<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the quarterly period ended June 30, 1998
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 For the transition period from to
Commission File Number 000-19319
Vertex Pharmaceuticals Incorporated
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Massachusetts 04-3039129
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
130 Waverly Street, Cambridge, Massachusetts 02139-4242
-------------------------------------------------------
(Address of principal executive offices, including zip code)
(617) 577-6000
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES __X__ NO _____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 25,313,548
- -------------------------------------- ------------------------------
Class Outstanding at August 10, 1998
</TABLE>
1
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. - Financial Information
Item 1. Condensed Consolidated Financial Statements
Report of Independent Accountants 3
Condensed Consolidated Balance Sheets -
June 30, 1998 and December 31, 1997 4
Condensed Consolidated Statements of Operations -
Three Months Ended June 30, 1998 and 1997 5
Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 1998 and 1997 6
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997 7
Notes to Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. - Other Information 13
Signatures 14
</TABLE>
2
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of Vertex Pharmaceuticals
Incorporated:
We have reviewed the condensed consolidated balance sheet of Vertex
Pharmaceuticals Incorporated as of June 30, 1998, and the related condensed
consolidated statements of operations and cash flows for the three month and
six month periods ended June 30, 1998 and 1997. These financial statements
are the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
February 23, 1998, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1997, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
PricewaterhouseCoopers LLP
Boston, Massachusetts
July 22, 1998
3
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 36,274 $ 71,454
Short-term investments 219,864 208,217
Prepaid expenses and other current assets 1,788 1,952
---------- ---------
Total current assets 257,926 281,623
Restricted cash 2,316 2,316
Property and equipment, net 13,617 11,095
Other assets 1,041 570
---------- ---------
Total assets $ 274,900 $ 295,604
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Obligations under capital lease and debt $ 2,678 $ 2,510
Accounts payable and accrued expenses 5,998 10,632
Deferred revenue --- 556
---------- ---------
Total current liabilities 8,676 13,698
---------- ---------
Obligations under capital leases and debt,
excluding current portion 6,885 5,905
---------- ---------
Total liabilities 15,561 19,603
---------- ---------
Stockholders' equity:
Common stock 253 252
Additional paid-in capital 393,837 392,372
Accumulated other comprehensive income 240 152
Accumulated deficit (134,991) (116,775)
---------- ----------
Total stockholders' equity 259,339 276,001
---------- ----------
Total liabilities and stockholders' equity $ 274,900 $ 295,604
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30,
----------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Collaborative and other research and development $ 3,247 $ 8,320
Investment income 3,905 3,835
--------- --------
Total revenues 7,152 12,155
--------- --------
Costs and expenses:
Research and development 12,631 10,798
General and administrative 4,164 2,624
Interest 159 145
--------- --------
Total costs and expenses 16,954 13,567
--------- --------
Net loss $ (9,802) $ (1,412)
--------- --------
--------- --------
Basic and diluted net loss per common share $ (0.39) $ (0.06)
--------- --------
--------- --------
Basic and diluted weighted average number of
common shares outstanding 25,289 24,722
--------- --------
--------- --------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
5
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues:
Collaborative and other research and development $ 6,420 $ 12,980
Investment income 7,901 6,093
--------- ---------
Total revenues 14,321 19,073
--------- ---------
Costs and expenses:
Research and development 24,813 21,112
General and administrative 7,417 4,841
Interest 307 298
--------- ---------
Total costs and expenses 32,537 26,251
--------- ---------
Net loss $ (18,216) $ (7,178)
--------- ---------
--------- ---------
Basic and diluted net loss per common share $ (0.72) $ (0.31)
--------- ---------
--------- ---------
Basic and diluted weighted average number of
common shares outstanding 25,270 23,356
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
6
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (18,216) $ (7,178)
Adjustment to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 1,975 1,644
Changes in assets and liabilities:
Prepaid expenses and other
current assets 164 149
Accounts payable and accrued
expenses (4,634) 1,251
Deferred revenue (556) 1,056
--------- ---------
Net cash provided (used) by
operating activities (21,267) (3,078)
--------- ---------
Cash flows from investing activities:
Short-term investments (11,559) (2,116)
Expenditures for property and equipment (4,497) (2,988)
Other assets (471) (165)
--------- ---------
Net cash provided (used) by
investing activities (16,527) (5,269)
--------- ---------
Cash flows from financing activities:
Proceeds from public offering of common stock ---- 148,810
Proceeds from private placement of common stock ---- 10,000
Other issuances of common stock 1,466 3,542
Proceeds from equipment sale/leaseback 2,511 1,179
Repayment of capital lease obligations (1,363) (1,445)
--------- ---------
Net cash provided (used) by
financing activities 2,614 162,086
--------- ---------
Effect of exchange rate changes on cash -- (6)
--------- ---------
Increase (decrease) in cash and cash equivalents (35,180) 153,733
Cash and cash equivalents at beginning of period 71,454 34,851
--------- ---------
Cash and cash equivalents at end of period $ 36,274 $ 188,584
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
7
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying condensed consolidated financial statements are
unaudited and have been prepared by the Company in accordance with generally
accepted accounting principles.
Certain information and footnote disclosures normally included in the
Company's annual financial statements have been condensed or omitted. The
interim financial statements, in the opinion of management, reflect all
adjustments (including normal recurring accruals) necessary for a fair
statement of the results for the interim periods ended June 30, 1998 and 1997.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year,
although the Company expects to incur a substantial loss for the year ended
December 31, 1998. These interim financial statements should be read in
conjunction with the audited financial statements for the year ended December
31, 1997, which are contained in the Company's 1997 Annual Report to its
shareholders and in its Form 10-K filed with the Securities and Exchange
Commission.
2. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with maturities of three months or less at the date
of purchase to be cash equivalents. Changes in cash and cash equivalents may
be affected by shifts in investment portfolio maturities as well as by actual
net cash receipts or disbursements.
3. Basic and Diluted Loss per Common Share
Basic earnings per share is based upon the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
based upon the weighted average number of common shares outstanding during
the period plus additional weighted average common equivalent shares
outstanding during the period when the effect is not anti-dilutive. Common
equivalent shares result from the assumed exercise of outstanding stock
options, the proceeds of which are then assumed to have been used to
repurchase outstanding stock using the treasury stock method. Common
equivalent shares have not been included in the per share calculations as the
effect would be anti-dilutive. Total potential common equivalent shares
consist of 4,760,263 stock options outstanding with a weighted average
exercise price of $22.39 as of June 30, 1998.
8
<PAGE>
VERTEX PHARMACEUTICALS INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS
4. Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income", which
requires that all components of comprehensive income and total comprehensive
income be reported and that changes be shown in a financial statement
displayed with the same prominence as other financial statements. The Company
has elected to disclose this information in its statement of stockholders'
equity. For the six months ended June 30, 1998 and 1997 total comprehensive
loss was as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Net loss $ (18,216) $ (7,178)
Other comprehensive income (loss):
Unrealized holding gains (losses) on investments 89 (42)
Foreign currency translation adjustment -- (6)
---------- ---------
Total other comprehensive income (loss) 89 (48)
---------- ---------
Total comprehensive loss $ (18,127) $ (7,226)
---------- ---------
---------- ---------
</TABLE>
5. Subsequent Event
In July 1998 the Company earned a $2,000,000 milestone payment from Kissei
Pharmaceutical Co., Ltd. on the selection of VX-745 as a lead drug
development candidate in Vertex's p38 MAP kinase research and development
program. VX-745, now in preclinical development, has the potential to treat
inflammatory diseases and neurological diseases.
6. Recently Issued Accounting Standards
In July 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information",
which is effective for fiscal years beginning after December 15, 1997. The
interim reporting disclosures are not required in the first year of adoption.
SFAS 131 specifies revised guidelines for determining an entity's operating
segments and the type and level of financial information to be disclosed.
SFAS 131 changes current practice under SFAS No. 14 by establishing a new
framework on which to base segment reporting. The "management" approach
expands the required disclosures for each segment. The Company will adopt
SFAS 131 in the fourth quarter ended December 31, 1998 and has not yet
determined the impact of such adoption on its segment reporting.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. SFAS 133 requires
that all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is the
type of hedge transaction. The Company is currently assessing the impact of
this FASB and does not believe that it will have a material impact on the
financial statements.
9
<PAGE>
7. Legal Proceedings
Chiron Corporation ("Chiron") announced on July 30, 1998 that it filed suit
against the Company and Eli Lilly and Company in the United States District
Court for the Northern District of California, alleging infringement by the
defendants of various U.S. patents issued to Chiron. The infringement action
relates to the defendant's research and development activities in the
hepatitis C viral protease field and the alleged use of inventions claimed by
Chiron in connection with that research and development. Chiron has requested
damages in an unspecified amount, as well as an order permanently enjoining
the defendants from unlicensed use of Chiron inventions. The Company intends
to vigorously contest the action based upon its knowledge of the matter to
date.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion contains forward-looking statements which are subject to
certain risks and uncertainties that can cause actual results to differ
materially from those described. Factors that may cause such differences
include but are not limited to those described in the section of the
Company's annual report on Form 10-K entitled "Risk Factors." Readers are
cautioned not to place undue reliance on these forward-looking statements
which speak only as of the date hereof. The Company undertakes no obligation
to publicly update or revise these forward-looking statements to reflect
events or circumstances after the date hereof.
Since its inception in 1989, the Company has been engaged in the
discovery, development and commercialization of novel, small molecule
pharmaceuticals for the treatment of major 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. The company is
conducting research and development programs to develop pharmaceuticals for
the treatment of viral diseases, multidrug resistance in cancer, autoimmune
and inflammatory diseases and neurodegenerative disorders.
To date, the Company has not received any revenues from the sale of
pharmaceutical products. The Company's lead product candidate, amprenavir for
the treatment of HIV infection, is presently undergoing Phase III clinical
trials. If such clinical trials are concluded successfully and a New Drug
Application is approved by the FDA and product sales, if any, commence, the
Company will receive a royalty on sales of amprenavir by its partner Glaxo
Wellcome plc ("Glaxo Wellcome"). However, there can be no assurance that
Phase III clinical trials will be completed in a timely fashion, if at all,
that such trials will be successful, or that any approval will be granted by
the FDA. The Company has incurred operating losses since its inception and
expects to incur a loss in 1998. The Company believes that operating losses
may continue for the next several years even if significant royalties are
realized on amprenavir sales because the Company is planning to make
significant investments in research and development for its other potential
products. The Company expects that losses will fluctuate from quarter to
quarter and that such fluctuations may be substantial.
Results of Operations
Three Months Ended June 30, 1998 Compared with Three Months Ended June 30, 1997.
The Company's total revenues decreased to $7,152,000 in the second
quarter of 1998 from $12,155,000 in the second quarter of 1997. In the second
quarter of 1998, revenues consisted of $3,002,000 under the Company's
collaborative agreements, $3,905,000 in investment income and $245,000 in
government grants and other income. In the second quarter of 1997, the
Company received $7,822,000 in revenue from its collaborative agreements,
$3,835,000 in investment income and $498,000 from government grants and other
revenue. The lower collaborative revenue during the second quarter of 1998 as
compared to the second quarter of 1997 was principally due to a $2,000,000
payment in the second quarter of 1997 from Kissei Pharmaceutical Co. Ltd.
("Kissei") associated with a clinical trial of amprenavir, Vertex's HIV
protease inhibitor, and a $3,000,000 payment from Eli Lilly and Company
("Lilly") in conjunction with the signing of a collaborative agreement on the
Company's hepatitis C program.
The Company's total costs and expenses increased to $16,954,000 in the
second quarter of 1998 from $13,567,000 in the second quarter of 1997.
Research and development expenses increased to $12,631,000 in the second
quarter of 1998 from $10,798,000 in the second quarter of 1997 principally
due to the continued expansion of the Company's research and development
organization. In addition, general and administrative expenses increased to
$4,164,000 in the second quarter of 1998 from $2,624,000 in the second
quarter of 1997. The increase in general and administrative expenses
principally
10
<PAGE>
reflects the impact of personnel additions and an increase in marketing
activities particularly associated with the anticipated launch of amprenavir.
Interest expense increased to $159,000 in the second quarter of 1998 from
$145,000 in the second quarter of 1997 due to higher levels of equipment
lease financing during the year. The Company expects that research and
development as well as general and administrative expenses will continue to
increase as the Company starts new research projects, advances current
clinical and preclinical candidates, and expands its marketing and business
development activities.
The Company recorded a net loss of $9,802,000 or $0.39 per share in the
second quarter of 1998 compared to a net loss of $1,412,000 or $0.06 per
share in the second quarter of 1997.
Six Months Ended June 30, 1998 Compared with Six Months Ended June 30, 1997.
The Company's total revenues decreased to $14,321,000 for the six months
ended June 30, 1998 from $19,073,000 for the six months ended June 30, 1997.
In 1998, the Company's revenues consisted of $5,961,000 in collaborative
revenues, $7,901,000 in investment income, and $459,000 in government grants
and other income. In 1997, the Company's revenues consisted of $12,059,000
earned under the Company's collaborative agreements, $6,093,000 in investment
income and $921,000 in government grants and other income. The decrease in
collaborative revenue for the first half of 1998 compared to the same period
in 1997 was principally due to the Company's receipt in 1997 of $4,000,000 in
development reimbursements from Kissei for an ongoing clinical trial of the
Company's HIV protease inhibitor in addition to an upfront payment of
$3,000,000 by Lilly in conjunction with the signing of a collaborative
agreement for the Company's Hepatitis C program.
The Company's total costs increased to $32,537,000 for the six months
ended June 30, 1998 from $26,251,000 for the six months ended June 30, 1997.
Research and development expenses increased to $24,813,000 in the first half
of 1998 from $21,112,000 in the first half of 1997, primarily due to the
scientific headcount growth in the Company's research and development
organization as well as growth in development related expenditures for the
Company's subsidiary Altus Biologics Inc. General and administrative expenses
increased during the first half of 1998 to $7,417,000 from $4,841,000 in the
first half of 1997 due primarily to increases in personnel and professional
expenses, particularly associated with the expected market launch of
amprenavir and corporate advertising activities. Interest expense was
$307,000 in the first half of 1998, an increase from $298,000 in the first
half of 1997 as a result of higher levels of equipment financing during the
period.
For the reasons stated above, the Company incurred a net loss of
$18,216,000 or $0.72 per share in the six months ended June 30, 1998 compared
to a net loss of $7,178,000 or $0.31 per share in the six months ended June
30, 1997.
Liquidity and Capital Resources
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, government grants and
investment income. The Company expects to incur increased research and
development and related supporting expenses and, consequently, may continue
to experience losses on a quarterly and annual basis as it continues to
develop existing and future compounds and to conduct clinical trials of
potential drugs. The Company also expects to incur substantial administrative
and commercialization expenditures in the future and additional 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 with its
existing cash and investments of approximately $256,138,000 at June 30, 1998,
together with investment income earned thereon, future 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 or other methods of
financing. There can be no assurance that such financing will be available on
acceptable
11
<PAGE>
terms, if at all. The Company believes that its existing cash and investments
should be sufficient to meet its anticipated requirements for at least the
next two years.
The Company's aggregate cash and investments decreased by $23,533,000
during the six months ended June 30, 1998 to $256,138,000. Cash used by
operations, principally to fund research and development activities, was
$21,267,000 during the same period. In addition to the net loss of
approximately $18,216,000, cash was used by operations to significantly
decrease accounts payable and accrued expenses in the amount of $4,634,000
which was related to development expenses incurred in 1997 for the Company's
cancer multidrug resistance, autoimmune disease and inflammation projects.
The Company also expended $4,497,000 during this period to acquire property
and equipment, principally for research equipment and facilities. During the
first half of 1998, the Company entered into equipment lease financing in the
aggregate amount of $2,511,000 and repaid $1,363,000 of its lease obligations.
The Company has plans to expand its business development operation in
the U.K. to include a research and devleopment site. The Company expects that
the expansion of the U.K. operations to include research and development
staff and facilities will have a significant impact on expenditures going
forward. The Company expects that in general, research and development as
well as general and administrative expenses will continue to increase as the
Company starts new research projects, advances current clinical and
preclinical candidates, and expands its marketing and business development
activities.
The Company adopted requirements relating to comprehensive income in
accordance with the Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income". This Statement requires that
total comprehensive income be reported and that changes be shown in a
financial statement displayed with the same prominence as other financial
statements.
In July 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which is effective for fiscal years beginning after December
15, 1997. The interim reporting disclosures are not required in the first
year of adoption. SFAS 131 specifies revised guidelines for determining an
entity's operating segments and the type and level of financial information
to be disclosed. SFAS 131 changes current practice under SFAS No. 14 by
establishing a new framework on which to base segment reporting. The
"management" approach expands the required disclosures for each segment. The
Company will adopt SFAS 131 in the fourth quarter ended December 31, 1998 and
has not yet determined the impact of such adoption on its segment reporting.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. SFAS 133 requires
that all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is the
type of hedge transaction. The Company is currently assessing the impact of
this FASB and does not believe that it will have a material impact on the
financial statements.
The Company is currently assessing the potential impact of the year 2000
on the processing of date-sensitive information by the Company's computerized
information systems and products purchased by the Company. The Company
believes that its internal information systems are either year 2000 compliant
or will be so prior to the year 2000 without incurring material costs. There
can be no assurance, however, that the Company will not experience unexpected
costs and delays in achieving year 2000 compliance for its internal
information systems and current products, which could result in a material
adverse effect on the Company's future results of operations.
12
<PAGE>
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings:
Chiron Corporation ("Chiron") announced on July 30, 1998 that it filed
suit against Vertex and Eli Lilly and Company in the United States District
Court for the Northern District of California, alleging infringement by the
defendants of various U.S. patents issued to Chiron. The infringement action
relates to the defendant's research and development activities in the
hepatitis C viral protease field and the alleged use of inventions claimed by
Chiron in connection with that research and development. Chiron has requested
damages in an unspecified amount, as well as an order permanently enjoining
the defendants from unlicensed use of Chiron inventions. The Company intends
to vigorously contest the action based upon its knowledge of the matter to
date.
Item 2. Changes in Securities:
None
Item 3. Defaults Upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
The Company's Annual Meeting of Stockholders was held on May 27, 1998.
The stockholders elected Joshua S. Boger, Charles A. Sanders and Elaine S.
Ullian to the class of directors whose term expires in 2001. The tabulation
of votes with respect to the election of such directors is as follows:
<TABLE>
<CAPTION>
Total Vote For: Total Vote Withheld:
--------------- --------------------
<S> <C> <C>
Joshua S. Boger 19,201,672 70,034
Charles A. Sanders 19,206,558 65,148
Elaine S. Ullian 19,200,422 71,284
</TABLE>
The stockholders approved an amendment to the Company's 1996 Stock and Option
Plan, authorizing the addition of 1,250,000 shares to that Plan, with
13,038,706 shares voted in favor, 6,082,295 shares voted against, 96,424
shares abstaining, and 54,281 broker non-votes.
In addition, the stockholders approved the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants for the
1998 fiscal year by a vote of 19,237,785 shares in favor, 26,475 shares
against, and 7,446 shares abstaining.
Item 5. Other Information:
None
Item 6. Exhibits:
<TABLE>
<S> <C> <C>
27 Financial Data Schedule. (Exhibit 27 is submitted as an
exhibit only in the electronic format of this Quarterly
Report on Form 10-Q submitted to the Securities and
Exchange Commission.)
99 Letter of Independent Accountants
</TABLE>
Reports on Form 8-K:
None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERTEX PHARMACEUTICALS INCORPORATED
Date: August 14, 1998 /s/ Thomas G. Auchincloss
---------------------------------------
Thomas G. Auchincloss, Jr.
Vice President of Finance and Treasurer
(Principal Financial Officer)
Date: August 14, 1998 /s/ Hans D. van Houte
---------------------------------------
Hans D. van Houte
Controller
(Principal Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1.0
<CASH> 36,274
<SECURITIES> 219,864
<RECEIVABLES> 0
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<PAGE>
Exhibit 99
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Vertex Pharmaceuticals Incorporated
Registration on Form S-8
We are aware that our report dated July 22, 1998 on our review of interim
financial information of Vertex Pharmaceuticals Incorporated for the three
month and six month periods ended June 30, 1998 and included in the Company's
quarterly report on Form 10-Q for the quarter then ended is incorporated by
reference in the Company's registration statements on Form S-8 (File Nos.
33-48030, 33-48348, 33-65742, 33-93224, 33-12325, 333-27011 and 333-56179).
Pursuant to Rule 436(c) under the Securities Act of 1933, this report should
not be considered a part of the registration statement prepared or certified
by us within the meaning of Sections 7 and 11 of that Act.
PricewaterhouseCoopers LLP
Boston MA
August 13, 1998
