly used measurement, is the level of drug candidate found to
eliminate 90 percent of viral replication in vitro. The half-life of the
compound ranged from approximately seven to ten hours. Oral bioavailability of
VX-478 achieved in this study was estimated at greater than 70 percent.
In May 1996, Glaxo Wellcome presented preliminary data for the first group
of patients in the Phase I/II clinical trial (300 mg (2x daily)). This data
suggests that VX-478 displays desirable pharmacokinetics throughout 28 days of
dosing.
In July 1996, Glaxo Wellcome provided the Company with additional
preliminary data from the first three groups of patients in the Phase I/II
trials. This data suggests that VX-478 was well-tolerated and produced a
dose-dependent antiviral effect across the three groups. The preliminary data
from the 900 mg (2x daily) group suggests that VX-478 produced significant and
sustained reductions of HIV in the blood and increased CD4 counts. The data from
these trials is preliminary and incomplete, is based on a small number of
patients and does not include all 10 patients in the 900 mg group. There can be
no assurance that these results are predictive of results that will be obtained
in the trials when they are completed and in any future larger scale clinical
trials. See "Risk Factors -- Uncertainties Related to Clinical Trials."
In 1995, Kissei completed single dose and multi-dose, placebo-controlled,
Phase I clinical trials. Results from these trials reported in May 1996
indicated that VX-478 was well-tolerated, with no significant adverse
experiences or laboratory test abnormalities observed at the doses tested.
Vertex expects that Kissei will initiate Phase II/III efficacy trials in 1997 in
HIV-positive patients that will be designed based on clinical data from Glaxo
Wellcome. There can be no assurance, however, that these clinical trials will
commence or proceed as currently anticipated. See "Risk Factors -- Uncertainties
Related to Clinical Trials" and "-- Dependence on Collaborative Partners."
In collaboration with Glaxo Wellcome, Vertex also is engaged in research to
develop additional lead classes of HIV protease inhibitors. This research is
focused on designing compounds with resistance profiles distinct from VX-478.
The Company has nine United States patent applications pending, and foreign
counterparts to some of those applications, that claim classes of chemical
compounds which include within their scope the Company's lead drug candidates
for treating HIV infection and AIDS. Of the nine United States patent
applications, six have claims that include VX-478 within their literal scope.
Vertex recently received a Notice of Allowance for claims covering VX-478 and
related novel HIV protease inhibitors. In addition, the Company has one United
States patent application that claims processes for preparing synthetic
intermediates useful in the synthesis of a class of compounds that includes
VX-478. The Company also has a non-exclusive, worldwide license under certain
Searle patent applications claiming HIV protease inhibitors. See "Risk
Factors -- Uncertainly Related to Patents and Proprietary Information."
CANCER MULTIDRUG RESISTANCE PROGRAM
Overview
Vertex is developing novel compounds to treat and prevent the occurrence of
drug resistance associated with the failure of cancer chemotherapy by inhibiting
cellular mechanisms believed to be responsible for MDR. Two cellular mechanisms
implicated in MDR are P-glycoprotein, or "MDR1," and multidrug resistance
associated protein, or "MRP." Vertex currently is conducting two Phase I/II
clinical trials of its initial MDR clinical candidate, VX-710, in combination
with either doxorubicin or paclitaxel. In June 1996, Vertex commenced a Phase II
multi-center clinical trial to assess the safety and efficacy of the co-
administration of VX-710 and doxorubicin in patients with liver cancer. Vertex
is collaborating with BioChem
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for the development and commercialization of VX-710 in Canada. BioChem is
planning to initiate Phase II clinical trials of VX-710 in Canada by the end of
1996. In April 1996, the Company commenced a Phase I/II dose escalating clinical
trial with a second MDR inhibitor, VX-853, an orally administered compound in a
chemical class distinct from VX-710, in combination with doxorubicin in patients
with solid tumors.
Background
According to the American Cancer Society, there were an estimated 500,000
new cases of breast, ovarian, lung, liver and colorectal tumors in the United
States in 1995. In addition, there are an estimated 89,000 new patients each
year in the United States afflicted with blood cancers, such as multiple
myeloma, acute myeloid leukemia and non-Hodgkin's lymphoma. The Company believes
that a significant number of these patients may not be effectively treated by
chemotherapy because of MDR.
Multidrug resistance is frequently associated with the failure of
chemotherapy. A major contributing factor to MDR is the presence of molecular
pumps that function to expel toxins out of the cell. MDR occurs when these
pumps, including MDR1 and MRP, expel chemotherapeutic agents from cancer cells,
preventing the sustained delivery of potent levels of the chemotherapeutic
agents required for therapeutic benefit. As a consequence, such resistant tumor
cells cannot be killed efficiently by anticancer drugs such as methotrexate,
doxorubicin, vincristine and paclitaxel. MDR1 has been implicated in MDR in a
variety of cancers including liver cancer, colon cancer, pancreatic cancer,
chronic myelogenous leukemia and certain lung cancers. MRP was recently
identified as another drug efflux pump and is believed responsible for
resistance observed in additional tumor types.
No drug has been approved by the FDA specifically for the treatment of MDR,
however, several compounds are in advanced clinical studies. Certain agents,
such as dex-verapamil and an analog of cyclosporin A, have been shown in
preliminary human studies to have some effectiveness in overcoming clinical
resistance to certain commonly used chemotherapeutic agents. The Company
believes these drugs may have side effects that could limit broad use.
Clinical Status
Vertex's lead compound, VX-710, has displayed potent activity in vitro as
an inhibitor of MDR for a number of chemotherapeutic agents in a variety of
tumor types. In late 1994, Vertex initiated Phase I/II clinical trials in
patients with solid tumors to evaluate the safety and pharmacokinetics of VX-710
administered intravenously in combination with either paclitaxel or doxorubicin.
During 1995, dose-escalating trials continued at two clinical centers in the
United States. The Company expects that 20 or more patients eventually will be
treated in each trial. Vertex plans to complete the Phase I/II trials in 1996.
In June 1996, Vertex initiated a Phase II multi-center clinical trial to assess
the safety and efficacy of the co-administration of VX-710 and doxorubicin in
patients with liver cancer. The primary efficacy endpoints in this trial will be
response rate and time to disease progression. In addition, BioChem is planning
to initiate Phase II clinical trials of VX-710 in Canada by the end of 1996 in
combination with paclitaxel in patients with ovarian cancer and in combination
with doxorubicin in patients with soft tissue sarcoma. There can be no
assurance, however, that clinical trials will commence or proceed as currently
anticipated. See "Risk Factors -- Uncertainties Related to Clinical Trials" and
"-- Dependence on Collaborative Partners."
In April 1996, a principal investigator for the ongoing Phase I/II trial
reported preliminary results for the VX-710/doxorubicin combination. The
findings, based on 22 patients receiving intravenous doses of up to 160
mg/m(2)/hr, suggest that the regimen was well-tolerated, with generally mild and
reversible side effects at the doses tested. The results also showed that the
regimen can be successfully administered to achieve blood levels shown to
reverse MDR in vitro and in preclinical studies. The investigator also reported
that VX-710 did not appear to alter markedly the clearance or half-life of
doxorubicin, which the Company believes will provide future flexibility for
dosage. Investigators used an imaging agent, which is ordinarily expelled from
the liver by MDR1, as a marker for MDR1 inhibition by VX-710. In this trial, the
level of retention of the imaging agent in the liver suggested that VX-710 was
blocking the activity of MDR1.
Vertex's research has identified several proprietary compounds, in addition
to VX-710, that are able to return drug resistant cells to a state of drug
sensitivity in vitro. In November 1995, Vertex scientists reported in vitro MDR
inhibition results for VX-853, an orally administered compound in a chemical
class distinct
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from VX-710. The research showed that VX-853 potently blocks MDR mediated by
both MDR1 and MRP. In April 1996, the Company commenced a Phase I/II
dose-escalating clinical trial of VX-853 in combination with doxorubicin in
patients with solid tumors.
The Company has six United States patent applications pending and several
foreign counterpart applications claiming VX-710 and other compounds for
treating multidrug resistance. One of those United States patent applications
and its foreign counterpart applications also claim VX-853. The Company may seek
orphan drug status for certain indications of its MDR compounds.
HEMOGLOBIN DISORDERS PROGRAM
Overview
Vertex is developing VX-366, a drug to treat sickle cell disease and beta
thalassemia, two inherited blood disorders for which there currently are a
limited number of treatments. The Company is collaborating with Alpha
Therapeutic Corporation, a subsidiary of Green Cross Corporation, and Ravizza
Farmaceutici, a subsidiary of BASF, in the development of its hemoglobin
disorder compounds. Vertex completed a Phase I safety trial of VX-366, an orally
administered compound, in healthy volunteers in late 1994. In 1995, Ravizza
completed a pilot Phase II trial of VX-366 in Italy in 12 patients with beta
thalassemia. Alpha plans to begin a Phase II clinical trial in 1996 of VX-366
for the treatment of sickle cell disease. There can be no assurance, however,
that clinical trials will commence or proceed as currently planned. Vertex
obtained orphan drug status from the FDA for VX-366 for the treatment of beta
thalassemia and sickle cell disease in 1994.
Background
Sickle cell disease affects 1 in 375 African-Americans and, to a lesser
extent, persons of Eastern Mediterranean, Indian or Saudi Arabian ancestry.
There were an estimated 75,000 sickle cell cases and 10,000 beta thalassemia
cases in the United States and Europe as of 1994.
Sickle cell disease and beta thalassemia are inherited disorders caused by
defects in the gene for adult hemoglobin. These diseases are associated with
life-threatening organ damage, cause chronic and recurrent pain and predispose
affected individuals to severe infection. Although individuals with sickle cell
disease or beta thalassemia possess a genetic defect in the adult form of their
hemoglobin, they carry normal genes for hemoglobin F, the molecule that is used
to carry oxygen during fetal development and for a short period after birth.
Several scientific findings demonstrate that the presence of even small amounts
of normal hemoglobin F (5-20% of total hemoglobin) can improve the symptoms and
extend the life span of individuals with sickle cell disease or beta
thalassemia.
There are currently a limited number of treatments for beta thalessemia and
sickle cell disease. Hydroxyurea, an oral compound currently marketed as an
anti-cancer agent, has been shown, in a Phase III study conducted by the
National Institutes of Health, to improve the symptoms of patients with sickle
cell disease by raising levels of hemoglobin F. The Company believes, however,
that this compound has limitations due to toxic side effects. Other treatments
used to combat symptoms of sickle cell disease and beta thalassemia include
antibiotics, pain killers and blood transfusions. Several compounds are in
clinical development by a number of companies for the treatment of these
diseases.
Clinical Status
Vertex's drug in development for hemoglobin disorders, VX-366, is intended
to stimulate or sustain the production of hemoglobin F. Vertex acquired VX-366,
a butyrate compound, in August 1993 under an exclusive license from Children's
Hospital Medical Center of Oakland. Vertex completed a Phase I double blind,
placebo-controlled safety trial of VX-366 in 24 healthy volunteers in late 1994.
Trial reports indicated that VX-366 was well-tolerated, and achieved blood
levels in excess of those found to stimulate production of hemoglobin F in
vitro. In 1995, Ravizza completed a four-week Phase II trial in Italy in 12
patients with beta thalassemia. In June 1996, Ravizza reported results of this
trial, which indicated that VX-366 increased hemoglobin F levels in seven of 12
patients by the end of the trial and that two additional patients displayed
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increased levels at the end of one month after the trial. In September 1995,
Vertex entered into a license agreement with Alpha for the development and
commercialization of VX-366 in North, Central and South America. Vertex expects
that Alpha will begin Phase II clinical trials in 1996 with VX-366 in patients
with sickle cell disease. There can be no assurance, however, that clinical
trials will commence or proceed as currently anticipated. See "Risk
Factors -- Uncertainties Related to Clinical Studies" and "-- Dependence on
Collaborative Partners."
Four United States patents have issued, which are licensed exclusively by
Vertex from Children's Hospital. Three of these patents claim the use of VX-366
in the treatment of hemoglobin disorders, including sickle cell disease and beta
thalassemia. Because Children's Hospital did not foreign file the application
corresponding to that reissue application within one year of filing its
corresponding United States application, the Company's foreign patent rights may
be limited. Vertex has filed three United States patent applications claiming
various compounds and their use in the treatment of hemoglobin disorders.
RESEARCH PROGRAMS
Inflammation Program
Overview. Vertex is developing novel drugs to treat acute and chronic
inflammatory conditions, including pancreatitis, osteoarthritis and rheumatoid
arthritis. The Company is collaborating with Roussel Uclaf, a company of the
Hoechst Marion Roussel Group, in the development of compounds to block
interleukin-1 beta converting enzyme ("ICE"), which mediates the production and
release of the inflammatory cytokine IL-1 beta. The companies have generated
lead classes of ICE inhibitors for further evaluation.
Background. Elevation of IL-1 beta levels has been correlated to a number
of acute and chronic inflammatory diseases such as asthma, inflammatory bowel
disease, osteoarthritis, pancreatitis and rheumatoid arthritis. There are
approximately 3,000,000 cases of rheumatoid arthritis in the United States
alone. Worldwide sales of anti-inflammatory drugs were approximately $9 billion
in 1991. ICE was first characterized in late 1991 and represents a novel target
for anti-inflammatory drug discovery. Although several companies are pursuing
ICE as a drug target, Vertex is not aware of any company with an ICE-inhibiting
compound in clinical development, and there currently are no IL-1 beta
inhibitors approved for marketing.
Research Status. Vertex believes that inhibition of ICE represents a
specific and potent approach to controlling inflammation resulting from elevated
IL-1 beta levels. Vertex and Roussel are engaged in the design of small molecule
inhibitors of ICE. The goal of the research is to develop inhibitors of the
enzyme that could be used in the treatment of both acute and chronic
inflammatory disorders. Ongoing research by the Company in biophysics, chemistry
and enzymology is advancing its understanding of ICE structure and function.
Vertex scientists reported the solution to the three-dimensional structure of
ICE in 1994. As reported in the March 31, 1995 issue of Science, a team of
scientists from Vertex and the Howard Hughes Medical Institute at Yale
University School of Medicine established, based on a proprietary, transgenic
animal model, that ICE is a critical enzyme in the production of the
inflammatory hormone IL-1 beta.
Vertex and Roussel have employed a variety of chemistry approaches,
including medicinal, computational and combinatorial chemistry, to generate
classes of compounds that possess ICE inhibitory activity. Vertex and Roussel
are using structural information, as well as the biological insights provided by
proprietary animal models and genomics techniques, to guide design of specific
ICE inhibitors. In 1995, Vertex and Roussel conducted animal studies which
demonstrated that prototype inhibitors of ICE block inflammation. The companies
are evaluating the properties of lead classes of ICE inhibitors and assessing
the efficacy of the compounds in a variety of preclinical disease models. Vertex
expects to select one or more compounds for development within the next six to
12 months. There can be no assurance, however, that any compounds will be
selected for development or that any compounds will be successfully developed.
See "Risk Factors -- Early Stages of Development; Technological Uncertainty."
The Company has ten patent applications pending in the United States and
several foreign counterpart patent applications claiming inhibitors of ICE. The
Company has three patent applications pending in the
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United States and several foreign counterpart applications claiming the crystal
structure of ICE and derivatives thereof and various uses of those structures.
IMPDH Program
Vertex is developing novel, orally deliverable immunosuppressive drugs that
it believes could selectively halt the growth of lymphocytes by blocking inosine
monophosphate dehydrogenase ("IMPDH"), an enzyme which controls DNA synthesis in
lymphocytes. Activation and proliferation of lymphocytes are associated with
transplant rejection and a variety of autoimmune diseases, including asthma,
psoriasis, rheumatoid arthritis and systemic lupus. The Company is aware of only
one specific inhibitor of IMPDH currently on the market in the United States,
Hoffmann-La Roche's mycophenolate mofetil, which is approved for acute kidney
transplant rejection. Vertex believes that compound-specific side effects of
mycophenolate mofetil may limit its use for chronic autoimmune disorders. Vertex
has solved the structure of IMPDH and identified novel lead classes of IMPDH
inhibitors. Vertex expects to select a compound for development within the next
six to 12 months. There can be no assurance, however, that any compounds will be
selected for development or that any compounds will be developed successfully.
See "Risk Factors -- Early Stages of Development; Technological Uncertainty."
The Company has two United States patent applications pending, claiming or
disclosing inhibitors of IMPDH.
Neuroimmunophilins
Vertex has designed novel, orally deliverable, small molecule compounds
that have the potential to be developed as drugs to treat neurodegenerative
diseases, including stroke, peripheral neuropathies and Parkinson's and
Alzheimer's disease. Vertex's compounds target the human protein FKBP12 and
related proteins. Vertex has conducted laboratory experiments the results of
which suggest that certain of its compounds stimulate nerve growth. Vertex has
identified several promising lead compounds and plans to test those compounds in
additional models of nerve growth.
The Company has two United States patent applications claiming the use of
certain of its immunosuppressive compounds and certain of its multidrug
resistance compounds for nerve growth applications.
Hepatitis C Program
The Company is conducting discovery research to design orally deliverable
drugs to inhibit hepatitis C protease, an enzyme generally believed to be
essential for replication of the hepatitis C virus ("HCV"). HCV causes liver
infection, which can lead to chronic liver disease and may be implicated in
liver cancer. HCV infection represents a significant medical problem worldwide
for which there is inadequate or no therapy for a majority of patients.
According to the U.S. Department of Health & Human Services, there are
approximately 150,000 to 170,000 persons infected with HCV each year in the
United States. Vertex is utilizing a variety of advanced techniques, as well as
its experience with HIV protease inhibitors, to design inhibitors of HCV
protease enzyme.
Vertex has one United States patent application claiming methods of
identifying HCV protease inhibitors.
MAP Kinases
Vertex is conducting research to design novel anti-inflammatory drugs based
on small molecule inhibitors of MAP kinases. MAP kinases regulate both
interleukin-1 and tumor necrosis factor, hormones involved in inflammation and
programmed cell death. Vertex has commenced research to determine the structure
of certain MAP kinases and is conducting structure-directed high throughput
screening to identify chemical leads.
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CORPORATE COLLABORATIONS
Vertex has entered into corporate collaborations with pharmaceutical
companies that provide financial and other resources, including capabilities in
research, development and sales and marketing, to support the Company's research
and development programs. To date, the Company has entered into the following
major corporate collaborations.
Glaxo Wellcome plc.
Vertex and Glaxo Wellcome are collaborating on the development of Vertex's
HIV protease inhibitors. Under the collaborative agreement, which commenced in
December 1993, Glaxo Wellcome is obligated to pay Vertex up to $42.0 million,
comprised of a $15.0 million initial license payment paid in December 1993,
$14.0 million of product research funding over five years and $13.0 million of
development and commercialization milestone payments for an initial drug
candidate. From the inception of the agreement in December 1993 through March
31, 1996, Vertex has recognized as revenue $22.8 million, including a $2.0
million milestone payment received in December 1995 upon commencement of a Phase
I/II trial. Glaxo Wellcome is also obligated to pay to Vertex additional
development and commercialization milestone payments for subsequent drug
candidates. In addition, Glaxo Wellcome is required to bear the costs of
development in its territory under the collaboration. Glaxo Wellcome has
exclusive rights to develop and commercialize Vertex HIV protease inhibitors in
all parts of the world except the Far East and will pay Vertex a royalty on
sales. Vertex has retained certain bulk drug manufacturing rights and certain
co-promotion rights in the territories licensed to Glaxo Wellcome. See "-- HIV
Program."
Glaxo Wellcome has the right to terminate the research collaboration under
its agreement with the Company without cause upon twelve months' notice given at
any time and has the right to terminate the license arrangements under its
agreement with the Company without cause upon twelve months' notice given at any
time after December 16, 1996, provided such notice is not given before the
research collaboration has been terminated. Termination by Glaxo Wellcome of the
research collaboration under its agreement with the Company will relieve Glaxo
Wellcome of its obligation to make further research support payments under the
agreement. Termination by Glaxo Wellcome of the license arrangements under the
agreement will relieve Glaxo Wellcome of its obligation to make further
commercialization and development milestone and royalty payments, and will end
any license granted to Glaxo Wellcome by Vertex thereunder, and could have a
material adverse effect on the Company's business and result of operations. See
"Risk Factors -- Dependence on Collaborative Partners."
In June 1996, Vertex and Glaxo Wellcome obtained a non-exclusive, worldwide
license under certain Searle patent applications claiming HIV protease
inhibitors to permit Vertex and Glaxo Wellcome to develop, manufacture and
market VX-478 free of the risk of intellectual property claims by Searle. Vertex
and Glaxo Wellcome paid Searle $15.0 million and $10.0 million, respectively,
for the license. In addition, the terms of the license require Vertex to pay
Searle a royalty on sales. In connection with this transaction, Glaxo Wellcome
purchased 151,792 shares of the Company's Common Stock at a price of $32.94 per
share, with net proceeds to the Company of approximately $5.0 million.
Kissei Pharmaceutical Co., Ltd.
Vertex and Kissei are collaborating on the development of Vertex's VX-478
HIV protease inhibitor. Under the collaborative agreement, which commenced in
April 1993, Kissei is obligated to pay to Vertex up to $20.0 million, comprised
of $9.8 million of product research funding over three years, $7.0 million of
development and commercialization milestone payments and a $3.2 million equity
investment. In December 1995, Vertex recognized $2.7 million in revenue, which
represented an option payment by Kissei for the rights to develop VX-478 in
several Far East countries in addition to Japan and the People's Republic of
China. From the inception of the agreement in April 1993 through March 31, 1996,
$17.8 million has been received, including $14.6 million recognized as revenue
and $3.2 million as an equity investment. The Company has received the full
amount of research funding specified under the agreement. Kissei has exclusive
rights to develop and commercialize VX-478 in Japan, the People's Republic of
China and several other countries in
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the Far East and will pay Vertex a royalty on sales. Vertex will manufacture
bulk product for Kissei. See "-- HIV Program."
Roussel Uclaf, a company of the Hoechst Marion Roussel Group
Vertex and Roussel are collaborating on the development of ICE inhibitors
as anti-inflammatory agents. Under the collaborative agreement, which commenced
in September 1993, Roussel is obligated to pay to Vertex up to $30.5 million,
comprised of $18.5 million of product research funding over five years and $12.0
million of development and commercialization milestone payments. From the
inception of the agreement in September 1993 through March 31, 1996, $11.5
million has been recognized as revenue. Roussel has exclusive rights to develop
and market drugs resulting from the collaborative effort in Europe, Africa and
the Middle East, and Vertex has exclusive development and marketing rights in
the rest of the world, except the Far East, where Vertex shares those rights
with Roussel. Roussel is obligated to pay a royalty to Vertex on any sales made
in Europe, and Vertex is obligated to pay a royalty to Roussel on any sales made
in the United States or the rest of the Americas. Each party will have the
option to co-promote products in the other party's exclusive territory. Vertex
and Roussel will each have rights to develop and market the drugs in Far Eastern
countries including Japan.
Roussel has the right to terminate the agreement at any time without cause
upon twelve months' notice. For a period of one year after any such termination,
Roussel retains the right to select one or more compounds for development and to
license such compound or compounds from Vertex, provided Roussel resumes
research funding and commercialization milestone payments and makes all such
payments that would otherwise have been due but for such termination. See
"-- Inflammation Program."
BioChem Pharma (International) Inc.
The Company and BioChem are collaborating on the development and
commercialization of VX-710, the Company's lead compound in its cancer multidrug
resistance program. Under the collaborative agreement, which commenced in May
1996, BioChem is obligated to pay the Company up to $4.0 million comprised of an
initial license payment of $500,000 and development and commercialization
milestone payments. BioChem also is obligated to bear the costs of development
of VX-710 in Canada. BioChem has exclusive rights to develop and commercialize
VX-710 in Canada. The Company will supply BioChem's requirements of bulk and
finished forms of VX-710. BioChem will make payments to the Company for those
materials based on sales of products by BioChem, which will cover Vertex's cost
of supplying materials and will provide a profit to Vertex.
BioChem has the right to terminate the agreement without cause upon six
months' notice at any time after May 8, 1997. Termination will relieve BioChem
of any further payment obligations and will end any license granted to BioChem
by Vertex under the agreement. See "-- Cancer Multidrug Resistance Program."
Alpha Therapeutic Corporation
Vertex and Alpha are collaborating on the development and commercialization
of VX-366 for the treatment of sickle cell disease and beta thalassemia. Under
the collaborative agreement, which commenced in October 1995, Alpha has agreed
to pay Vertex up to $5.0 million comprised of an initial license payment and
development and commercialization milestone payments. From the inception of the
agreement in October 1995 through March 31, 1996, $500,000 has been recognized
as revenue. In addition, Alpha is obligated to pay the costs of development of
VX-366 under the collaboration. Alpha has exclusive rights to develop and
commercialize VX-366 in North, Central and South America. Vertex retains rights
in the rest of the world and retains all manufacturing rights worldwide. Alpha
will pay Vertex a royalty based on commercial product sales and will purchase
from Vertex its requirements for drug product.
Alpha has the right to terminate the agreement without cause upon six
months' notice at any time. Termination will relieve Alpha of any further
payment obligations under the agreement and will end any license granted to
Alpha by Vertex thereunder. See "-- Hemoglobin Disorders Program."
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Ravizza Farmaceutici S.p.A.
Vertex and Ravizza are collaborating to conduct clinical trials with VX-366
for beta thalassemia and sickle cell disease. Under the collaboration, which
commenced in September 1994, Vertex and Ravizza will share data generated in
their respective clinical trial programs. Ravizza has completed a Phase II
clinical trial of VX-366 in Italy in patients with beta thalassemia. In
addition, the arrangement creates a framework for negotiation of an agreement
for clinical development and commercialization of VX-366 in Europe. There can be
no assurance, however, that the parties will enter into any such agreement. See
"-- Hemoglobin Disorders Program."
ALTUS BIOLOGICS INC.
Altus Biologics Inc. is a subsidiary of Vertex established in January 1993
to develop, manufacture and sell a class of industrial catalysts based on a
novel and proprietary technology for stabilizing proteins. Altus' initial
products use the Company's CLEC technology to produce cross-linked enzyme
crystals.
Although enzymes are among nature's most efficient catalysts, their
large-scale commercial use has been limited by their instability and general
incompatibility with many industrial chemical processes. As a result of
experiments conducted by Altus and several commercial partners and prospective
customers, the Company believes that CLEC products have properties that overcome
many of these limitations and make them superior to conventional catalysts and
enzymes in certain commercial and industrial processes. The Company believes
that CLEC products can be used as catalysts in the manufacture of
pharmaceuticals, fine chemicals, foods and sweeteners, among other things.
Since mid-1994, Altus has launched seven products in two product families:
ChiroCLEC, for the preparation of optically pure pharmaceuticals and specialty
chemicals, and PeptiCLEC, for use in peptide coupling reactions. Altus plans to
launch additional products in 1996. Approximately 125 companies worldwide have
purchased CLEC products for feasibility testing. Altus recently entered into a
research and development collaboration with Ciba-Geigy Limited for the
development of CLEC technology for commercial use in detergents.
Altus is conducting research and development aimed at expanding the uses of
its CLEC technology to such applications as nerve gas detoxification,
detergenting and anti-oxidants for cosmetics. Some of this research is supported
by grants from U.S. government agencies including the National Institutes of
Health, National Science Foundation and the Department of Defense.
The Company has eight United States patent applications and several foreign
counterpart applications and patents relating to its CLEC technology.
Altus has been formed as a distinct business unit with its own operations
and employees. As of March 31, 1996, Vertex owned approximately 82% of the
outstanding capital stock of Altus. The balance of the capital stock is owned by
employees of Vertex and Altus through stock and option plans. If all of the
employee stock option grants were exercised, the Company's ownership in Altus
would be approximately 75%.
PATENTS AND PROPRIETARY INFORMATION
The Company has rights in certain patents and pending patent applications
that relate to compounds it is developing and methods of using such compounds.
The Company actively seeks, when appropriate, protection for its products and
proprietary information by means of United States and foreign patents,
trademarks and contractual arrangements. In addition, the Company relies upon
trade secrets and contractual arrangements to protect certain of its proprietary
information and products.
As of August 1, 1996, the Company had eight United States patents and 49
United States pending patent applications. The Company also has an exclusive
license under four United States patents and one United States reissue
application and a non-exclusive, worldwide license under certain Searle patent
applications claiming HIV protease inhibitors. Three of the licensed patents and
the reissue application claim the use of compounds, including VX-366, for
treating hemoglobin disorders, including sickle cell disease and beta
thalassemia. The Company has nine United States patent applications claiming
antiviral compounds for treating HIV infection and AIDS. Six of these have
claims that include VX-478, the Company's lead drug candidate, within their
literal scope. Vertex recently received a Notice of Allowance for claims
covering VX-478 and related novel HIV protease inhibitors. Another of the
Company's United States patent applications
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claims processes for preparing synthetic intermediates useful in the synthesis
of a class of compounds that includes VX-478. The Company's non-exclusive,
worldwide license permits Vertex to develop, manufacture and market VX-478 free
of intellectual property claims by Searle. The Company has six United States
patent applications claiming VX-710 and other compounds for treating multidrug
resistance. One of these patent applications also claims the use of certain of
those compounds for nerve growth applications. The Company has three United
States patents and four United States patent applications claiming specific
immunosuppressive compounds and one United States patent application claiming
the use of certain of these compounds for nerve growth applications. The Company
has eight United States patent applications claiming CLEC technology. The
Company has one United States patent claiming a novel device useful in
pharmaceutical research. The Company also has filed international and foreign
counterparts based on several of its United States patents and patent
applications.
There can be no assurance that any patents will issue from any of the
Company's patent applications or, even if patents issue or have issued, that the
claims thereof will provide the Company with any significant protection against
competitive products or otherwise be valuable commercially. Legal standards
relating to the validity of patents and the proper scope of their claims in the
biopharmaceutical field are still evolving, and there is no consistent policy
regarding the breadth of claims allowed in biopharmaceutical patents. No
assurance can be given as to the Company's ability to avoid infringing, and thus
having to negotiate a license under, any patents issued to others, or that a
license to such patents would be available on commercially acceptable terms, if
at all. Further, there can be no assurance that any patents issued to or
licensed by the Company will not be infringed by the products of others, which
may require the Company to engage in patent infringement litigation. In addition
to being a party to patent infringement litigation, the Company could be
required to participate in interference proceedings declared by the United
States Patent and Trademark Office. Defense or prosecution of patent
infringement litigation, as well as participation in interference proceedings,
can be expensive and time consuming, even in those instances in which the
outcome is favorable to the Company. If the outcome of any such litigation or
proceeding were adverse, the Company could be subject to significant liabilities
to third parties, could be required to obtain licenses from third parties or
could be required to cease sales of the affected products, any of which could
have a material adverse effect on the Company. See "Risk Factors -- Uncertainty
Related to Patents and Proprietary Information."
The Company has licensed on an exclusive basis four United States patents
and one United States issue application from Children's Hospital. Three of these
patents and the reissue application claim the use of compounds, including
VX-366, in the treatment of hemoglobin disorders, including sickle cell disease
and beta thalassemia. Because Children's Hospital did not foreign file the
application corresponding to the reissue application within one year of filing
its corresponding United States application, the Company's foreign patent rights
may be limited. In addition, there can be no assurance that others will not
develop independently substantially equivalent technology, obtain access to the
Company's know-how or be issued patents which may prevent the sale of Company
products or require licensing and the payment of significant fees or royalties
by the Company in order for it to carry on its business. Furthermore, there can
be no assurance that any such license will be available.
Much of the Company's technology and many of its processes are dependent
upon the knowledge, experience and skills of key scientific and technical
personnel. To protect its rights to its proprietary know-how and technology, the
Company requires all employees, consultants, advisors and collaborators to enter
into confidentiality agreements that prohibit the disclosure of confidential
information to anyone outside the Company. These agreements require disclosure
and assignment to the Company of ideas, developments, discoveries and inventions
made by employees, consultants, advisors and collaborators. There can be no
assurance that these agreements will effectively prevent disclosure of the
Company's confidential information or will provide meaningful protection for the
Company's confidential information if there is unauthorized use or disclosure.
Furthermore, in the absence of patent protection, the Company's business may be
adversely affected by competitors who independently develop substantially
equivalent technology. See "-- Corporate Collaborations," and "Risk
Factors -- Dependence on Collaborative Partners" and "-- Uncertainty Relating to
Patents and Proprietary Information."
35
<PAGE> 36
MANUFACTURING
The Company relies on third party manufacturers to produce its compounds
for preclinical and clinical purposes and may do so for commercial production of
any compounds that are approved for marketing. The Company has established a
quality assurance program, including a set of standard operating procedures,
intended to ensure that third party manufacturers under contract produce the
Company's compounds in accordance with the FDA's current Good Manufacturing
Practices ("cGMP") and other applicable regulations. See "-- Government
Regulation."
The Company believes that all of its existing compounds can be produced
using established manufacturing methods, primarily through standard techniques
of pharmaceutical synthesis. The Company currently does not have the capacity to
manufacture its potential products, is dependent on third party manufacturers or
collaborative partners for the production of its compounds for preclinical
research and clinical trial purposes and expects to be dependent on such
manufacturers or collaborative partners for some or all commercial production of
any of its compounds that are approved for marketing. The Company believes that
it will be able to continue to negotiate such arrangements on commercially
reasonable terms and that it will not be necessary for it to develop internal
manufacturing capability in order to successfully commercialize its products. In
the event that the Company is unable to obtain contract manufacturing, or obtain
such manufacturing on commercially reasonable terms, it may not be able to
commercialize its products as planned. The Company's objective is to maintain
flexibility in deciding whether to develop internal manufacturing capabilities
for certain of its potential products. The Company has no experience in
manufacturing pharmaceutical or other products or in conducting manufacturing
testing programs required to obtain FDA and other regulatory approvals, and
there can be no assurance that the Company will develop such capabilities
successfully.
Since the Company's potential products are at an early stage of
development, the Company will need to improve or modify its existing
manufacturing processes and capabilities to produce commercial quantities of any
drug product economically. The Company cannot quantify the time or expense that
may ultimately be required to improve or modify its existing process
technologies, but it is possible that such time or expense could be substantial.
The production of Vertex's compounds is based in part on technology that
the Company believes to be proprietary. Vertex may license this technology to
contract manufacturers to enable them to manufacture compounds for the Company.
There can be no assurance that such manufacturers will abide by any limitations
or confidentiality restrictions in licenses with Vertex. In addition, any such
manufacturer may develop process technology related to the manufacture of
Vertex's compounds that such manufacturer owns either independently or jointly
with the Company. This would increase the Company's reliance on such
manufacturer or require the Company to obtain a license from such manufacturer
in order to have its products manufactured. There can be no assurance that any
such license would be available on terms acceptable to the Company, if at all.
See "Risk Factors -- Manufacturing Uncertainties; Reliance on Third Party
Manufacturers."
COMPETITION
The pharmaceutical industry is intensely competitive. Many companies,
including biotechnology, chemical and pharmaceutical companies, are actively
engaged in activities similar to those of the Company, including research and
development of products for HIV infection and AIDS, MDR in cancer, hemoglobin
disorders, inflammatory diseases, organ transplant rejection, autoimmune disease
and other therapeutic areas. In particular, Merck & Co., Inc., Hoffmann-La Roche
and Abbott Laboratories, Inc. have HIV protease inhibitors which have been
approved by the FDA for marketing, and a number of other companies have HIV
protease inhibitors in development. There are also a number of competitors that
have products in development for the treatment of MDR in cancer and hemoglobin
disorders. Many of the Company's competitors have substantially greater
financial and other resources, larger research and development staffs and more
extensive marketing and manufacturing organizations than the Company. In order
for the Company to compete successfully, it must demonstrate improved safety,
efficacy, ease of manufacturing and market acceptance over its competitors.
There are also academic institutions, governmental agencies and other research
organizations
36
<PAGE> 37
that are conducting research in areas in which the Company is working. These
organizations may also market commercial products, either on their own or
through collaborative efforts.
The Company expects to encounter significant competition for the principal
pharmaceutical products it plans to develop. Companies that complete clinical
trials, obtain required regulatory approvals and commence commercial sales of
their products before their competitors may achieve a significant competitive
advantage. Certain pharmaceutical and biotechnology firms have commenced efforts
in the field of structure-based drug design. The Company expects that the
technology for structure-based drug design may become widely implemented over
time. See "Risk Factors -- Rapid Technological Change and Competition."
GOVERNMENT REGULATION
The Company's development, manufacture and potential sale of therapeutics
are subject to extensive regulation by United States and foreign governmental
authorities. In particular, pharmaceutical products are subject to rigorous
preclinical and clinical testing and to other approval requirements by the FDA
in the United States under the Food, Drug and Cosmetic Act and by comparable
agencies in most foreign countries.
As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animals to identify potential safety
problems. For certain diseases, animal models exist that are believed to be
predictive of human efficacy. For such diseases, a drug candidate is tested in
an animal model. The results of the studies are submitted to the FDA as a part
of the IND, which is filed to comply with FDA regulations prior to commencement
of human clinical testing. For other diseases for which no appropriately
predictive animal model exists, no such results can be filed. For several of the
Company's drug candidates, no appropriately predictive model exists. As a
result, no in vivo evidence of efficacy would be available until such compounds
progress to human clinical trials.
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap. In Phase I, which frequently begins with the
initial introduction of the drug into healthy human subjects prior to
introduction into patients, the compound will be tested for safety, dosage
tolerance, absorption, bioavailability, biodistribution, metabolism, excretion,
clinical pharmacology and, if possible, for early information on effectiveness.
Phase II typically involves studies in a small sample of the intended patient
population to assess the efficacy of the drug for a specific indication, to
determine dose tolerance and the optimal dose range and to gather additional
information relating to safety and potential adverse effects. Phase III trials
are undertaken to further evaluate clinical safety and efficacy in an expanded
patient population at geographically dispersed study sites, to determine the
overall risk-benefit ratio of the drug and to provide an adequate basis for
physician labeling. Each trial is conducted in accordance with certain standards
under protocols that detail the objectives of the study, the parameters to be
used to monitor safety and the efficacy criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND. Further, each clinical study
must be evaluated by an independent Institutional Review Board ("IRB") at the
institution at which the study will be conducted. The IRB will consider, among
other things, ethical factors, the safety of human subjects and the possible
liability of the institution.
Data from preclinical testing and clinical trials are submitted to the FDA
in an NDA for marketing approval. The process of completing clinical testing and
obtaining FDA approval for a new drug is likely to take a number of years and
require the expenditure of substantial resources. Preparing an NDA involves
considerable data collection, verification, analysis and expense, and there can
be no assurance that approval will be granted on a timely basis, if at all. The
approval process is affected by a number of factors, including the severity of
the disease, the availability of alternative treatments and the risks and
benefits demonstrated in clinical trials. The FDA may deny an NDA if applicable
regulatory criteria are not satisfied or may require additional testing or
information. Among the conditions for marketing approval is the requirement that
the prospective manufacturer's quality control and manufacturing procedures
conform to the FDA's cGMP regulations, which must be followed at all times. In
complying with standards set forth in these regulations, manufacturers must
continue to expend time, monies and effort in the area of production and quality
control to ensure full technical compliance. Manufacturing establishments, both
foreign and domestic, also are subject
37
<PAGE> 38
to inspections by or under the authority of the FDA and by or under the
authority of other federal, state or local agencies.
Even after initial FDA approval has been obtained, further studies,
including post-marketing studies, may be required to provide additional data on
safety and will be required to gain approval for the use of a product as a
treatment for clinical indications other than those for which the product was
initially tested. Also, the FDA will require post-marketing reporting to monitor
the side effects of the drug. Results of post-marketing programs may limit or
expand further marketing of the products. Further, if there are any
modifications to the drug, including changes in indication, manufacturing
process, labeling or manufacturing facilities, an NDA supplement may be required
to be submitted to the FDA.
The Orphan Drug Act provides incentives to drug manufacturers to develop
and manufacture drugs for the treatment of diseases or conditions that affect
fewer than 200,000 individuals in the United States. Orphan drug status can also
be sought for diseases or conditions that affect more than 200,000 individuals
in the United States if the sponsor does not realistically anticipate its
product becoming profitable from sales in the United States. Under the Orphan
Drug Act, a manufacturer of a designated orphan product can seek tax benefits,
and the holder of the first FDA approval of a designated orphan product will be
granted a seven-year period of marketing exclusivity for that product for the
orphan indication. While the marketing exclusivity of an orphan drug would
prevent other sponsors from obtaining approval of the same compound for the same
indication, it would not prevent other types of drugs from being approved for
the same use. The Company has obtained orphan drug status for VX-366 for the
treatment of beta thalessemia and sickle cell disease and, in the future, may
apply for orphan drug status for certain indications of MDR in cancer.
Under the Drug Price Competition and Patent Term Restoration Act of 1984, a
sponsor may be granted marketing exclusivity for a period of time following FDA
approval of certain drug applications if FDA approval is received before the
expiration of the patent's original term. This marketing exclusivity would
prevent a third party from obtaining FDA approval for a similar or identical
drug through an Abbreviated New Drug Application ("ANDA"), which is the
application form typically used by manufacturers seeking approval of a generic
drug. The statute also allows a patent owner to extend the term of the patent
for a period equal to one-half the period of time elapsed between the filing of
an IND and the filing of the corresponding NDA plus the period of time between
the filing of the NDA and FDA approval. The Company intends to seek the benefits
of this statute, but there can be no assurance that the Company will be able to
obtain any such benefits.
Whether or not FDA approval has been obtained, approval of a drug product
by regulatory authorities in foreign countries must be obtained prior to the
commencement of commercial sales of the product in such countries. Historically,
the requirements governing the conduct of clinical trials and product approvals,
and the time required for approval, have varied widely from country to country.
In addition to the statutes and regulations described above, the Company is
also subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state and local regulations. See "Risk Factors -- Extensive Government
Regulation."
HUMAN RESOURCES
As of March 31, 1996, Vertex had 164 full-time employees, including 123 in
research and development, 21 in laboratory support services and 20 in general
and administrative functions, and three part-time employees. The Company's
scientific staff members (53 of whom hold Ph.D. and/or M.D. degrees) have
diversified experience and expertise in molecular and cell biology,
biochemistry, animal pharmacology, synthetic organic chemistry, protein x-ray
crystallography, protein nuclear magnetic resonance spectroscopy, computational
chemistry, biophysical chemistry, medicinal chemistry, clinical pharmacology and
clinical medicine. In addition, the Company's Altus subsidiary had 18 full-time
employees as of March 31, 1996. The Company's employees are not covered by a
collective bargaining agreement, and the Company considers its relations with
its employees to be good.
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<PAGE> 39
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board consists of individuals with
demonstrated expertise in various fields who advise the Company concerning
long-term scientific planning, research and development. The Scientific Advisory
Board also evaluates the Company's research programs, recommends personnel to
the Company and advises the Company on technological matters. The members of the
Scientific Advisory Board, which is chaired by Dr. Vicki L. Sato, are:
<TABLE>
<S> <C>
Vicki L. Sato, Ph.D. ............. Senior Vice President of Research and Development
and Chief Scientific Officer, Vertex
Pharmaceuticals Incorporated.
Steven J. Burakoff, M.D. ......... Chief, Division of Pediatric Oncology,
Dana-Farber Cancer Institute; Professor of
Pediatrics, Harvard Medical School.
Eugene H. Cordes, Ph.D. .......... Professor of Pharmacy and Chemistry, University
of Michigan.
Jerome E. Groopman, M.D. ......... Chief of the Division of Hematology/Oncology, New
England Deaconess Hospital; Recanati Chair in
Immunology and Professor of Medicine, Harvard
Medical School.
Stephen C. Harrison, Ph.D. ....... Professor of Biochemistry and Molecular Biology,
Harvard University; Investigator, Howard Hughes
Medical Institute.
Jeremy R. Knowles, D. Phil. ...... Dean of the Faculty of Arts and Sciences, Harvard
University; Amory Houghton Professor of Chemistry
and Biochemistry, Harvard University.
Robert T. Schooley, M.D. ......... Head, Infectious Disease Division, University of
Colorado Health Sciences; Professor of Medicine,
University of Colorado.
</TABLE>
Other than Dr. Sato, none of the members of the Scientific Advisory Board
is employed by the Company, and members may have other commitments to or
consulting or advisory contracts with their employers or other entities that may
conflict or compete with their obligations to the Company. Accordingly, such
persons are expected to devote only a small portion of their time to the
Company. In addition to its Scientific Advisory Board, Vertex has established
consulting relationships with a number of scientific and medical experts who
advise the Company on a project-specific basis.
FACILITIES
The Company leases an aggregate of approximately 90,000 square feet of
laboratory and office space in five adjacent facilities at 40 Allston Street,
625 Putnam Avenue, 618 Putnam Avenue, 240 Sidney Street and 130 Waverly Street
in Cambridge, Massachusetts. The leases to the 40 Allston Street, 618 Putnam
Avenue and 240 Sidney Street facilities expire in December 1999, subject to
options, at the Company's election, to extend the expiration to 2003. The lease
to the 625 Putnam Avenue facility expires in January 1997, subject to an option,
at the Company's election, to extend the term through early 2001. In March 1995,
the Company entered into a ten-year lease for approximately 59,000 square feet
of space located at 130 Waverly Street in Cambridge. The Company has occupied
approximately 45,000 square feet of space under this lease, with the balance
available for expansion. The Company believes its facilities are adequate for
its current needs. The Company believes it can obtain additional space on
commercially reasonable terms.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
39
<PAGE> 40
MANAGEMENT
<TABLE>
DIRECTORS AND EXECUTIVE OFFICERS
The names, ages and positions held by the directors and executive officers
of the Company are as follows:
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Joshua S. Boger, Ph.D................... 45 President and Chief Executive Officer,
Director
Richard H. Aldrich...................... 42 Senior Vice President and Chief Business
Officer
Vicki L. Sato, Ph.D..................... 48 Senior Vice President of Research and
Development and Chief Scientific Officer;
Chair of the Scientific Advisory Board
Iain P. M. Buchanan..................... 43 Vice President of European Operations;
Managing Director of Vertex Pharmaceuticals
(Europe) Limited
Thomas G. Auchincloss, Jr............... 35 Senior Director of Finance and Treasurer
Benno C. Schmidt........................ 83 Chairman of the Board
Barry M. Bloom, Ph.D.(1)(3)............. 67 Director
Roger W. Brimblecombe, Ph.D., 66 Director
D.Sc.(1)..............................
Donald R. Conklin(2)(3)................. 56 Director
William W. Helman IV(2)................. 38 Director
<FN>
- ---------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Nominating Committee
</TABLE>
The Board of Directors is divided into three classes, as nearly equal in
number as possible. At each annual meeting of stockholders, the successors to
the class of directors whose term expires at the meeting will be elected to hold
office for a term continuing until the annual meeting held in the third year
following the year of their election and until their successors are duly elected
and qualified. All executive officers are elected annually by the Board of
Directors to serve in their respective capacities until their successors are
elected and qualified or until their earlier resignation or removal.
Dr. Boger is a founder of the Company and was its President and Chief
Scientific Officer from its inception in 1989 until May 1992, when he became
President and Chief Executive Officer. Dr. Boger has been a director since the
Company's inception. Prior to founding the Company in 1989, Dr. Boger held the
position of Senior Director of Basic Chemistry at Merck Sharp & Dohme Research
Laboratories in Rahway, New Jersey, where he headed both the Department of
Medicinal Chemistry of Immunology & Inflammation and the Department of
Biophysical Chemistry. Dr. Boger is also a Director of Millennium
Pharmaceuticals, Inc. Dr. Boger holds a B.A. in chemistry and philosophy from
Wesleyan University and M.S. and Ph.D. degrees in chemistry from Harvard
University.
Mr. Aldrich served as Vice President of Business Development of the Company
from June 1989 to May 1992, when he became Vice President and Chief Business
Officer. In December 1993, Mr. Aldrich was promoted to Senior Vice President and
Chief Business Officer. He joined Vertex from Integrated Genetics, where he
headed that company's business development group. Previously, he served as
Program Executive at Biogen, Inc., where he coordinated worldwide commercial
development of several biopharmaceuticals, and as Licensing Manager at Biogen
S.A. in Geneva, Switzerland, where he managed European and Far Eastern
licensing. Mr. Aldrich previously worked at the Boston Consulting Group, an
international management consulting firm. Mr. Aldrich received a B.S. degree
from Boston College and an M.B.A. from the Amos Tuck School of Business,
Dartmouth College.
40
<PAGE> 41
Dr. Sato joined Vertex in September 1992 as Vice President of Research and
was appointed Senior Vice President of Research and Development in September
1994. Previously, she was Vice President, Research and a member of the
Scientific Board of Biogen, Inc. As research head at Biogen, she directed
research programs in the fields of inflammation, immunology, AIDS therapy and
cardiovascular therapy from early research into advanced product development.
Dr. Sato received an A.B. in biology from Radcliffe College and A.M. and Ph.D.
degrees from Harvard University. Following postdoctoral work in chemistry and
immunology at the University of California at Berkeley and Stanford Medical
School, she was appointed to the faculty of Harvard University in the Department
of Biology.
Mr. Buchanan joined the Company in April 1994 from Cilag AG, a subsidiary
of Johnson & Johnson based in Zug, Switzerland, where he served as its Regional
Licensing Director since 1987. He previously held the position of Marketing
Director of Biogen, Inc. in Switzerland. Prior to Biogen, Mr. Buchanan served in
Product Management at Merck Sharp & Dohme (UK) Limited. Mr. Buchanan holds a
B.Sc. from the University of St. Andrews, Scotland.
Mr. Auchincloss joined the Company in October 1994 after serving as an
investment banker at Bear, Stearns & Co. Inc. since 1988, most recently as
Associate Director of the Corporate Finance Department. Prior to Bear Stearns,
Mr. Auchincloss was a financial analyst for PaineWebber, Inc. Mr. Auchincloss
holds a B.S. from Babson College and an M.B.A. from The Wharton School,
University of Pennsylvania.
Mr. Schmidt has served as a member of the Board of Directors since April
1989 and as Chairman of the Board since 1991. He is a General Partner of J.H.
Whitney & Co., a New York City-based venture capital firm. He is Honorary
Co-Chairman of the Board of Memorial Sloan Kettering Cancer Center, senior
member of the Institute of Medicine of the National Academy of Sciences and
trustee of the General Motors Cancer Research Foundation. He has served as
Chairman of the President's Cancer Panel under three United States Presidents.
In addition, he is Director Emeritus of Genetics Institute, Inc., as well as a
director of several private companies. He is currently Chairman Emeritus of
Freeport-McMoRan Copper & Gold, Inc. and Director Emeritus of Freeport-McMoRan
Inc. and McMoRan Oil & Gas Co.
Dr. Bloom has served as a member of the Board of Directors since February
1994. Dr. Bloom was formerly with Pfizer Inc., as Executive Vice President of
Research and Development from 1992 to 1993, as Senior Vice President from 1990
to 1992, as Vice President from 1971 to 1990 and as a director since 1973. Dr.
Bloom is also a Director of Incyte Pharmaceuticals Inc., Neurogen Corporation,
Southern New England Telecommunications Corp., Cubist Pharmaceuticals, Inc. and
Catalytica Fine Chemicals.
Dr. Brimblecombe has served as a member of the Board of Directors since
March 1993. Dr. Brimblecombe is currently Chairman of Vanguard Medica Ltd.,
Surrey, UK. Previously, he spent seventeen years at Smith Kline & French, most
recently as Vice President, Collaborative Research and Development and Compound
Acquisition (Worldwide), and as Chairman of Smith Kline & French Research Ltd.
Prior to joining Smith Kline & French, he held positions in the UK National
Health Service, Medical Research Council and Scientific Civil Service. Dr.
Brimblecombe is also a director of Intercardia, Inc., Ontogeny, Inc. and several
companies located in the United Kingdom.
Mr. Conklin has served as a member of the Board of Directors since February
1994. Mr. Conklin has been Executive Vice President of Schering-Plough since
1986. He has been President of Schering-Plough HealthCare Products since
September 1994. From 1986 to 1994, he was President of Schering-Plough
Pharmaceuticals. Mr. Conklin is also a director of Cytotherapeutics, Inc.
Mr. Helman has served as a member of the Board of Directors since April
1989. Mr. Helman is a General Partner of Greylock Capital Limited Partnership,
an original investor in the Company. He is a director of Millennium
Pharmaceuticals, Inc., Hyperion Software Corporation (formerly IMRS) and several
private companies.
41
<PAGE> 42
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, $.01 par value, and 1,000,000 shares of Preferred Stock, $.01 par
value.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
any outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably the
net assets of the Company available after the payment of all debts and other
liabilities and subject to any prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering, when issued and paid for, will be,
fully paid and nonassessable. The rights, preferences and privileges of holders
of Common Stock are subject to, and may be adversely affected by, the rights of
the holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
As of March 31, 1996, there were 17,358,458 shares of Common Stock
outstanding. Based upon the number of shares of Common Stock outstanding as of
that date, and giving effect to the issuance of the 3,000,000 shares of Common
Stock offered by the Company hereby (assuming that the Underwriters' over-
allotment option is not exercised), there will be 20,358,458 shares of Common
Stock outstanding upon the completion of this offering.
OPTIONS
As of March 31, 1996, the Company had outstanding options for the purchase
of 3,177,357 shares of Common Stock at exercise prices ranging from $6.48 per
share to $28.125 per share. Options for the purchase of 1,238,681 shares were
exercisable as of that date.
STOCKHOLDER RIGHTS PLAN
Pursuant to the Company's Stockholder Rights Plan, each share of Common
Stock has an associated preferred share purchase right (a "Right"). Each Right
entitles the holder to purchase from the Company one one-hundredth of a share of
Series A Junior Participating Preferred Stock, $.01 par value (the "Junior
Preferred Shares"), of the Company at a price of $60 per one one-hundredth of a
Junior Preferred Share, subject to adjustment (the "Purchase Price"). The Rights
are not exercisable until after acquisition by a person or group of 20% or more
of the outstanding Common Stock (an "Acquiring Person") or after the
announcement of an intention to make or commencement of a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the outstanding Common Stock
(the earlier of such dates being called the "Distribution Date"). Until a Right
is exercised, the holder thereof will have no rights as a stockholder of the
Company. Until the Distribution Date (or earlier redemption or expiration of the
Rights), the Rights will be transferred with and only with the Common Stock.
In the event that any person or group becomes an Acquiring Person, each
holder of a Right, other than Rights beneficially owned by the Acquiring Person,
will thereafter have the right to receive upon exercise that number of shares of
Common Stock having a market value of two times the Purchase Price, and in the
event that the Company is acquired in a business combination transaction or 50%
or more of its assets are sold, each holder of a Right will thereafter have the
right to receive upon exercise that number of shares of common stock of the
acquiring company which at the time of the transaction will have a market value
of two times the Purchase Price.
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<PAGE> 43
At any time after any person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the outstanding Common
Stock, the Board of Directors of the Company may cause the Rights (other than
Rights owned by such person or group) to be exchanged, in whole or in part, for
Common Stock or Junior Preferred Shares, at an exchange rate of one share of
Common Stock per Right or one one-hundredth of a Junior Preferred Share per
Right.
At any time prior to the acquisition by a person or group of beneficial
ownership of 20% or more of the outstanding Common Stock, the Board of Directors
of the Company may redeem the Rights in whole at a price of $.01 per Right.
The Rights have certain anti-takeover effects, in that they will cause
substantial dilution to a person or group that attempts to acquire a significant
interest in the Company on terms not approved by the Board of Directors.
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<PAGE> 44
UNDERWRITING
<TABLE>
Subject to the terms of and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Cowen & Company, Robertson, Stephens & Company LLC and Bear, Stearns & Co. Inc.
have severally agreed to purchase from the Company the following respective
numbers of shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Cowen & Company...................................................... 720,000
Robertson, Stephens & Company LLC.................................... 530,000
Bear, Stearns & Co. Inc. ............................................ 530,000
Dillon, Read & Co. Inc. ............................................. 80,000
Donaldson, Lufkin & Jenrette Securities Corporation.................. 80,000
Hambrecht & Quist LLC................................................ 80,000
Lehman Brothers Inc. ................................................ 80,000
Montgomery Securities................................................ 80,000
J.P. Morgan Securities Inc. ......................................... 80,000
Morgan Stanley & Co. Incorporated.................................... 80,000
Oppenheimer & Co., Inc. ............................................. 80,000
Prudential Securities Incorporated................................... 80,000
UBS Securities LLC................................................... 80,000
Brean Murray, Foster Securities Inc. ................................ 35,000
Crowell, Weedon & Co. ............................................... 35,000
Furman Selz LLC...................................................... 35,000
Gerard Klauer Mattison & Co., LLC.................................... 35,000
Janney Montgomery Scott Inc. ........................................ 35,000
Josephthal Lyon & Ross Incorporated.................................. 35,000
McDonald & Company Securities, Inc. ................................. 35,000
Punk, Ziegel & Knoell................................................ 35,000
Raymond James & Associates, Inc. .................................... 35,000
Tucker Anthony Incorporated.......................................... 35,000
Van Kasper & Company................................................. 35,000
Vector Securities International, Inc. ............................... 35,000
---------
Total...................................................... 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $0.76 per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $0.10 per share to certain other dealers. After the public
offering, the offering price and other selling terms may be changed by the
Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 3,000,000, and the Company will be
obligated, pursuant to the option, to sell
44
<PAGE> 45
such shares to the Underwriters. The Underwriters may exercise such option only
to cover over-allotments made in connection with the sale of Common Stock
offered hereby. If purchased, the Underwriters will offer such additional shares
on the same terms as those on which the 3,000,000 shares are being offered.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act, as amended.
The Company, its directors, executive officers and certain of its
stockholders, holding in the aggregate approximately 1,096,500 shares of Common
Stock outstanding prior to this offering, have entered into agreements providing
that, for a period of 90 days after the effective date of the Registration
Statement of which this Prospectus is a part, they will not, without the prior
written consent of Cowen & Company, offer for sale, sell or otherwise dispose of
(or enter into any transaction which is designed to, or could reasonably be
expected to, result in the disposition by any person of) any shares of Common
Stock or securities convertible or exchangeable for shares of Common Stock, or
sell or grant options, rights or warrants with respect to any shares of Common
Stock.
In connection with this offering, certain Underwriters and selling group
members may engage in passive market making transactions in the Common Stock on
the Nasdaq National Market in accordance with Rule 10b-6A under the Securities
Exchange Act of 1934. Passive market making consists of displaying bids on the
Nasdaq National Market limited by the prices of independent market makers and
effecting purchases limited by such prices and in response to order flow. Net
purchases by a passive market maker on each day are limited in amount to a
specified percentage of the passive market maker's average daily trading volume
in Common Stock during a specified prior period and must be discontinued when
such limit is reached. Passive market making may stabilize the market price of
Common Stock at a level above that which might otherwise prevail and, if
commenced, may be discontinued at any time.
LEGAL OPINIONS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Warner & Stackpole LLP, Boston, Massachusetts. Kenneth S.
Boger, a partner of Warner & Stackpole LLP, is an Assistant Clerk of the Company
and a brother of Joshua Boger, Ph.D, the President of the Company. Warner &
Stackpole provides significant legal services to the Company. Mr. Boger and one
of his partners are co-trustees of a trust for the benefit of Dr. Boger's
children which owns Common Stock of the Company. The validity of the Common
Stock will be passed upon for the Underwriters by Testa, Hurwitz & Thibeault,
LLP.
EXPERTS
The consolidated balance sheets as of December 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995 are
incorporated by reference in this Prospectus and elsewhere in the Registration
Statement and have been incorporated herein in reliance on the report of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing.
45
<PAGE> 46
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES
OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
<TABLE>
------------------------------
TABLE OF CONTENTS
<CAPTION>
PAGE
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<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 14
Price Range of Common Stock........... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 15
Recent Financial Results.............. 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of
Operations.......................... 18
Business.............................. 23
Management............................ 40
Description of Capital Stock.......... 42
Underwriting.......................... 44
Legal Opinions........................ 45
Experts............................... 45
</TABLE>
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==============================================================================
3,000,000 SHARES
VERTEX PHARMACEUTICALS
INCORPORATED
[LOGO]
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
COWEN & COMPANY
ROBERTSON, STEPHENS & COMPANY
BEAR, STEARNS & CO. INC.
AUGUST 8, 1996
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