福泰製藥 (VRTX) 2002 Q3 法說會逐字稿

Good afternoon. My name is Jeff, and I will be your conference facilitator today. At this time I would like to welcome everyone to the Vertex Pharmaceutical's third quarter conference call. All lines are placed on mute to prevent background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during that time, press star and the number on the keypad. If you would like to withdraw your question, press the star key. Miss Brum, you may begin.

Thank you. Good afternoon. This is Lynne Brum, Vice President of Corporate Development and Communications of Vertex. On behalf of the senior management team, I thank everyone for joining us today. As we get started I'll remind you that information discussed on this call may consistent of forward-looking statements, and, as such, are subject to the risks and uncertainties discussed in detail with our reports filed with the Securities and Exchange Commission including our 10-K. The third quarter 2002 press release has been faxed and e-mailed to you, as well as being posted on website and various websites including Yahoo Finance and PR Newswire. You can listen to the conference call and do a PowerPoint presentation on the Vertex website at www.vrtx.com. Once on the website, select investor center, and then conference calls. A replay of the call will be available via telephone and Internet until end of day November 18.

On this call, Ian Smith, Vertex's Chief Financial Officer will summerize third quarter 2002 financial results and review our full year 2002 guidance. Then John Allen, Vertex's Senior Vice President of Drug Evaluation and Approval will review our product pipeline in detail within the context of the company's long-term commercial vision. Joshua Boger, Vertex's CEO and Chairman will provide outlook for the fourth quarter. In addition, Tony Coles, Senior Vice President of Commercial Operations, Pharmaceutical Products is joining us for the Q&A period.

I will review Vertex's accomplishments thus far in 2002. Vertex outlined a number of research and development objectives, which represent key milestones to our becoming a major drug company. In the first three quarters of 2002 Vertex made progress toward these objectives. Namely, for our HIV drug 908, the main goal for 2002 is to file the NDAMAA by year end. We're on track to achieve this goal based on the fact that the three pivotal trials for HIV Protease Inhibitor 908 have now met the end points necessary for regulatory submission.. For Pralnacasan, we have completed the Phase II A trial in RA. We recently put that to the first data as a late breaker presentation at ACR, and remain on track for undertaking further development of Pralnacasan and RA and OA.

We made significant progress with three drug candidates in our IMPDH Program. Earlier we initiated a Phase II study of Merimepodib in patients within HCV. With VX-148, we completed a Phase I study and on track to a Phase II psoriasis study by year end. With a third drug candidate, VX-944, we have completed preclinical testing and announcing today a Phase I clinical trial. In our p38 MAP kinases Program, we put that as a first with a concept data for p38 MAP kinases inhibitor NRA. We also completed preclinical testing of our second generation p38 MAP kinases Inhibitor 702 and began a Phase I clinical trial, which we expect to complete by year end. With the initiation of clinical development of VX 702 and 944 we are on track to achieve our goal starting three firsts in human clinical trials in 2002. We anticipate that a third drug candidate will enter by year end. We're on track to achieve our goal selecting four new preclinical or VX drug candidates this year. Vertex is well positioned to achieve our R&D goals for full year 2002, and expect continued strongness both for 2002 and 2003.

Vertex's IR Team, joined by Ann Smith will be in the office at the conclusion of this call to answer follow-up questions. Before I turn the call over to Ian, I would like to invite you to attend Vertex's Investor Day, which will be held on November 18th. If you haven't registered, I encourage you to contact our IR Team to do so. I turn the call over to Ian.

Thanks, Lynne. My discussion will focus on quarterly results and financial guidance for 2002. I'll begin by stating the results I will provide pertain to Vertex's Pharmaceutical's business, and also the PanVera Discovery Tools and Services business. Beginning with our net loss, Vertex third quarter 2002 net loss was $33.5 million or 44 cents per share, compared to a loss of $13.5 million or 18 cents per share for 2001. The 2001 loss is stated before merger-related costs and one-time charges and gains. The increased third quarter net loss is primarily driven by the company's continued investment to support clinical developments. More specifically, those focused in information and autoimmune disease areas, as well as reduced revenue from the PanVera Discovery Tools and Services Business.

Vertex does not break down financial guidance by quarter. However, our first quarter results were below range of estimates. My remarks during this call will provide you with drivers behind our results for this quarter, and more importantly, how they effect Vertex's full year performance and how they will effect the business as we plan for 2003.

The third quarter 2002 total revenues were $34.3 million compared to $40.4 million in 2001. Revenues from pharmaceuticals business were $21.4 million compared to 20.5 million for the same period last year. Revenues from our PanVera Services Business were $12.9 million for the third quarter of 2002, compared to $19.9 million in the same period last year. Third quarter PanVera revenue was affected by the timing of completion of certain contractual obligations. These obligations were completed in October and will benefit PanVera'a performance in the fourth quarter. PanVera's third quarter revenue was affected by the redirection of resources, technologies following the acquisition of Aurora Biosciences to our pharmaceuticals business.

Looking to our major expenses, third quarter R&D creates $38.6 million in 200, to 50.6 million in 2002 as Vertex continues to advance the number of drug candidates under development. Our SG&A expenses for third quarter 2002 were $12.9 million, compared with $10.7 million in the third quarter of 2001. From a financial strength and stability perspective, Vertex end ended the third quarter with $651 million in cash, cash equivalents, and available for sale securities. Our third quarter results specifically were not as expected. We want to emphasize that our business remains strong and we're continuing to meet our 2002 milestones. We hope to bring Vertex drugs to the market both independently and with partners, but we continue to balance the near-term costs of development Vertex branded drugs with our strong financial profile and our balanced collaborative support.

In early 2002 we established financial guidance for the full year 2002, based on evaluation of our core business objectives. Our strategy for achieving the objectives and financial strength. Explicit in our guidance were key dependents that were not realized; therefore we are revising our 2002 guidance. We anticipating signing a gene family research oriented collaboration and to date have not closed on such collaboration. On this basis, we are revising our pharmaceuticals revenue guidance to a range of $80 to $90 million for 2002. However there continues to be a tremendous interest from major pharmaceutical companies in our research capabilities and our drug candidates. We are confident in our ability to sign collaborations to support a long-term research development, and commercial objectives. Our financial strength and operational flexibility supports our commitment to this goal.

Additionally, we are revising our revenue for the PanVera Business to a range of $72-$77 million for 2002. This business continues to perform strongly and continues to perform strongly in a difficult pharmaceutical environment, and continues to integrate and leverage the Aurora Biotechnologies through commercial channels. It performs well in a market that is focusing its spend on the latest stage of the drug development value chain.

Our guidance for full year research and development expenditure remains unchanged at $200-215 million. We are on track for research and development goals and continue to actively manage this investment. Additionally, our 2002 full year guidance remains unchanged for SG&A expense. Vertex's other business and infrastructure addition to supporting in near-term and mid-term needs.

Finally, Vertex began 2002 with invested cash and equipment of over $740 million. This investment provides a significant return. The return in 2002 has been affected by the prolonged depressed interest rate environment and we expect to receive $9 million less in earned income than anticipated. on the basis of these comments, the revised pharmaceutical revenues and earned interest income we expect a 2002 net loss in the range of $110 to $110 million. From a balance sheet perspective we expect to end 2002 in a strong position with cash in excess of $610 million and convertible debt that is not repayable until 2007.

Before I turn the call over to John, I would like to say Vertex continues to be strong. We continue to approach our long-term objective using a balanced business approach. This continues to include Vertex and partner-branded drugs, as well as both vertex and partner supported research, and this approach is supported by conservative financial strategy. However, I'd like to add that as Vertex business evolves, and our financial profile permits, you should expect Vertex to attain greater dow-string control of its drugs. I will now turn the call over to John.

Thanks, Ian. During the first nine months of 2002, Vertex took significant steps toward the development and commercialization of a number of drug candidates in major therapeutic areas. During today's call, I will focus on our recent accomplishment in the near-term milestones in our key development programs.

I will begin with our most advanced product, our HIV Protease Inhibitor 908. The pivotal Phase III program lead by our partners at GSK will provide us with direct comparison of 908 against the HIV market leaders Pfizer's Virus and Abbott's Kaletra. As Lynne mentioned, all of the 908 pivotal trial end points necessary for NDA filing have been met. We expect GSK to file for US and European market approval this December. The submission will include clinical data from the three trials completed with 908. Subsequent to the December submission, GSK plans to submit additional data on the proposed commercial tablet. This data is intended to assure that the intended commercial tablet, made at the proposed commercial production facility at the proposed scale of manufacturer with the proposed manufacturing process delivers 908 in the manner comparable to the clinical trail material used in the Phase III Program. At this time we, are conservatively estimating that 908 can be approved and launched in the third or fourth quarter of 2003.

In September 2002, the first data from the pivotal program was presented at [inaudible]. The 24-week result of the trial, which was an open label, multiple study evaluating the safety and effects of 908 versus Viracept and [inaudible], naive patients were presented at this conference.

In this study, a significantly higher percentage of patients taking combination therapy with 908 and two NRTIs achieved HIV RNA levels below 400 copies per mill at 24 weeks, compared to patients taking combination therapy with Viracept. Specifically, 73% of patients taking combination therapy with 908 and two NRTIs achieved undetectable viral loads compared to 54% of patients taking combination therapy with Viracept. Based on the clinical results to date, we believe 908 has the potential to be competitive with current HIV market leaders. Based on the clinical data we obtained, we believe 908 can provide benefits to HIV patients, including potency convenient dosing and improved safety. We learned that the 48-week data has been accepted as a late-breaker presentation at the upcoming Sixth International Conference On Drug Therapy and HIV infection in Glasgow this month. As a reminder, the solo-clinical trials are evaluating 908 once a day against [inaudible] twice a day. Additional news anticipated as more data will be presented by clinical trial investigators at upcoming medical conferences.

The progress we made in out HIV program reflects our commitment to bringing to market important new drugs for major diseases. We are achieving important progress in several other programs. Looking ahead over the next few months, we anticipate additional news from several other programs including ICE, IMPDH, and p38 MAP kinase program.

I'll now take a few minutes to review the status of this program. In our ICE Inhibitor Program, we are continuing to focus on developing Pralnacasan, the first oral anti side-affect therapy that represents a potential breakthrough drug for the treatment of inflammatory diseases. We and our partner, Adventis, have made significant progress this year, demonstrating for the first time clinical proof-of-concept correlating inhibition of ICE with anti-inflamitory activity in rheumatoid arthritis. [inaudible] innovation using Injectable agents has emerged as a useful strategy in the treatment of rheumatoid arthritis, as well as other inflammatory diseases.

Last week, at the Annual American College of Rheumatology Meeting, a investigator presented for the first time data from the Phase II rheumatoid arthritis trials that suggest that it may be possible to achieve similar treatment benefits from an oral anti side-affect therapy. While you are all familiar with the trial, I would like to note that the first safety data from the study was presented at ACR as well. The trial result demonstrated that Pralnacasan was very well tolerated. Even the most common adverse events, judged to be treatment related, mil to moderate diarrhea and nausea were seen in no more than 5% of the control group and the Pralnacasan treated patients. The dropout rates were low. Over the core, 12 restarting periods, only 12.5% of the control group, 8% of low dose and 10% of high-dose Pralnacasan patients discontinued treatment for any reason. With the efficacy and safety profile that has been presented, Pralnacasan has a potential to be a competitive therapy in the rheumatoid arthritis market with 6 million patients affected worldwide. Osteoarthritis is a tremendous additional 240 million patient market, for which ICE Inhibition may provide benefit in an acceptable oral-dosing format. We look forward to working aggressively with Aventis as we move toward further development with Pralnacasan in both rheumatoid arthritis and osteoarthritis.

I will now turn to our IMPDH program. We are on track to begin dosing in a Phase II study of second generation IMPDH Inhibiter VX 148 in psoriasis patients by the end of the year. The Phase II study will enroll 75 patients, who will be treated with three months with an additional follow-up period. This is to evaluate the safety tolerability and viability of VX 148. We believe a safe oral therapy such as VX 148 could provide an important new treatment option for patients with psoriasis.

In addition, we announced we have begun Phase I clinical evaluation of the third IMPDH program VX 944. In our Phase I clinical program, we are evaluating the safety and tolerability of VX 944 in healthy volunteers. In preclinical studies, VX 944 has demonstrated anti-proliferous activity in [inaudible] derived from both blood tumors and solid tumors. We will present details at the first time at the American Society of Hematology Conference in December. VX 944 could be developed for a number of indications in which either immune suppression and [inaudible] plays a key role. The profile of VX 944 gives us the flexibility to evaluate indications as wide-ranging as cancer or autoimmune disease. VX 944 represents a key opportunity to evaluate new indications that may be treatable by inhibition of IMPDH, which represents high areas of unmet medical needs.

The last program I will mention is p38 MAP kinase Inhibitor Program. In the second quarter of this year, we begin Phase I clinical evaluation of our second generation p38 MAP kinase Inhibitor VX 702 for the treatment of inflammatory diseases. VX 702 is an oral drug candidate with a potential for once-daily dosing. We plan to complete Phase I clinical evaluation of VX 702 in early 2003, and provide an update for VX 702 at that time.

Thus far in 2002, we continue to build on our strength of discovering, developing and commercializing novel drugs for major diseases. We look forward to continuing to report our progress to you in the coming months. I'll now turn the call over to Joshua.

Thanks, John. I'll make a few brief remarks and then follow up to your question. As you heard from John, we made significant progress across the clinical pipeline in 2002. In addition, our research organization continues to be highly productive. Vertex has a strong track record of consistently creating novel promising drug candidates. Our approach to drug discovery has the potential to accelerate drug designs significantly increasing the rate at which we move candidates into the clinic. On track to select four new preclinical drug candidates for development this year, including the first kinase inhibitors from our multi-target collaborations with Novartis. These kinases inhibitors could target major disease areas, including cancer, diabetes and stroke.

We are encouraged by the continued productivity of Vertex's research and development organization. It is an important driver for our product pipeline and for our business. Our objectives are centered on appropriately balancing our investments and research and development, and commercial activities as we build a major drug company with sustained shareholder value.

In closing we got a lot done this quarter. At the same time, our revenues were lighter than we anticipated. However, we are managing our business toward 2003 and I believe our prospects for Vertex have never been stronger. With a broad pipeline of novel drugs targeting major therapeutic areas, a productive research engine, strong profile, and business strategy designed to enable us to bring novel drugs to market independently and with partners, we are well positioned to achieve our near and long-term goals.

On behalf of our management team, I would like to thank you for supporting Vertex. We want to assure you that across all aspects, we continue to diligently pursue our goal of developing novel drugs for unmet medical needs. We encourage you to attend our Investor Day on the 18th in Boston for additional perspective on our pipeline, research programs, commercial operations, and business strategy and now back to Lynne.

Thank you, Josh. We will now open your call for questions.

At this time in order to ask a question press star, then the number 1 on your telephone keypad. We'll pause for a moment to compile the roster. First question from Phil Madu with SG Cowan.

Thank you for taking my question. First, you mentioned that GSK will submit additional data on commercial tablet form of 908. Have the pharmco-equivalent tests been conducted on that tablet, or are those being conducted as we speak?

Thank you for your question, Phil. Would you like to take that one?

Additional information regarding the proposed commercial tablet that will be provided, and that includes data that is designed to demonstrate that the blood levels achieved with 908 are comparable with proposed commercial form, which is the commercial tablet that they will go forward with. That the blood levels are comparable to clinical trials used in Phase III in this study, and that data is part of the data that they will be providing in early in 2003.

I'm wondering if that data has been collected and you know that the tablet is pharmaco equivalent to the clinical trial material, or if those studies are ongoing now.

Those studies are ongoing now.

And second, 908, you mentioned that all the end points necessary for filing have been met. The one piece of data we haven't seen yet is the 48-week results from the context study. Does that mean that data is positive and hasn't been released, or is the 48-week data not necessary for filing?

The 48-week is not necessary out of the context files. The 48-week data is required for the two studies conducted in therapy in a naive population, which were the first two studies. But in a treatment experience population, they require 24-week data.

And one final question, do you have an idea when we'll see the additional development plans for Pralnacasan?

What we had committed to by R&D days is that at the end of the year, we would provide guidance in terms of timing and design on the RA and OA program.

Thank you.

Next question comes from Meg Malloy with Goldman Sachs.

Thanks. First question to Ian. From your guidance that suggests you are comparable [inaudible] cells would go back to close to the level that we saw in first and second quarter, is that correct? Maybe shy of that?

That's correct, yes. Total guidance is $72-77 million for PanVera.

Could you give us an idea what was the big issue in third quarter then? Was it something specific to this quarter or something else?

No, it was something specific to this quarter. One contract, I'd rather not talk about. One contract that was completed in October that we anticipated would be completed in September. That has been completed in October, and the revenue will be recognized in October, so the fourth quarter would be better than initially anticipated.

Great. And then on the collaborative standpoint, is this something that you feel comfortable about happening next year, or are companies just stepping back from these kinds of arrangements.

This is Joshua Boger. We see a lot of interest in our discovery methodology and systems. In general, a large number of discussions, we felt it was the more the conservative thing to do to take that expectation out of 2002. I don't want to give specific guidance on 2003, but we see a lot of interest there.

Clearly, we weren't the only one seeing a slow down in the ability to really come to closure with companies on early stage collaborations. All the recent signs that may be picking up. For us a timing and expectation and taking the conservative road.

Thanks, very much. One further follow-up question on the new IMPDH inhibitor for anti-proliferative activity, is there any way you could elaborate on the mechanism of that.

It's inhibitor of enzyme [inaudible], which is an enzyme that's required for building one of the key building blocks for RNA and DNA synthesis. Through that mechanism can inhibit proliferation of a number of different types of cells, including cancer cells. And that's been -- we've done quite a bit of work and that data will be presented at the meeting in December.

And would there be any application to t-cells and inflammatory disease as well?

Absolutely, and implicit in your question, t-cells are proliferating ,particularly when they're proliferating in response to an immune response or in the context of an autoimmune disorder, are susceptible to inhibition through this mechanism as well. Thanks, very much.

Next question comes from Harry Symbosibaum from Merrill Lynch.

On that last question, the revenue shortfall for the quarter, am I to understand, specific from this quarter and this particular weakness we see with panVera, we're not going to see in Q-4 and also going into fiscal 2003. Or should we take a conservative view and say we'll see some weakness going into 2003 as well?

I didn't quite understand.

Two parts to your question there. Firstly, Q-3 is, from our perspective, a one-off event and we should capture revenue we anticipated to occur -- to come through in Q-4. And that contract has been completed in October, and we'll recognize that revenue. As far as 2003 is concerned, we are not providing guidance. PanVera's operated very strongly this year in a difficult market.. its targeted audiences, the pharmaceutical companies and targets the earlier stage of drug development pipeline, so the promise it's shown has been strong and we'll provide guidance in 2003.

Thank you.

Thank you, Harry.

Next question from Jim Renek with Bank of America Securities.

One question on PanVera. You mention it was partially affected by a redirection of the attention of the Aurora people. Is that a permanent redirection, or give us an idea of the proportion of PanVera folks, now focused on Vertex versus new deals with pharmaceutical companies, for example.

Sure. Let me talk firstly to give you more description with redirection comment. When we acquired Aurora Biosciences, the fundamental for that acquisition was that some of the Aurora technologies, specifically some of the biology technologies would support discovery, and since the acquisition, we have integrated those technologies into Vertex drug discovery. We continue to do that and leverage those into our channels. There were assets that we believed we could capture by pushing certain technologies through the PanVera channels, and we have taken those technologies and pushed those through the PanVera channels and will leverage those through our panvera business.

In terms of resources, there was a significant amount of resources that used to work under the the Aurora Biosciences name. Those now work under Vertex Drug Discovery Banner and contribute to the Vertex Drug Discovery pipeline and PanVera will operate some of the former Aurora technologies through their channels.

Okay. And on collaborative revenue, if you are taking the collaboration out of the fourth quarter, looks like the guidance for a sequential uptick and those revenues, can you say what the basis of that is? Is it just a fourth quarter seasonal thing or something else?

Not seasonal, just contracts currently in place and milestones within those contracts, and specifically, obvious to ourselves is that the filling of the NDA by GSK. That is a milestone event in the Q-4. We anticipate that that will be filed by GSK before the end of the year, and we would receive a milestone. Various things to drive that revenue, but mainly contracted revenues, and certain milestone revenues.

Have you ever given guidance as to the size of the milestone?

We have not. Very early on, when the contract was signed, I believe, there was some indication of the filing milestones, but they are single digits. And build into the forecast we provided for the full year.

Great. Thanks.

Next question from Edward Kim with UBS Warburg.

Hi, how are you doing today.

Great. Thanks, Ed.

Great, I have a question about Pralnacasan. I was wondering about the dropout rate. If you look at the study overall, looks like the dropout rate was 25%. It seems like 225 patients completed, and 285 entered. And also it seemed like withdrawals were higher in the low-dose groups than the high-dose group. I wonder if you could talk about the withdrawal rate and why a lot of patients dropped out and why efficacy looks better on the high dose rate.

So there are a couple of different questions there. On the dropout rates, you have to separate out the dropouts that occurred in the presentation what was leveled for, which was the end of week twelve, which was the true study period. At the end of that, the additional twelve weeks were optional, and some number of patients, the total number of patients on that slide at the presentation, half, close to half were at that point. They simply chose not to enter into the extension period. The dropout rate, within the true study period, which is the first twelve weeks was low. was about 10%, and were somewhat lower in the two Pralnacasan group patients at 8 and 10% relative to the 12.5% in the controlled patient population. And I think that rate of dropout is very much what you would expect, perhaps particularly in a study based in Europe, where patients do have, under the insurance schemes there, have alternative treatments available to them, and, in fact, paid for. So they may make decisions all along during the study period.

In terms of the adverse event data, you have to look at the percentages were across the board very low. I wouldn't read a lot into a 1% or 2% difference when you're dealing with very low adverse event and discontinuation for adverse event rates. And I will ask, maybe Tony will make a couple of comments on the overall profile of Pralnacasan and what we think it means.

What we've observed is very safe, and what we believe to be a very effective and potent agent for rheumatoid arthritis. It's the mechanism which works within this target, and we have market research, which suggests that there is a continued need for convenience in terms of dosing within this category. Injectable agents clearly offer tremendous benefit in patients, but we know that physicians and patients alike continue to seek oral therapies for a variety of reasons, not the least of which are adherence and compliance and ease of administration from a patients point of view. We believe that the combination of efficacy, tolerablility and convenience of dosing will prove an advantage of Pralnacasan, and don't think the final chapter has been written. There are important opportunities within osteoarthritis suggesting inhibition there as well might be useful. This is a large market and anticipate it will provide important opportunities for patients around the world.

Great. So you're saying the issue is more that people chose not to join the study.

Absolutely.

More than any kind of drug effect or adverse event that caused the dropout.

No, that's correct.

Okay. What would you say are the events that would cause someone to choose not to take the drug, or even if they are minor, what are the concerns?

I think you have to look at the mindset of this was this was a 12-week study. Patients signed up for a three-month study. They were told there might be an option to go into an extension period, if in fact, the drug was working for them. And that's what they signed up for. So to have a reasonable number of patients stop in that time period is not all that unexpected. Keep in mind that the end point in that second period was different, which was to decrease the amount of drug they were taking of either disease modifying drugs they were on or in particular if they were on steroids to reduce the doses of that. Patients on disease modifying agents or steroids would be incented to going to that extension period, but others may not be.

Got you. Thank you. Quick question just on the revenue, the fear of 18-19 million per quarter, you've shown the first three quarters, can we assume that's a baseline run rate and anything on top of that is additional milestones or consistent milestones baked into that all along?

No, that's a fair assumption.

Next question comes from Ian Somia with Morgan Stanley.

Just two questions. What is -- one is a follow-up to a comment John made. Do you expect to submit data from the additional studies early next year? Any reason to think this drug wouldn't be afforded a six-month review following that data set?

I think, you know, the prior year review, or not, is something that is ultimately the FDA decides to do. And so at this point, GSA is on track to submit this year, and whether or not 908 would receive priority review, which is the six-month review, is something we expect the FDA to make a decision on in the 45-60 day period after submission.

Excuse me.

You would think a six-month revenue and the approval would be in the third quarter time frame.

We are taking the conservative perspective here and saying in the third and fourth quarter of next year that the review would occur. And that it would be based on either priority review or a standard revenue.

Tony, you want to comment further on that.

I think, Ian, if we look at reasonable events for the FDA receiving a standard review, we don't know whether this is the trend in this marketplace, but we know that the FDA is still regarding these agents and their applications as important, and ultimately for them, they will get the opportunity to determine whether it received expedited priority review versus a traditional, which is what John suggested.

We continue to believe that the HIV regimen available today do provide effective alternatives. However, given the emerging demographics within this population and emerging of resistance patterns for the virus, we believe there will be an increased need for newer alternatives. We have a careful eye upon what's happening with regards to new patient types of HIV and AIDS. It is, if you will, becoming less a disease of white males and more a disease found in the Hispanic and Afro-American communities. These often times present at a later stage higher lows, and an agent which will be potent, which will be very effective in the high bar low situation, while at the same time providing safety and convenience in dosing, once or twice daily will be the kinds of things patients and physicians will be looking for in making effective treatment choices. For all of these reasons and HIV AIDS is beginning to resemble a chronic care marketplace, we believe agents such as 908 dosed once or twice daily and each of the characteristics, potency, durability of effect, as well as safety and convenience will continue to create opportunities for patients.

The second question I had relates to Pralnacasan. It's increasingly becoming evident there is going to be competition for patients in terms of enrolling in clinical trials, I wanted to get your perspective on the impact from the ongoing studies, as well as D2E7 compassionate use program on the Pralnacasan Phase II studies, both from a clinical strategy, so what type of patients and the timing, when do you think they'll have the centers up and running.

On the specific details on timing and enrollment comments, as we and Aventis fully develop the plan, we'll provide further update on that. I think that the broader issue both standard of care and the various investigational agents that are coming through, there is competition. Pralnacasan, as an oral agent, is going to have significant advantages in that regard, and having the data that we have is also quite important. It is the toughest part in clinical trials right now. In RA, the study Aventis just completed. It's trying to do three month or longer studies, at the time where you don't really know whether the drug is going to be active or not. One has to find a way to work through that. But I think with the data we have, we and Aventis hope to build on that and have the momentum going forward.

One last question. Any work done on Pralnacasan to reduce the frequency of the dosing.

Yes.

And what is your goal in terms of getting the dosing down to?

I think in the long-term, the goals for Pralnacasan would be once or twice daily dosing.

Right. And has the formulation work been done or still conducted?

Ongoing work and you should not assume that with the current formulation that we will not be going with either twice daily or less frequent dosing in future studies.

Thank you.

Thank you. Next question from Robert Swist with Origin

Robert?

Robert's question has been withdrawn. At this time no further questions.

Can we make a last call for questions?

I would like to remind everyone if you would like to ask a question press star and the number 1 on the telephone keypad. Your next question comes from Shital Patal.

I'd like to understand better about your R&D expense in the fourth quarter, based on the guidelines, we should expect 55-70 million. Just wanted to understand what contributes to that, please.

Thank you. The main contributors are the trial starts that we anticipated occurring in the fourth quarter. As John as mentioned earlier in terms of the pipeline update, the VX 148 going into psoriasis patients is targeted to begin in fourth quarter. Additionally, because Vertex has advanced other drugs in the later stages of development, we are carrying costs of the trials that are ongoing, VX 497 for Hepatitis C, VX 702 in a Phase I development program. And it's really a combination of those trials starting to compound, in terms of products that Vertex carries under its own name.

Thank you.

Next question comes from Evan Morando from Gerard, Klauer, and Mattox.

Hi, guys. A couple of questions. The first for John that I have on 908. I was wondering, and not sure if this data is collected but maybe comment on that. I was wondering if there is information on cross resistance of 908 that might be conferred to other inhibitors, and in regard what I'm getting at, how many options patients have that start on 908.

The resistance profile for 908 is going to be very similar to driven by [inaudible]. We know from a lot of work that's been done, it's a unique resistance profile and the main mutations induced by it are distinct, which makes it so that if someone has been on 908 and fails, the other agents, Kaletra and others can be used in those patients. It's one of the key differentiating aspects of the [inaudible] a cross resistance profile and lower effect, in terms of lipids and metabolic abnormalities compared to the other protease inhibitors, and that's always been one of the key aspects with 908.

Great. I wanted to make this clear. With regard, also, with collaborations, I was wondering maybe Josh could answer that. The challenging market environment continues, what is the likelihood of continuing restructuring measures and what would have to happen to undertake this if at all?

I think you have to understand what role research or early stage research collaborations plays in the Vertex business model. For us, the early stage collaborations really are not a business strategy for us. They are a tactic for growing the organization particularly in the early stage. The early stage of the process. A quite substantial research operation, we have a lot of support for it. That support is not affected by our lack of a large research collaboration in this quarter. So it really isn't about the ongoing operation but really just a timing, it could modulate in timing the research organization.

So that is the directionality. We see a lot of interest out there. It's not the only way we can grow the organization in the early stage operation, but I would say we, and I think most investors are more focused on growing the value in later stage pipeline and building commercial organization. And that is not affected by these early stage research collaborations. In summary, early stage collaborations are a tactic or growing our research collaboration further and don't affect our current research operation.

Terrific. Thank you, very much.

Thank you.

At this time no further questions.

Great. Thank you, everyone, for joining us today and we'll be back in our offices for follow-up questions, thank you.

This concludes today's Vertex Pharmaceuticals third quarter conference call. You may now disconnect.