福泰製藥 (VRTX) 2003 Q2 法說會逐字稿

Good afternoon. My name is Mary Ann, and I will be your conference facilitator today. At this time I would like to welcome everyone to the Vertex Pharmaceuticals second quarter financial results conference call. All lines have been placed on mute to prevent any background noise. After the 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 1 on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Ms. Brum, you may begin your conference.

Great, thank you, Mary Ann. Good afternoon, everyone. This is Lynne Brum, Vice President, Corporate Development and Communication at 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 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 and Exchange Commission including our 10-K.

At this time the second quarter 2003 financial press release and the 908 press release have been faxed and e-mailed to you. Please visit our new website at www.vrtx.com to listen to the conference call and view a PowerPoint presentation. A replay of the conference call will be available via telephone and the Internet until the end of day, August 7th.

We are on track to achieve the milestones we set for 2003. We've made demonstrable progress in our late-stage partner products. We're on track for U.S. approval and launch of 908 in the fourth quarter. We have accomplished all of our goals and then some with the ICE inhibitor Pralnacasan. The development program for Pralnacasan is now progressing in parallel in RA, OA, and soon, psoriasis. We have also hit all of our milestones in our portfolio of Vertex-driven drug candidates. We initiated several studies in the first half of the year and now are looking forward to the data that will merge on these compounds during the second half of 2003.

We have also taken important steps to manage our business and maintain our strong financial profile. During the first half of the year, we sold the product and technology rights of PanVera LLC for $97m and also restructured our business to balance our investment across research, development, and commercial operations. We are on track for significant events and new flow in the second half of 2003. I look forward to keeping you up to date on our progress.

In a moment I'll turn the call over to Ian Smith, Vertex's Chief Financial Officer, who will summarize Vertex's second quarter 2003 financial results and review our full year 2003 financial guidance. Then John Alam, Vertex's Senior Vice President Of Drug Evaluation And Approval, will review our product pipeline. And then Dr. Vicki Sato, Vertex's President, will conclude with a discussion of our second-half milestones and how they represent important catalysts for Vertex's growth. In addition, Tony Coles, Vertex's Senior Vice President of Commercial Operations for Pharmaceutical Products will join us for the Q&A session at the end of the call. Vertex's IR team joined by Ian Smith will be available after the conclusion of this call to answer any follow-up questions you may have. I'll turn the call over to Ian.

Thanks, Lynne. Today I'll focus on our second quarter 2003 results and will review our full year 2003 financial guidance. I'd like to note that during the quarter we will discuss financial results prepared according to both GAAP and non-GAAP financial measures. Additional information regarding our use of non-GAAP financial measures is available in our second quarter 2003 press release.

Now to our financials -- our second quarter 2003 net loss, including a charge of $44.1m for restructuring and other expenses, was $89.9m, or $1.17 for per basic and diluted share. Excluding this charge, our second quarter loss was $45.8m, or 60 cents per share. This compares to a net loss of $21m, or 28 cents per share, for the second quarter of 2002.

The disposition of certain assets of PanVera resulted in the reduced revenues in Q2 of '03 compared to Q2 of ['04] and this, together with the increased clinical investment into Vertex's drug candidates, has resulted in an overall increase of net loss, excluding certain charges. However, our second quarter results are in line with our internal forecast as well as the First Call consensus.

I'll now provide more detail on the second quarter operating performance and provide commentary on how this relates to our full year 2003 financial guidance. Second quarter '03 total revenues were $17.6m compared to $42.3m in '02. This reduction is mainly due to the sale of products and technology rights of PanVera LLC in the first quarter. This business contributed revenue of approximately $21m in the second quarter of 2002.

Looking to our major expenses, R&D, our R&D investment increased from $46.5m in the second quarter of '02 to $50.7m in '03. This level of R&D investment is similar to that of our first quarter '03 spend and includes an increased investment into clinical activities to advance Vertex-driven drug candidates. Specifically underlying these numbers our discovery investment was reduced to $29m compared to $30m in 2002, while development investments increased from $16m to $21m in 2003. We expect this mix to continue as Vertex advances its drug candidates into full development.

In SG&A our expenses for the second quarter of 2003 were $10.2m compared to $13.3m in 2002. This reduction is primarily due to eliminating the cost of the PanVera SG&A infrastructure. In this quarter we took a restructuring charge. The restructuring and other expenses for the second quarter were $44.1m. This charge includes an estimate of approximately $35m in anticipated lease restructuring costs, which relate to an agreement Vertex entered into in January 2001 to lease lab and office space in Kendall Square. It also includes $7m of employee severance and transition benefits, and a write-off of leasehold improvements and other assets in conjunction with the company's restructuring as well as $2m for lease operating costs incurred prior to taking the lease restructuring charge.

The internal restructuring, that is, the non-facilities-related action is expected to reduce our annual fixed operating cost by approximately $20m to $25m per year, and we expect to take advantage of these savings by making increased clinical investments in the future years. Ultimately, this creates more flexibility for our business investments enabling us to drive our clinical candidates forward while managing our financial profile.

In addition, we believe our anticipated lease restructuring will relieve the company of a future obligation of an estimated $20m per year in facilities and operating expenses providing further flexibility for downstream investment. These restructuring activities were designed to rebalance the company's investments into research, development, and commercial activities. They position us to select and commit to two vertex drug candidates for full development and commercialization and place Vertex on the path to becoming a major drug company.

From a balance sheet perspective, Vertex ended the second quarter of 2003 with approximately $633m in cash, cash equivalents, and available sale of securities. At June 30, 2003, Vertex had $350m in convertible debt due September 2007.

Now to our 2003 financial guidance -- based on our financial results to date and forecast for the second half of the year, we continue to anticipate a 2003 loss in the range of 140 to $160m, excluding certain gains and charges. However, due to the anticipated 2003 cash costs of the restructuring, including the facilities cost, we are revising our year-end 2003 estimate for cash, cash and equivalents and marketable securities down from in excess of $600m to in excess of $570m and still maintaining a strong cash position. We are otherwise reaffirming the revenue, R&D, and SG&A components of our 2003 financial guidance.

I'll summarize my remarks by saying that we are focused on managing the long-term financial profile of the company as is evidenced by the actions we have taken this quarter. We have structured our business in a balanced way to support both our objective for developing and commercializing novel drugs, both independently and with partners.

I'll now turn the call over to John.

Thanks, Ian. On this call I will review our two late-stage partner programs, 908 and Prainacasan, and then I will turn to a discussion of our Vertex-driven pipeline. I'll begin with our most advanced product in the clinic, the HIV protease inhibitor 908. The extensive registration program for 908 led by our partner, GSK, has provided us with direct comparison of 908's activity versus the HIV protease inhibitor market leaders, Nelfinavir, and the fixed-dose combination of Lopinavir and Retonivir. All of the pivotal trial end points necessary for NDA filing have been met and GSK has submitted regulatory filings in the U.S. and in the EU. The data that was submitted in these filings included 24- and 48-week data from the NEAT and SOLO studies and 24-week data from the CONTEXT study.

We and GSK outlined today the preliminary 48-week data from CONTEXT, the third pivotal trial for 908. The CONTEXT trial compared once and twice-daily dosing of 908 plus Retonivir to -- Lopinivir plus Retonivir in treatment-experienced patients. The primary objective of CONTEXT was to assess antiretroviral activity in treatment-experienced patients. The primary statistical end point of the trial was the time average change in viral load from baseline also known as AAUCMB at 24 and 48 weeks. Clinical investigators have presented data demonstrating that the study made its primary end point of non-inferiority in AAUCMB at 24 weeks. At 48 weeks we saw significant antiviral activity across all arms of the study arm in these extensively pretreated patients using the AAUCMB measure.

For example, patients in the 908 Retonivir BID arm had, on average, a 1.5 log drop in their viral load at 48 weeks, again in this heavily pretreated patient population. However, because the upper limits of the confidence interval for the difference in time average change in HIV R&A between the 908 once-daily and twice-daily or BID arm, and the Lopinivor-Retonivir arm were above 0.5 statistically speaking non-inferiority could not be established at 48 weeks using the primary end point of AAUCMB.

On the other hand, and importantly, the clinical activity was clearly apparent at 48 weeks in the analysis of the proportion of patients achieving viral load below 400 copies per/mL and 50 copies per/mL at 48 weeks. This type of responder analysis has long been viewed by HIV treatment specialists as a clinically relevant end point and was a secondary end point in the study. At 48 weeks, 58% of patients in the 908 BID arm versus 51% of patients in the Lopinivir plus Retonivir arm achieved less than 400 copies per/mL, demonstrating comparable activity using this end point.

Similarly, 46% and 50% of patients achieved less than 50 copies per/mL for the 908 BID and Lopinivir-Retonivir arms respectively. This data clearly demonstrates that the drug is active in treatment-experienced patients.

Going back to the AAUCMB end point, this is an end point that had been developed in the HIV field to provide a sensitive method to assess overall activity in comparative studies involving extensively treated patients when the expectation that a small proportion of patients would achieve undetectable levels of HIV R&A. In the case of the contact study, however, where high proportions of patients achieved undetectable levels of HIV R&A, we believe the proportions analysis provides a more meaningful view of the comparability of the study regimens.

By demonstrating antiviral activity in treatment-experienced patients, both by AAUCMB and the proportions analysis, the CONTEXT study complements the results from the NEAT and SOLO studies, which have demonstrated the potent antiviral activity and excellent tolerability of 908 in unboosted and boosted regimens in treatment-naïve patients. We believe 908's safety and efficacy profile will position it to be competitive in the HIV protease inhibitor category and are looking forward to the launch later this year.

The 48-week data announced today will be submitted to the regulatory agencies. We continue to anticipate the approval and launch of 908 in the U.S. in the fourth quarter of 2003 and in European countries beginning in 2004.

I would now like to spend a few minutes discussing our second [inaudible] partner product, the ICE inhibitor Pralnacasan. Cytokine inhibition using injectable agents has emerged as a useful strategy in the treatment of rheumatoid arthritis and other inflammatory diseases. We believe that as a first oral cytokine inhibitor, Pralnacasan represents a potential breakthrough drug for the treatment of a variety of inflammatory diseases. In 2003 Aventis has committed to parallel development of Pralnacasan in three indications -- Rheumatoid Arthritis, Osteoarthritis, and Psoriasis.

First, a 400-patient proof-of-concept study in patients with osteoarthritis, or OA, was started and fully enrolled. This study was designed to enable us and Aventis to evaluate the safety and efficacy of Pralnacasan in patients with OA. We expect to provide top-line results from this study in the fourth quarter.

Second, a 400-patient phase IIb study in patients with Rheumatiod arthritis, or RA, also was initiated. This was a key second quarter milestone for us. This phase IIb study will evaluate the safety and efficacy of Pralnacasan in patients with RA receiving stable Methotrexate treatment. The study will evaluate patients treated with Pralnacasan or a placebo given twice daily for 12 weeks. The study will include higher doses of pralNacasan than were evaluated in the previous phase IIa RA study.

Thirdly, we have announced that Aventis plans to develop Pralnacasan in a third indication, psoriasis. Details on this development path will be provided at a later date.

The broad development of Pralnacasan demonstrates continuing momentum in the Aventis and Vertex [inaudible] pipelines and underscores our continued pursuit of innovative drugs that works in new ways for unmet medical needs. Furthermore, the development of Pralnacasan in three major indications underscores the commitment Aventis has made to the long-term success of this drug. We look forward to working closely with Aventis as we continue development of Pralnacasan.

I would now like to turn to our portfolio of Vertex-driven drug candidates. In the first half of 2003, we initiated and conducted clinical trials for four Vertex-driven drug candidates. We are looking forward to analyzing the data from these and other ongoing studies in the second half of the year and also are excited about the initiations of first in-human studies with our novel HCV protease inhibitor, VX-950. Specifically over the next six months we expect significant news flow from our Vertex-driven pipeline. In our autoimmune inflammatory portfolio we expect to see data from the Phase II psoriasis study for the novel oral IMPDH inhibitor, VX-148.

We also expect Phase I clinical data from our second-generation ICE inhibitor, VX-765. And we are looking forward to analyzing the pilot Phase IIa data for our oral p38 MAP Kinase inhibitor, VX-702 targeting Acute Coronary Syndrome. Positive results from these studies would pave the way for continued clinical development of these compounds in 2004.

In terms of our Hepatitis C products, we are leveraging our experience and history in infectious disease area to advance two different drug candidates targeting this disease. On one hand, we are completing and early Phase III triple combination study of our IMPDH inhibitor Merimepodib, or VX-497, which is being tested in combination with Peginterferon and Ribovirin. We are also on track to start Phase I development of our novel Hepatitis C virus protease inhibitor, VX-950, and look forward to accomplishing that milestone.

In summary, our development organization is committing to building on the momentum we established in the first half of 2003. During the remainder of the year, we will be simultaneously advancing several programs through our clinical pipeline, both independently and with pharmaceutical partners generating important clinical data that will shape the company, going forward. I look forward to continuing to report our progress to you throughout the year.

I'll now turn the call over to Vicki.

Thank you, John. As you just heard, this continues to be an exciting time for Vertex. Our pipeline is advancing steadily across the important high-value therapeutic areas of autoimmune, inflammatory and infectious diseases. The successful execution of our development plans in the first six months of 2003 has positioned Vertex to achieve important milestones in the second half of the year that will shape the growth and future of the company. Alone and with partners, we are bringing innovative therapies to market, setting the stage for sustained value creation.

For our partnered products, the second half of 2003 will see the commercialization of 908 and the further advancement of Pralnacasan through late-stage development. The anticipated milestones and royalties from these partnerships will contribute significant financial returns to Vertex in the years ahead.

2003 is also the year in which important data from our clinical programs will define the path forward for the products whose development and commercialization we control. We are gathering data on several strong development candidates this year and believe the information from these clinical trials will enable us to select the first two drug candidates from our broad portfolio to advance to late-stage development and commercialization under the Vertex brand.

In the second half of 2003, we also are anticipating discoveries and advances in our research programs that will fuel our pipeline for the years to come. The selection of the first set of drug candidates for independent late-stage development signals our commitment to deliver sustained revenue growth to shareholders. During this call we have emphasized milestones related to development and commercial activities, because these activities will play a significant near-term role in Vertex's progression for becoming a major drug company. But going into the second half of 2003, we are also optimistic about progress in several of our early-stage research programs including our Kinase research collaboration sponsored by Novartis and our bacterial Gyrase research program. Our drug discovery organization is on track to advance more novel drug candidates into development this year with therapeutic applications in oncology, inflammation, and infectious disease.

Earlier this week we announced the appointment of Dr. Peter Mueller, formerly of Boehringer Ingelheim, to the position of Senior Vice President Of Drug Discovery And Innovation and Chief Scientific Officer. Peter's experience and track record in pharmaceutical drug discovery expands the depth of our expertise and strengthens our leadership position in discovering medically important novel small-molecule drugs. Our drug discovery organization is positioned to be highly productive and effective, going forward, under his leadership.

In summary, we believe that we have the products that drive future growth, the management teams to guide our strategy, and the financial flexibility to execute and advance Vertex's business to the next level.

We are encouraged by Vertex's progress this year toward achieving its goal. Development and commercialization of breakthrough drugs is a challenging process, but the reward, as we all know, for patients and for investors, is tremendous. I look forward to discussing our progress with you throughout the year.

Lynne, back to you.

Thank you, Vicki. We'll now open up the call to your questions. Mary Ann?

Thank you, ma'am. 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 keypad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Steve Harr of Morgan Stanley.

Good Afternoon.

Hi Steve.

How are you doing? I have a couple of -- actually, a number of questions. I'll limit them here, but I was hoping maybe, Ian, you could just clarify for us if this is the end of the restructuring charges or if there should be some ongoing cash charges as you unwind some portions of the business. Second of all, maybe, Ian, if you could comment on where you stand in a deal, a development deal, since a research deal is not the major part of your revenue guidance for the second half of the year and, finally, maybe, John, if you could just help us understand a little bit about 908 and where you see it being used? Cause with Agenerase obviously, it failed in earlier use in its trials and now we have -- in more treatment-experienced patients pro-Agenerase missing its primary end point? What do you see, going forward, as the proper role for this drug? It was in the protease inhibitor class.

Let's start with Ian, then.

Hey, Steve, how are you doing?

Pretty good.

So let me see if I can break down those questions. First of all, the $44m charge that we took is the only charge that we anticipate to take.

And was that all cash or what portion was cash?

Ultimately, it was approximately $35m to $40m if it is cash. The way that breaks down is that there is a further $20m of cash to be spent in the remainder of 2003, and there is probably about a $10m cash impact in 2004. That is where the charge should finish.

As far as the collaborations are concerned, we continue to be active with partners, and we look forward to updating you in the second half of the year. I could give you some idea of the areas that we are most focused on, which is looking at certain research collaborations, specifically in the ion channel field and also the Gyrase field, and we're in active discussions there. And then with certain product rights, in terms of geographic areas or those products that may be what we can catch in more value in partners' hands. We're active in discussions in those areas as well, and we would look forward to updating you in the second half of the year.

So, Steve, I'm going to ask Tony to come back, after giving my part of the response, and talk more about the commercial impact of the overall set of clinical data that we've generated. But I would answer your question in a number of different ways. First, you have to keep in mind that we have excellent data in treatment-naïve patients. We have two large phase III trials -- the NEAT and SOLO trials -- that met all the end points with both boosted and unboosted regimens.

With regard to the current study in the treatment-experienced population, I would say that would we have preferred to hit the primary end point, yes, but I think the more important question, which I think is really the question you are asking is -- is it likely to have a major impact on how 908 is viewed clinically in the treatment-experienced population and does it change our view of the drug in this population, and our answer at this point is no, it does not impact how it's going to be viewed clinically other than that it clearly is active in this patient population. And I say this because, first, using the time average change in HIV R&A analysis, the AUCMB, we did see a 1.5 log drop in HIV R&A in this extensively pretreated population. Yes, given the statistics of the study, non-inferiority could be established -- could not be established -- but that's a very different statement than was 908 inferior to Lopinivir-Retonivir, which, in fact, the trial did not show. Rather, if you look at the clinically relevant end point, the proportions analysis, the one that doctors actually understand and will use to make treatment decisions, that clearly showed comparable activity with 58% of 908 BID versus 51% of the Lopinivir BID arm achieving undetectable level to less than 400 copies and 46 and 50% of the patients achieving less than 50 copies per mL. Given how close -- 58/61, 46/50 -- given how close those numbers will be -- the decision to treat there will not be based on the efficacy measures, but it's really the sum total of convenience, tolerability, resistance, prior treatment experience, all the other factors, but it's not going to be driven by these really pretty small differences in the percentage of patients achieving less than 400 or less than 50.

Now let's turn it over to Tony to just make a few more comments.

John, could you just also give us the QD data as well there, then?

So the QD data that was in the press release was that 50% of patients achieved less than 400 copies per mL. We did not provide the less than 50 copy per mL data at this point that we provided in the final -- when the data is presented at meetings.

With regard to QD, just keep in mind, again, in SOLO trial the drug performed very well, and we've also presented data from the resistance side that that combination in the QD arm -- in QD of 908 with Retonivir presents a very high genetic barrier to developing resistance. So QD right now looks very well positioned to be used in the treatment-naïve population.

Steve, just in terms of where 908 is likely to be used -- as you well know and what we hear from all of our prescribers and the opinion leaders in this field, there continued to be a number of unmet needs in ARV therapies and specifically for protease inhibitors. The market leaders are either fully tolerated or not very potent or both, and resistance continues to be a problem for the most difficult-to-treat patients. What we know is that 908 is quite potent as demonstrated in NEAT and SOLO and now with the CONTEXT trial, and the achievement in a very difficult-to-treat treatment-experienced population of 1.5 log viral load reduction.

Not only is 908 potent, but it also has a dosing profile which suggests that it will be at the top of everyone's list when dosing is a concern. One or two tablets once or twice daily is very straightforward and very simple, easy to remember, and easy for patients to take. And, finally, we know from the clinical data amassed thus far that 908 is extremely well tolerated. If you look at the complete package of potency dosing and tolerability and the fact that in the SOLO trial, on a boosted basis, there were no demonstrated protease inhibitor mutation to the combination of 908 and Retonivir. We believe that that complete package actually provides what the protease inhibitor class is looking for. It is likely to be, and we hope to position this product as the first-choice protease inhibitor for HIV patients. Demonstrated potency and treatment-naïve patients and now with these data, demonstrated efficacy and tolerability and a very difficult treatment to experienced patients. So we anticipate broad use for the compound, and this complete package should ensure that patient and physician have an effective alternative.

Your next question comes from Phil Nadeau of SG Cowen.

Good afternoon, thanks for taking my question. Ian, my first question is for you. Can we take, from your comments and from the reiteration of your net loss guidance for 2003, that we shouldn't be thinking about decreasing our net loss estimates in future years because of this restructuring?

My guidance -- or reiterating the guidance on 2003 really doesn't affect what we've said in future years. In fact, we haven't provided guidance for those future years. So the comment really is specifically around 2003, and I'll just reiterate that we remain committed to the $140m to $150m loss before gains -- certain gains and charges.

Right, but you also made in your prepared remarks some comments saying that the restructuring that you did would allow you to spend more aggressively in your clinical trial programs. So should we take that comment to mean that we shouldn't be thinking about decreasing our net loss expectations for future years?

So I haven't made any commentary around our net loss in future years. What I would add, though, Phil, in terms of what you're saying is that the savings that we are achieving through this restructuring and specifically targeting our early discovery organization is providing us flexibility for investment into development, and you should expect us to take advantage of that. We have a full pipeline, and we're looking forward to prioritizing certain molecules as we go into 2004, and the space that we have created in terms of our financial investments, or the relative investments of research and development, we will take advantage of that to support our own products as we move forward in the future.

Okay, fair enough. John, the next question is for you -- I believe we are expecting some announcement on 702 being looked at in a chronic indication sometime around midyear. Do you have any update on what indication that might be and when and if 702 might move forward in a chronic indication?

No, at this time we are not being more specific about the chronic indication. As you've implied, Phil, that we have -- we've made a decision it will be in both acute and chronic indications. We are going forward with VX-702. We're going forward with acute coronary syndrome as the acute indication choice. At this stage we plan on being more specific with regard to a chronic indication in the second half of this year.

Okay, great. And my final question is on the OA trial for Pralnacasan -- the trial for which we're going to see results during the fourth quarter of this year. Have you disclosed the design of that trial -- the primary endpoint as well as the size of the trial?

We have not. The size of the trial is 400 patients, and it is a three-month treatment trial, but we haven't disclosed more details on this trial -- on that trial at this point.

Okay, good, thank you.

Thank you, Phil.

Your next question comes from Meg Malloy of Goldman Sachs.

Thanks very much -- I have two questions. First, this is a follow-up to Steve's question -- I'm wondering if you could maybe put in a little bit better, or clearer, context the specific advantages with respect to resistance. I know you had some data that [inaudible] about a week or two ago, but I'm not clear on how that will translate into a selling point, if you will. Maybe it's a little premature. But also maybe you could talk about the side effect differences that have been observed between 908 and some of the other PIs. And then, secondly, on HIV, I was wondering if you could give us some sense about what you would like to see in Phase II with 497 as a basis for potentially proceeding ahead?

Okay, so we'll start with 908 and, Tony, do you want to start with an answer to the first couple of questions?

Sure. Meg, it's Tony Coles. We have not released all of the resistance data from the registration trials for 908, but what we can tell you is, and I'll reiterate a point I made earlier, is that the resistance profiles for 908 will be -- will not be dissimilar to that for our Agenerase, and on a boosted basis, as a result of the SOLO trial, there were no genetic resistance or PI mutations observed in that trial and fewer NRTI mutations as well. So what this suggests is that when you are giving consideration to not only your first choice in selection for a protease inhibitor, the combination of 908 on a boosted basis might suggest that you're less likely to develop resistance. However, in the event that resistance does develop in 908, you preserve all your downstream options perhaps to consider moving to Kaletra afterwards. So that's just a practical, if you will, a more clinically oriented point and way to think about the administration of 908 in a population where resistance is a significant issue.

Let me address the second half of your question, which has to do with some of the drawbacks or the weaknesses of some of the market -- other market competitors. If you take a look at Kaletra, for instance, it's three tablets twice daily. It has GI side effects, it does not have a favorable lipid profile, and it actually precipitates the metabolic syndrome, which includes Lipodystrophy. We know that this particularly is bothersome to many patients, not just because of the metabolic parameters which become deranged, but because of the physical appearance, if you will -- the wasting in the arms and the expansion of the waist. Most patients don't appreciate having that as a result of their medication.

Because we know that these things are both bothersome to patients and create some problems potentially in terms of adherence, we believe that while Kaletra is an effective agent, it still hasn't hit the market in satisfying the unmet needs of this population. If you look at Atazanavir just for a comparison, we don't have enough experience with it on the market, less than, now, three weeks, to really understand what the clinical efficacy of the compound will be. However, we do know that our prescribers and opinion leaders have fed back to us significant questions about the potency of this compound, particularly as a result of one of its pivotal trials for registration comparing it to Efavirin or Sustiva. Time will tell where that falls, but we think that Atazanavir, for instance, has other potential issues with the increase Bilirubin, which has been observed widely across the Registrational program, and which Prescribers and opinion leaders will suggest to us maybe a not insignificant problem for patients.

So that gives you, if you will, some sense. And, Nelfinavir, of course, we know, is widely perceived as being less well tolerated because of GI side effects and diarrhea and not even as potent. So if you go back to my original comment about market leaders are either poorly tolerated or not very potent or both, you can see that there has emerged a significant unmet need for a potent, well tolerated, and convenient protease inhibitor, and we believe 908 has the complete package.

And just as I may follow up, I think the primary end point for the first two studies and, I guess, typically, has been about 24 weeks -- interested to know why 48 weeks was considered part of the primary end point?

Meg, this is John. On the -- in the first two trials, as well, the primary end points were at 48 weeks. In fact, before filing the NDA, because those were in treatment-naïve patients, we had to have the 48-week data in the file, and that's what was submitted, and the NDA was filed after that data was available. In a treatment-experienced population for registration, the minimum the FDA requires is actually 24-week end point data, because that's the distinction they make in treatment-naïve versus treatment-experienced, and that's why the 24-week data was submitted in the NDA filing, and that's the CONTEXT study. But the trial was designed as a 48-week trial, and that's the data we are reporting on now, and that data will be submitted to the FDA.

I think you made the comment on -- you had a question on VX-497, and the data that we'll be looking at in the second half of this year will be primarily -- it will be six-month data of the combination. It will be primarily safety data. We will have some antiviral data to look at as well but, as you know, it's a relatively small study. So the ability to pick up significant differences is limited in that trial.

Great. Thanks very much.

Thank you, Meg. Can we have our next question, please?

Yes, ma'am. Your next question comes from Harry Sambasivam of Merrill Lynch.

Yes, thank you. Just a quick question regarding this -- I just want to get a little bit more clarity on this 24- and 48-week end points. You mentioned that the 24-week end point was required for therapy-naïve and 48 weeks for the therapy-experienced. And I'm just wondering what kind of implication on the label negotiations does that have? You know, are they going to sort of restrict you from one area versus the other, or is it a broader label than that? Could you maybe discuss that a little bit?

I think it's the other way around. It's 48-week data for treatment-naïve patients, 24-week data for treatment-experienced patients.

Oh, I see, okay.

Our expectation is that all of the data will be in the label, and what the FDA has -- where they've really come to, if you look at the atazanavir label, for example, is that they end up with treatment of HIV and provide the data and let the clinicians really make the choice of where they are going to use the patients. They're not that directive in terms of where you should use the patients. That's not the role that the FDA takes on.

But I will add, Harry, to your question that, from a competitive point of view, we believe that the label the FDA will review will suggest that 908 is not only potent in treatment-naïve patients but treatment-experienced patients as well. And we're quite pleased with the results of the CONTEXT trial where we've demonstrated that continued efficacy in, as I say, a very difficult-to-treat population. So if you put the weight of the evidence together, and if you step back and look at all the data, we believe that will create a strong and compelling label from which we can promote.

The second question I had was on VX-497 with the HCV data that's going to come up in the latter part of the year. Just in terms of getting us prepared to sort of figure out what we should be looking for, is there some sort of rule of thumb of viral load reduction that we should be looking for between the combination arm versus the control? Or what else should we be looking for as, you know, in terms of prior expectations?

What we have said is that this is really the first study that we would have to do to establish that a triple combination of VX-497 with Ribovirin and Peginterferon would be better than Peginterferon than Ribovirin alone. But it's a first study in the sense of, really, it provides the safety background in order to be able to go into a larger study that would, in fact -- that would be more likely to show a difference in antiviral activity, which would have to be measured in the percentage of patients who are Hep C R&A negative. That's really - the log drop in HCV -- in hepatitis C doesn't count. So you have to look at the percentage who are negative, and so in a small study, you really don't have any ability to show that kind of difference. It would really take a dramatic effect to see an effect there.

The other -- I'll just say that in terms of second half of the year, there is a lot more data that is going to be coming out with the Pralnacasan osteoarthritis study, the 148 psoriasis -- Phase II psoriasis study, and the VX-765 Phase I data, all of which top-line results we plan on reporting on in the second half of the year. But on VX-497, I think your expectations on the antiviral side should be relatively limited.

One last question, if I may, just for Ian. Your comment on the charges of, say, $44m, and I didn't quite understand that about future amounts to be spent. Does this $44m essentially take care of all of your lease obligations, et cetera, or is there a further $20m plus another $10m to come on top of that?

We expect that this should be the only charge, Harry.

Okay, and what was that $20m and $10m in relation to, Ian?

That's how the cash will flow.

Oh, I see, okay. That's great, thank you.

Thank you, Harry.

Your next question comes from Meirav Chovav of UBS.

Hi, it's Ed Kim on the line.

Hi, Ed.

Anyway, good quarter. I just had some questions about Pralnacasan. I was wondering if you can give some detail on the study that was just initiated, especially what we're hearing is that the dosing is much higher in this study than in your additional IIa study, and I'm wondering if you can comment on that?

This is John again. The data that we are prepared to provide, or the discussion we're prepared to provide were what was in the call. On the specific question, yes, it will include higher doses, but it's not only higher doses than were used in the Phase IIa study.

I guess what we're hearing were dramatically higher doses in the 1200 mg, like in the order of, like, three to four times.

Yeah, Ed, we wouldn't be expected to comment on rumors on the dosage when we or Aventis haven't spoken about the exact dosages used in the study. We look forward to the execution of the study, moving it forward, exploring the safety and tolerability and efficacy of the drug. But today I think we need to stick with what's been put in the public domain by both companies.

Okay, sure. All right, thank you very much.

Thank you, Ed.

Your next question comes from Edward Nash of Legg Mason.

Hi, yes. I had a couple of questions. The first one is for Ian. I just wanted to find out -- to meet your previous revenue guidance number, we're figuring out you need to do either one big or maybe one or two collaborations this year, and I just wanted to see if those would be coming, and if you knew -- if you could give some guidance in the third quarter or the fourth quarter? And then the second question, I think, is probably more of a Tony question, that is, we were at IAS in Paris, and we had been seeing a few studies and then caught rumor that Glaxo's 30009 trial -- where one of the arms, they had Abacavir, Epivir, and Viriad. That trial is being halted due to K65R, and I think it's bring up a lot of talk about wondering whether the triple nuke backbone is really the way to go in the treatment of patients, and I wanted to see if you guys thought that perhaps since the triple nuke is maybe not being as favorable, if you could see that being very positive for the new PI. So, for instance, Fosaprinivir [ph], which is just about to come out and then the recently approved Atazanavir and Toprinivir. Do you see physicians being left PI sparing and maybe going to those regimens?

It's Tony, and so what I'll say is, first, we can't comment on GSK's portfolio because we simply can't. We're not in a position to do that. We believe that NRTI therapy will continue to be an important part of the selections physicians have in front of them, and that will simply be a fact until we have, if you will, a cure or a therapeutic vaccine. So we anticipate that the backbone will continue to consist of NRTIs.

With regard to your second question, would you mind phrasing it again?

Right -- well -- it was the second question, but it was just the same part. It was about -- particularly it was the triple nuke backbone that I was curious about. If we start to see that triple nukes aren't working, would you say that the physicians start to get a little more worried that potentially there are issues because of resistance developing and allowing for cross-resistance that it would maybe push them to be more apt to consider PIs earlier on initially in the regimen, rather than starting patients on a triple-nuke regimen?

Thanks, that's very clear, and the answer, very simply, is absolutely. We have data, which indicate that the use of protease inhibitors has actually increased on a volume basis since 2001. We all recall that '99 to 2000 was the era of protease inhibitor-sparing therapy, if you will. But they were much later choices. Since that time, what we've seen is physicians reaching for protease inhibitors much earlier in the armamentarium and the choices for these patients, and that's for a variety of factors. One, while there are still significant unmet needs, the therapies have improved, but also many of the patients presenting today have higher viral loads and lower CD4 counts on presentation. So physicians are really quite anxious to get the virus under control as effectively and as quickly as possible. The best way to do that is by moving protease inhibitors earlier into the choice for regimens.

And just to add to that -- this is John -- I think that data may potentially confirm or affirm what we've been saying for a long time -- that hitting two viral targets rather than just one viral target is actually going to be better, and it's just that the field has been waiting for a drug that is easy enough to take, was tolerable, and in other respects was behaving more on a convenience-tolerability side, was behaving more like the non-nukes, and I think that's the potential of 908 -- is that that's the gap that 908 fills very well. It has all the potency and gives you the ability to hit two targets without compromising on the convenience-tolerability side.

It is, Ed, what we call the complete package.

Okay, all right.

Sorry, Ed, just to get to your question on revenue. You're correct, to hit our revenue guidance, we would have to do new collaborative deals in the second half of the year. However, I will state that, well, first of all, restate that we are in active discussions specifically regarding research collaborations in the area of [inaudible] and Gyrase and in products, but we don't give specific guidance in terms of the quarters.

Okay. I just have one last quick one. I know that you said you haven't spoken to the design of the OA trial, Phase III, that potentially will be done, but I just wanted to see if maybe if we got that in the fourth quarter on the IIa, and it was positive, and you did move into a Phase III, maybe you could give an idea of even timing -- would that be something in the first half -- we could see happen in the first half of '04?

No, we're not providing that specific type of guidance. Exactly -- as with the Phase IIa study in RA, the data is going to drive what the next study looks like, and that's going -- study or studies look like -- and that will drive the timing.

Okay, perfect. Thanks so much, everyone.

Thank you, Ed.

At this time I would again like to remind everyone in order to ask a question, please press star, then the number 1 on your telephone keypad. Your next question comes from Steve Harr of Morgan Stanley.

Thanks for taking a follow-up. I thought maybe I could get a little more clarity, John, on the statement you said that you have data that PI prescriptions are actually increasing. If you look through June year-to-date, they're down 3.5% since '02, and they've been decreasing every year on IMS scripts for the last several years. And then maybe another comment how you can move into frontline use, given the HHS guidelines around the use of Sustiva and Kaletra, and now that you have data suggests that you are -- the data that you have in the CONTEXT study at 48 weeks?

Steve, we could certainly follow up with you and share with you the data we have, which have tracked the PI prescriptions, which would disagree with the notion that since 2001 the prescriptions have fallen. We've actually shown a return or a slight growth in the PI class at the level of about 3% to 4% on a year-over-year basis or so. But we can certainly handle that question in follow-up.

Thanks.

Sure, no problem. We believe that there will continue to be very strong growth for the PI class and that 908 will be able to participate on that basis.

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

No, we'd just like to thank everyone for joining us on the call, and we'll be back in our offices today and tomorrow to take any follow-up questions. Thank you, everyone.

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