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Operator
Good afternoon. I will be your conference operator today. At this time I would like to welcome everyone to the Vertex Pharmaceuticals first quarter financial results call. [OPERATOR INSTRUCTIONS]. Thank you. You may begin your conference.
Lynne Brum - VP Strategic Communications
Thank you. Good afternoon, everyone. This Lynne Brum, Vice-President of Strategic Communications at Vertex. On behalf of the senior management team, I thank everyone for joining us today. As we get started I will remind you that information discussed on this conference call may consist of forward-looking statements, and as such, are subject to the risks and uncertainties discussed in detail in our reports filed with the Securities and Exchange Commission, including our 10-K. During this call, we'll 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 2006 financial press release. At this time, Vertex’s first quarter 2006 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 via the internet or download a podcast mp3 file. A replay of the conference call will be available via the internet until end of day May 9.
Today on the call Vertex’s CFO Ian Smith will review our financial results. Then, he will turn the call over to John Alam, Vertex's Chief Medical Officer, who will provide a clinical update including development plans for investigational oral HCV protease inhibitor VX-950. Dr. Joshua Boger, Vertex's President, Chairman, and CEO, will then provide his perspective on the VX-950 and other clinical advances in 2006 in the context of Vertex's long-term goals. I would like to remind you that on Thursday and Saturday of this week, researchers will present the VX-950 data at EASL. For those of you attending EASL in Vienna, we look forward to seeing you at our cocktail reception on Saturday evening.
Lastly before I turn the call over to Ian, I want to mention our 2005 annual report and proxy materials have been mailed to shareholders. There are two proxy proposals. Proposal number one is to reelect three directors. Proposal number two is to approve the Vertex Pharmaceuticals 2006 stock and option plan. We are asking shareholders to register their votes. Our annual meeting is scheduled for May 11. If you have any questions about the proxy proposals or other matters please contact Vertex's IR group. I will turn the call over to Ian.
Ian Smith - CFO
Thanks, Lynn. We completed a quarter that's characterized by increased revenues which funded an increase in development investment and we ended the quarter with a strong balance sheet to support our forward business investment. The first quarter loss before charges to stock compensation and restructuring was $42.2 million, or $0.39 per share, compared to a prior year loss before charges of $41.8 million, or $0.53 per share. Our revenue increased by approximately $10 million, principally driven by a milestone achievement for the advancement by Merck of VX-680 into a Phase II oncology program.
The 2006 R&D investment increased by approximately $18 million, driven by increased development investment to support proprietary programs and $6.4 million of stock based compensation. Our first quarter 2006 GAAP net loss was $50.1 million, or $0.48 per share compared to the prior year net loss of $44.7 million or $0.56 per share. Total revenues for the first quarter were $39.1 million, compared to $28.6 million in the prior year. A $10 million milestone payment from Merck, of which we recognized $8.8 million in revenue in the first quarter, was the major contributor to revenue growth. During the remainder of 2006, we expect the revenues from HIV royalties and existing collaborations, including milestone achievement under those collaborations will continue to drive revenue.
Additionally, new collaborations will continue to drive revenue growth, in particular those that are focused on our latest stage proprietary programs. Now to the R&D investment. Our first quarter 2006 R&D investment including stock based compensation was $75.2 million compared to $57.4 million in the first quarter of 2005. This increase spend specifically reflects increased development investment to prepare for and conduct later stage clinical trials of product candidates in hepatitis C and rheumatoid arthritis and preparation for our first clinical trials with VX-770 which is focused on cystic fibrosis.
Additionally we have made investments into manufacturing and supply chain management of VX-950. These investments have already provided great returns by producing significant quantities of drug. We expect this broad clinical manufacturing investment to increase as we commence with further late stage and larger studies in the area of hepatitis C. Consistent with our business model, we expect continuing revenue growth to fund a portion of this investment. From a research perspective, we have maintained our investment at a level that is largely consistent with 2005 and at this time, such investment continues to be significantly funded by research based collaborations. Our SG&A expense for 2006 was $12.6 million. This expense is relatively consistent with the prior year when stock based compensation is excluded. Now to our balance sheet.
We ended the first quarter of 2006 with approximately $380 million in cash, cash equivalents and available for sale securities which compares to approximately $410 million at year end 2005. Additionally, we have $42.1 million in convertible debt due 2007 and approximately $118 million of convertible debt due in 2011. The 2011 debt has a conversion price of $14.94, and is callable after February 2007.
Now to our full year guidance. We are re-iterating our 2006 full year guidance which we originally provided on our February 7, 2006, conference call. We continue to expect our full year loss excluding stock based compensation expense and restructuring charges to be in the range of 165 to $185 million. And we expect full year 2006 GAAP loss to be in the range of 205 to $225 million. This GAAP loss is expected to include approximately $34 million of stock based compensation expense and approximately $6 million of restructuring charges.
In summary, 2006 is a year in which we are increasing our development investment to realize the potential of later stage compounds. Our financial profile and our business model which have been supported by collaborations and which we expect to continue to be supported by collaborations, provides a platform for this increased investment. This investment will position us to capitalize on our clinical successes and prepare expeditiously to advance our compounds including and especially VX-950 in hepatitis C.
I will now turn the call over to John.
John Alam - Chief Medical Officer
Thank you. I am pleased to provide an update to the VX-950 development plan as well as discuss other near term milestones for compounds in Vertex's pipeline. From where we are today in the development of the VX-950, there really three key questions that we need to address in order to understand more precisely how VX-950 could change the standard of care and transform HCV therapy. These questions are, number one, what is the optimal SVR rate we can achieve for VX-950 in combination with the currently available therapies? Second, what is the optimal treatment duration for VX-950 based treatment in treatment naïve and treatment failure patients? And third, what is the role of ribavirin in VX-950 based therapy?
In Phase II, our intention is to evaluate viral response in a rigorous set of study that will answer these key questions about the clinical paradigm for VX-950 and thus reduce program risk in a short period of time. While I am not able at this point in time to describe to you all of the specifics of all the individual studies, I can provide you with important details of the program and of the data we expect to gain within the next nine to 12 months. This program reflects extensive and ongoing discussions with regulatory authorities and investigators from around the world.
We are very happy with the progress we have made in designing and initiating this program. When the Phase II trials are complete, we will have SVR information from different durations of VX-950 in more than 500 HCV patients worldwide for treatment naive and treatment failure patients providing a robust assessment of the critical safety profile of VX-950. We will also have information on the right type and duration of concomitant therapy with pegylated interferon and/or ribavirin. With the global Phase II program, we are creating multiple avenues for clinical success and more than one path to our NDA.
We remain on track to initiate Phase III in 2007 and we maintain our time line for a 2008 NDA filing. As part of our global program, we expect to evaluate the potential to achieve SVR in treatment naive patients with a 12 week regimen of VX-950 in combination with pegylated interferon, both with and without ribavirin, followed by no additional therapy. These specific study arms may help to establish 12 weeks as a sufficient treatment duration to achieve high rates of SVR and also help to understand the role that ribavirin may play in VX-950 based combination therapy. In conjunction with, or in parallel with, the study arms I just described we also expect to evaluate the potential to achieve SVR in treatment naive patients with a 12 week regimen of VX-950 in combination with pegylated interferon and ribavirin, followed by either an additional 12 or 36 weeks of pegylated interferon and ribavirin.
While we believe that 12 weeks of treatment of the combination will be sufficient, these additional specific study arms will help us understand whether additional therapy with pegylated interferon and ribavirin will produce even higher rates of SVR. Should extensions of the 12 week VX-950 treatment with additional pegylated interferon and ribavirin prove to give higher SVR rates this may signal the need for longer VX-950 dosing and follow-up studies in naive patients.
Regardless, we will also explore 24 weeks of VX-950 dosing as part of the Phase II program. Specifically, we plan to conduct a major study that will evaluate after 24 weeks of the VX-950 dosing in combination with pegylated interferon in patients who have previously failed pegylated interferon and ribavirin. The planned fourth quarter start of this Phase II study in treatment failures will be supported by results from six month nonclinical toxicology studies which we initiated in March in two species.
To date, all clinical safety and nonclinical toxicology data we have generated have been fully supportive of advancing VX-950 in clinical development. We have designed the Phase II program to be robust in terms of the number of patients we will enroll and the scientific rigor with which we seek to answer key questions on VX-950’s role in future HCV therapy. We expect the Phase II clinical program will enroll more than 500 patients and provide the adequately controlled comparisons with standard therapy.
The global Phase II program will generate a large amount of safety and efficacy data and by answering so many key questions will reduce a large amount of risk in a relatively short period of time. Within nine to 12 months we expect to begin to get a clear picture of the VX-950 efficacy and safety profile, and therefore its commercial potential. Specifically, in the first quarter of 2007, we anticipate obtaining the first 12 week post treatment information from patients who received 12 weeks of VX-950 combination therapy. And from this gain confidence in the ability of VX-950 to produce SVR which is the goal of HCV therapy. In addition, by that time we anticipate having treated more than 500 HCV patients with VX-950. With these data, we will remain on track to initiate Phase III in 2007 and maintain our time line for a 2008 NDA.
Earlier this year, we said that we expected to be able to get the first post treatment data by the end of 2006. We now believe that we will get this information beginning in early 2007. This is not a delay of the VX-950 program. There has been no change in our NDA time line, but as a result of our significantly expanding the program. With the expanded Phase II program we have outlined today we believe we are reducing risk and creating multiple paths to clinical success. More patients, more trials, more clinical questions addressed earlier.
We are in discussions with the regulatory authorities regarding the design of the proposed study and we expect to provide more information on specific studies in the next couple of weeks. In addition to the Phase II program I have outlined above, I want to address a specific question that has emerged about the potential to dose VX-950 alongside Retonovir. In the second half of 2006, we expect to begin a multi-dose drug-drug interaction study of VX-950 and low dose Retonovir.
We are aware of the potential to boost blood levels of VX-950 with Retonovir and in fact we have already conducted a single dose drug-drug interaction study of healthy volunteers to begin to evaluate this hypothesis. Although the results of the single dose study do suggest that co-dosing with low dose Retonovir might have a future role in some HCV populations, these results do not otherwise substantially change our clinical plans as we have outlined.
Now, I would like to address the manufacturing program for VX-950. We began increasing our manufacturing capability in mid-2005 based on our anticipation of a broad Phase II program and rapid clinical advancement of VX-950. With these activities, manufacturing scale-up is well in hand. To date, we have made more than 400-kilograms of drug substance, almost 900-pounds of drug and more than 230-kilograms of tablets -- almost 500-pounds of tablets for the Phase II studies have I described. The current scale of manufacture is approximately 70-kilogram batch size for drug substance and 50-kilogram batch size for drug product. We have begun manufacturing VX-950 drug substance for tablet registration batches in Phase III studies. We know how to make this molecule on a large scale.
By mid year, in aggregate, we will have produced approximately one ton of drug substance and more than two tons by year end. In addition, we have selected our commercial manufacturers for drug substance and drug product. The current batches of drug substance are being manufactured by the commercial supplier and technology transfer to the commercial supplier of VX-950 tablets is underway. We have established a supply chain that we believe would support future clinical and commercial demand for VX-950.
I will now turn to other compounds in the pipeline. First our oral anti-cytokine for rheumatoid arthritis, VX-702. Last month we announced that in the three month, 315 patient Phase II VeRA study, VX-702 demonstrated clear effects on the signs and symptoms of RA and was well tolerated. We believe that the data from this study provides strong support for our plans to move forward in clinical development.
We were planning to begin a Phase II study to evaluate the VX-702 in combination with methotrexate in RA patients that will be at least three months and could be six months in duration. This study will profile VX-702 in the treatment paradigm that's now routine for RA therapy. We look forward to presenting the results of the VeRA study at a medical conference and further defining the profile of this oral anti-cytokine.
Turning to our Cystic Fibrosis program, in March we entered into a new collaboration with the Cystic Fibrosis Foundation Therapeutics to accelerate the critical development of our first CF compound, VX-770.
As part of this agreement, we will receive approximately $13.3 million in development support through the end of 2007. We have opened an IND and are on track to initiate clinical development of VX-770 in the second quarter of 2006. The first clinical study will be conducted in healthy volunteers and then we expect to progress to clinical studies in patients with CF by the end of the year.
Finally, I would like to discuss our VX-680 oncology development program, which is continuing to rapidly progress through the clinic including the start of Phase II development which we announced earlier this month. The start of Phase II development was marked by the enrollment of patients with advanced colorectal cancer. The open label non-randomized study will enroll approximately 20 patients and is being conducted at major cancer treatment centers in the U.S. Other ongoing clinical studies include a Phase I study of immunologic cancers and a Phase I study of VX-680 administered to patients with solid tumors refractory to prior chemotherapy treatment.
Looking ahead, we expect Merck to initiate soon a second Phase II clinical study of VX-680, this one in patients with advanced lung cancer. We believe that the overall clinical development program demonstrates our efforts to establish the role of VX-680 in a broad range of solid tumors and hematologic cancers. In June in Atlanta, researchers will present the first clinical data for VX-680 in solid tumors at ASCO.
I look forward to continuing to update you on our clinical progresses throughout the year. I will now turn the call over to Josh.
Josh Boger - Chairman, CEO
Thank you, John. As you have heard, there is a lot going on in Vertex right now across all aspects of our business. With continued execution we will have important news flow and data throughout the rest of the year, positioning us to enter 2007 with an advanced pipeline of potentially transformational products. If you take VX-950 as an example, the advances of the past year are stunning. In the spring of 2005, we began to share with you the first very exciting clinical data for VX-950. Since that time, we have completed two additional clinical trials, the results of which have illuminated the opportunity to redefine the treatment of a serious and highly prevalent disease.
We expect that by early 2007 approximately 500 patients will have been dosed with VX-950. The studies we have described today, plus additional studies we have planned provide us with multiple avenues to create value with the VX-950. There are more than 3 million patients in the United States with chronic hepatitis C and we estimate there are about 800,000 of those patients who are already diagnosed and are candidates for VX-950 based treatment regimen.
VX-950 is our highest priority. We believe there is a tremendous commercial opportunity for VX-950 and we have an obligation to develop VX-950 as quickly as possible. Late stage development of VX-950 is a significant undertaking. Vertex has the resources, talent and infrastructure to succeed, and we are committed to doing so for patients, physicians and Vertex shareholders. In addition to VX-950, our pipeline of Vertex-led and collaborator-led products continues to advance. We expect to gain clinical data this year that will help us define the potential of drugs targeting large medical areas such as rheumatoid arthritis, cystic fibrosis, cancer, HIV and pain. Stay tuned for data from these programs throughout the year. Lynne, back it to you.
Lynne Brum - VP Strategic Communications
Thank you, Joshua. And we are ready for our questions.
Operator
[OPERATOR INSTRUCTIONS] Your first question comes from Geoffrey Porges of Sanford Bernstein.
Geoffrey Porges - Analyst
Thanks very much for taking the question. Just a couple of follow up questions on the 950 program. It's been very helpful. Could you give us a little sense of the control what you expect to have in the Phase II study and then where that might lead to in Phase 3? Specifically could you address whether we need to wait 18 months after the last patient is into the study to establish the benefit, based on 12 months of standard of care plus six months SVR. And then secondly whether you have had discussions yet with regulators about pulling back the SVR point from six months to three months based on the more sensitive assay? That would be helpful. Thanks.
John Alam - Chief Medical Officer
Thanks, Jeff. With regard to proceeding to Phase III as we have talked about, our plans for moving to Phase III will be based on the follow-up data on the VX-950 on the specific arm. The primary reason to have the control arm in the Phase II program, or Phase II study in treatment naïve is to look at the safety comparison specifically within the first three months of dosing of a combination of VX-950, pegylated interferon plus or minus ribavirin relative to pegylated interferon and ribavirin. We will follow out the control arm and we will have the SVR comparison to finish out the study and have the full result. But the driver and the decision to move into Phase III will be based on the safety comparison to the control arm, and then the SVR -- the follow-up data and the SVR data within the VX-950 containing arm.
In terms of defining SVR by three months or six months of follow-up, as we have said, our expectation is for registration that the endpoint will be six months of follow-on. That's the precedent that has been stated, and we don't believe that will change and our plans for a NDA in 2008 does not contemplate anything otherwise for the registration end point.
Geoffrey Porges - Analyst
But, John, just to follow-up, does the plans for filing in 2008 incorporate an 18 month SVR end point for the control arm then in the Phase II? Because presumably the control arm is relatively what it needs to be.
John Alam - Chief Medical Officer
Could you just actually just clarify that question a little bit more? For Phase III, and the 2008 NDA filing does not assume that a control arm data in Phase III, if there is a control arm in Phase III, that that would include all of the follow-up, that data in that arm for the filing of the NDA. We will have all of the SVR data from Phase II, including in the control arm before the end of 2007.
Geoffrey Porges - Analyst
The regulators endorse that approach of not having that control arm?
John Alam - Chief Medical Officer
Sir, we have -- we anticipate having the discussion of what our Phase III program would look like and the specifics of the end point of the plan through the NDA with the FDA at a end of Phase II meeting which we would anticipate in early in 2007 based on the first follow-up data on the Phase II study in treatment of naïve patients.
Geoffrey Porges - Analyst
Thank you very much.
Lynne Brum - VP Strategic Communications
Can we have our next question, please?
Operator
Your next question comes from Jason Zhang of Prudential Equity.
Jason Zhang - Analyst
Two questions for John. Number one, I know you guys, when you try to design your trial you carefully the clinical and the biological evidence for your design. The question I have is what biological and clinical data you have to support your new design which is VX-950 for 12 weeks put in combination with peginterferon and ribavirin, but then follow up with either 12 weeks or 36 weeks of peginterferon and ribavirin. What benefit would you gain from that and what clinical data do you have to support that?
John Alam - Chief Medical Officer
Thanks, Jason. You had two questions. You want me to answer that question now?
Jason Zhang - Analyst
The second question is, the decision that you would have to make to go into Phase III -- because if I just do my calculation here, the SVR data in the first quarter of next year will only be from the VX-950 12 week arm. You wouldn't have SVR data from the next two or three arms which is the VX-950 12 weeks plus, either 12 weeks or 36 weeks of standard of care. I guess your decision will be just based on SVR data from your VX-950 12 week study no matter what data you will have from the next few arms. Is that fair?
John Alam - Chief Medical Officer
The answer to both questions actually are related in many ways. Because of the core of the program for the treatment naive population is in fact the 12 week treatment arm. We believe that all of the clinical and biological evidence that's available with the VX-950 as quell as with pegylated interferon and ribavirin in particular in patients who achieve rapid viral response and what that means in terms of SVR response rate and the ability to shorten treatment duration, putting all of that together, again, we continue to believe that in fact, 12 weeks of treatment with pegylated interferon, plus or minus ribavirin would be sufficient to induce a high rate of SVR in patients who are treatment naive.
On that basis, that is why in fact we believe that we will be with compelling data in that arm. We would be able to move into Phase III. The additional treatment arms are really -- I mean, they are in certain ways the rationales are somewhat different. What they provide is an additional assurance that if in fact that a longer duration of the peg and ribavirin to stimulate the immune system more than the 12 weeks that we have in the core arm of the study, if that leads to a higher SVR rate, we find that out and that will help us design any future clinical studies.
But again, we believe that the 12 week treatment will be sufficient without the additional 12 weeks of peg and ribavirin. The longer duration arm is to address a specific question that may be required in certain quarters of given what we know that the current treatment paradigm is of 48 weeks of peg and ribavirin, what would happen if you simply added VX-950 in the initial phase for the first three months, would you get a higher SVR response rate or not? And it answers the question that as I said, I think in certain quarters it's being asked and we may need to address and answer in our development program. And so we are trying to get it out of the way early in the program so it doesn't really hold up the development path later on.
Okay. So I guess to really make that decision, you have a SVR rate in your mind which you would consider sufficient to convince the FDA to initiate a Phase III. I don't know whether it's fair to ask you what that particular SVR rate, what you consider sufficient to go forward.
John Alam - Chief Medical Officer
You are correct. We do have a rate in mind that we consider sufficient to go forward.
Jason Zhang - Analyst
But you are not in a position to disclose that?
John Alam - Chief Medical Officer
At this time I'm not.
Jason Zhang - Analyst
Okay. Thanks.
Lynne Brum - VP Strategic Communications
Thank you, Jason. May we have the next question?
Operator
Your next question comes from Rachel McMinn of Piper Jaffray.
Rachel McMinn - Analyst
I'm just wondering, can you actually go through the specifics here on the trial design. One is, it sounds like the FDA actually hasn't approved the protocol. Is there anything in particular that is being -- that's holding up the protocol? And can you just confirm that it sounds like you are going to have two 12 week arms with and without ribavirin and then a 24 week arm and then a 36 week arm. Is that how we should think about the study?
John Alam - Chief Medical Officer
We were on track to initiate the Phase II -- the large Phase II trial in treatment naive patients within the second quarter. And as I said in my prepared remarks, we do expect to have a 12 week treatment arm within our Phase II clinical trial. And again, all of that is on track. But beyond that, I can't actually go into any of the specifics of the details. As I said also in my call, we are -- the discussions with the regulatory authorities are on going and we do expect to provide further specific details of the study design and study designs in the next couple of weeks -- within the next couple of weeks.
Rachel McMinn - Analyst
And then just two quick questions. Is the 500 patients that you are talking about here specifically in naive or does that include the nonresponder trial?
John Alam - Chief Medical Officer
It includes the trial in patients who have previously failed pegylated interferon and ribavirin.
Rachel McMinn - Analyst
And then with the Retonovir comments that you made -- so you already done this initial dosing profall or this initial dosing study, do you have a sense now whether or not you would have the potential to lower the dosing frequency of the VX-950 or even potentially lower the dose? And how do you think that is going to impact your Phase III design?
John Alam - Chief Medical Officer
Yes, we have completed a single dose drug-drug interaction -- a pharmacokinetic interaction study. We do have that data and we do have a sense of the level of impact in terms of the dosing of VX-950 that Retonovir would have. We would need to confirm that in a multiple dose study because the interactions do change somewhat going from – with Retonovir going from single dose to multiple dose. We plan on conducting that study as I said in the second half of this year. But we do have as I said, a good handle at this point of in the single dose the level of interaction. The results are such that we don't think -- it doesn't impact our clinical plan and our path to NDA as we have outlined substantially.
Rachel McMinn - Analyst
So, should we take that to mean that you aren't going to be developing 950 with Retonovir in the current Phase II plan that you have?
John Alam - Chief Medical Officer
Absolutely not. It's more just one of the risks of substantial dose changes that might be applied with Retonovir. It's a comment with regard that of we have a handle of what level of impact there would be. And the level of impact is such that they don't substantially change the strategy that we are taking in our current clinical plan. I think Josh maybe you may want to make a comment on that.
Josh Boger - Chairman, CEO
Maybe we are answering a question that you and others aren't asking which is always difficult. But I think one of the questions we certainly had was if Retonovir in combination has a large effect on VX-950, a large enough effect, would it essentially require you to restart your whole development program based upon that? And what we told you today is the answer to that is no.
There may be upside potential that will be added on to the program, but I think what we were commenting today on is -- first of all we are on top of this potential. We have it built into our Phase II and it doesn't in a negative way affect our NDA plan.
Rachel McMinn - Analyst
That's very helpful. Thank you.
Lynne Brum - VP Strategic Communications
Thank you, Rachel.
Operator
Your next question comes from Hari Sambasivam of Merrill Lynch.
Hari Sambasivam - Analyst
Yes, thank you. A question for John. It's actually on VX-702. You are going to be starting your combination study with methotrexate very shortly. I'm just wondering in terms of a larger picture question here, could you give us a sense of where you think VX-702 might fit just in terms of differentiation versus other available DMARD agents that are taken orally, whether it be [saltasalidine] or (indiscernible) or something like that. And how would you -- and I'm just trying to figure out as to what could you demonstrate that could be different from those agents and what else do you plan to show with this particular Phase II?
John Alam - Chief Medical Officer
Thank you. Our overall profile of what we are targeting for VX-702, again, in combination with methotrexate because that is where the primary opportunity in rheumatoid arthritis stands today and that's a treatment paradigm that is most commonly used both with oral drugs and with the injectable anti-TNF agents. What this next trial is going to address is the level of – it is both the clinical safety profile and the efficacy as measured on signs and symptoms in this specific treatment paradigm of use in combination with methotrexate.
There is -- as you know, the movement in the field has been increasingly to move away from using methotrexate either as monotherapy or with the weaker DMARD, such as (indiscernible) and [Aquanil]. And the movement is really towards adding anti-cytokine therapies because both in terms of tolerability and efficacy that the anti-cytokine therapies have shown significant improvement there. What we don't have is an anti-cytokine therapy that's also an oral agent. And that's what -- that's the opportunity and the potential for VX-702 is to bring the anti-cytokine paradigm to combination with methotrexate but do it in an all oral combination.
Hari Sambasivam - Analyst
Thank you.
Operator
Your next question comes from Meg Malloy of Goldman Sachs.
Meg Malloy - Analyst
Thanks very much. A question for John. I just want to make sure I understood what you said with respect to the six month talk I think you said you would have on 950 in Q4. And then I thought I heard you say that as part of the Phase II program, you will assess the possibility of looking at a longer duration of treatment with 950? I was wondering if you can elaborate on how you might assess that.
John Alam - Chief Medical Officer
I said two specific things. One is that the six month toxicology studies have started and they started in March. And a separate statement was that we anticipate starting the Phase II study in treatment failures in the fourth quarter of this year and that study would likely evaluate treatment durations of VX-950 of up to six months duration.
Meg Malloy - Analyst
Okay.
John Alam - Chief Medical Officer
And then the six month toxicology studies we would obviously support going up to six months duration in that additional study.
Meg Malloy - Analyst
Okay, great. So it makes sense the first place you might look at longer duration treatment would be in treatment failures and then you will have the data to support if you wanted to study in naives as well?
John Alam - Chief Medical Officer
Yes, you are absolutely right.
Meg Malloy - Analyst
Great. Thank you.
Operator
Your next question comes from Joe Pantginis of Canaccord Adams.
Joe Pantginis - Analyst
Hi, guys. Thank you for taking the call. Can you give us your views or perception on the 702 data, especially regarding the very mixed responses on the Street surrounding the ACR 20s that you saw, though this was only a monotherapy study for three months and you did hit your end point? Thanks a lot.
Lynne Brum - VP Strategic Communications
Thanks for the question, Joe.
John Alam - Chief Medical Officer
I will take a crack at that. And it's interesting the way you phrased your question. We all smiled around the table. It's a meta question you asked, asking us to comment on the way the Street has understood the data.
Just as a matter of record, going into the study, several months leading up to the study I certainly said over and over again that we were looking for statistically significant ACR 20 scores between 40 and 60%, and I said in the last few months before the data was available that I didn't really care what the number was between 40 and 60%, given that it was a three month study and you are on a kinetic curve of increasing -- expected increasing benefit with time and three months isn't long enough.
Well, we got a positive result. We got a statistically significant clinical effect and I think we hit the ball out of the park in the biggest perceived risk and the whole P-38 area which is on liver toxicity where clearly we didn't have a toxic signal. And that was -- I think frankly should have been perceived as a study positive. I can't comment on the psychology of the Street. I will just say what our expectations were that in terms of the biggest toxicology risk in the program, we hit the ball out of the park. And on the efficacy side, we met our end point in a study that going into it isn't long enough to fully assess the clinical effect of the drug. So we are pretty pleased.
Joe Pantginis - Analyst
Thanks a lot.
Lynne Brum - VP Strategic Communications
Thank you, Joe.
Operator
Your next question comes from David Witzke of Banc of America Securities.
John Watkins - Analyst
This is John Watkins in for Dave. Most of my questions have been answered already. But I had a quick question on what's your comfort level of the three month SVR predicting the six month SVR, and how tight is the correlation between the two?
John Alam - Chief Medical Officer
This is John Alam. Again, we aren't -- in terms of registration, we are using six month follow-up data to -- I mean, our assumption is we will use six month follow-up data to demonstrate SVR and that's what we would need to demonstrate in order for approval and NDA filing. The three month follow-up is really -- it's a comment on what data we would use to make a decision to go to the FDA for an end of Phase II meeting and move to Phase III. And so that is more our risk than necessarily a regulatory risk of whether three months or six months would be acceptable or not.
In that respect what's clear from a series of studies that have been presented over the last couple of years that 95% of the patients who are going to relapse they do so or more do so within three months of follow-up. There are very few patients who will relapse between three and six months of follow-up. So from our standpoint of trying to make an assessment of what our SVR rate is, we are going to be 95% accurate by using three month follow-up data. We may be off by a few patients here and there, but it really doesn't change the outcome in order to be able to again make the decision to move towards Phase III.
But again, we don't -- we are not assuming the FDA for registration or other regulatory authorities for registration will move that six month time point, and we will need to provide that data for an NDA package. My last comment is that we will in all of our studies, whether we make decisions based on three month follow-up or not, we will follow all patients for six months. And in the Phase II program we actually anticipate following patients for at least one year post treatment.
John Watkins - Analyst
Okay. So we will get sort of information on three month SVRs on all of the arms in the Phase II trial?
Ian Smith - CFO
Maybe I will take that question. It's more about disclosure strategy I think you are referring to. And we don’t make a decision on our disclosure strategy at this point in time.
John Watkins - Analyst
Okay. That was helpful. Thanks.
Lynne Brum - VP Strategic Communications
Thank you for your question.
Operator
Your next question comes from Annabel Samimy of UBS Warburg.
Annabel Samimy - Analyst
Good afternoon. I had a question regarding the VX-950 and the second Phase II study you designed. I'm still a little confused about the purpose of continuing with the 12 or 36 week follow-up with only peg interferon and ribavirin rather than continuing them on the full treatment including VX-950, given that you are trying to answer the question whether a three month duration or a six month duration is going to be optimal for these patients.
John Alam - Chief Medical Officer
Hi, Annabel. Again, I will take a shot at that and Josh may want to jump in at the end as well. As I said earlier, our view is that if you look at all of our data with VX-950 and including the specific biokinetic data, the time it takes for patients to go undetectible and compare that to treatment durations required to get SVR with various regimens of interferon and ribavirin, peginterferon and ribavirin in different patient populations, the data would indicate from a -- if you look at it from a virologist perspective and the rates of decline of viral load that 12 weeks of treatment with a VX-950 combination will be sufficient to obtain SVR.
Now, there are prospectives in the hepatology community that bringing down the total body viral load down to 10 or 100 copies of virus total in the whole body -- this is not concentration in the blood -- is not enough, that you need to have something more than that which only pegylated interferon and ribavirin for certain durations give in terms of giving the immune boost to clear out the last handful maybe of liver cells that are infected with the virus.
Now, we don't actually believe that you need that. And that's why we believe that 12 weeks of treatment will be sufficient. But there are people who believe that you need this longer duration of peg and ribavirin. You don't need viral suppression. You don't need to bring the viral load down anymore. You just need the immune stimulation to clear out those last few infected liver cells.
What we are doing in having that additional arm is basically to address that risk or that question. And it gives us additional likelihood that in fact whether that's true or not -- if it turns out to be true, you need that little longer duration treatment, we get to answer and we have it built into the study.
Josh Boger - Chairman, CEO
Imagine the other way around. Imagine that we don't do this, as it were, standard of care extension now and we get what everyone would consider to be a very high, maybe even extremely high, SVR rate, we are still left with the question coming from smart people with experience in the disease, well, I wonder what would happen if you just treated for another three months with pegylated interferon ribavirin. We don't want that to be hanging over the NDA and hanging over the Phase III design. We want that to be a question that's essentially answered much earlier. So it really is a matter of risk lowering addressing legitimate questions rather than us taking -- hedging our bets. We strongly believe that it's going to be three months and out for the vast majority of naive patients.
Annabel Samimy - Analyst
Great. I can appreciate that. I was just wondering, it still doesn't answer why you wouldn't think to keep them on VX-950 for the full six months just to answer the question of what would have happened if you had treated them with VX-950 combo for six months rather than just three months.
John Alam - Chief Medical Officer
Well, at this point we have three months of toxicology data and the six month toxicology study started in March. And so it is later this year that we will be able to go to longer duration. So again, in the treatment naive population, we don't believe that we would require longer durations of treatment with VX-950.
Josh Boger - Chairman, CEO
And essentially, we are interested in allowing a test and having a test of this hypothesis that there is something special about interferon in very long treatment period. We don't believe it, but we are willing to conduct the test. As John said to actually have VX-950 along in that same regimen to test that hypothesis would actually be somewhat confusing in that hypothesis. I think there is the data out there.
The literature that actually suggests that in patients who respond quickly, there isn't any increase in response from very high response rates already. In particular studies it shows 88% SVR with standard of care in patients that respond very quickly to the initial antiviral treatment and that is 80%. That's in six months, and 80% if they are treated for an actual year. Numerically it's going in the other direction but we were addressing a real -- and I think a real concern and a real issue that has been raised to us, and that's how we are designing this Phase II program to be responsive to a variety of risks and a variety of opinions while still driving our own view-point based upon data, always responsive to data, that it is supposed to be three months treatment and out.
Annabel Samimy - Analyst
Okay. And one quick question on VX-702. Are you conducting the combo trial in DMARD failures or treatment naive patients?
John Alam - Chief Medical Officer
It would be in patients who are already on -- receiving methotrexate and have had an inadequate response.
Annabel Samimy - Analyst
Great, thank you.
Josh Boger - Chairman, CEO
Thank you.
Operator
Your next question comes from Yolanda Johnson of Morgan Stanley.
Steve Harr - Analyst
It's actually Steve Harr. I think someone put the wrong name in. Hi, how you guys doing?
Lynne Brum - VP Strategic Communications
Hi, Steve.
Steve Harr - Analyst
A quick question -- two questions. One for you, Ian, on R&D guidance. Obviously this is a bigger program than many had expected I would say three to six months ago. Is there a need to change or update your expectations on research and development going forward?
And then, John, I just want to confirm as you give out this 2008 high guidance for an NDA filing for VX-950 that that's in the treatment naive population, the treatment refractory population would trail that number at some point to some degree, I should say.
Ian Smith - CFO
Steve, the first question. We re-iterated our guidance in our prepared remarks today. No need to change guidance.
John Alam - Chief Medical Officer
And the 2008 NDA filing would assume data on both treatment naive and treatment failure patients in the label.
Steve Harr - Analyst
So you would look at your six months worth of treatments in the treatment naive -- the treatment refractory from your Phase II data and potentially try to get that in the label? Or do you expect you would have time to initiate a second, or I should say registration afterwards?
John Alam - Chief Medical Officer
The Phase III program would be in treatment naive patients. And the plan is to run the Phase II study that we are starting later this year, to run a sufficiently large study that in fact it would allow us in the second line stated setting in patients who failed pegulated ribavirin -- that that would be sufficient to -- as the adequate and well controlled trial put that indication and to have that indication in the label.
Steve Harr - Analyst
Great. Very helpful. Thanks.
Lynne Brum - VP Strategic Communications
Thanks, Dave.
Operator
Your next question comes from George Fulop of Needham & Company.
George Fulop - Analyst
Can we turn our attention to the upcoming presentations and can you highlight what we might focus on, especially some new data or the presentations at the EDSL and TDW regarding 950? Thank you.
Lynne Brum - VP Strategic Communications
Yes, well, this is Lynn. Later this week we do expect to comment on our EDSL data disclosures. I think broadly speaking we have talked about some of the gene profiling that will be part of a poster. Some of the sequencing data coming out of our clinical studies and thirdly it's well-known that we have a late breaker presentation on Saturday out of our combination Phase IB study.
Those three will be disclosed by Vertex as we proceed through the week. There will be different EDSL embargo deadlines for different types of data coming.
John Alam - Chief Medical Officer
I think there is a lot of clinical data that will be presented there. I think it's worth the trip to Vienna. But to be consistent with the EDSL embargo policy, I can't actually go into what is new in those presentations.
George Fulop - Analyst
Okay. Auf Wiedersehen.
Operator
Your next question comes from Howard Liang of Leerink Swann.
Howard Liang - Analyst
Thanks. For the Phase II [pixel] program, the VX-950, will you start all of the treatment arms in the treatment naive patients at the same time? In other words, randomized (indiscernible) patients.
John Alam - Chief Medical Officer
Again, the specifics of the Phase II program between the treatment naive and treatment failure will be more of a global program which will include work we will do both in U.S. and Europe. The specifics of that of exactly how we will parse specific study arms and where we conduct that we will -- you know, as we iron out all of the specific details, we will talk to. The treatment failure patients are part of a separate study in which those -- that study will start later on in the year because we do expect to evaluate longer treatment durations of VX-950 in that study.
Howard Liang - Analyst
I have a question about VX-770. What would you envision the Phase II program to be and what will be needed for reservation for that particular patient population?
John Alam - Chief Medical Officer
We are -- at this stage there is a certain -- there is still work and discussion with the Cystic Fibrosis Foundation, the CF Therapeutics group on some of the details of the proof of concept studies that we would hope to initiate either at the end of this year and early part of next year. There are two major paths with a potentiated compound like VX-770.
One is to go into a very specific group of patients with specific mutations that have defects in the channel function that are directly amenable to VX-770 treatment. Those tend to let’s say a relatively smaller group of patients. And then there is a broader group of patients who have some amount of CFTR on the surface, but unlike the first group of patients don't have normal levels and CFTR and their defect is more in getting CFTR to the surface of the cell membrane. But a percentage of those patients are likely going to have enough such as a potentiator will be helpful for those patients. And we plan on doing proof of concept studies both in the limited group of patients and in the broader group of patients in 2007. And I think the design of registration studies and really the duration of studies for approval will be driven by the results in those studies.
Howard Liang - Analyst
Thank you very much.
Operator
You have a follow-up question from Geoffrey Porges of Sanford Bernstein.
Geoffrey Porges - Analyst
Thanks for taking a follow-up. (indiscernible) A quick question, I'm curious why we didn't get started on the six month animal tox study three or six months ago. I'm a little surprised you are going to be starting in March. And then related to timing, could you give us some clarity on when we should really expect Phase III to now get underway? Previously we had said we are starting by the year end, and now it looks like 2007. But I'm really trying to get – when that realistically is likely to be, at mid year, Q2? How much of a postponement in Phase III start date are we talking about here?
I'm still confused on the 500 patients. Is that 500 between both the naive and the experienced patients? Or is it 500 in just the naive? Thanks. Sorry about the laundry list.
John Alam - Chief Medical Officer
It's 500 patients total in the Phase II program. That includes both naive and patients who failed peg and ribavirin treatment. In term of Phase III, there is no postponement. We have said all along that our Phase III study start would be in 2007. And what I said in my remarks today is our plan is a Phase III start in mid 2007 and provided more specificity in that respect. But there is no change in our timing. And more importantly I think our time line to NDA in 2008 is unchanged. There are no changes in terms of the plan.
What we are providing is actually more details and specificity of what we would be doing in Phase II in allowing us to be -- go into Phase III. And what you mainly heard is that relative to perhaps six months ago in particular, six to nine months ago with the progress we made in the clinical program and the results we have obtained, we feel we have the opportunity to run a substantially larger Phase II program than we had originally envisioned. And that's what we have been working with both investigators and regulatory authorities on designing that Phase II program, the Phase II studies And we have expanded the scope of those studies up to those 500 patients or more in the various Phase II studies that we plan on conducting at this point.
In terms of your first question, again, I think we have been pretty consistent that we would start the six month toxicology studies after the three month toxicology studies are completed, analyzed, which is the normal course of toxicology programs, in order to really define your safety margins for ongoing clinical studies to complete both the toxicology program. And actually what we also have is really some very good data in terms of what our therapeutic concentrations are in [men], and the two combined really allow you to plan your chronic toxicology studies appropriately in order to get the safety margins that you need ultimately for NDA filing.
If you don't get that right, what you end up doing is taking very expensive, very long studies and having to redo them again. Because if you don't have the right no-effect levels and right safety margins in your package, you are going to have to do them again, and that would end up delaying your NDA. Yes, we took the time to complete the three month toxicology study and evaluate them, but I think in terms of the overall program it actually decreases the time line risk by having it started at the time we did.
Josh Boger - Chairman, CEO
And I think what you heard actually is the evidence of that.
A new piece of information about our program is the fact that we believe now that we will be able to have a treatment failure patient study that actually gets completed and if successful could form part of the still 2008 NDA label. So there has been no hit on any timeline by doing these six month toxicology studies when they normally and properly are done in good drug development. Others who have maybe have drugs that have to be treated in every patient for six months would be making other decisions. But since we believe that the bulk of the patient population out there, the vast majority of potential patients for VX-950 are patients who are naive to treatment, that's where we focused, and yet we given up nothing on the time line to get information on treatment failure patients by running the toxicology studies properly this way.
So there has been no delay.
Geoffrey Porges - Analyst
Thank you very much.
Lynne Brum - VP Strategic Communications
Thank you Geoff for your questions. And thanks to everyone else for your thoughtful questions tonight. The IR team, along with John and Ian, will be here a little longer to take further follow-up questions you have. And we hope you stay tuned for EDSL and for any other r updates on our 950 program. Thank you for joining us tonight.
Operator
Thank you for participating in today's teleconference. You may now all disconnect.