福泰製藥 (VRTX) 2005 Q1 法說會逐字稿

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. [Operator Instructions]. Thank you. Ms. Brum, you may begin your conference.

Thank you, operator. Good afternoon. This is Lynne Brum, Vice President-Corporate Communications and Financial Planning of Vertex. On behalf of the senior management team I thank everyone for joining us. 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 recent 10-K. I'd also like to note that during this call we will discuss financial results using both GAAP and non-GAAP financial measures. Additional information regarding our use of non-GAAP financial measures is available in our first quarter 2005 financial press release.

At this time, Vertex's first quarter 2005 financial press release has been issued. 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 Internet until the end of the day May 10th. I'll begin by briefly reviewing the key highlights to date this year.

We have completed dosing in the Phase Ib study of VX-950, and John will provide an update on the study later in the call. We initiated 28-day clinical virology study with merimepodib, or MMPD, in ribavirin and HCV patients. We've continued enrollment of patients in the METRO study of MMPD. Our collaborator, Merck, initiated a Phase Ib clinical study for VX-680 with solid tumors. We signed an agreement with Avalon Pharmaceuticals for the development and commercialization of VX-944. And Victor Hartman joined us from Novartis as Executive Vice President-Strategic and Corporate Development.

The Company is on track to achieve its product development and business objectives for 2005. Continued strong progress in our pipeline sets the stage for significant news flow in months ahead, and we look forward to communicating key clinical data and milestones to you.

On today's call we'll provide a brief set of prepared remarks then open it up for your questions. Ian Smith, Vertex's Senior Vice President and Chief Financial Officer, will summarize the first quarter 2005 financial results and provide commentary on the remainder of the year. Then Dr. John Alam, Vertex's Senior Vice President of Drug Evaluation and Approval, will provide his perspective on our recent progress in HCV. And then Dr. Joshua Boger, Vertex's Chairman and CEO, will review upcoming milestones in the context of the strategic direction of our business.

Now before I turn the call over to Ian, I want to mention that our 2004 annual report and proxy materials have been mailed to shareholders in advance of our annual meeting scheduled for May 11th. There are two proxy proposals. Proposal 1 is to reelect three directors. Proposal number 2 is to approve an amendment to our bylaws that will increase the size of our board from a maximum of nine to a maximum of 11 directors. Proposal number 2 requires 80% of the shares outstanding to vote in favor of this proposal in order to pass. And, therefore we're asking all shareholders to register their votes. In addition, ISS, Institutional Shareholder Services, issued their analysis of our proxy proposals today and they're in support of both proposals. If you have any questions about the proxy proposals or other matters, please don't hesitate to contact Vertex's IR group, or including myself in that; and now I'll turn the call over to Ian.

Thanks, Lynne. We had another solid financial quarter. Total revenues for the first quarter were 28.6 million, an increase of 63% over the prior year, which mainly offset an increase in development investment. New collaborations to drive revenue growth continue to be a major goal for the Company in 2005, and in the first quarter we signed a collaboration with Avalon Pharmaceuticals for the development and commercialization of VX-944 in cancer. Revenue from existing collaborations, together with revenue from additional potential new collaborations in HIV royalties, have us well positioned to support R&D investment.

Now to our first quarter financials. Our first quarter GAAP net loss was 44.7 million, or $0.56 per share. This compares to 2004 first quarter GAAP net loss of $40.4 million, or $0.52 per share. The 2005 first quarter loss, before charges, was 42.8 million, or $0.54 per share, compared to $36.2 million, or $0.46 per share, in the prior year. The first quarter loss is favorable to the guidance range we provided. Compared to 2004, the losses increased primarily due to additional clinical investment relating to HCV in anticytokine drug candidates.

In the first quarter we saw a significant improvement in revenue compared to the last year. Total revenues were $28.6 million compared to 17.5 in 2004. The key aspects of this growth were: revenue from three collaborations entered into in mid-2004 and a continued increase in HIV product royalties from Lexiva and Telzir. In 2004 we secured new research collaborations which offset our research investment and we saw increased royalty revenue. These key contributions allow us to retain interest in our core drugs and to advance them through current key clinical stages. In the first quarter we increased our development investment over the last year, which brought our total R&D investment in the quarter to $57.4 million compared to $41.7 million in the same quarter last year. Our research investment remains relatively similar to the prior year, with the majority funded through our collaborations.

Our SG&A expenses for the first quarter of 2005 were $9.6 million compared with 9.7 million in 2004, and we would expect SG&A expenses to remain at similar levels for the remainder of the year.

Now to our balance sheet. Vertex ended the first quarter with approximately $334 million in cash, cash equivalents and available-for-sale securities. We have $82.6 million in convertible debt due in 2007 and $232.4 million due in 2011.

I'll now turn to the remainder of the year. We expect our second quarter loss, before charges and gains, to be in the range of 42 to $45 million. Additionally, we expect that our quarterly losses, before charges and gains, will reduce the second -- reduce in the second half of the year. We anticipate revenue to increase primarily as a result of additional new collaborations and the achievement of R&D milestones. We also expect our R&D investment to remain at levels similar to that of the first quarter. We are reaffirming our full-year 2005 financial guidance that we provided in February and in our Form 10-K. Based on our current projections we continue to anticipate a 2005 loss before charges and gains in the range of 125 to $135 million. And consistent with this guidance, we are also reaffirming the revenue, R&D and SG&A and balance sheet components of our 2005 financial guidance that we provided earlier this year.

A key component of the loss guidance is revenue. We forecasted 150 to $160 million of revenue, which consisted of $100 million of collaborative R&D revenues from existing collaborations, including milestones; HIV product royalties of 25 to $29 million, and 20 to 30 million of revenue from new collaborations that we expect to sign in 2005. We expect that license agreement we signed with Avalon Pharmaceuticals will contribute $5 million of revenue in 2005. We remain confident that we will meet or exceed our milestone and collaborative revenue targets for the year.

I'll summarize my remarks by saying we continue to closely monitor and manage the financial profile of the Company. We're excited about the progress and prospects for 2005, which we believe will be highlighted by clinical progress. I'll now turn the call over to John.

Thank you, Ian. We had a productive first quarter in clinical development highlighted by advancements in our HCV programs. A variety of clinical trials and development activities are being performed to further advance these programs and establish Vertex as a leader in the field of HCV.

I will begin with VX-950. We began a Phase 1B clinical study of VX-950, an oral HCV protease inhibitor, in November of 2004. We believe this is the most significant clinical study to be conducted with an HCV protease inhibitor to date. The study has two parts. Part A of the study, which involved dosing in healthy volunteers, was completed in late 2004. Part B, which involved dosing VX-950 in HCV-infected patients for first time, was underway as of early 2005. We have recently completed dosing in Part B, the HCV-infected patient portion of the study. Even though data continues to be gathered and data analysis is not yet complete, based simply on dosing we can report that no patient discontinued VX-950 treatment during the study and there have been no reports of serious adverse events.

Vertex expects the first analysis of on-treatment data, consisting of preliminary analyses of safety and antiviral activity of VX-950 in HCV patients to be completed in the next few weeks. This will be followed by presentation of preliminary data on May 17th at Digestive Disease Week in Chicago. Complete results from Phase Ib study should provide with us important data regarding the ability of VX-950 to reduce viral load. Positive results from the Phase Ib study, as well as completion of other non-clinical development work being conducted in parallel, will enable VX-950 to advance larger and longer studies in HCV patients. Depending on the outcome of the Phase Ib trial, we expect to file an investigational new drug application with the FDA in the second half of 2005 to support Phase II development in the U.S.

Now turning to merimepodib. We have two clinical studies underway with this compound, which is another oral HCV drug candidate in development at Vertex. First we have made significant progress with patient enrollment in the Phase IIb METRO study. This study is a 315-patient study with merimepodib in combination with the current standard of care and we expect to complete enrollment this quarter. Achieving this goal should allow us to analyze 12 and 24-week on-treatment interim data and generate discussions with the FDA by the end of 2005 regarding the registration path in-- in non-responders.

Second, we also initiated on schedule a 28-day clinical study with merimepodib and ribavirin in the first quarter. We believe this study could demonstrate the potential of merimepodib to enhance the affects of ribavirin and position merimepodib as a component of combination therapy with direct-acting antivirals. We are on track to complete this study in the second half of the year.

In addition, we continue to anticipate initiating a Phase II triple combination study with MM-- with merimepodib in patients naive to treatment in the second half of the-- of the year. As I have just summarized for you, we have made great strides with our HCV product candidates in the first quarter and I look forward to discussing data from the Phase Ib trial of VX-950 with you in the next few weeks. Although I focused my remarks on our HCV programs, we have executed well in clinical development across our pipeline and Joshua will now highlight these for you. Joshua, over to you.

Thanks, John. 2005 is an important year for Vertex. We and you are all waiting on VX-950 data. As John just mentioned, near-term clinical news will start with preliminary data from the Phase Ib clinical study of VX-950. We're enthusiastic about the potential for these data to show clinical activity and we're looking forward to presenting the preliminary safety and antiviral data of the study in May.

But the VX- 950 Phase Ib clinical data is just the first in a series of important clinical events that could continue to build value of Vertex's innovations. Our pipeline, which spans viral disease, inflammation, cancer, pain and more is defined by products with true breakthrough potential. Including the report of Phase Ib results for VX-950, Vertex is entering a period where clinical data readouts will enable us to establish the clinical and commercial potential of these products and potentially build significant value.

Clinical and business progress in the past 12 to 15 months has set the stage for a number of milestones and potential catalysts in the year ahead. In the next few months, we expect to complete enrollment in the Phase IIb METRO study of MMPD, positioning to us define the registration path for this compound by year end. We expect to initiate the three-month Phase II study VX-702 in more than 200 patients with rheumatoid arthritis. Our goal is to complete enrollment in this study around the end of the year.

In the second half of the year we expect to announce MMPD and ribavirin dual-combination study results, complete the VX-765 study in psoriasis, obtain first clinical results for VX-680 and start more cancer studies, and start a trial with VX-944 in hematologic cancers. We also expect to sign new collaborations in 2005 to support our innovative capacity and R&D investment in the Company, we plan to advance two or more drug candidates from discovery to development. What we believe will be positive events for the Company in the second quarter will set the tone 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, continued strength in our financial performance. These are exciting times for Vertex. We look forward to reporting back to you as our pipeline advances and we gain key clinical data. Lynne, back to you.

Thank you, Joshua. Operator, we'd like to now open the call to questions.

[Operator Instructions]. Geoffrey Porges.

Josh maybe you could comment a little bit on the 950 thresholds. Obviously, it's very encouraging that-- that you have the last patients treated there and we look forward to the data, but could you give us the percent of what response rate is likely to be significant, what you'd be looking for as the threshold for going ahead with the product into further development, and maybe compare it to the some of the data we've seen from NM-283?

Yes. I think what we've been saying on this, and I'll just repeat, is that we believe that the potential of-- of VX-950 is to be the most potent compound seen in Hepatitis C treatment. Right now, single agents in Hepatitis C give one, at most, a sort of one log drop in the time period that we're looking at. So we consider that anything over that is a-- is a win for this compound and I think that's the hurdle. We're setting a new standard, and that's -- and that's -- that's what we expect to set. Now, it could be significantly over that and stay tuned for the data.

George Pulap (ph).

Thanks for the update. I'd like to focus a little bit then on-- the pralnacasan and the animal tox data. Can you update us on where the status of that is and how you anticipate implications for the ICE program?

George, thanks for that question. I'm going to direct it to John Alam.

The-- the toxicology program, the long-term toxicology program that had been initiated by Aventis in response to the original findings are still ongoing. Part of the agreement and discussions we had had with sanofi-aventis at the time of their decision earlier in the year, was in fact that they would continue those-- those studies and they will be ongoing. We expect to have the data from those toxicology studies in the middle part of the year and that, along with all of the clinical information with pralnacasan, along with the clinical and toxicology data with VX-765 available at that point, which will be in the second half of the year, will-- will determine the best path forward.

Phil Nadeau.

I actually have two. First on VX-950, what needs to be done before the U.S. IND can be filed? I know you said you want to see the full results of the Phase Ib trial, but are there any other formulation issues that need to be taken care of or pre-clinical toxicology studies that need to be completed before you can file in the U.S.? And then my second question is on the 28-day study. Could you give us a little bit more detail about what you're looking for from the 28-day trial of merimepodib and ribavirin? What type of data do you expect to get from that trial

John would, start with the 950 question.

Phil, an a-- in terms of what information we would need to have together for a-- for IND filing, I think-- I think, it's three major areas that we're working on. One is to fully analyze and pull together all of the information into a study report with-- from the Phase Ib study. So clinical. There are ongoing toxicology work that-- that-- that needs to be conducted and completed before we'll be ready to go into longer duration studies in Phase II, and-- and those will need to be completed. And the third area is in terms of formulation development work. As we have said, our expectation is that we would go into Phase II with a solid-- solid dosage form and there is ongoing work to-- to support that. Along with developing a formulation, there's a variety of data that needs to be-- analytic data that needs to be generated around that formulation. So it's three-pronged effort. Clinical, toxicology, and formulation and all of that is driving the time line towards the IND.

In terms of the 28-day study with MMPD and ribavirin, what we are looking for-- is for changes in-- in viral load. As you know, there's a variety of, now, invitro data that show that an IMPDH inhibitor such as MMPD can act synergistically with ribavirin and actually work to bring out a lot of the antiviral activity of ribavirin; which, even in combination with interferon is-- is relatively modest. But invitro, if you put those two agents together, you actually see quite potent antiviral at the blood levels and concentrations that they are able to achieve in man.

Now, what we're looking for in the clinical study is essentially to see whether we can directly demonstrate the same type of synergism that you see invitro in man, and so it's a study that's looking at MMPD, ribavirin and the combination to see if you can see synergistic activity in terms of viral load reduction over 28 days. And the goal is both to support mechanistically, as a biological rationale for using MMPD and ribavirin in-- or MMPD, in the triple combination; and-- and, perhaps more importantly, to set up that combination as two oral drugs that could be used with direct actic antiviral such as VX-950 in an all oral combination.

Han Li.

Can you give us a quick update on VX-702? You mentioned last quarterly call saying that you were going to start Phase II study in RA and also possible partnership in ACS.

This is John Alam again. We are on track to initiate a greater than 200-patient study, a Phase II three-month treatment study, in rheumatoid arthritis in the middle part of this year; and there's a lot of work-- planning work and then true start-up activities that are ongoing supporting that. And at the time the study is initiated, we would anticipate providing more specific details on the design and end points of the study.

And ACS partnership?

Maybe I could comment on that, Han Li. It's Ian Smith. As we look at partnership around 702, our primary focus with 702 is to study the drug in rheumatoid arthritis indication, and that's where we'll continue our efforts. If there is to be a-- a collaboration around 702, it would be primarily in the rheumatoid arthritis area, that's where we think this drug has the best opportunity at this time; and that's what we're committed to.

Hari Sambasivam, Merrill Lynch.

Perhaps a question for John Alam. John, I'm just wondering whether you can maybe elaborate on the current clinical development path for merimepodib? I know you're going to take a sort of, I guess, a three-month interim look before you sort of think about what the development strategy is for interferon non-responders; but I'm just wondering from a broader perspective, you know, regardless of what happens at that three-month stage, I'm assuming this is a six-month study. What do you do with the study once it's done? Is it-- in the event say, for example, if there is, say, a negative outcome, say for example, at the three-month mark, what do you do with this? I'm just trying to figure out what are the possible options for merimepodib as you've designed it right now from a regulatory point of view in addition to that interim look?

Well, the primary endpoint of the study is sustained virologic response.

Is it at six months or a year, John?

It's-- it's at-- it's at 24-week follow up after the end of treatment. And the study design, just to quickly go through it, is that the triple combination is used for first 24 weeks of treatment. At the end of that, anyone who is HCV RNA negative will continue ribavirin and interferon alone for the second 24 weeks. So the full duration of treatment of the background therapy, the ribavirin/interferon is 48 weeks, and then the sustained response determination is made at 24 weeks of follow up. What we have said regarding this study, from I think about a year and a half ago now or certainly a year ago, is that we believe that-- given that it in a non-responder context with SVR as a primary endpoint and the size of the study; which in a-- in a non-responder context, a second line context, is a-- a good size trial. We believe that this trial can be a pivotal trial if it meets its endpoint, and it's been designed and its been conducted in a way to be-- to serve that purpose. Now, to what extent the --.

Sorry, the patient population, John, is in non-responders right now?

It is a non-- it is in patients who are non-responders-- who were, in their previous course of therapy, and in their course of therapy with pegulated interferon and ribavirin were never RNA negative during treatment-- were documented RNA positive during their entire course of treatment.

And the discussion with the FDA is really going to be focused on to what extent this data -- this study can serve as the primary study to demonstrate efficacy in particular, and what additional clinical studies would be required to support registration in a non-responder indication. And-- and that's-- that's the discussion we plan on having based on-- on the interim data. Clearly, long-term it's efficacy and results in the non-responder indication will depend on the sustained response data which will come in 2006.

Do you have at this point in time a 12-week interim look for the data?

We do have interim analyses built into the study at 12 when all patients have completed 12 and 24 weeks of treatment. In fact, at the end of the treatment as well. And they were designed in order to be able to generate data that could be presented to the FDA to discuss with them.

Steve Harr.

A quick follow-up on the previous line of questioning. And when you look at 12 and 24-week data are you going to release that to the Street or do you keep that internally for discussion with the FDA?

We have-- we have, I think, been pretty consistent in saying that it is--that-- that data and information is primarily for discussion with the FDA. The important or material event regarding MMPD will be the outcome of those discussions with the FDA, and we would anticipate some disclosure and discussion with the Street around that as a registration path is defined.

So we'll hear after-- after you've had a chance to discuss with the FDA?

Correct.

[Operator Instructions]. We have no further questions at this time.

Great. Thank you, operator, and thank you everyone for joining us today on the Vertex first quarter conference call. Thank you for all your questions. Ian Smith, myself, the IR group, will-- and John Alam will be around if you have any questions you'd like to cover one on one. Again, thank you, everybody.

This concludes today's teleconference. You may now disconnect.