福泰製藥 (VRTX) 2003 Q3 法說會逐字稿

Good afternoon. My name is Jamie, 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 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," "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, Jamie. Good afternoon, everyone. This is Lynne Brum, vice president of corporate 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 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 three press releases have been issued. A press release announcing an update to the Pralnacasan rheumatoid arthritis study, a press release announcing the selection of our first drug for Vertex driven late stage development, Merimepodib, and a press release announcing the third quarter 2003 financial results. Please visit our 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 end of day, November 21st.

I would now like to provide an outline of today's call. The company released a great deal of information today and would like to walk through it with you within the framework of the company's near-term and long-term goals. Today John Alam, Vertex's senior vice president of drug evaluation and approval, will begin our discussion with a review of the Pralnacasan program. Then Tony Coles, Vertex's senior vice president of commercial operations, will provide an update on the launch of Lexiva and will also provide profiles of commercial opportunity for Merimepodib, the first drug we have designated for full development and commercialization by Vertex. Tony will be joined by John Alam to review recent clinical data for Merimepodib as well as recent other advancements in other areas of Vertex's pipeline.

Next Ian Smith, Vertex's senior vice president and chief financial officer, will summarize Vertex's third quarter 2003 financial results and review our expectations for the full year 2003 financial guidance. Then Joshua Boger, Vertex's chairman and CEO, will provide an outlook for Vertex's business in the months and years ahead. Dr. Vicki Sato, Vertex's president, is also joining us today and will participate in the Q&A following our prepared remarks. Vertex's IR team, joined by the senior management team, will be available after the conclusion of this call to answer any follow-up questions you may have.

I'll now turn the call over to John.

Thanks, Lynne. I would like to briefly review the key points regarding today's Pralnacasan announcement and then discuss the status of the program.

Today Aventis formally notified the FDA that it is voluntarily suspending an ongoing phase II-B clinical trial of Pralnacasan in rheumatoid arthritis in order to evaluate toxicology findings in one species of animals that received high doses of Pralnacasan for nine months. The start of the rheumatoid arthritis clinical trial was announced in July and is taking place predominantly at centers in the United States and Canada. As of last week, approximately 330 patients were enrolled in this study and more than 50 had completed treatment. Trial investigators are being informed that the trial has been voluntarily suspended.

To provide some detail on the toxicology results, what has been observed in the nine-month animal study is minimal to moderate fibrosis in circumscribed regions of the liver in animals who received daily dose of Pralnacasan that are well in excess than the highest dose used in the current clinical trial. Toxicology studies are required by the FDA and other regulatory agencies to support clinical development of investigational drugs. The purpose of toxicology studies is to elicit information about potential toxicity in order that a therapeutic window for safe dosing of a drug in humans can be established and so that the safety margin of an investigational agent can be fully defined.

Toxicity findings of one type or another at high doses are common, indeed are the objectives of toxicology studies and each finding must be carefully evaluated, and each may require a different response and action. In the case of Pralnacasan, we have a finding of liver fibrosis in a nine-month animal study, a finding that was not expected based on previous results and of uncertain clinical significance. I want to stress that this finding had not been observed in previous six-month studies in two species of animals and that the clinical safety profile of Pralnacasan and the base of the studies completed to date has been excellent.

We don't believe that these findings indicate a risk for patients at Pralnacasan doses we are contemplating for human use. However, we don't know why these animals demonstrated the finding, and we don't know if it is reversible. As a result, Aventis and Vertex are pausing to fully evaluate these findings and will be evaluating results of a 12-month toxicology study that is in progress before making specific decisions about how to move forward in phase II and Phase III clinical development. At this time, the best estimate Vertex can give for the anticipated delay in clinical development is at least 12 months.

Aventis is continuing to conduct short-term pharmacological studies including drug interaction studies and studies for alternative dosing formulations. These activities are appropriate and are consistent with the shared goal of Aventis and Vertex, which is to develop and commercialize Pralnacasan as a break-through oral drug in multiple major indications.

Later in this call, I will update progress on the Vertex-driven pipeline. For now I would like to conclude the Pralnacasan section by reviewing where we are with the development of Pralnacasan and other indications besides rheumatoid arthritis.

Aventis initiated Phase II trial in osteoarthritis of the knee earlier this year and completed enrollment in April. More than 500 patients enrolled in this trial to evaluate the safety and clinical activity of different doses of Pralnacasan compared to placebo for three months. Dosing and evaluation of patients in this trial are complete and Aventis is analyzing the data. Aventis announced earlier this year their intention to study Pralnacasan in psoriasis as a third major indication. A decision regarding the initiation of a psoriasis trial will depend on a full evaluation of the toxicology study results.

In summary, we will be working closely with Aventis to work through these findings and we are committed to the clinical development and commercialization of all agents targeting the ICE mechanism. I'll now turn the call over to Tony Coles.

Thank you. As John indicated, Pralnacasan remains an important clinical and commercial opportunity for Aventis and Vertex. The Vertex business model is predicated on product sales-driven revenue from two streams: those compounds that are developed and commercialized independently by Vertex and Vertex-discovered drugs that are developed and brought to the market in collaboration with pharmaceutical partners. I would like to spend a few minutes discussing recent advances on both fronts.

First I will say a few words regarding the launch of Lexiva, the new HIV protease inhibiter that we are co--promoting with Glaxo Smith Klein. This is our second antiviral drug to reach the market, and we are enthusiastic about the early feedback we are receiving from physicians. The launch of Lexiva is an important step in the extension of our franchise efforts in the field of HIV and is representative of our stated commitment to discovering therapy for persistent viral diseases.

Second, I'll spend some time discussing the announcement today that Vertex will develop and commercialize a new treatment, Merimepodib, for hepatitis C with an eye toward establishing a second proprietary position in the field of antiviral diseases. Additionally, I will be providing the commercial rationale for additional focus in 2004 on one of our early development candidates, VX-950.

The Vertex senior management team is fully engaged in aligning the company financially and organizationally to realize the opportunity represented by the product of candidates to which we retain full worldwide rights. The independent development and commercialization of drugs by Vertex represents an important cornerstone of our business model and its key to our long-term growth.

Beginning with Lexiva, I am pleased to announce that U.S. launch activities began this week. I've just attended a very enthusiastic launch meeting with representatives from GSK who are initiating their detailing of Lexiva as we speak. Their enthusiastic response to the profile and the market opportunity for Lexiva indicates the full force of effort that our partner GSK will be putting behind this opportunity. The Vertex medical liaison group will be working in complementary fashion with GSK representatives to ensure that prescribers and patients alike understand that Lexiva is an important addition to PI therapy based on its potency, tolerability and flexible and convenient dosing.

As we have noted in our recent discussions with you in this forum, we believe that the HIV market continues to be responsive to new and innovative therapies. Time and again, we see new agents stimulate market growth with compelling new dosing and tolerability characteristic,s and we see these products rise to position of market leadership. According to IMS, in the week ending October 24, the average rolling 12-week total rX trend shows a 9% growth of the total market compared to the same period last year. We believe this growth is healthy and vital for Lexiva's success. In summary, we are optimistic about the potential for Lexiva, and we believe that it will play an important role in the clinical management of HIV.

Turning to the rest of our pipeline, our rationale for selecting and advancing products for late stage development and commercialization can be simplified as follows: We are seeking to focus clinical and commercial opportunities where Vertex can compete and win with a sales force directed at specialists. We have selected Merimepodib as a late stage development candidate because we believe that it has significant clinical and commercial potential as an adjunctive therapy to the current standard of care in hepatitis C virus infection. We believe Merimepodib may provide an [INAUDIBLE] opportunity in the 2006-2007 time frame.

Sales of hepatitis C therapies totaled more than $2.5 billion last year. Combination therapy represents the vast majority of this market and only 40% to 50% of patients with genotype 1 hepatitis C virus who receive therapy achieve a sustained viral response, which is the goal of treatment. Hepatitis C is a therapeutic area that has high unmet medical needs for new drugs that provide a meaningful increase in the sustained viral response rate. This is exciting to us because based on the data we have generated with Merimepodib in treatment refractory patients to date, Merimepodib has shown a synergistic antiviral effect in combination with Ribavirin and peg-related interferon. As a use for treatment refractory patients or as a frontline agent, we believe that Merimepodib may have strong potential as an adjunctive therapy to the current standard of care.

The HCV market is large and will continue to grow. At least 2.7 million people in the US have chronic HCV and many are unaware of their status. This is becoming a major public health issue in the United States and in other countries.

The VX-950, Vertex's FCV protease inhibiter, which is set for early development next year, represents an additional attractive product opportunity in this area. As one of the first direct antivirals for HCV, VX-950 has the opportunity to shift the treatment paradigm for this important disease. Vertex has worldwide rights to this program.

In summary, we're excited about the possibility of building a proprietary antiviral franchise starting with our recent accomplishments in HIV. We believe HCV represents a logical extension of the discovery, development, and field-based commercial expertise we have developed with the launch of our new HOV protease inhibitor Lexiva.

I'll now turn the call back to John to discuss the clinical data we have generated recently in the area of hepatitis C. That serves to support our strategic direction behind antivirals as a franchise opportunity for Vertex and also to discuss other recent advances in the pipeline.

Thanks, Tony. In this section, I will discuss in some detail the clinical data and the rationale supporting the selection of Merimepodib for full development commercialization for Vertex and plans for development of Merimepodib in 2004. I will be specifically touching upon the data and the results to date that we believe have substantially lowered product and program rates for Merimepodib and have given us confidence that we can achieve our target product profile. After I discuss Merimepodib, I will discuss VX-950, a drug candidate which we will be taking into the clinic in 2004 and which represents a significant follow-on opportunity in hepatitis C viral infection. Finally, I will make some comments upon other advancements we have made in our portfolio.

Starting with merimepodib, preclinical and clinical data demonstrating an additional antiviral effect with Merimepodib in combination with PEGULATED interferon supports the compound for full late stage development by Vertex. On October 17th, 2003, we reported six months of data from our phase II study with Merimepodib. This study was designed to evaluate the safety, tolerability, and clinical activity of Merimepodib administered in combination with pegulated interferon and Ribavirin in treatment of genotype 1 HCV patients. Genotype 1 is the most common viral strain in the United States and the most difficult one to treat. Moreover, clinical experience shows that only a very low proportion of treatment refractory patients achieve a sustained viral response with subsequent treatment regimens.

In October, we reported that relative to placebo treatment, Merimepodib treatment led to a statistically significant dose-dependent increase in the percentage of patients who achieved undetectable levels of HCV RNA after six months of treatment. I will add that this observation is consistent with and supported by a number of other observations, including a decline in ALT levels and in earlier time-to-viral clearance in Merimepodib-treated patients compared to placebo.

In vitro studies recently reported in the medical literature also support the results we're observing in the clinic. These studies demonstrated that Merimepodib enhances the antiviral effect of Ribavirin by increasing the amount of Ribavirin that is incorporated into the viral genome.

We look forward to the complete analysis of the clinical study in early 2004, which will include 12-month end-of-treatment data and six-month post-treatment sustained virological response data. We plan to report additional details on the phase II study results at a medical conference in the near future. Clinical activities are now underway to enable the initiation of multiple studies with Merimepodib next year. Pending discussions with regulatory authorities, we believe we can initiate a first pivotal trial in hepatitis C in the second half of 2004. We expect to provide more details of our clinical plans at investor day on December 3rd in New York City.

As we seek to build a franchise of breakthrough products in the antiviral arena, we are also looking ahead to future product opportunities that are synergistic with our lead candidate. Our novel hepatitis C viral protease inhibitor, VX-950, could become a key part of this franchise. In October, Vertex researchers presented promising preclinical data on VX-950 at the annual meeting of the American Society for the Study of Liver Disease. The data presented showed that VX-950 exhibits potent and sustained antiviral activity in vitro and has favorable pharmaco-kinetic properties.

In addition, VX-950 was shown to reduce liver damage in an animal model of hepatitis C. Specifically the potency served in hepatitis C cells when mimicked the replication of the virus showed that treatment with VX-950 for nine days reduced HCV RNA by almost 10,000 fold with no rebound of HCV viral [INAUDIBLE] observed at day 27 even though treatment was stopped at day 9. We are on track with our preclinical activities with VX-950 and are looking forward to initiating first-in-man studies in early 2004.

Turning to our other Vertex-driven clinical programs, we have generated significant amount of information to guide decision-making for clinical development in 2004. First, with VX-148, we have completed the end-of-treatment analysis of the Phase II study in psoriasis. In this study, VX-148 was generally well tolerated and demonstrated clinical activity. However, the data did not support moving forward directly to phase II-B, and Vertex does not anticipate conducting trials with VX-148 in psoriasis in 2004. We may take it forward in partnership with another company or through some other collaborative structure.

Turning to VX-765, Vertex is completing phase I development of VX-765 in healthy volunteers. In the phase I program to date, VX-765 has met or exceeded the pharmaco-kinetic and pharmaco-dynamic objectives that Vertex defined to move into phase II clinical trials. In particular, Vertex with VX-765 has achieved the first demonstration of dose-dependent inhibition of SITOKIND production in vitro in man with an ICE inhibitor. As an oral agent targeting IO1 beta, VX-765 may have application in a range of acute and chronic diseases. Vertex is planning on conducting phase II studies in one or more disease indications in 2004.

I'll conclude with some comments regarding other Vertex-driven programs. Our phase II study of VX-702 in acute coronary syndromes is progressing and we are on track to obtain top line data in the first half of 2004. Tomorrow, researchers will present encouraging preclinical results of VX-702 in an animal model of myocardial ischemia and reperfusion at the American Heart Association conference. Researchers will also present preclinical data on VX-944 at an upcoming American Society for Cancer Research meeting next week, as well as at the American Society of Hematology meeting in December. VX-944 represents a novel approach for treating oncology indications. We have now completed a phase I trial to evaluate the safety tolerability in pharmaco-kinetics of VX-944, a novel IMPDH inhibitor in healthy volunteers. I'll now turn the call over to Ian Smith.

Thanks, John. Today I'll focus on third quarter 2003 results and our expectations for the full year. I will note that during this call we will discuss results prepared in accordance with both GAAP and non-GAAP financial measures. Additional information regarding our use of non-GAAP financial measures is available in our third quarter 2003 press release.

Our third quarter '03 net loss including a lease restructuring charge of $42.4 million was $86.4 million, or $1.12 per basic and diluted shares. Excluding this charge, our third quarter loss was $44.5 million or 58 cents per share. This compares to a net loss of $33.5 million or 44 cents per share for third quarter of 2002. The sale of certain assets of our life sciences tools and services business earlier this year and an increase in investment into clinical development of Vertex products are the main drivers of the increased loss compared to '02.

Vertex provides annual guidance but does not break down this guidance by quarter. However, our third quarter results are below the range of analyst estimates on first call. During this call I will provide you with the drivers behind our results and, more importantly, how they affect Vertex's full year 2003 financial expectations and how they will influence the business as we plan for 2004 and beyond.

Third quarter '03 total revenues were $18.4 million compared to $34.3 million in '02. The difference is mainly due to the sale of product and technology rights of our life sciences business in the first quarter this year. This business contributed revenue of approximately $2.5 million this quarter compared to $12.9 million in the third quarter of 2002. Additionally, prior year revenues included cooperative revenue for Vertex's protease inhibitor, VX-950. Vertex now controls worldwide development to commercial rights and this molecule could play an important role in our commitment to the therapeutic area of antivirals.

Looking to our major expenses, our R&D investment was $50 million in the third quarter compared to $50.6 million in '02. This investment is split equally between research activities and clinical development compared to the prior year in which approximately 65% of the R&D cost was research-based. This has been an important shift for Vertex and is reflective of our business strategy to fully develop and launch Vertex-branded drugs. This specifically reflects an organizational restructuring earlier this year that provides greater flexibility for investment into Vertex products in the future.

Our SG&A expense for the third quarter of 2003 was $10 million compared with $12.9 million in 2002. This reduction is mainly a result of eliminating the cost of the tools and services SG&A infrastructure. The restructuring charge of $42.5 million in this quarter reflects the anticipated incremental cost to exit our real estate lease. This is a further charge not taken in Q2 and reflects our revised expectations of attainable sublease terms, in particular now prevailing rental rates and the possible timing for completion of a sub tenancy. This charge is based on subjective judgments that influence the [INAUDIBLE] discounted cash flows and which must be reviewed and updated each quarter until the ultimate exit from the obligation. By concluding the exit from this obligation, we expect to avoid an annual operating cost of approximately $20 million and a required contractual capital investment of approximately $35 million.

Now to the balance sheet. We ended the third quarter of 2003 in a position of financial strength with approximately $596 million of cash, cash equivalents, and available-for-sale securities. Vertex has $315 million in convertible debt outstanding. However, the debt is within Vertex's control and is not due until September 2007.

The senior management team at Vertex is focused on executing our business strategy, which is to bring Vertex-discovered drugs to the market, both independently and with partners. Maintaining our financial strength is a key component to this strategy. Vertex established a 2003 financial guidance based on an evaluation of our core business objectives, our strategy for achieving those objectives and the company's financial profile at the time. I would now like to provide you with our full year expectations.

Vertex has reduced its projections for research and development investment to approximately $205 million for the full year, reflecting cost savings of approximately $15 million from an operational rebalancing performed in June 2003. These savings relate mainly to research investment.

We anticipate the total revenues for the full year will be approximately $80 million. Vertex is currently in discussions with pharmaceutical companies regarding strategic research and product development agreements, and the timing of successful conclusion of those discussions may result in additional revenue and cash flows in 2003.

We anticipate the SG&A expense for the full year will be approximately $43 million and as a result of lower portfolio yield in Vertex invested funds, the company anticipates an estimated $1 million of net interest expense for the year. As a result of these expectations, our loss before certain charges and gains is expected to be less than $180 million for the full year 2003, and we project cash and cash equivalents and available sales of securities to be in excess of $550 million at the end of 2003.

I will now summarize my remarks and include some comments on the financial impact of today's Pralnacasan announcement. The suspension of the rheumatoid arthritis trial has no financial impact on Vertex's P&L in 2003, as Aventis is funding 100% of the development of Pralnacasan worldwide. However, the Vertex management team is focusing on several key leverage points to manage our financial profile to the company, given the trial suspension. These include: one, preferentially investing in proprietary products selected for late stage development; two, adjusting our proprietary R&D spend based on the progression of our early stage drug candidates; and, three, continuing to identify pharmaceutical collaborations that are aligned with our short and long-term needs.

Our financial profile remains strong and the selection of Merimepodib as our first drug candidate for commercial development and commercialization carries with it a commitment to invest in clinical development. Therefore we will continue to evaluate our earlier stage programs prior to committing the company to further significant investment in the full late-stage development of an additional drug. I will now turn the call to Josh.

Thanks, Ian. I'll make a few brief remarks and then we'll open up the call for your questions.

The news today of the suspension of the Pralnacasan rheumatoid arthritis study and the consequent delay in Pralnacasan development and commercialization is obviously a disappointment to us, but it's one we believe we can work through with an experienced partner like Aventis. While tremendously rewarding, the development of pharmaceuticals remains a high-risk business. With our business model, we are in a strong position to balance this risk with our portfolio of therapeutic and business opportunities. In our Vertex-driven development programs, we are focusing on opportunities that will enable us to build momentum into 2004 and beyond.

At the beginning of 2003, we set forth ambitious goals for the company, and I'm pleased to say we are on track with many of our corporate drug discovery and clinical objectives. In October we achieved a major milestone with the U.S. approval of Lexiva. With the approval and launch of Lexiva, we have demonstrated that Vertex has the capability to translate our own discovery research into new drugs that are clinically and commercially important.

Our business model captures value in two ways. Working with partners such as GSK and Lexiva, we have the ability to capture another product-based revenue stream over the next several years. Behind that, we are committing to the rapid development of our own products with the potential to tap into complementary areas of clinical and commercial endeavor. With Merimepodib and our other Vertex-driven drug candidates, we will have the ability to drive Vertex into a fully integrated drug company, one that can manage the challenges of late-stage drug development and create market leadership opportunities.

The prospects to sign new collaborations are very strong as we end this year and enter 2004. We are currently pursuing a number of potential partnerships. Our financial profile remains healthy, and the management team will continue to guide our business to support our long-term discovery, development, and commercial goals and to build value.

We look forward to updating you during the investor day on December 3rd when we'll provide additional perspective on our commercial operations, clinical pipeline, research programs, and business strategy. Lynne, back to you.

Great. Thank you, Joshua. I know this call has run a little bit long tonight, given the amount of information we had to convey tonight. So we'll open up the call now to your questions, and thank you for participating in the call.

At this time I would like to remind everyone, in order to ask a question, please press "star," "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.

Good evening, guys. Just three quick questions. Do you owe a royalty on VX-497 if it does go forward to Chiron? Number 2, on your VX-765, given the liver toxicity that's been seen so far with Pralnacasan, do you think it's a little early to be moving into phase II with a second generation IMPBH inhibiter prior to running the same animal tox and third, you mentioned you would have two drug candidates between now and year end. Can we still expect to see those?

Terrific. I think we'll start with the first question on Chiron and 497.

I'm sorry. I said IMPDH. I meant ICE inhibitor.

I'm sorry. Your first question had to do with license agreement for Chiron, whether we would owe royalty on the eventual sale of VX-497. Was that the question you had first?

Yes, yes, sorry.

It was?

Steve, this is Tony Coles, and the agreement with Chiron actually calls for a licensing arrangement around VX-950, which is our direct antiviral. So it will have no bearing at all on Merimepodib.

Okay.

And number two, the second question had to do with the development of 765 and phase II studies and the factors for moving forward there, John.

So just to reiterate the comment that Josh made regarding Pralnacasan first that, you know, we believe that we can work through the toxicology findings with Aventis. How they impact 765, we will benefit from the inside provider of the Pralnacasan toxicology study and I think provides direction as we design the nonclinical studies for VX-765 going forward. In terms of the information we have with 765 to this point, we did meet all of our phase I objectives and we believe on that basis can move forward into phase II, and we are planning on initiating phase II clinical development in 2004.

And you and the FDA feel comfortable that you are not exposing patients to unneeded risks?

We can't talk to that point at this time.

Okay.

Joshua, would you take the third part of the question which talked about our selection of Merimepodib today and whether or not we would be selecting a second drug?

Steve, the question of whether to expect another announcement of a late-stage development candidate by the end of the year, I think the answer to that is no. What we have said is that Merimepodib, which is -- has completed a very successful phase II trial, has all of its toxicology studies completed and has a very exciting market opportunity, is going to be driven forward by us in full development and commercialization. I think as Ian remarked that we're continuing to evaluate some of our earlier stage programs that are in clinic or about to go in clinic, and we see those as future opportunities, but I don't think you should look to another full development late-stage program announcement this year.

Great. Thanks.

Thank you, Steve.

Your next question comes from Meg Malloy.

Thanks. Just wondering, what do you think you and Aventis will need to see in terms of adequate safety profile before you would choose to resume or not to resume the development of Pralnacasan; and could you remind us again, you know, how the data in OA would be handled and what additional data might be forthcoming from, you know, particularly a safety standpoint?

So in terms of working forward and being able to work through, we can't get into a lot of the specifics, but I think in general to work through any toxicology finding as we discussed briefly, there are really three issues. One is to identify a mechanism; two is the safety margin in humans, and that, the impact margin depends on often the particular lesion and the disease that you are in. So there is no general answer on the margin. And the third is to have the tools available to demonstrate that you are not seeing the particular finding that you saw in animals that you don't see in humans. In the -- you know, and in this case in the liver, there are a number of blood tests that are available that we're evaluating in the toxicology work and then in the -- you know, there is the potential to be able to look at the liver directly with either ultrasound, CT scan, an then ultimately with a biopsy as well but there -- I mean, there's a lot within this that we're working actively with Aventis and we're committed to doing what we need to work through. I think there was a second part of the question?

Well, I guess I just -- how was this observed in animal studies? You talked about liver fibrosis. How was that observed?

This was in the histopathology findings.

Okay.

In looking at the pathology. And regarding the OA trial, that data is being analyzed, and we do anticipate providing the top line results, both the safety and the efficacy before the end of the year.

Meg, if I can just enlarge upon the way in which toxicology results in general are handled in development, as John said, the purpose of a toxicology study is actually not to not show toxicology. The purpose is actually to show a toxic effect at a very high dose so that then one knows what to look for, if anything, in clinic. So the reason why toxicology is run at high doses is to generate the places to look in clinic, not the -- it does not generate necessarily the expectation that you will see a toxic effect in clinic. It just, it's designed to tell you where to look. So the issue in the present case is, this was unexpected and we don't know that we have the tests to look to see if it will occur, has occurred, will ever occur with Pralnacasan. So I think you should be careful not to make a conclusion that when toxicology is seen in animals that it will be seen in people. That is, in fact, not true as a general rule, and it's not the purpose of toxicology to have no findings in toxicology studies. It's the purpose to direct one in development to what to look for.

I can appreciate that, but it's also the case that it's a little unusual to have to, you know, stop studies for a while to kind of reassess and figure out where you are.

Absolutely, Meg. It's unusual, and we and Aventis were surprised by this because usually you see, in toxicology results, you see this earlier in studies. It may get worse in longer studies or occur at lower doses in longer studies. The unusual thing in here is we didn't see any evidence of this in even six-month studies. That's a complexity that has caused this study to be halted at this point, but I think you can't conclude from that anything about the long-term prospects for Pralnacasan other than that there's going to be a delay.

Okay. Then if I just may, so what would give you guys comfort or concern about going forward? I mean, what specifically would you be looking to measure in the patients that have already been studied as markers of potential liver damage or accumulation in the liver?

Again, I think there are three and maybe actually four different issues that we would want to address in going forward. One is, again, to understand why this is occurring to the extent possible in the animal species. The second is to identify in really detail what all the blood and liver levels and all of that and what the margin is. The third is to have ultimately identify a test which ultimately we would use to demonstrate that, in fact the margin holds up that you don't see this effect in man. And I think the fourth one is actually in this context, is given that we didn't see it in both species is to try to understand whether this is a species-specific issue or not. Which does often occur.

Okay. Thanks a lot.

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

Your next question comes from Phil Nadeau.

Good afternoon. Thanks for taking my question. I actually have two questions. The first is on VX-497. John, could you provide us a little bit more details of the data? First, what's the primary end point in the phase II that's ongoing now? Was that the six-month analysis or a 12-month analysis? And could you give us some numbers around the increase in proportion of patients that had less viral RNA?

So the end point in the trial, it was designed actually as a six-month study. The core study was a six-month study and then patients who showed a response at six months were allowed to continue treatment for an additional six months and follow up, but they had to have shown a response. And we designed it that way because we wanted to get the -- given the size of the study, most of the action would actually be occurring over the first six months. After that, the number of patients who would still be in the study would drop off. We're still following them, and that data will ultimately be available. In terms of the -- in terms of the specific data, we are planning on presenting it at the -- at a medical conference in the near future, and we don't actually anticipate releasing the specific data until that point in time. We are still following patients, and we want to have all of that buttoned up and all of the relevant databases locked before we actually release the specific numbers. It is a -- you know, it's a modest sized study and if we start releasing too much -- and it is going to form the core part of our argument for moving into larger clinical trials and so we are actively working to protect the integrity of the trial so that when we present the data to the FDA, it's fully buttoned up.

Okay. Fair enough. And Pralnacasan, this animal study that produced the toxicity, was that a study looking at Pralnacasan alone in these animals; and how do you think combining Pralnacasan with methotrexate and other drugs that typically cause liver toxicity in humans, how is that going to complicate your decision to move forward?

The toxicology study that was conducted was Pralnacasan alone. So it was not in combination with methotrexate. What I would say is that it was in the -- in fact, a very good question. In the current set of discussions regarding the rheumatoid arthritis trial, that was a confounding fact, or something that had to be factored in that methotrexate does have its own liver toxicity. I think in terms of, you know, longer term, it's an open question. It's part of the reasons to identify the mechanism is to identify that, in fact, that the mechanisms are distinct from any other concomitant medication, and there is work that we may need to do and it's part of the reason to actually continue the drug interaction studies which are not specifically with methotrexate but to also understand how the drug is metabolized and how Pralnacasan may affect the metabolism of other drugs. So I think longer term it's hard to say how it would play out.

Thanks a lot.

Thank you, Phil. May we have our next question, please.

Your next question comes from Hari Sambasivam.

Thank you. Just a couple of quick questions. Are there any other leads that Aventis is working on as a substitute for Pralnacasan in this ICE inhibitor class? That's the first one. And the second one is, are there any sort of milestone payments or R&D support payments that are due to Vertex from Pralnacasan that could be affected?

Hari, may I ask you a question to just clarify your first question?

Yes.

And you used the word "leads"?

Like follow-up, follow-on compounds is what I was wondering. You know, for example, if Pralnacasan were not to go ahead, are there other compounds to which Aventis may have maybe, you know, first rights of refusal or something of that nature? Or are there other compounds that they are looking at in conjunction with you? In the ICE inhibitor class?

Right. Joshua? Thank you.

Hari, first of all, I think you should ask Aventis that question. We're not aware of any. Specifically what we are, what I can comment on is Aventis has no rights to VX-765. So there's no connection, commercial connection there. Our agreement with Aventis involved a Pralnacasan and very close analogs. I'm not aware that the close analogs have been followed up, and at this point I think it really would be, you know, premature to speculate on whether that would be a productive direction or not because the focus at Aventis and Vertex is understanding Pralnacasan. I will point out, though, as an aside, from the Vertex perspective that VX-765 does have a different chemical structure than Pralnacasan although it's exactly the same target and exactly the same location on the target. So it represents the same mechanism but it's a different chemical structure.

Great. Hari, I know you had a second part of that question, financial.

Whether there was any financial impact in terms of, like, R&D payments or support payments that might have come during the year or over the next foreseeable future.

Okay, I'll ask Ian Smith to comment on that question.

Hari, in 2003 we did not receive any milestones from Aventis, and Aventis is actually taking care of all the development expenditure on the drug. As we go forward, each of the indications that Aventis would place the drug into, there is approximately $60 million worth of milestones to be received for each indication. That actually, as I've said, has no impact to 2003. Has a small impact in 2004, as most of these milestones are actually back-end-loaded around the ultimate filing of an NDA and the launch of a product.

Thank you.

Thank you, Hari. I think we'll take our next question.

Your next question comes from Meirav Chovav.

Hi. Actually it's Edward Kim.

You do that to us every time, Ed.

Hope you are doing well. Thanks for taking my question. My question just has to do with the way the toxicology studies are run. You had a previous compound that showed TNS toxicity while there was phase II testing and showed efficacy in RA but you had to discontinue it for a similar reason and this is somewhat of a similar situation. So I'm wondering if there is something different in the way you run your toxicology preclinically, if there is any take-homes here in terms of running it differently in the future and, you know, if there is some common theme between the compounds where you will be able to look back and see and maybe take a different strategy in terms of looking at the evaluation of preclinical tox before it gets into the clinic.

Okay, Ed, thanks for that question. I think I'll give it to John Alam. I think he would like to highlight some of the differences between the programs. So I'll give it to John.

So the first comment is just that this, you know, this toxicology program was conducted by Aventis partly in their own labs and partly at a CRO. So, you know, it's a different group managing the specific toxicology studies that are being conducted. I think there is a -- a major difference between the VX-745 and Pralnacasan in that the toxicity with VX-745 was a central nervous system toxicity versus a liver toxicity we're seeing here, and in just general considerations, there are two very different animals in terms of our situations, in terms of being able to work through them. The issue, as I go back to my list of what we need to work through, the issue with central nervous system toxicity is -- there are two major ones: One is the mechanisms for toxicity in the CNS in general are just much less well understood than the mechanisms for liver toxicity, and that's just a general truth that comes from just the industry has spent a lot more time and has had many more tools available to understand liver toxicity than CNS toxicity; and then the other big difference is that for the central nervous system toxicity, there are no blood tests and there are no ways to establish without a doubt that you are not seeing a toxicity in man versus, again in the liver, you have many blood tests, there are many different tests. There are both blood tests, there are functional tests, there are radiographic tests and there's always the gold standard that you can actually do in the liver, which is to do a biopsy to prove that there isn't an effect. So I think they are very, very different situations, and your ability to work through liver toxicity is fundamentally different than it is with a CNS toxicity, and I'll reiterate again that we do -- we and Aventis do believe that we can work through this particular issue and then just again, to go back to the original question, that this was a study that was conducted by Aventis.

This is Meirav. Just to clarify, in any of the clinical trial of Pralnacasan, have you seen any elevation in liver enzyme? I'm not talking about clinically meaningful, less than three times liver enzyme elevation and not considered clinic meaningful but have you seen any trends to an increase in absolute levels?

We can only comment at this point on the completed clinical studies. Because the RA trial and the OA trial, you know, the data's still open. But in the data that have -- that is available, the data from the phase II-a trial the 285 patient trial has been presented and there was no obvious relationship, no signals in terms of Pralnacasan-related liver function tests or abnormalities. And in the current RA and OA trial, it's still -- until the database is pulled together and analyzed, I can't make a comment on that.

Yeah, but, you know, if you have methotrexate on top in some patients, you know, and methotrexate is a known cause of liver toxicity, it may mask the results.

Well, it could go both ways. It could actually bring out a signal and/or mask, but, you know, in the prior study, there were patients both on methotrexate and not on methotrexate, and then in the current database, once it all gets pulled together, we will have the osteoarthritis trial data and we'll have the rheumatoid arthritis trial data to look at side by side to see, again, if there's any kind of a signal in either study.

Okay. Thank you. Ed, do you have any other questions?

Can you just be more specific about the timing of the release of the OA results? Is it any day now or matter of months?

We -- it's what we said is by year end.

Okay. Thank you.

All right. Thank you, Ed, and Meirav. We have time for one last question. Jamie, if there's a last question there?

Your last question comes from Edward Chung.

To follow up on the OA release time, I'm just curious why it takes so long. It looked like the study concluded in July and it's been four months and it's a small study with very simple end point.

The -- there's several points to consider. One is that the treatment completed, there was a follow-up phase, but it's also a -- it's a biomarker-intensive study. There's both MRIs, and there are a series of pharmacological biochemical markers that were built into the study and to analyze all of that and put the data together just takes time. It's not just simply a matter of CRF-based clinical data points and then analyzing that.

Can you remind us the primary end point and secondary end point?

The study was sized around what's called the WOAC, the Western Ontario Assessment Scale. I can't remember. It's a tool for looking at signs and symptoms in osteoarthritis. The -- what you have to remember, but also, the biomarkers and the MRI are an important component because the objective of this study -- the objective of Pralnacasan in OA is not on signs and symptoms but, in fact, it is to look at to effect disease progression. When we designed this study with Aventis, it was a relatively long discussion on what the right study design would be because ideally to look at disease progression you would go into a one-year or longer trial and look at radiographic progression on X-rays, but you can't do that as a first study. So a first study had to be a three-month study which can only be sized for effect on signs and symptoms, but in many respects the most interesting data to look at is the markers of disease progression which are really the surrogate markers or the biochemical markers, and it's a reason why, you know, all these tests were built into the study and why it is taking as long to analyze as it has.

Okay. So we shouldn't be looking for much in the primary end point basically; and the biomarker, which ones are important?

I think you should be looking for, you know, the full data set of whether -- and what we were looking for this drug out of this study was to get signs of whether it would be disease progression or a disease progression with symptoms signs and symptoms or some combination and it's really, you need to look at the full combination of data and what that says about the profile for Pralnacasan and how it would be developed in osteoarthritis.

Okay. Thank you.

Thank you for your question. We would like to now conclude the conference call for tonight. Thank you, everyone, for joining us. And the IR team and the senior management team will be here to answer any follow-up questions that you may have. So thank you for joining us on this call tonight. Bye-bye.

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