福泰製藥 (VRTX) 2004 Q4 法說會逐字稿

Good afternoon, my name is Charity 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 speaker's remarks there will be a question-and-answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Miss Brum, you may begin your conference.

Thank you. Good afternoon everyone, this is Lynne Brum Vice President Corporate Communication and Financial Planning 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. I'd also like to note that during this call we'll discuss financial results using both GAAP and nonGAAP financial measures. Additional information regarding our use of nonGAAP financial measures is available in our 2004 financial press release. At this time Vertex's full year 2004 financial press release has been issued. Please visit our website at www.VRTX.com to listen to the conference call and view a power point presentation. Our replay of the conference call will be available via the internet until end of day February 23. 2004 was a strong year for the Company.

Last month in a press release, we highlighted Vertex's 2004 business accomplishments. We introduced key product development objectives for 2005, and we also indicated key positive financial trends in our business going into 2005. In today's conference call, we will review details of our 2004 financial results and provide full financial guidance for 2005. In addition, we'll review some of the product development goals we expect to achieve this year and will articulate how we believe this will translate into value creation for our shareholders. We look forward to a year of product development catalysts supported by continued improving strength in our financial profile.

In a moment, I'll hand off the call to Ian Smith, Senior Vice President, Chief Financial Officer. He will summarize Vertex's full year 2004 financial results and review our full year 2005 financial expectations. Then John Alam, Senior Vice President and Drug Evaluation and Approval will review our recent clinical advancements and discuss next steps with key pipeline programs. In his comments, Dr. Alam will briefly discuss the implication of the Sanofi Aventis decision on our ICE portfolio and development plans. Then Joshua Boger, Chairman and chief Executive Officer will discuss Vertex's outlook for 2005. Dr. Boger will also comment on planned management changes at Vertex. Vertex's IR team joined by Ian Smith will be available at the conclusion of this call to answer any follow-up questions that you may have. I'll now turn the call over to Ian.

Thanks, Lynne. Vertex is pleased to enter 2005 financially stronger than a year ago. For 2004, we set aggressive goals to improve the overall financial profile of the Company, and we achieved all of these goals. We improved our capital structure by deferring convertible debt obligations to 2011 and we improved our operating profile by significantly growing the revenue stream and reducing our loss. We also ended the year in a strong cash position. These achievements provide a financial platform for an exciting 2005, a year that focuses on our clinical pipeline.

Before further comments on 2005, I'll review our full year 2004 results. The 2004 GAAP net loss was $166.2 million compared to a 2003 GAAP net loss of $196.8 million. Excluding charges and gains our '04 loss was $145.2 million compared to an '03 loss of $174.6 million. The '04 loss is within guidance range we provided at the beginning of 2004 and is a substantial improvement over 2003. And we expect this trend to continue into 2005. The reduced loss was primarily the result of increased revenues with total revenues of '04 of $102.7 million. This an increase of $33.6 million or approximately 50 percent over 2003 and is slightly higher than the guidance we provided for the year. The key aspect contributing to the revenue growth were the signing of three collaborations during the year and the achievement of milestones in existing collaborations as well as increased HIV product royalties primarily driven by the solid sales performance of Lexiva and Telzir, which is now launched in 17 countries.

Our reported 2004 HIV royalties of approximately 17.3 million translates into total HIV product sales of approximately 110 million, an increase of more than 08 percent over 2003. We expect our royalties to continue to increase in 2005. Next to R&D investment our 2000 R&D investment was $192.2 million within our guidance and lower compared to $199.6 million invested in 2003. Specifically in 2004 we invested approximately $113 million in research, and approximately $80 million in development. Of the total research investment, approximately 65 percent was funded from collaborative research arrangements which reflects one of our approaches to managing the business. A majority of the remaining net R&D investment was directed towards clinical development of our core programs. Balancing our net investment towards development is important given the stage of development of the Company. A key goal of the Company continues to be balancing our R&D investment to drive our clinical pipeline on maintaining vibrant research productivity while securing collaborative funding to financially offset our investment in research. We successfully achieved this in 2004 and expect to pursue this goal in 2005.

During 2004, we took a $3.4 million charge for the retirement of a portion of our 2007 debt obligation and a $17.6 million charge for the restructuring and other expense specifically relating to a real estate lease. The $17.6 million charge reflects a revision of our key estimate and assumptions relating to the terms and timing of potential sublease arrangements for real estate that is partially vacant, and implied interest charge of the related balance sheet liability. We review this liability quarterly and will update the charge with credits or additional charges to our income statement as changes in circumstances require. These quarterly updates are done in accordance with files 146 accounting for cost associated with exit or disposal activities.

Vertex's longer term financial profile also improved during 2004, which is evident in our capital structure, including an improvement of our convertible debt profile. As a result of two convertible debt exchanges in 2004, we now have $232.4 million in convertible debt due in February 2011 and $82.6 million in convertible debt due in September 2007. Importantly, the 2011 debt has a conversion price of $14.94 compared to $92.26 for the 2007 debt. We ended the year with $392 million in cash, cash equivalents, and available for sale securities, which is higher than our guidance of $375 million. We believe this is a strong liquid position and is one of the best in our peer group of development stage companies. Now, turning to the fourth quarter of 2004. We had a strong quarter achieving $39.8 million in total revenues, which resulted in a loss of $30.4 million. In the fourth quarter we recognized approximately $9 million in milestone revenue related to successful performance within our collaborations.

Now to 2005. We believe the positive financial operating trends that we have achieved in 2004 will continue, and this is reflected in our 2005 guidance. We expect our full year 2005 loss before charges and gains will be in the range of 125 to $135 million, which would continue the trend of reducing our loss since 2003. We expect this reduced loss to be driven primarily by an increase in revenues despite an increase in development investment to drive our core programs. We forecast total revenue to be in the range of 150 to $160 million in 2005. This is an increase of 50 to $60 million compared to 2004. A key driver underlying this growth will be the full year contribution of research and development funding from three collaborations signed in mid 2004, and a continued increase in the HIV product royalties. These components alone will contribute approximately half of this 50 to $60 million of revenue growth.

We have a number of forecasted revenue streams, and the specific revenue guidance is as follows. HIV product royalties are 25 to $29 million. Collaborative R&D revenue of approximately $100 million. This $100 million includes the following, approximately $90 million of our contracted revenue from existing collaborations, which is earned by performing research services, and $10 million of revenue recognized from achieving milestones linked to the performance under those existing collaborations. Additionally we forecast 20 to $30 million in revenue that will be generated from new R&D collaborations. We have a number of opportunities for collaborations in the coming year relating to important early stage assets and certain product development opportunities.

As you'll hear from John, we will be conducting a number of clinical trials in 2005 to advance and clinically validate certain compounds for our core programs. We project that R&D costs will be in the range of 225 to $240 million for the full year. Research is currently budgeted to account for approximately $115 million of this investment and we plan for more than 70 percent of that total to be funded by research collaborations. The development investment is forecast between 110 and $125 million and is directed toward our proprietary compounds. We expect SG&A expenses to be in the range of 42 to $46 million in 2005. For a balance sheet perspective, we expect to end the year end 2005 with more than $250 million in cash, cash equivalents and available for sale securities. In addition to our annual 2005 guidance, as with 2004, we expect our quarterly trend of losses to be higher in the first half of the year. Then decreasing toward the end of the year. We anticipate a loss before charges and gains for the first quarter of 2005 in the range of 46 to $49 million.

In closing, in 2004, we addressed our operating profile and improved our balance sheet structure. We now have a financial platform designed to support an exciting 2005, including focused investments in key clinical trials of our core drug candidates in patients. I will now turn the call over to John.

Thanks, Ian. In 2004, we accomplished our R&D objectives. In doing, so made important progress advancing drug candidates in our core pipeline. Today I will devote most of my prepared remarks to reviewing some of the upcoming key clinical events and data points ahead in 2005. I'll start with a discussion of our hepatitis-C development programs. In the fourth quarter of 2004, we initiated a Phase Ib clinical study of VX-950 a direct antiviral targeting the hepatitis-C protease. Data from this study represents one of the first important clinical events for Vertex in 2005. This Phase Ib study will investigate if three doses of VX-950 for a period of 14 days in three serially configured dose groups of hepatitis-C patients. As far as we know, it is the most significant study to be conducted to date with a protease inhibitor in hepatitis-C patients.

The results should provide us with important information on the ability of VX-950 to reduce viral load and may position the drug for fast track development. The first interim analysis in the study, which will include all on treatment data from the three dose groups of HCV infected patients is planned for the second quarter of 2005. Assuming successful completion of the Phase Ib study we plan to file an IND in the U.S. in the second half of 2005 to support the start of Phase II clinical development. In addition in our hepatitis-C viral protease -- HCV portfolio we expect important data in 2005 from our second oral drug candidate to treat HCV, merimepodib or MMPD. First, we expect to complete enrollment with the Phase IIb METRO study in the first half of this year. If you visit clinical trials.gov, you will see that more than 50 clinical centers in the U.S. representing 24 states are now recruiting patients for the study. Reaching our METRO enrollment goal will set the stage for data analysis and potential discussions with the FDA by the end of 2005 on the registration path for nonresponders. Today we announced initiation of a 28-day clinical virology study to evaluate the effect of a combination of MMPD and ribavirin on HCV viral load.

Later in the year we anticipate initiating a Phase II triple combination study of MMPD in treatment of patients. These two studies are designed to position MMPD as an added of antiviral agents to the developing landscape for all treatments for HCV. Clinical activities in 2005 will also focus on advancing our pipeline of novel oral anticytokine drug candidates. I'll start with VX-765 our propriety ICE inhibitor. We initiated in late 2004 a 4-week Phase IIa study of VX-765 in psoriasis patients. In this study we expect to generate important safety and pharmacokinetic data on VX-765 as well as to evaluate the preliminary clinical activity of this compound. The results, anticipated in the second half of 2005 will provide the basis for larger and longer term efficacy-based studies of VX-765 and psoriasis and potentially other inflammatory diseases. We maintain a strong condition that oral ICE inhibitors can be clinically and commercially successful new class of medicines despite today's announcements stating the termination of the agreement with Sanofi Aventis for the development of Pralnacasan. Importantly the nonclinical toxicology studies for Pralnacasan's are ongoing and the results will be available to Vertex when completed by Sanofi Aventis.

With VX-765 entering Phase IIa development in psoriasis patients Vertex retains a highly competitive position in the development of oral ICE inhibitors. The timing of the Sanofi Aventis decision will allow us to look at both the complete Pralnacasan toxicology package and the VX-765 clinical data in psoriasis early in the second half of 2005 and make an informed decision about how best to move forward with our ICE inhibitor portfolio. Depending on the results, we would anticipate moving forward with either VX-765 or Pralnacasan in the second half of 2005. Next I will discuss VX-702. Our oral p38 MAP Kinase inhibitor which has a potential to be a very potent therapy in a variety of inflammatory disorders. In mid 2005, we will initiate a three-month, 200 plus patient Phase II study of VX-702 in patients with rheumatoid arthritis. The goal of this trial will be to assess the safety and pharmacokinetics of VX-702 when dosed as mono therapy in RA patients. Also to evaluate clinical activity as measured by ACR-20.

This trial is being supported financially in part by Kissei as part of a collaboration in which Kissei hold commercial rights to VX-702 in the Far East. One significant consideration for any Company developing a p38 MAP Kinase inhibitor for a chronic disease indications or safety profile in particular the potential for liver toxicity. This is because dose dependent elevations in liver enzymes, which are generally considered to be markers of liver injury have been seen clinically with a number of investigational p38 inhibitors often after only a few days of dosing. In 2004, we conducted and completed a 28 day study in 25 healthy volunteers with a specific goal of evaluating the effect of VX-702 on liver enzymes. In this study, while we saw minor transient elevations in liver enzymes in a small number of patients, the elevation never reached clinical significance, did not require treatment continuation, and importantly returned to normal levels during continuing treatment. These results were encouraging for continued development of VX-702 in longer term clinical studies.

In particular, because the dose level used in the 28-day study was one that has demonstrated potent activity in suppressing cytokine production in other clinical studies, we believe we have identified a dose of VX-702 that would be well tolerated and therapeutically active in a condition such as rheumatoid arthritis. The upcoming three-month study in rheumatoid arthritis will provide further information -- further important information regarding the general safety and liver enzyme affect profile of VX-702. We also anticipate important events with collaborative driven programs in 2005. In a joint release with Merck last month we announced that oral Kinase inhibitor VX-680 had begun a Phase I clinical trial in patients with solid tumors refractory to prior chemotherapy treatment. This was on track with our expectations. We anticipate that Merck will start additional clinical trials for VX-680 involving different tumor types and in combination with other agents in 2005 consistent with our shared view of the significant clinical potential of this compound and its unique mechanism.

Also in cancer, Novartis plans to conduct a pre-clinical program for VX-322, the novel foot three sekade (ph) inhibitor this year. And depending on preclinical results to file an IND by year end. VX-322 is a strong example of the progress we have made in research in 2004, and we at Novartis are enthusiastic about the potential of this compound in leukemia. Last year we advanced five new small molecule drug candidates to preclinical development including a dual gyrase topa sarberase (ph) 4 inhibitor VX-692 for treatment of bacterial infection and a novel ion channel modulator VX-409 for the treatment of pain. We continue to innovate in our labs and anticipate new drug candidates moving into our pipeline in 2005. I'll now turn the call over to Joshua.

Thanks, John. I'd like to comment on Vertex's corporate objectives for 2005 and discuss some of our recent news in the context of those objectives. 2005 was important and a successful year for the Company. We improved our capital structure, we increased our revenue, and we reduced our loss. With focused R&D investment we advanced key programs forward. 2005 will be about realizing value in clinical development. John has highlighted some of the events that can be significant catalysts for Vertex in 2005 and beyond. We're positioned to play a major role in changing the treatment paradigm for hepatitis-C. We believe that our HCV protease inhibitor VX-950 is differentiated by important physical and chemicals intrinsic to the molecule. In preclinical studies VX-950's unique attributes have translated into robust antiviral activity we're now awaiting data from the first clinical study in patients.

The need for new treatments in HCV is great and immediate. Ahead of VX-950 in the clinic is MMPD, which we believe is a significant HCV clinical and commercial opportunity. As a versatile component in multi-drug HCV therapy we look forward to important clinical results with MMPD in 2005. Vertex is committed to win in hepatitis-C, for patients, and for investors. And we are in the unique position to do so. But HCV is not the only place where we could have important clinical events and data in 2005. We believe that our cytokine inhibitors have the potential to provide the patients for the first time unique oral options for the treatment of psoriasis, rheumatoid arthritis, cardiovascular disease, and other inflammatory diseases with significant unmet medical needs. Vertex, to our knowledge, is the best positioned to define the optimal roles for these exciting drugs and their mechanisms and we expect to do so.

In cancer, VX-680 is an Aurora kinase inhibitor that we and Merck believe could establish a foundation for new regiment in the treatment of cancer. Based on the clinical program now under way we are positioned to establish the anti-tumor activity of this compound in patients. Stay tuned. In addition to our innovative product development programs, we continue to bring innovative high-quality drug candidates forward from research. These new drug candidates are an important source of product and business development opportunities for Vertex. I'd like to comment briefly on the announcement yesterday of two Senior Management changes in the Vertex organization. Vicki Sato, Vertex's President will retire effective in the second quarter of 2005. In her years at Vertex, first as Chief Scientific Officer, and then as President, Vicki has played a distinguished role in building and advancing Vertex's pipeline and in leading important corporate initiatives to prepare Vertex for a successful future. I sincerely appreciate all of Vicki's many contributions to Vertex. Vicki will remain as Vertex's president during the planned transition period.

I'm also pleased to announce the appointment of Victor Hartmann M.D. to the position of Executive Vice President Strategic and Corporate Development at Vertex. This is a newly created position that will have oversight of Vertex's business development activities and strategic components of our program development activities. We've gotten to know Victor very well over the past four years through our Kinase collaboration with Novartis. VIctor is formerly the Senior Vice President of Business Development and Licensing and a member of Novartis's Executive committee. Victor brings more than a decade's experience as a clinician in drug development combined with another decade of business experience at the very highest levels of the industry. We're very pleased that Victor is now joining Vertex and we look forward to his contributions and leadership in setting along with the rest of us our strategic direction of our business as Vertex's product candidates advance toward the market.

To recap what we see for Vertex's business in 2005, important clinical data across multiple programs. Innovation and new compounds in drug discovery. New collaborations that continue to fuel our revenue growth and continued strength in our financial performance. It's an exciting time and we look forward to reporting back to you as our pipeline advances and we gain key clinical data. Lynne, back to you.

Thanks, Joshua. We'll now open the call to your questions. Charity.

At this time I would like to remind everyone, if you would like to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Geoffrey Porges with Sanford Bernstein.

Thanks for taking my question. Congratulations on a good quarter.

Thanks, Geoff.

Wonder if you could just take us through the new business opportunities a little bit. You mentioned 20 to 30 million. I know you've been working on a number of things. I'd certainly be interested to hear what you see as the breadth of things that might contribute to that without actually I expect getting into how much they can contribute. Thanks.

Thank you, Geoff. Ian.

Thanks, Geoff. So rather than -- I appreciate you not pushing me into the detail. The way that we look at the new business opportunities is this year we were focused on earlier stage opportunities. As you're aware, we had a very successful and productive research year in 2004. What that does is it provides us with a number of early stage compounds in significant areas. Now, we're going to use those compounds to generate the revenue to target the 20 to $30 million of new collaborative R&D revenue. We have other, more strategic opportunities that would be around our later stage compounds however, those would be more like eX U.S. type arrangements and they would be more strategic in structure to allow us to continue to develop those and move them through to the U.S. markets.

Ian, can I just follow up on that. You mentioned previously the potential for collaboration in the area of ion channels. I'm just wondering whether that's something we should still be anticipating.

It's a key piece of our research area. It's one that we continue to have discussions around. There are a number of different ways of gaining value from that platform, whether it is from taking the output from the platform and monetizing that for a return to the Company or whether we take a research effort that is funded by a partner and return value to Vertex in that way. We're considering all those opportunities, and we remain flexible in that area to generate the revenue, which is important to offsetting that research investment for the Company.

Jeff, I'll jump in and say that just about this team last year, we were making a lot of noise about VX-680, a molecule that you now know is playing a big role in Merck's pipeline. In the ion channel area we announced the drug candidates, VX-409, and I'd suggest you pay attention to that one.

Great. I appreciate that. Thanks.

Thank you, Jeff.

Thanks, Jeff.

Your next question comes from David Witzke with SunTrust.

Yes, hi. Thanks for taking my question. I guess regarding VX-950, are all patients being genotyped in the Phase I trial and are you excluding nonwild type strain patients. I guess if you can also review any in vitro resistance data you have for 950 it would be helpful.

Thank you Dave, I think John will take that question.

Yes. The Phase Ib study is in genotype 1 only patients. In terms of the resistance profile, we have published some data in this arena, depending on how you run the experiment. If you run it specifically so that you generate resistance in vitro so that you can see where the mutations are, one can generate resistance and they are in the protease as expected. What that actually helps us in terms of development as we go forward. And the reason we had done these experiments is to be able to look for very specific -- which mutations we should be looking for in the clinic.

Okay. That is helpful. And then just a quick financial question. Regarding the first quarter loss guidance, it's significantly higher than fourth quarter. I believe by over 10 million. Can you -- where is the increase expenses going in first quarter?

So I would point more towards Q4. In Q4 we achieved $9 million of milestone revenue. As you're probably aware milestone revenue is one-time revenue and that would account for the major difference between the Q4 trend and Q1.

So it would be on the revenue side.

That is correct.

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

Your next question comes from Steven Harr with Morgan Stanley.

Good Evening. John, this may be a question for you. On both the ICE inhibitor programs as well as VX-702, what kind of liver monitoring are you guys going to do going forward given Pralnacasan's toxicity there in animals, as well as what you've seen in early stages with 702?

In all of our clinical studies in the phase II context, I think as would be routine with any novel mechanism, we do have a scheduled monitoring profile where we look at a panel of liver function tests and specifically some of the liver enzyme levels. Normally one would do that relatively frequently within the first month of those things because that's when you, in most cases, that's when you would see the initiation of elevations in ALT and then you -- of the liver enzymes, then you tend to drop off to somewhat less frequently, perhaps every other week during the remainder of let's say a 12-week treatment study.

And would that -- is that -- are you going to do any liver biopsies, given the concern around liver fibrosis.

No, we would not be doing any liver biopsies. I think the findings that we're seeing with Pralnacasan, in terms of putting it in context, and putting it in terms of context as to whether there are any specific implications for VX-765, that depends on the specifics of the data with both with Pralnacasan and with VX-765. With VX-765, we have filed all of our available data with the U.S. FDA and the data has been reviewed. And we are going forward with a Phase IIa study with an appropriate monitoring plan in place. Then again, as I said in my prepared remarks, in terms of implications for ICE overall, I think we have to complete the full toxicology package with Pralnacasan and look at all of the available informations with VX-765 and make a decision on how best we're going to move forward between the two drugs and which indication we would go forward with the two drugs. The final comment is just there are no implications that link Pralnacasan with VX-702. Because they're completely different mechanisms.

So on VX-702, one last question, just given the classes history, can you just remind me of how long your longest exposure has been, and then how long you -- it took for patients to have the reverse -- the liver enzyme elevations reversed.

The longest clinical study that we've conducted to this point, in terms of treatment duration is 28 days. And in that -- in that context, I'll clarify a comment I made, actually in my remarks, because I may have missed a word. What we saw is that there were, again, a small number of minor transient elevations that did not reach -- were not considered to be clinically significant, did not require treatment continuation -- I'm sorry, treatment discontinuation. And so the dosing was continued. Despite that continued dosing, the liver enzyme levels returned back into the normal range before the end of 28 days.

Thank you, Steve. May we have the next caller please.

Your next question comes prosecute Meg Malloy with Goldman Sachs.

Couple of quick clinical questions. First is I think you mentioned that you would either proceed ahead with 765 or Pralnacasan. I'm wondering if you could share with us what criteria would make you choose one over the other? Maybe we could start with that one.

I think there are lots of different factors. And they are going to be -- any number of criteria ranging from very clear clinical criteria like certain pharmokinetic properties. There are some very specific nonclinical criteria in terms of what the toxicology results show for each, potency, and then there are some basic pharmaceutical properties in terms of synthesis and production, that are likely to be differential -- that will likely differentiate Pralnacasan and VX-765. It's all different parameters that would go into, I think, any significant portfolio decision that we would have to make.

I guess I'd ask it this way, if VX-765 showed to be less potent, would that be sufficient on its own to drive a Pralnacasan, taking the lead?

It would always be inherently more than that. Again, I can't really be -- it's a little bit hard to look into the future, because there is data that's being generated with both Pralnacasan and VX-765. We believe that at the end of it, there are going to be some differentiable factors. All of them will need to be considered to make a decision.

I guess, given Sanofi's decision, it would just be interesting to see why that would potentially take the lead over 765. Okay. If I could just switch gears a little bit. In terms of 702 for the RA study. This is monotherapy study, with the entry criteria -- could you review what you would consider to be the entry criteria for that study?

At the time we start the formal dosing, we'll provide more specifics, but in very broad terms it's patients with active rheumatoid arthritis. There will be specific criteria for number of joints that are either swollen or tender, then specific criteria in terms of level of CRP. But these are either DMARD, either DMARD naive or have been washed off of DEMARD.

Fine. Finally with 950, if all went well, how would you think about your phase II studies? Are you likely to go to naive patients or nonresponders first.

We have -- as you know in the Phase Ib study we have not differentiated, because one would not necessarily expect a difference in outcome between someone who had been treated with Interferon and Ribavirin previously or not. I think in our first Phase II studies in the monotherapy context, with VX-950, we would likely not differentiate there either. I think the issue of whether we would be in naive or nonresponders becomes a particular issue in any combination studies with Interferon. And how exactly we would go in Phase II in terms of monotherapy combination or both in parallel will to a great extent depend on the results we see in the Ib study.

Thanks very much.

Meg, I wanted to jump in back on one of your earlier questions about how could it be that we might go forward with Pralnacasan given Sanofi's decision. Just to put the thought in your head that Pralnacasan for Sanofi had a roughly 20 percent royalty obligation to Vertex, which could be 40 percent of the total economics of the drug. Obviously the drug back in our hands does not have that obligation. So the whole equation changes completely for us having full control of both drugs.

Thanks. Thanks a lot. That's helpful.

Thank you, Meg.

Your next question comes from Phil Nadeau with SG Cowen.

Good afternoon. Thanks for taking my question. Actually have two questions. The first is on VX-950's Phase Ib study, you mentioned that results from that study might make you accelerate the development of VX-950. I am just wondering if you could elaborate on what quality of results you would want to see before you accelerated development. And in particular if you could quantitate some sort of viral reduction, that would be great. Second question, I was just wondering if you could remind us how VX-702 differs from VX-940 -- I'm sorry VX-740 and why you don't expect VX-702 to have neurotoxicity. Thank you.

Thank you, Phil. I think John will take these questions.

So on the first question, I'll be very clear. We have not set any specific expectation as to the level of antiviral affect we would see in the Phase Ib study. We have said that we do clearly expect to see robust antiviral activity given the -- all available preclinical data and what we know about protease inhibitors and their ability to suppress a virus in hepatitis-C infected patients or protease inhibitors. And in terms of -- so to answer your question, what I would say is, it is just a -- it's a qualitative answer that, you know, the more potent and the more of a full suppressive effect you see, the more that turns us towards monotherapy versus a combination. But the specifics of where exactly and the decision making I think are both complex. We're not prepared to give any specific guidance in that respect.

Could you maybe let us know what would be predicted from previous studies that you've seen? What in your mind is a robust response?

Again, we're not setting any specific expectations. The result that I was referring to is the fact that with the bearing or Ingelheim compound, there was very clear antiviral activity with only two days of dosing. And that's on that basis and again all of the preclinical data with VX-950, both in vitro and in an animal model of HCV protease activity, there's clear anti-protease and antiviral -- anti-HCV activity. So -- and we did achieve blood levels in our Phase Ia study that were completely consistent with a antiviral affect. Therefore, we do expect to see an affect. And then on your second question regarding VX-702, I assume you were referring to VX-745 and the neurotoxicity that had been seen with that compound. And it's a very straightforward answer in that VX-702 does not cross the blood-brain barrier. And therefore can't cause -- lead to the type of toxicity that was seen with VX-745, which was on the other side of the blood-brain barrier in the central nervous system.

There was no peripheral neurotox for 745?

The toxicology program and that level of detail, we don't, again, comment on. The tox program to this point does support the three-month clinical study in rheumatoid arthritis, support the study that we've outlined.

I'll just make a clarifying comment on as we're talking about 702 versus 745, those that may not be familiar with the history of the Company. The neurotoxicity for 745 was observed in animal species not in patients, just to clarify that. Did we answer all your questions?

That was great. Thank you very much.

Thank you, Phil.

Your next question comes from Rich Troyer with CSFB.

Thanks a lot. I have fort of a quick financial questions to start, which is whether the Pralnacasan termination triggers a payment either to or from Sanofi.

Hi Rich. Straightforward answer no.

Okay. That's easy. Couple of questions on hepatitis-C programs. Could you talk about what might be a likely venue for disclosure of VX-950 data? And also for the METRO study, should we expect to see 24-week data sometime in 2005?

For VX-950, what we have said is we would expect to announce top line results in the first half of 2005. Actually more specific in my remarks today and that will be in the second quarter of this year. And then once those top line results are made, we would move to present that data as soon as we can in an appropriate scientific forum. But we can't give you -- I mean, we're not there yet in terms of providing you specifics in that regard. And you should not expect 24-week data from the MMPD Phase IIb study in a scientific forum in 2005. What we have said is that the major milestone there is getting -- getting the interim data from the Phase IIb study and going into a discussion with the FDA on the registration path in the nonresponder context and getting by into an accelerated development path there.

Would you plan to at least disclose top line results sometime in proximity to your meeting with the FDA?

What we have said is that what we would -- the most important disclosure there is the outcome of the discussions with the FDA. And that would drive our disclosure around MMPD.

Okay. Thanks a lot.

Thank you, Rich.

Your next question comes from Anabel Samimy with UBS.

Thanks for taking my call. Actually my questions were mainly answered. Going back to the resistance with regard to VX-950, how common is it to -- for HCV patients to develop resistance? And what did it take for you to drive mutations in preclinical studies and will patients in clinical studies have dosing or any kind of therapy that would drive that kind of resistance that you've seen in preclinical?

So just to be clear, the data I referred to was all preclinical in vitro, where one actually goes out of your way to develop resistance. What you do is actually go to a concentration that has marginal at best affect in terms -- has minimal affects on the viral replication but is not so potent to suppress a replication. You actually try to bring out their resistance. So in that context, again, we do see some resistance. If you actually given that higher concentration levels, you don't see that because you actually as we've presented at high concentration levels with sustained exposure in the in vitro system, you basically eliminate the HCV RNA from the cell. So you would never be able to see resistance. In a certain sense, that is the ultimate hope in the clinical context, that you would be able to suppress the virus sufficiently that you would not allow resistance to develop.

If you need some residual -- actually a fair amount of residual viral duplication or replication in order to be -- to develop resistance. But what's true for HCV patients, and what we will see at this point, we have no idea. Because no one -- it's really we're at the leading edge in terms of starting to dose at durations where one might see the early signs of resistance. But it is likely that if resistance were to develop, you wouldn't see it until six or eight weeks into dosing.

It's important. Let me jump in, and also in case people are thinking about hepatitis-C in analogy to HIV, there are some analogies but here is the big difference. We do know both in the laboratory experiments and in patients, that you can clear the virus of HCV. That is not true for HIV. So in -- especially around questions around resistance and how long you're going to treat for and how the market is going to evolve with multiple therapies, the analogy between HCV and HIV is misleading. The goal in HCV is actually to eliminate virus from the patient. That's not a possible goal we know in clinic in HIV. So the resistance story is going to be different, it's going to be knock the virus out of the patient. Of course if you can't do that before resistance develops, that's a problem. We have no reason one way or the other to know how that's going to come out in HCV except they are theoretical reasons to suggest that hepatitis-C protease should be a very effective way of eliminating virus. We already know virus can be eliminated in patients because it's eliminated by the present indirect agents.

Thank you.

Thank you Annabel.

Your next question comes from Harry Sambasivam with Merrill Lynch.

My question has been answered. Thank you.

Thank you. Was that the last question?

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

No, there aren't. We would just like to thank everyone for joining us us on the conference call today and look forward to any follow-up questions that may might have into the IR team. Thank you very much.

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