福泰製藥 (VRTX) 2003 Q1 法說會逐字稿

Good afternoon. My name is Tamera and I will be your conference facilitator today. At this time I would like to welcome everyone to the Vertex Pharmaceuticals conference call. All lines have been placed on mute to prevent any background noise. After this speakers remarks there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone key pad. If you would like to withdraw your question press the pound key. Thank you. Ms. Brum you may begin your conference.

Thank you Tamera. Good afternoon, this is Lynne Brum, vice president corporate development and communications on Vertex. On behalf of the senior management team I thank everyone for joining us today. As we get started I will remind you that information discussed at this conference call may consist of forward-looking statements, and as such are subject to the risks and uncertainties discussed in detail in our reports filed with the Securities & Exchange Commission including our 10-K. At this time the first quarter 2003 financial press release has been faxed and e-mailed to you. In addition this release is posted on our Website and or various Websites including Yahoo finance and PR newswire. You can listen to our conference call and view our Power point presentation on the Vertex Website at www.vetex.com. Once on the Vertex Website select investor center then conference call. In addition a replay of the conference call will be available via telephone and the internet until 5:00 p.m. May 8th.

Vertex’s goal to become a major drug company this year was defined a set of ambitious goals that will support the achievement of this objective. We already have made demonstrable progress towards these goals through the first quarter of 2003. We're making progress across our pipeline and are on track to begin new clinical trials for several novel drug candidates including Pralnacasan, VX702, VX765, and VX950. On the discovery front we're continuing to work in novel and exciting areas and expect to advance several new drug candidates targeting important therapeutic markets into pre clinical developments this year. We also completed the sale of PanVera LAC’s product and technology rights to Invitrogen which has enabled us to focus on our core business, and has enhanced our financial profile. Looking ahead we anticipate the U.S. approval and market launch of our next product the HIV prodiace inhibiter 908 by the end of the year. We also intend to sign new collaborations in 2003 that will fund R&D in certain areas as we retain rights to compounds in high value specialty areas. We believer the discovery development and commercial milestones we achieve this year will support our long term corporate objectives and generate increase share holder value. In a moment I'll turn the call over to Ian Smith Vertex Chief Financial Officer who will summarize Vertex’s first quarter 2003 financial results. Then after Ian's remarks John Alam SVP of drug evaluation and approval will review our pipeline. And than Joshua Boger Vertex’s CEO and chairman will comment on our outlook for 2003. Vertex IR team joined by Ian Smith will be available at the conclusion of this call to answer any follow up questions you may have. I'll now turn the call over to Ian Smith.

Thanks, Lynne. Today I will focus on first quarter 2003 results as well as provide commentary on the outlook for 2003. Firstly however, let me point out the financial results for the first quarter of 2003, for the combined businesses of Vertex Pharmaceuticals business and PanVera discovery tools and services business. On of March 28th, 2003, product and technology rights of PanVera which account for a significant component of the discovery tools and services business was sold to Invitrogen Corporation for approximately $95m in cash. Additionally during this call, in addition to the financial measures prepared in accordance to generally accepted accounting principals or GAAP, we'll also discuss financial measures which are not prepared in accordance with GAAP and should not be considered as GAAP financial measures. Additional information regarding our use of non GAAP financial measures are available in our first quarter 2003 press release.

Now to our financials. Our first quarter 2003 net income was $20.6m or 27 cents per basic and diluted share. This compares to a net loss of $22.1m or 29 cents per share for the prior year. The net income in the first quarter of '03 was driven by the $69m gain from our transaction relating to PanVera. If we exclude the gain of the PanVera transaction from our first quarter our pro forma net loss was $48.6m or 64 cents per share compared to a net loss of $22.1m or 29 cents per share in the prior year. The increased pro forma '03 net loss was primarily a result of two factors. The significantly decreased contribution from our PanVera operating unit prior to its disposition, and secondly the company's increased investment to support the clinical activities with Vertex driven drug candidates.

I'll now provide you more detail on our first quarter operating performance and add comments to how this relates to the full year financial guidance. First quarter '03 total revenues were consistent with our internal forecast although they were down significantly from $40.7m last year to $22.6m in '03. This reduction was mainly due to decreased revenues from our PanVera business prior to our transaction with Invitrogen. PanVera's discovery tools and services business achieved only $6.6m of revenue in '03 compared with only 20.1m in the first quarter of '02. In addition to the reduced PanVera contribution certain research collaborations concluded in late 2002 reducing our pharmaceutical revenue from $20.6m to $16m. This $16m represents our forecasted quarterly revenue prior to earning development milestones and signing new collaborations. Looking to our major expenses our R&D investment increased from $47m in first quarter of '02 to $53.1 in '03. This reflects the increased investment into development activities to advance Vertex clinical products. More specifically preparing our ICE inhibitor VX765 for a second quarter phase 1 trial preparing VX702, our P38 mark carnate (ph) inhibitor for phase 2 trial in acute conry (ph) syndromes. Ongoing phase Phase II trials cost with VX148 with is targeted at psoriasis. As well as the cost associated with the development of as kinase (ph) compounds.

Investment into our drug discovery programs has been held consistent to the prior year. The balance of the spend is consistent with our statement in the 2002 year end conference call of February. We expect the investments into research in 2003 to be comparable to that of 2002. At the same time, our investment into clinical development is increasing as we support the advancement of our own drug candidates. We expect the R&D investment will fluctuate throughout the year and specifically we expect modest growth in Q2 of the R&D investment but to level off in Q3 and Q4, consistent with our clinical activities. We remain committed to the R&D financial guidance we provided earlier in the year of $215m to $230m for the full year of 2003. Our SG&A expenses for the first quarter of 2003 was $11.5m compared to $11.1m in 2002. However following the PanVera transaction we anticipate the SG&A will marginally reduce in the remaining quarters of 2003. Full year expect to be in the range of 38m to $43m we guided in our February call. Other expenses for the first quarter are approximately $3.9m. This expense relates to the carrying cost of certain lab and office space and I'll provide more commentary on this amount later.

For a balance sheet perspective Vertex ended the first quarter of 2003 with approximately $680m in cash, cash equivalents and available for sales securities. This includes the cash receipt from Invitrogen in connection with the PanVera transaction and we continue to target a cash and equivalents in excess of $600m. And this cash is supported by the continued funding from Novartis through a loan facility for the development of our kinase compounds. I'd like to note that the funding we received by Novartis from this loan facility is recoverable by Vertex upon acceptance of kinase development drug candidates by Novartis . On March 31 2003 we held $315m of convertible debt due September 2007. Our first quarter results are right in line with our internal forecast therefore we are reaffirming our 2003 financial guidance that we provided in February. Based on our current projections we continue to anticipate a pro forma 2003 net loss in the range of $140m to $160m.

In general, the metrics in Vertex's financial gains are quite predictable and controllable with the company with the main generation, and timing of revenue recognition. As we have stated previously we anticipate contracted revenue under existing collaborations including product royalties to be approximately $75m for the full year. The main variable in this forecast is the typing timing of anticipated milestone payments. We expect to recognize most of these milestones in the latter part of the year. Most likely in the fourth quarter. In addition to the forecasted $75m from existing collaborations we expect to sign new collaborations to achieve our overall revenue guidance of $95m to $110m for the full year. In the base of our ongoing discussions we expect the signing of new collaborations to occur later in the year. As such we would start to recognize the more significant new collaborative revenue in the second half of the year. Clearly a key dependency in managing financial profile is that of the revenue from new collaborations.

An overall financial perspective and on the basis of the revenue and operating cost trends we expect Q2 to have similar profile similar to that of Q1. However we expect our net loss will reduce in Q3, and reduce further in Q4. Mainly due to the timing of new collaboration and revenue recognition. This will result in a full year financial guidance that is in line with the full year guidance that we previously provided. Finally, we know that the current financial guidance is exclusive one time items such as the gain from the sales of PanVera assets. Potentially additional item relates to certainly facilities exit cost. In January 2001 we entered into agreement to lease additional lab and office space in order to support the growth of the company. We made this commitment prior to the acquisition of Aurora Biosciences, which enabled us to grow the company in a new geographical region. Our commitments under this lease amount to approximately $18m in 2003, currently we are actively exploring alternatives to minimize our financial obligation under this lease. These alternatives could include sharing, subleasing, or

exiting the lease space and we expect to finalize plans for this lease in the second quarter of 2003. As I have previously mentioned we have already expensed $3.9m of this 2003 commitment.

I'll summarize my remarks by saying that we believe that a balanced approach to executing Vertex business strategy is the best way for us to achieve value creation for our shareholders. We are investing significantly and appropriately in our pipeline, our investments into R&D have been defined based on what our financial profile can support and we continuously reevaluate our investment based on our emerging opportunities and our financial resources. In this way we will continue to carefully manage the financial profile of the company which has been designed to ensure we are financially strong as we position the company to take our proprietary products into late stage clinical trial and ultimately to the market. We'll now turn the call over to John. John.

Thank you, Ian. I would like to begin by saying this has been a highly productive quarter. A tremendous amount of preclinical and clinical work has been done behind the scenes to support the deliverables that we'll roll out during the next several months. In particular substantive progress has been made in support of the regulatory filings for our next product the HIV protease inhibitor 908. We are looking forward to the approval and launch of 908 in the United States in the fourth quarter of 2003 and in European countries beginning in 2004. The proof of contruss std in osteoarthritis for our oral cytokine (ph) inhibitor Pralnacasan was started and is progressing on schedule. Preparatory work for the Pralnacasan phase 2B study in rheumatoid arthritis mass been extensive and thorough. We are looking forward to a second quarter start for this study.

In terms of Vertex driven development programs in the recent past we have enhanced and bolstered the clinical infrastructure we have in place to support an increasing number of leading edge studies. This infrastructure will be the key as we advance in the development of several Vertex driven compounds this year. The preclinical package for our oral cytokine inhibitor VX765 has been completed. And we are track to start the first in human study in the second quarter. The phase 2 psoriasis study for IMP inhibitor VH148 is advancing on schedule . And we are looking forward to reporting top line results in the second half of the year. Finally, preparatory work for the Phase II development program for our orally administered P38 map (indecipherable) inhibitor VX-702 has been conducted.

Before turning it over to Joshua I would like to spend a few minutes reviewing the medical and commercial opportunities for VX-702. As we stated in our last call, we intend to explore the potential of VX-702 in more than one disease setting and have made a strategic decision to advance the clinical development of VX-702 in both acute and chronic indications. Including traditional inflammatory indications. As well as indications in which recognition is building for the role of cytokine driven inflammation. We are on track to begin phase 2 clinical development in the second quarter of 2003. We plan to begin a phase 2 clinical trial of VX-702 in acute coronary syndromes or ACS in the second quarter. ACS is a broad term that includes unstable angina and certain types of myocardial infarction. In this pilot phase 2 trial we will seek to evaluate the safety pharmacokinetics and pharma dynamics of VX 702 including the bio markers of inflammation.. Successful completion of a leading edge clinical will pave the way for larger phase 2 study of VX-702 in ACS in early next year. I'd now like to describe the rationale and opportunity for VX-702 in some more detail in ACS. Chronic inflammation has been implicated in the development of atherosclerotic plaques, the rupture of which precipitates acute cardiovascular evens. As of now, inflammation is recognized as one of two key components of the pathogenesis of acute cardiovascular events. Until recently thrombosis or the development of clots was viewed as the one major driver of these events following rupture of the atherosclerotic plaque. But there is now a strong body of published data describing the contribution of inflammation to this process as well. In particular inflammatory markers such as elevated CRP have been linked to poor outcome despite optimal anti thrombotic therapy during an acute event. As such inflammation is now seen by many as a key contributor along with thrombosis to these acute cardiovascular events. In addition there are data to suggest that the inflammatory component of the acute cardiovascular event is driven by the pro inflammatory cytokines IL-6, TNF Phalfa, and interleukin one. The cytokine interleukin or IL-6 in particular has been noted as one of the main drivers in the rise in CRP or C reacted protein, and IL-6 is known to be significantly elevated in patients at risk for future events. We know that P38, map cardiates mediates the activation and release of IL-6, TNLF Phalfa, and IO1 Beta from white blood cells located within the plaque and circulating in the blood.

From pre clinical and phase 1 studies we also know specifically that VX-702 blocks activity of P38, MAP cardiates in white blood cell suppressing their inflammatory signal. P38 MAP cardiates, hold a promise of blocking cardiovascular inflammation locally at the site of plaque rupture. This is a very exiting hypothesis that we will be testing in our upcoming Phase II study with the goal of advancing a therapy that may improve outcomes in ACS patients. In addition we also expect to finalize our indication of choice in the chronic to deep setting for VX 702 in the second quarter. In summary, this year Vertex will be simultaneously advancing several programs through our clinical pipeline. Based on the work accomplished in the first quarter we are well poised for both the second quarter and the second half of the year. I look forward to continuing to report our progress throughout the year and now we'll turn the call over to Joshua.

Thanks John. We believe that among our peers in the biotech industry Vertex has a compelling value creation and growth profile going forward. We have one drug on the market Degenerays (ph) and we expect our second drug 908 to reach the market by the end of the year and we have a broad pipe line we are moving toward commercialization. At the same time we have a balanced financial strategy designed to support our long term discovery development and commercial goals. We established aggressive goals for the company in 2003, and I'm pleased to say that we're on track with our clinical and corporate objectives. The next 18 months represent a time of significant pipeline and business progression for Vertex. The advancement of our pipeline during this period will accelerate our path and represent a substantial value creation step for shareholders in 2003. It takes strong leadership to successfully transition from discovering and developing break through products to marketing block buster drugs. We understand this and over the past several years we have built an experienced and visionary management team. This team is leading us forward based upon building on our research heritage and advancing Vertex to the next level of development and commercial success. Vertex is further distinguished by its outstanding board of directors which is characterized by individuals with extensive experience leading companies and organizations in the health care industry as well as in leading companies in high growth environments. We're pleased to enhance the expertise of our board with the nomination of Eric Brant as a new board member in 2003. Eric is corporate vice president and Chief Financial Officer of Allergan Inc. Prior to joining Allergan, he was vice president and partner at Boston Consulting Group, where he specialized in various strategic issues for the pharmaceutical industry , with his years at strategic and leadership experience we believe that Eric will be a strong asset to our company and look forward to his contributions as we make progress toward our goal of becoming a major drug company. We also note that Barry Bloom a Vertex board member since 1994 is retiring as of our annual meeting in May. Dr. Bloom's previous experience as FIZOR’s EVP of Research and Development have provided us with valuable insights and counsel during his nine years with the company and we than Barry for those contributions. In summary our objectives for 2003 reflect our commitment to translate our breakthrough products into true commercial block busters. We have a broad pipe line of novel drugs. Targeting major therapeutic areas, we intend to advance this pipeline toward the market both with pharmaceutical partners targeting very large markets served by general practitioners and by ourselves, targeting focused markets of un met medical need that are served by specialists. We believe the advances we are making across our organization will position us to succeed with our long term corporate and commercial goals. We expect to have a steady stream of accomplishments in 2003 and look forward to updating you throughout the year, and I'll turn the call back to Lynne.

Thank you, Joshua. Tamera we are now ready to take any questions.

At this time I would like to remind everyone in order to ask a question press star and 1 on your telephone key pad. We'll pause for just a moment for compile the Q&A roster. Your first question comes from Steve Harr from Morgan Stanley.

Good afternoon everyone.

Hi, Steve.

A couple of questions. First of all If we could start with VX-175. And is your guidance in the press release for fourth quarter launch, does that mean you have a 10 month Padufa? And second you have given the guidance on the product sales and royalty revenue do you anticipate any inventory draw down as the year goes through on Agenerace as whole sellers start to anticipate the launch of VX-175?

In terms of review cycle with VX-175 or 908, FDA has provided a standard review cycle. The second question?

The inventory.

On the inventory right now --

We haven't provided guidance on the sales of VX-175. It is too early at this stage to provide that.

How about Agenerase, does your guidance include that there will be some, I know that it is not a big part of your drive, is there some kind of inventory draw down anticipated around the time of launch of 175?

No, the guidance that we have provided around Agenerase if that's the way your question is Steve is included in the $75m of base revenue we anticipate for this year.

Okay. And Ian, just so that I'm clear on that so that is including the 75 and you would expect then another 20 to $35m in revenue from new deals as the year goes forward?

That is correct.

John, this will be my last question and then I'll hop back in the queue, talk about what end points we're looking at for Pralnacasan, and if you can not give us the exact details what would be reasonable from one year's worth of data, and also you mentioned that you're exploring new doses in rheumatoid arthritis and what are those doses if you're able to give us anything there.

In terms of osteoarthritis trial, we have said that it is a three-month treatment trial. And that the end points are really that we haven't been specific on the end points at this point. We -- I mean there are certain standard end points in osteoarthritis, and those are being followed in this study. In terms of rheumatoid arthritis and the dosing regimen and the design, we'll provide further details of that when the study is actually up and running.

So three months treatment fully enrolled, you say you're going to follow patients for nine months and give us data early next year, is that right? I think you've given guidance before that you'd expect the data sometime in early next year in OA.

At this point with the study having been enrolled this time we expect the data, the top line data to Aventis near the end of the year. And further guidance how we're moving forward in the early part of 2004.

Are you looking at any intra articular end points given OA is an local and not a systemic disease?

There are MRIs being conducted with this study, but with a three-month time frame, any changes within the cartilage or the bone itself, it would be expected to be minimal.

OK, thank you very much.

Thank you, Steve.

Your next question comes from Meirav Chovav UBS Warburg.

Hello Meirav.

Actually it is ED Kim calling. How are you guys

doing?

Good.

Thanks for letting me get on the call. My question has to do with 908, and I'm wondering if you think you'll need FDA advisory panel, I know BMY does have a panel on May 13. I wonder if we can read anything into anything about that. Also more generally, what the plan is in terms of differentiating the compound from BMY's compound upon approval. Also how you are going to market against kalitra other than the convenience of advantage, given that the you know your recent heads to head study you did show non inferiority but in terms of the actual broad data it didn't show any superiority if anything the results may have been a little less. And also, how, if at all, you can do some marketing in terms of Stiva or the other non nucleotides.

ED, We'll break that down into 2 or 3 different questions. The first one had to do with 908 or anything we wanted to say about the necessity of a panel.

This is John, Ed. We would not necessarily expect an advisory committee meeting. A number of the agents in the recent past have gone through without advisory committee meetings. We cannot comment specifically on why Atazanavir is coming up in front of an advisory committee meeting.

Second of all there were questions about 908. On the profile of 908 versus Atazanavir and Kaletra.

Relative to Atazanavir it will depend a little bit on the label, the atazanavir achieves, versus where 908 comes out at. I think where we're quite confident is in terms of both the potency and the convenience tolerability of 908. We think we can be competitive in a once or twice daily regimen from a potency standpoint and a safety tolerability standpoint. Certainly with atazanavir and across all the protease inhibitors.

Specifically with regard to Kaletra (ph)and the results that were presented, as you say, the results in terms of antiviral efficacy were quite similar, non inferiority demonstrated. I remind you that one of the arms in that study 908 was given once daily while Kaletra is given twice daily. The once daily arm also had an advantage in the terms of overall number of patients reporting grade 2 or greater adverse events. And I think that what we also ultimately really need to wait for the 48-week results from that study. Which will shed some light in terms of which groups of patients that the drug is going to be most effective in, as we look at the baseline resistance data and look at outcomes relative to that I think there's a likelihood that the final conclusions as to how one would position relative Kaletra might well be altered. So I can't give you a final answer on that.

The other comment I would make at this point is that 908 is, given the other two phase 3 data is very well positioned for first line. Particularly all the data we've generate with aprenevir previously, that the resistance profiles of patients even when they fail, the virus is resistance to other protease inhibitors and will be susceptible to kaletra. One of the aspects presented in support of that, abstract presented at the CROY meeting was that the genetic barrier to development of resistance in those two studies was quite high. So that patients even when they failed 908 in the first two Phase III studies, did not develop mutations to the other protease inhibitors. A logical step for us to end up with in advance of Kaletra as the first line choice amongst the protease inhibitors, and Kaletra will remain now as it has been for most of the way as second or third line choice among the PIs.

One quick follow-up. Also the royalty was a little light this quarter, compared to your service study of royalty rate you've been getting and I calculate end user to be probably about $12.8m. I was wondering any effects, any inventory draw down, any seasonality or anything that can be involved in that or is it more an indicative of a larger slowing?

It is not indicative of a larger slowing. There was a slight adjustment of a royalty payment, we maintain our market share and maintain our projections for the full year.

What were end users in that case?

Hang on we got it.

We'll provide that, she's just checking.

There were approximately $14m as compared to $15m in first quarter 2002.

Okay. Thank you very much.

Thank you Ed.

Your next question comes from Phil Nadeau. SG Cowen.

Good afternoon thanks for taking my question. My first question is for Ian and it is just a financial question. As you said the difference between the current run rate in collaborative R&D and the guidance for the year assumes some collaborations. Looking at my model looks like the run rate in Q3 and Q4, will have to be twice of what it is between Q1 and Q2 in order to hit midpoint in the range. How much of that increase is due to strictly milestone payments versus how much do you think is due to actual R&D funding?

Phil, I'll just walk you through what I said on the call earlier. There is a base projection of revenue here that comes from our collaboration which is approximately $75m. That actually includes certain milestones that are in those collaborations, and I could give you an example, which is the approval of VX-175 which will probably occur in Q4.

Okay.

So certain milestones are built into that projection of $75m base to get up to our guidance for revenue which is 95 to $110m. Then that's new collaborative revenue on top of that $75m. So I think you can do the math in terms of the range is 95 to 110. We're giving you a base which we're very confident in achieving, based on the discussions we have ongoing with certain new partners we are confident in achieving other revenue also.

The difference between 75 and 95 and 110 are there upfront milestones assumed in that for signing the new agreements or would that strictly be can we interpret from that 25 to $35m that those are large R&D collaborations to help bring in that much funding?

Large R&D type collaborations.

Second question is actually more on the pipeline. You said a few times that you plan or prioritizing a couple candidates to take forward or to concentrate your efforts on after 2003 from the data that you gather this year. Could you maybe John just kick off for us the data that we'll see late this year that would allow to you prioritize those candidates?

Just before John gets into that I just want to say that there will be a -- we anticipate quite a lot of data coming to your attention throughout the year. There will be certain other pieces of information that we'll get as well into that decision. So it's all of that. It's all of that information. And we'll be updating you as we do on the top lines of important studies as they occur. I think what we want to avoid is giving you sort of a decision tree, our internal decision tree on this. Because I also want to avoid the implication because it would be incorrect that we're sort of going to go with the good ones and not go with the bad ones. We actually anticipate quite a lot of positive information. And so from the data itself, you won't be able to discern until we tell you what our decisions are, because it's not going to be based upon rank ordering the clinical data, but rather, a total assessment of how the compounds would fit into our ability to maximize the commercial potential in our own hands. But I just want to give that caveat.

We anticipate that the compounds that we choose not to push forward on our own resources in 2004 would themselves then be the subject of or object of corporate collaborations that we may strike during the year or into 2004. So it's a little -- I know you didn't ask the question this way, but I typically get the question as if it's a horserace to pick the two that give good data. And it's not going to be that. We anticipate they'll all give good data and that our assessment is really what's the best way to maximize the value equation. So the ones we don't pick we anticipate contributing value as well but through partnerships. So I wanted to give that sort of commentary maybe before John talked a little bit about some of the, you know, the key clinical events that would generate some of that top-line information for you.

Fair enough.

And in keeping with that, I won't be that specific, but I will say that, you know, the two programs will clearly come from the Vertex-driven programs that are either now in the clinic or about to go into the clinic. And I think that our internal decision making will be based on either phase 2 data in a number -- with a number of compounds, or in settings where we believe that we understand the mechanism and the target and our expectations in terms of outcome in phase 2 are pretty clear cut. We would do is a on the basis of phase 1 data. And an example of the latter might be VX-765, where as an ICE inhibitor with Pralnacasan, we have clear cut proof of concept for the mechanism that if you achieve certain levels of the drug, an inhibition of the enzyme, that you will have potent anti inflammatory effects. We believe that the Phase I data for 765, if we have hit certain internal targets for blood levels and half-life, that we will have quite a bit of confidence that that drug will be active going forward. And that we would be willing to commit to that drug as one of the drugs we would take forward all the way through to NDA filing. So that's -- maybe best to keep it at a broad level at this point.

Sure. That's understandable. Do you anticipate announcing these candidates like early in 2004 or will be something to piece together which candidates you will move forward by trials you initiate?

Our intention is not to make this a dramatic process. We'll tell you as soon as we know. So again, it's -- we looked at the year and we saw the data that was coming. We saw the commitment as John said there is an enormous activity going on at Vertex across an unprecedented broad front that isn't a level of activity that we could see sustaining to in until later stages of clinical development. Therefore we gave us our guidance about the focus. As soon as that focus is clear we'll let you know, it will be a data -driven process but it is not something that we would anticipate holding off until midnight on the 31st of December. We'll let you know when it happens. I will tell you that we have very detailed decision tree models in house that we, you know, that we for a variety of reasons choose not to share with you. For one of the reasons is, we don't want the impression given that the compounds that we choose to take forward with partners have somehow been cast off. So we're likely to be in partnership discussions with those before -- before maybe you learn that they're not one of the ones that we're taking forward. Because as I say, it is not a bake-off to see which ones give positive data. We believe they'll all give positive data.

Thank you.

Phil, I think Ian Smith had an addition to the first question you asked that had to do with collaborative R&D revenue.

Phil, I just wanted to clarify when you talked about different components, I think there was one component you may have missed and that's $7m, approximately $7m that we have already generated from PanVera. So in terms of the components to getting to our guidance, there is $75m of base revenue there on the base of our already contractual collaborations, and that does include certain milestones towards the end of the year. Approximately 7m from PanVera that has already been earned in the first quarter and that leaves the gap to get from 95 to 110 of approximately 15 to 30m that we anticipate to conclude on during the second half of the year.

Fair enough thank you.

Thank you Phil.

At this time I would like to remind everyone in order to ask a question, please press star, then the number 1 on your telephone key pad.

Tamera, Do we have any more questions?

Yes, ma'am. Your next question comes from Craig Blighton J.P. Morgan.

Hi just a quick question on Phil’s question on Prioritization, I was wondering why did you pick two drug candidates, what are the constraints? You have such a lot going on in your pipeline, where did you come up with the No. 2?

It's a better number than 1. And 3, look at the various scenarios, again, the commitment is not just to go into 2004. It's actually a commitment for commercialization through a Vertex driven process. So we're looking not only to 2004, but to 2005 and onward. And 3 at this point looks a little too many for us to take on that commitment. I'll point out that two programs know

to full commercialization that are moving roughly in the same time frame, you know, puts us in very favorable comparison to some of the large pharmaceutical companies. So I actually think two is pretty aggressive. We're comfortable with that aggressive stance. Three we frankly internally decided that that would likely to be beyond our level of commitment at this point. Again, value will come out of the ones we don't bring forward ourselves. They -- we will find partnerships to advance those through to bring the value to the Vertex bottom line.

And on the subject of partnerships, are you still expecting VX-385 and VX-528 to submit or your partners to submit INDs this year?

VX-385, which is -- this the John Alam. In -- this is a third generation HIV protease inhibitor is already in the clinic. So it's -- the Phase I studies are ongoing. And then 528 is the first of the kinase, the three kinase compounds out of the Novartis collaboration we had announced had been achieved into development last year and we are responsible for all three of those, moving those forward in development. And those are moving forward, we'll give you updates of those at appropriate times. But those continue to be our responsibility, as Ian noted, the development activities associated with those three compounds are financed by Novartis loan line. So in a cash flow basis, Novartis is paying the bills there.

Okay, fair enough and then just last question, I'm a little out of date. The VX-497 Phase II data, should that be coming up pretty soon, and a go-no go decision along with that?

This is -- yes. VX-497, as you, I believe, implied, is in a -- an early Phase II study in combination with Ribovirin and pegalated interfereon in treatment of hepatitis C. That study was initiated last year and the enrollment was completed near the end of the year and we are anticipating that we would look at the six-month data from that study in the middle part of this year which would then provide the basis for us to come to a decision on how to move forward with VX-497. What we have said is that this study is really primarily a safety study. It's a first study looking at the combination of those three agents together. And will not have data -- it's not a big enough study to have definitive data regarding antiviral effects. But the plan is during the middle part of this year a decision on how best to move forward with VX-497.

Great thanks

Thank you Craig.

Next question comes from Hari Sambazavool (ph) from Merrill Lynch.

My questions have been answered. Thank you.

Next question comes from Steve Harr Morgan Stanley.

Thanks for letting me jump back in. I have two separate questions. One Ian, if you could just walk us through the plans with this lease. As you mentioned as one time loss or charge, are you breaking that out separately from your guidance?

There are a couple of components Steve that are relate owed to this. The first quarter there was the charge that we've separately highlighted in our press release of approximately $3.9m that we entered the lease in January of this year, or we started paying on the lease January of this year. So there's that component. And then looking at multiple opportunities right now to see how we minimize that financial obligation. But by the end of Q2 we believe that we will have a plan that's in place, and we will have executed on one of these opportunities.

There's the potential this could be a recurring loss in that you may not get $18m for the space, is that your annual lease obligation, is that right?

That's the lease obligation for 2003. There is always the potential that we can't execute on the alternative that we've got on the table at the moment. But as we look at it, we believe we can and will have a plan in place by the end of Q2.

So you can lease this at your original cost you think? Sublease it at your cost, so you won't have an ongoing charge related to the $18m?

We don't believe we'll have an ongoing charge in our P&L.

This is totally separate John. You were talking a lot about the role of inflammation in ACS. And obviously, this has been an area that's exploded over the last few years but the thoughts have been around for a long time and Genen Tech had their antibody targeting CD 1118 that failed in AMI. What is different from ACS or AMI what is different about the targets that make you, give you confidence that the anti inflammatory component of 702 will be successful when this antibody failed?

I think P38 MAP kinase innovation more broadly targets inflammation than an anti CD 18 antibody would target. They are fundamentally different targets. We're also not going after acute myocardial infarction as such versus ACS syndromes outside of particularly the transmural myocardial infarction. So we're focusing on the arenas such as unstable angina and/or coronary intervention, either in the setting of stable or unstable angina, where the plaque is actually, in certain respects, while it's not as dramatic as a full-blown transmural, through the wall myocardial infarction, it's actually, it's a more unstable situation and where inflammation is likely to have more impact than in myocardial -- in garden variety myocardial infarction. Because in some extent the whole process is -- resolves itself, because what occurs is you get full clotting of the artery wall, and then you either Thrombolise it or not. You don't have a situation where you have partial blockage and opening where the inflammation is probably going to have the most amount of impact. Because it makes that whole situation, to use the word unstable. But that's really what it's doing in that context.

So really more than just trying to protect the penumbra and reprofusion damage but actually to prevent any type of ongoing thrombosis and downstream damage is the difference?

That's correct. May in fact be an percutaneous coronary intervention, where when you go in and do the procedure you disrupt the plaque further and reset the inflammation cascade and often end up throwing emboli further downstream and causing more damage. If you can stabilize that particularly with predosing you may actually in fact decrease the amount of damage and then breaking off an am bolization further down the coronary artery.

Thank you that was very helpful.

Thank you Steve.

At this time there are no further questions. Ms. Brum are there any closing remarks?

We would like to thank everyone for joining us on the first quarter conference call this evening. The team will be in our offices to take any follow up questions you may have. Thank you very much.

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