福泰製藥 (VRTX) 2007 Q1 法說會逐字稿

At this time, I would like to welcome everyone to the Vertex Pharmaceuticals first quarter 2007 financial results conference call. (OPERATOR INSTRUCTIONS) Thank you, Ms. Brum, you may begin your conference.

Thank you, Anthony. Good afternoon. This is Lynne Brum, Vice President of Strategic Communications and welcome everyone to Vertex's first quarter 2007 conference call. 2007 is an important year for Vertex. It's a year where we're building Vertex on telaprevir. In the first quarter we advanced the telaprevir global clinical development program. In particular we made progress towards realizing our vision for telaprevir of eradicating the agency of most patients with shorter treatment duration.

As we move forward in HCV, we're building Vertex into a pharmaceutical company with the potential to bring forward new drugs targeting areas of unmet medical needs. On today's call we'll cover first quarter financial results, telaprevir development, and our pipeline. These topics will be discussed and expanded upon during today's call by Ian Smit, John Alam, and our CEO Joshua Boger. Before I turn the call over to Ian, I'll remind you of the following, information discussed on this conference call includes forward-looking statements which are subject to the risks and uncertainties discussed in detail in our reports filed with the Securities and Exchange Commission including our 10K. GAAP and non-GAAP financial measures will be discussed on this call. Information regarding our use of non-GAAP financial measures and a reconciliation of those measures to GAAP is available in our first quarter 2007 press release which can be accessed on our website at www.VRTX.com. Unless otherwise noted, all 2007 expenses and guidance discussed in this call are inclusive of stock based compensation. As always you can visit vertex.com -- VRTX.com to listen to the conference call and view a PowerPoint presentation or download a podcast.

Lastly after our prepared remarks we will accommodate as many questions as time permits. Once the call concludes our IR team joined by John and Ian will be in the office to answer any additional questions. Turn the call over to Ian.

Thank you, my remarks today will be brief and will focus on two areas. The first quarter results and our financial strength to support late stage development of telaprevir. We continue to execute on the key financial themes within our business, specifically one, we had a significant increase in revenue from our R&D collaborations which provides support to our R&D investment, and two, we improved our balance sheet through the conversion of debt to equity. We are maintaining long term financial strength, which supports our investment to R&D opportunities. Now, for the first quarter 2007 financial results.

The first quarter non-GAAP loss before certain charges was $63 million compared to first quarter 2006 non-GAAP loss before charges and gains of $42 million. The increased loss was due in large part to an increase in development investment for telaprevir, including investment into our commercial supply chain. Our first quarter GAAP net loss was $81 million compared to first quarter 2006 net loss of $50 million.

Total revenues for the first quarter for 2007 was $69 million compared to $39 million for the first quarter 2006. This significant increase was primarily driven by collaborative R&D revenues and more specifically, the contribution from our J&J collaboration. Now, to the R&D investment. Our total R&D expense was $133 million compared to $75 million in the first quarter 2006. This increase reflects the advancement of telaprevir and a $32 million investment into commercial supply for telaprevir. Our investment into drug discovery remain relatively consistent to the prior year. Our first quarter SG&A expense was $17 million compared to $13 million in the first quarter of 2006. This increase was a result of infrastructure build to support our business and the initial commercial steps we have taken to support telaprevir.

Other income, net was $8 million compared to the first quarter 2006 of 2 million. Increased cash balances and the reduction in debt service costs added to our investment returns.

Now turning to the balance sheet. We ended the first quarter with approximately $690 million in cash, cash equivalents, and marketable securities, and we have $42 million of convertible debt remaining which is due in September 2007. Now to guidance.

We are reiterating our guidance for our 2007 GAAP and non- GAAP loss, and our cash, cash equivalent and marketable securities that we originally provided on our year-end 2006 conference call on February 1. Throughout the year, we will be focused on building the Company on telaprevir. We are prioritizing our investments in late stage development, commercial supply of telaprevir, and building Vertex's commercial organization. We'll continue to focus on maintaining strong financial profile enabling us to pursue these objectives. I'll now turn the call over to John.

Thank you, Ian. I'd like to begin today by reviewing some of the key telaprevir results presented at EASL earlier this month. In light of the fact that we have discussed these data at several recent events I will be brief in my remarks and will focus my discussion on how these data will inform the future development of telaprevir. On April 14, we presented interim data from the PROVE 1 clinical trial in a late breaker presentation at EASL. These data had significant implications in guiding our understanding of the opportunity for and the development strategy for telaprevir. A total of 250 patients were enrolled in PROVE 1 with 175 patients enrolled in telaprevir arms and 75 in the control arm. At the time of the interim analysis, all patients had reached at least a 12 week time point on the study. The interim anti-viral data from PROVE 1 Indicated a high rate of rapid viral response in the telaprevir group, a low rate of on treatment viral breakthrough, and suggests that that 12 weeks of telaprevir based therapy enabled some patients to clear the virus completely.

The key conclusions from the interim analysis and are take-away toward planning and executing late stage development are as follow--One, it is possible to treat some treatment naive genotype one HCV patients successfully with 12 weeks of telaprevir based combination therapy. Two, clinically meaningful improved SVR rates may be achieved with a 24 week treatment regimen and three, we will focus on improved management of side effects to increase the number of patients who successfully complete therapy. We're looking forward to safety and anti-viral data including additional SVR data on the 12 and 24 week telaprevir based regimens in PROVE 1 and PROVE 2 to allow us to design optimized treatment regimens and durations for a Phase III development of telaprevir. We expect to meet with regulatory authorities in mid 2007 and plan to initiate Phase III clinical development in the fourth quarter of 2007. We expect to report further data at upcoming major medical meetings.

In summary, we are on track to initiate Phase III development in the fourth quarter and have increased confidence in our strategy to evaluate telaprevir with short treatment duration of 24 weeks or less. In addition to the data presentation at EASL we have continued to advance the global Phase II redevelopment program for telaprevir in the first quarter. In January, we initiated PROVE 3, a four arm placebo controlled trial designed to enroll 440 genotype one HCV infected patients who have not achieved a sustained viral response with the previous pegylated interferon and ribavirin treatment. This was an important advancement in that Prove 3 is the first trial of telaprevir combination therapy for patients who have failed to clear virus with prior treatments with an interferon. It is also the first trial that will dose telaprevir through 24 weeks.

More than half the patients are currently enrolled in PROVE 3 and we are on track to complete enrollment within the second quarter. In summary, the development of the product profile for telaprevir continues on track and at a rapid pace.

Now to our other development opportunities. First, I will update you on VX 770, an oral drug we have in development that may address the underlying genetic defect in cystic fibrosis. We're on track to initiate in the second quarter a Phase II clinical trial of VX 770 in patients with cystic fibrosis. We expect that the Phase II randomized double-blind placebo control chart study of VX 770 will evaluate the safety pharmacokinetics and biomarkers of CFTR activity in approximately 35 patients. We're also advancing VX 702, our lead oral P38 map kinase inhibitor targeting rheumatoid arthritis. Within the first quarter we completed enrollment in a 12 week, 120 patient Phase II A clinical trial being conducted in patients with RA on a background of methotrexate. We expect to have data from the Phase II A study in the third quarter and depending on the results from the Phase II A trial and thorough QTC study which is also under way, we may advanced to a larger Phase II B study of VX 702 on a background of methotrexate.

Now to our oral kinase program. Our collaborator, Merck is developing the most advanced oral kinase inhibitor MK 0457 or VA-680 in a broad range of cancers. This drug candidate is currently being evaluated in a potentially pivotal trial in treatment resistant leukemias. Currently, nine U.S. and international centers are enrolling patients in this clinical trial. In 2005, Merck selected MK 6592 or VX 667, a second drug candidate for the inhibition of oral kinases which emerged from a joint research effort between Vertex And Merck. MK 6592 is in Phase I clinical development for advanced solid tumors.

Merck has now selected from a joint research collaboration a third oral kinase inhibitor, VX 689 for development. We received a $9 million milestone in the first quarter in connection with this drug candidate selection. We look forward to continuing to update you on data coming out of our programs throughout the year. I'll now turn the call over to Joshua.

Thank you, John. Already this year, we have moved decisively closer to defining the product profile for telaprevir. The global Phase II B proved program is doing what it was designed to do. Specifically we are collecting data that allows us to evaluate telaprevir's potential to enhance SVR rates with a short treatment duration, whether dosing combination with pegylated interferon and ribavirin or with pegylated interferon alone.

This program is data driven. What we are learning from this comprehensive development program is helping us design a Phase III plan for telaprevir that will maximize its potential to change the HCV treatment landscape. Bringing a major drug to the market is no easy task. It takes time, money, and an eye for developing innovative processes and the most important part, the human talent to move our forward. We are readying the Company for this progression and in some ways, it involves every person at Vertex. We hope that at the end of the day, telaprevir could have a major positive impact on the lives of HCV patients and on Vertex as well. That's the reason we're in this business. I look forward to keeping you updated on Vertex and telaprevir as we move forward. Lynne, back to you.

Thank you, Joshua. We would like to start the Q&A portion of this call.

(OPERATOR INSTRUCTIONS) Our first question comes from Geoff Porges from Sanford Bernstein.

Thanks very much. Just a couple. First, on the telaprevir program, Josh or John, could you give us a sense of how many patients are actually on telaprevir today in the Phase II program and when the treatment you estimate is likely to end meaning when the patients will have rotated off telaprevir and maybe just say how many have already been treated and exposed to the drug in that program so we're all clear. And then just on VX 770, could you give us a little bit more sense of the Phase II program that you envisage, particularly when you think that you'll have an answer in terms of the activity and how much we can infer into that answer about through a clinical utility given that you just talked about the sort of biochemical endpoints and then perhaps a little bit more about the size of the population out of the total CF population, how big is the actual population you're targeting. Thanks.

Well, thanks, this is John. On the Phase II B program, as you know, in PROVE 1, there were 175 patients who were on telaprevir who received telaprevir at least one dose of telaprevir and all of those patients have completed their telaprevir dosing. In PROVE 2, there were 240 patients who were to be enrolled into that study to receive telaprevir. 320 all together, 80 in control, 240 in telaprevir constraining arms. At this point, all patients have completed their telaprevir dosing in that study, and are either on pegylated interferon and ribavirin or on further follow-up, and then as I provided an update in PROVE 3, we are more than half the patients are now enrolled into that study and the randomization, there are four treatment arms, one control and three study arms with telaprevir in it.

So all told by the time PROVE 3 is enrolled, more than a thousand patients will have been enrolled into those studies, of which approximately 750 will have received telaprevir. Then, on VX 770, this first study is a proof of principle study, really looking to determine whether we can modulate CFTR activity with VX 770, and we will be looking to get the first read out from that study near the end of the year. In terms of clinical utility, I think it's hard to say. We are going to be looking at some clinical markers there as well, though the real goal here is to look at CFTR activity where we do expect that there is a close tie in between CFTR and clinical, CFTR activity and clinical outcome, but what's uncertain is the timing of, if you are able to modulate CFTR in a particular patron population, when that improvement would translate in terms of timing is that days, week, months of treatment that would translate to an actual clinical benefit and I think there's no way to predict that at this point. In terms of the size of population, it really depends on the underlying, again there is certain, there are a number of uncertainties there which I think we can talk to after we actually have the biomarker results to be able to talk to that.

Thanks very much. That's helpful.

Next question?

Your next question comes from Steve Harr from Morgan Stanley.

Yes, Ian, after last quarter I think there was a lot of discussion about the Company's burn rate, and without trying to box you in on longer term guidance beyond '07, can you just give us obviously making a lot of one-time investments in upgrading the manufacturing capabilities for telaprevir. Could you give us just some thoughts on the trends we should be expecting on your burn rate as you go into '08 and '09?

Steve, how are you doing? As you know, it's difficult to give you guidance beyond 2007, just given our certain restrictions with providing financial guidance. Just to clarify one point though on the manufacturing, our manufacturing investment isn't product and validation of process. We're not actually investing into manufacturing capabilities for the Company. It really is a virtual manufacturing chain.

Sure.

So we're investing into commercial product supply. As we look into the future years, we do anticipate in terms of greater, we do anticipate a greater investment into the business but that will principally be driven by the need to continue to invest in commercial supply while running a core business of R&D. Beyond that, I cannot give you further guidance in terms of the level of burn that we'll have.

So you don't feel comfortable saying this is a one year anomaly, $250 million or this is a pilot that we should expect to continue for a couple of years around this range, that's getting too specific for you?

It is too specific, but consistent with what we talked about at the beginning of the year. We're actually operating our business at a level that's been consistent with our prior year burn rate and that is a level that's been similar to a $200 million investment. The incremental investment that takes us to the guidance that we've provided for this year is an additional $130 million into the commercial supply. We're going to continue to operate our business in that manner as we move forward, I think one of the biggest variabilities in our business is the rate of investment into commercial supply.

Great. That's helpful. Appreciate it.

Your next question comes from Brian Abrahams from CIBC.

Hi, guys, thanks for taking my question. Congratulations on the progress this quarter. Based on what you're seeing from the ongoing Phase II B program, I was just wondering if you had any changes to your thoughts about filing an NDA at the end of next year based on efficacy data from the Phase II B program or if you thought there might be any efficacy data from certain arms of the pivotal program that might be necessary for filing.

Brian, this is John. We are, as I stated in my comments, we are on track and expect to begin Phase III development of telaprevir in the fourth quarter. The current focus of the Phase III program is the use of a what we have called the 12 plus 12 regimen which is 12 weeks of telaprevir pegylated interferon and ribavirin followed by 12 weeks of peg interferon and ribavirin. Now this is to be confirmed additional data from PROVE 1 and PROVE 2, but that data along with discussions we expect to initiate with the FDA in the middle part of this year will determine the specifics of the regulatory path and the timeline for a telaprevir NDA. Otherwise in today's call, we're not going to comment more specifically on the NDA strategy and timing.

Okay, that's fair. And just real quick if I could have a quick follow-up. What are your thoughts in terms of what the control arm might look like for the pivotal study or for the purposes of NDA filing I should say? Would you potentially compare the FBR 24 rate from the 12 plus 12 arm in the Phase III to say the FBR 24 data that you are able to get from the PROVE 1, 2, and 3 program or might you compare that to say the end of treatment response at 48 weeks in the Phase III study?

We do expect to have a control arm with pegylated interferon and ribavirin for 48 weeks in the Phase III study, but the specific study design including what types of comparisons we would make as for the primary end point and specifically for NDA filing, we'll talk to you about that after we've had more specific discussions with the regulatory authorities which again, we're expecting to initiate in the middle part of this year.

Fair enough. Thanks a lot.

Thank you, Brian.

Your next question comes from Phil Nadeau from Cowen & Co.

Good afternoon. Thanks for taking my question. John, first to you. Could you tell us more specifically what data you hope to have on hand when you schedule the FDA meeting? Do you think that you have enough data on hand now or will you wait until you have the 12 plus 12 data, the SVR rates from the 12 plus 12 arm and PROVE 1?

Thanks for that question, Phil. We will -- the key two additional pieces of data that we are, that we expect to submit to the FDA will be the interim data from PROVE 2 which will be 12 week end of telaprevir dosing data, both safety and anti-viral data, and along with that, and in addition, the SVR 12 data from the 12 plus 12 arm in PROVE 1.

Okay. And after this FDA meeting, what will you disclose to investors? Will you disclose the details of the Phase III or will you simply say at that time that the results are consistent with prior guidance that you're going to start a Phase III around Q4?

I'm going to let Ian talk about the moral in terms of disclosure, but in terms of the discussions with the FDA, I just, I do want to be specific. It's not a, this type of discussion with the FDA is not a one-time event, and there is, it will be an ongoing dialogue which as I said, we do expect to initiate in the mid part of 2007, and there is a flow of data that's obviously going to support that broadly. My initial comment was really towards the, for the initial discussions with the FDA, that's the data we would expect to have, and then in terms of disclosure of what we might talk to along the way, I'll let Ian comment on that.

Hi, Phil. As you probably know this has been a common question throughout 2007 so we appreciate the opportunity to reinforce where we are as a Company. But we're at very different stage of the Company as we go into these later stage studies. Coming out, we believe that we provided the key message to how we think this drug can be developed and hopefully ultimately approved, which is to commence a Phase III program before the end of this year, be in treatment duration that is no longer than 24 months with a primary strategy of 12 plus 12 and as long as we maintain that strategy as we continue to rollout the data from the PROVE studies, then we do not see a need for disclosure, and therefore, we will be providing data within the medical forums which helps us with the integrity of the studies and also helps us with our relationship with the FDA in this very important time.

Okay, so it's possible that you could have these meetings with the FDA and not really disclose anything to investors after as long as your development plan is grossly the same as what you've already disclosed?

That's the way that we are moving forward, yes.

Okay, and last question, Ian, is for you. In the guidance that you issued in February, you said there could be up to $80 million in milestones from the development of the VX 950 in '07. Have you ever disclosed what your assumptions are underlying $80 million? What would need to happen in development this year in order for you to recognize $80 million in milestones ?

So, we have not been specific on the milestones and the timing of achieving those milestones but we have talked about they are consistent with the development plan within 2007 of telaprevir, and those milestones are focused on the commencement of studies.

Okay. Thank you.

Okay.

Your next question comes from Rachel McMinn from Piper Jaffray.

Hi. Thanks very much. Can you talk about the rationale for including the stringent RVR definition in PROVE 1 for the 12 plus 12 arm? Is this something that the FDA is requiring or, and I guess if so, do you expect the FDA will require the RVR in a Phase III trial design?

Hi, Rachel, this is John again.

Hi.

The requirement for the RVR to have achieved an RVR which is to be at less than ten IU per milliliter at week four, in order to stop treatment at 24 weeks in the 12 plus 12 arm is specific to PROVE 1, and it's there because it's the first trial in which we were, or anyone was attempting shorten the treatment duration from the current 48 weeks down to 12 or 24 weeks and it's part of the design that we came to in our discussions and came to an agreement with the FDA around that. We don't expect with additional, with the data that we derived from here that we would require in subsequent trials. Ultimately, what even the first set of data from PROVE 1 demonstrates is that it is possible to shorten the treatment duration in genotype one HCV which was the objective and having done that, we don't necessarily expect to have that type of criteria in subsequent studies. As you know, PROVE 2 does not contain that criteria.

And I guess just to follow-up on that though, why wouldn't the FDA need to see the FBR data from PROVE 2 just to get comfort that the RVR definition here, or I guess threshold for continuing on issuer treatment wouldn't actually bias patients in a positive way.

I think the data overall will, I mean, we're going to get a full set of data that will support that. In fact there isn't an overt bias towards this. I think one of the things you need to keep in mind is that a very high proportion of patients do achieve a RVR with telaprevir, and when we're, at the end of the day, it's a small percentage of patients who -- very small percentage who don't achieve an RVR and most of those in fact have the 7% as you know developed a viral breakthrough, and so in a sense that there's, if you look at the overall set of data from Prove 1, most patients are achieving an RVR and they should benefit from a 24 week treatment duration and what the FDA otherwise, we have in terms of discussion is something that will, we think that the data will support that for the great majority of patients 24 weeks will be appropriate duration.

Okay. And just two other questions. The $32 million investment in Q1, is that raw material or finished product and then on the oral kinase, can you give us any clarity on if any of those are orally available?

I didn't hear all your question, I apologize, but it sounded like you were asking about the $32 million investment into the supply chain?

Yes.

So, that's an investment into a validation process and also commercial product to be precise, it's an investment of about $10 million into validation of processes and about $20 million investment into the raw materials of the final product.

Great.

And then on the oral kinases, we're not being specific on the profiles. All of the various oral kinase inhibitors other than for what you know around VX 680. We and Merck together are the leaders in the field. There's a lot of information about oral kinases and the biology that is part of our competitive advantage here and so we're not disclosing specifics beyond that at this point.

Thanks very much.

Thank you, Rachel. Our next caller?

Your next question comes from Richard Smith from JPMorgan.

Yes, good evening, everyone. Just a couple of quick questions. One, with the Phase III design, I know you can't talk much about it at the moment, but would you consider doing something like peg ribavirin run-in period before treating one on triple combination? Is that something you would consider?

No, we would not and the reason is that the rate of viral breakthrough that we saw was low in PROVE 1 and so we don't think that's something we need.

Okay. And with 770, the focus is on the GE 551-D variant. Is there any data on activity in the delta F 508?

Yes. We do have in vitro data that it is active in a delta F 508 context. In a clinical context, and it will depend on the amount of expression of CFTR and the surface of cells in patients who have the delta F 508 mutation and that will depend in many cases on the second allele and how much and how that determines the amount of actual expression on the cell surface. And it's very hard a priority to know what percentage of patients would have enough and that was my prior comment that we'll have to see what kind of biomarker results we see in the initial study and then subsequently, how much of an effect we could have on a broad group of patients with delta F 508 mutation and see what percentage we can address but I think today I can't predict what percentage we would be able to address.

All right okay, thanks.

Thank you, Richard. Next question, please?

Your next question comes from Jason Zhang from Prudential.

Thanks. John, I have a question about RVR definition in PROVE 1 and also I have a follow-up question about the discontinuation risk. So the question on RVR is not only you have to have a patient who achieve (Inaudible - highly accented language) at weeks four and this patient will also have no, I guess you'll have to have that response and then do the treatment, otherwise this patient will take off the treatment and go back into the 48 week treatment arm. Is that how it is designed or defined?

So, I think the PROVE 1 criteria we shouldn't spend too much time on it because it is our intent, that it was a one-time. We would use that criteria and this is not at all the idea behind what the treatment paradigm we're setting up and so what really, we should be focusing on based on the data that we have attained from PROVE 1, that we can shorten treatment duration and that a 12 plus 12 regimen with a 24 week total duration you really will not require any other criteria for patients who go on to that treatment and our objective is to demonstrate that. That's one decision a clinician will have to make in order to be able to achieve an improvement in SVR rates from the current standard of care.

Okay. And then, on discontinuation, so you reported that the AE related discontinuation of VX 953 patients were about 11% but you haven't really talked about total discontinuation and that includes no drug related, so do you have that number? And the follow-on question for that is now that you have this data, particularly the profile of patients with discontinued treatment, what do you know physicians are doing in the subsequent trials to help patients stay on the drug not to dropout unnecessarily due to other reasons?

So, in the PROVE 1, in the results were reported 11% of the patients in telaprevir containing arms discontinued because of adverse events. There were an additional approximately 5% of patients who withdrew for either non-compliance or withdrawal of consent, but did not have a specific adverse event that led to that discontinuation.

In terms of subsequent trials, I think in particular as we look towards Phase III, the first, there are kind of two levels of management. One of them is continuing to understand further the side effect profile and the data that we've received to this point as well as the PROVE 2 data to keep patients on telaprevir through to 12 weeks, but in addition to that, if we're not, if patients do need to discontinue because of adverse events, is to stop the telaprevir and continue either interferon or interferon and ribavirin. If it does come to that.

In PROVE 1, which again, first Phase II trial and we and the investigators had to take a particularly conservative approach, when patients stop, they stop all three therapies in general. In subsequent trials and again in particular in Phase III, we think most of the patients who stopped in the current trial, many of those patients I should say will be able to continue the peg interferon and as long as they've received a majority or nearly all their telaprevir, they should still have a very good shot at reaching an SVR, and then the last comment is just remember that the great majority of patients in fact did complete 12 weeks of telaprevir, so we're really only talking around what's the optimal SVR rate we can achieve when we're talking about side effect management. And it's not at the core of why we believe we're going to be able to increase SVR rates.

Just one quick follow-up. For those patients who discontinued like I said in PROVE 1, when they discontinued, they discontinued everything this time, were you able to actually go after this patient to collect blood samples weekly to preview the weekly RNA status or since they have discontinued from the treatment, some of the patients data won't be available to you?

That data will be available to us at the time of the EASL meeting and today we did not have that data. It was a matter of we needed to go back through all the investigator sites and track down those patients and obtain that data and that's an ongoing effort and we do look forward to putting all of that data together into a coherent picture of what the true SVR rate is in that study.

Thanks.

Thank you, Jason.

Your next question comes from an Annabel Samimy from UBS.

Can you tel me how does PROVE 3 or any of the studies in treatment experienced patients factor into your development plans? Are you planning on filing for both treatment naive and treatment experience given the need or the most immediate need is in treatment experience and how might that affect your development plan?

The Phase III study that we've talked about to this point and the use of the 12 plus 12 regimen as a focus in Phase III is around treatment naive patients and the strategy in treatment naive patients and that's based on the PROVE 1 data and will be confirmed data from PROVE 2 as well. In terms of treatment failures, the only study we're running at this point is PROVE 3 which is in fact quite a large study for a treatment failure context with 440 patients and we believe depending on the strength of the data and the consistency of the data in this study could support having treatment failure patients in the label, but that again is part of the discussion that we would be having with the FDA within this year.

Okay, and can you just remind us how PROVE 3 is powered? What are the assumptions for the control arm?

We have not talked about that at this point of the specifics of the power calculations or the sample size. I think our assumptions in a regular rigorously defined population of patients who failed pegylated interferon and ribavirin treatment is that the SVR rate would be very low on the order of 10% or lower.

Okay and then one final question for PROVE 1, can you just clarify again or remind us again the patients who were on telaprevir and dropped out but do happen to achieve an SVR , are those for statistical purposes considered responders or

If we have the data that demonstrates that they are an SVR, they will be absolutely counted as a responder.

Okay. Great. Thank you.

Thank you. Next question, please?

Your next question comes from Meg Malloy from Goldman Sachs.

Thanks very much. Just two quick ones. First, can you give us an update on the back up compounds for telaprevir and whether or not we might see anything head toward the clinic this year? And secondly, John, if you could just review the characteristics that you would look for for a go, no-go decision on 702? I guess that would be the current Q3.

Yes, Meg.

Well, I actually can't provide you any specifics on the backup, on the follow-on program. It's just for let's say, it's a highly competitive field and we are, we have a research program that's ongoing. We have a very good eye on which aspects we need to optimize on in order to have the most competitive program, and we're moving forward, but I can't be anymore specific than that.

Okay.

And so on VX 702, yes, that is effectively a go, no-go decision in the third quarter and that will depend on having a successful study both on the thorough TTC study and on the rheumatoid arthritis study and we would really be looking for ACR 20 rates that are competitive with the anti-TNF agents and in a three-month study, those are well described in various.

What about markers for (Inaudible) potential?

We're certainly following that. Based on our prior results, we would expect actually a low potential for liver toxicity at this point.

Okay, thanks very much.

Thank you, Meg. Next question, please?

Your next question comes from Yaron Werber from Citigroup.

Hi. Good afternoon. John, maybe I don't know if you can comment on this but help us understand a little bit the 12 plus 12 data when it comes out, what would you like to see to feel comfortable that this development plan should proceed as planned with a 12 plus 12 strategy? What's the end of treatment that leads you to be confident versus one that leads us to believe that you might need to treat longer?

Hi thanks, Yaron. The main thing we would be looking at is looking at the relapse rates in the patients who complete 24 weeks of treatment, the 12 plus 12 regimen and stop all treatment at that point, and a low rate of relapse would support that. There's no potential, further potential benefit by extending the treatment duration for interferon and ribavirin.

And so just so we understand a little bit, so it sounds like you'll have the 12 plus 12 data, the end of treatment data at the end of the second quarter. When -- at that point, do you need to see another 12 weeks to feel more confident about the dropout rate or what point I'm just trying to understand relative to--.

We're talking about HCV RNA results at 12 weeks of follow-up, after they've completed all treatment at 24 weeks, and this will define what the relapse rate is because almost all patients who relapse after stopping treatment with their HCV RNA coming back in the blood, that happens within 12 weeks of follow-up after stopping treatment, and that data, we do expect to have in time to meet with the FDA in the middle part of this year.

And Yaron, just to reemphasize that, this is very similar to how we looked at the small R&D at EASL.

Yes.

If you wait until the end of treatment and do a post- treatment follow-up and look at the relapse rate of the post- treatment.

Okay. And presumably the Phase III study I would imagine would be Superiority study. Can you, and I know you probably would not want to share with us too much on the Phase III design as you noted but can you just help us a little bit understand if the placebo arm would be expected to do 45 to 50% SVR when treated for a full 48 weeks. What's the superiority margin that you would be comfortable with? That the industry would be comfortable with? Would an absolute 10% be enough? Being 10% say going from 45 to 55 or is 5% good enough given that you're shorting the treatment duration?

I think it's a little premature to actually talk about the specifics of the Phase III design. It really, the margin is dependent on it just has an impact on the size of the study and how much risk we take on and we'll design that appropriately and we are working on this internally today and obviously, we'll be discussing that with the FDA but we are, as you've heard, through our various sessions, we are confident that the 12 plus 12 arm can increase the SVR rate from what the standard of care substantially from what the standard of care does and based on that, we can design a Phase III trial in which we can be successful.

Okay and maybe just a final question. You noted that you're considering doing a twice daily 950 study. Would that be boosted with ritonavir or is that 950 by itself?

So we are expecting, we are on track to initiate a exploratory study using BID regimen of telaprevir in combination with pegylated interferon and ribavirin starting that study within this year. We have completed the analysis of a multidose study of ritonavir and telaprevir in healthy volunteers, and based on the results of that study, we do not expect this BID study to include ritonavir

Did you see a drug-drug interaction there? Is that what the issue is?

The study results do not support based on the PK data, of telaprevir, that the level of, that the level of blood level increase that we saw did not justify going forward which ritonavir, as a strategy for boosting telaprevir levels in a non-HIV co-infected patient population. The good news in many ways was that there was in fact not a substantial drug-drug interaction at the end of the two weeks and based on that, it may actually make it simpler and more straightforward to conduct studies in a HIV HCD co-infected population that is on a ritonavir containing regimen.

Thanks, John.

Thanks, Yaron. Next question, please?

Your next question comes from Howard Liang from Leerink Swann.

Thanks very much. Just a follow-up on the previous question. So is the twice a day dosing with a new formulation of telaprevir?

No. It's the formulation that we've using in PROVE 3 and would in fact commercialize with, but the regimen that we're using in PROVE 3 and will go into Phase III with is two tablets every eight hours, three times a day. In the BID study, we would use three tablets twice a day, so same daily dose divided twice a day instead of three times a day. Based on the PK data that we've obtained in our study to this point, we believe we can hit our target for trough concentrations with such a dosing regimen, but it clearly is, remains to be proven that we are able to be successful with that regimen of three tablets twice a day and that's why we are calling it an exploratory study.

Okay, just you mentioned one key goal with the telaprevir program is to better manage the side effects. Can you talk about your initiatives there and also I was wondering, is there any indication that side effects might be related to the weight of the patient so that higher dose per kilogram may give you more rash, for example?

So, there are, I would say two categories. The most straightforward way to manage this is how I discuss it earlier is given that particularly the severe rash is starting relatively late in the course of telaprevir dosing, the mean or I'm sorry, the median data of onset of severe rash was 62 days, so more than eight weeks into dosing, so far into the 12 week dosing period. For those patients, the easiest way to manage it is to stop the telaprevir, continue the ribavirin and pegylated interferon or just pegylated interferon alone, make sure that duration is 24 weeks because we do believe that the wild [khy] virus, which is where the bulk of the virus is where telaprevir has its major action, and most of the wild khy virus if not all of it is going to be eradicated within, well within the 12 weeks and in many patients it may be substantially less than 12 weeks.

The interferon and/or ribavirin are really there for the variance where you need the full 24 weeks. So that would be the easiest way to manage through, and then otherwise, I think it's all about gaining a further understanding of who and perhaps why they developed a side effects and I think your question is one of the questions that we will be asking when we have the full data set between PROVE 1 and PROVE 2, I think that's where the PROVE 2 Data becomes important because it provides us the numbers to look at questions like are there anything in the demographics like weight, or otherwise or blood levels, metabolites, et cetera, that may be a key to who's developing the more severe events in order to be able to look out for them and manage the dosing in an appropriate way. But those are still ongoing questions at this point. If I could ask a quick question, VX 680, when might be see pivotal Phase II results from the say no trial? Yes, I mean, it's too early into the study to talk to that.

Great. Thank you very much.

Thank you, Howard. Given this call has gone almost an hour we'll take one last question.

Our final question comes from John Watkins from B of A Securities.

Thanks. Had a quick question around the PROVE 3 study. I know you mentioned at your Analyst day that there was a plan put in place to deal with the rash in PROVE 1 and PROVE 2 and I was wondering if that same plan is in place for PROVE 3 and also what kind of rash do you expect to see? Do you expect it to increase out as you get well beyond Day 62 and you think that it's still going to be manageable at that point?

The same rash management plan that we instituted in PROVE 2 is in PROVE 3. Obviously, because of the timing of PROVE 1 and PROVE 2, it's going to have more impact in PROVE 3 because we're still enrolling that study, and everything that we learn in PROVE 1 and PROVE 2, we are applying in PROVE 3. In terms of what would happen with continued dosing, there's no way to tell at this point. I think in the treatment failure context, the tolerability profile, I think the expectation would be that in general, it would be better than in the treatment naive context because these are patients who have demonstrated and have tolerated pegylated interferon and ribavirin previously and I think that's an experience in HIV and many other contexts that the patients tend to do better in that context and obviously the benefit risk ratio is very different. And so I think the PROVE 3 tolerability and efficacy results will have to, in the treatment failure context will have to stand on its own. Just to be clear, you will encourage patients to stay on their standard of care if they did have to come off of telaprevir in the PROVE 3 study?

Yes. Okay. Thanks.

Thank you, John and thank you everyone for joining us tonight on the Vertex first quarter conference call. We'll take any additional questions directly to our offices. Thank you and goodnight.

Ladies and gentlemen, thank you for participating in today's Vertex Pharmaceuticals first quarter 2007 financial results conference call. This concludes today's conference. You may now disconnect.