福泰製藥 (VRTX) 2007 Q3 法說會逐字稿

Good afternoon. I will be your conference operator today. At this time I would like to welcome everyone to the third quarter 2007 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer session. (OPERATOR INSTRUCTIONS) Thank you. Ms. Brum, you may begin the conference.

Thank you, Chris. Good afternoon, this is Lynne Brum, Vice President of Strategic Communications and welcome, everyone, to Vertex's third quarter 2007 conference call. Two themes categorize our progress in the third quarter. First, progress in Phase II development with Telaprevir in HCV. We have three ongoing trials with Telaprevir which are providing key information to support late stage Telaprevir development. At ASLD, clinical investigators will present interim efficacy data highlighting sustained viral response rates with shorter duration therapy compared to the current treatment, and second, progress in the pipeline. Today, we announced two new drug candidates which are progressing towards the clinic by year-end. The first is the second generation HCV protease inhibitor and the second is a corrector compound for CF.

These topics will be discussed and expanded upon during today's call by Ian Smith, Kurt Graves, John Alam, and Joshua Boger who will join us for Q&A. Before I turn the call over to Ian I'll remind you of the following. Information discussed in this conference call includes forward-looking statements which are subject to the risks and uncertainties discussed in detail and our reports filed with the Securities and Exchange Commission including our 10-K. Also, 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 third quarter 2007 financial 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 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, Kurt, and Ian will be in the office to answer any additional questions you may have. I'll now turn the call over to Ian.

Thank you, Lynne. Financial summary for the quarter is one of investment to drive our business, specifically investment in Telaprevir and its supporting activities. During the third quarter we also repaid our remaining convertible debt. We have maintained a strong cash position with no outstanding convertible debt. In summary, we have a strong balance sheet with approximately $515 million in cash, cash equivalents, and marketable securities.

Now to our income statement. Our third quarter GAAP net loss was $107 million compared to the third quarter 2006 net loss of $52 million. The increased loss was primarily due to an increase in development investment for Telaprevir as well as other areas to support the advancement of our business. The third quarter non-GAAP loss before certain charges such as stock based compensation and restructuring was $93 million compared to 2006 non-GAAP loss of $48 million.

Total revenues for the third quarter were $41 million compared to $53 million for the third quarter of 2006. The decrease in revenues was attributed in part to less revenue from research based collaborative programs, as our collaborations are now principally focused on supporting our development programs. Now to R&D. Our total R&D expense was $129 million compared to $96 million in the third quarter 2006. This increase reflects development investments to support the global Phase II clinical program of Telaprevir. We also continued to invest in the Phase II trial of VX-770 in patients with cystic fibrosis and in other earlier stage programs.

Our third quarter SG&A expense was $21 million compared to $15 million in the third quarter of 2006. This increase reflects costs associated with building infrastructure including an increase in the number of employees to support the clinical advancement and commercialization of Telaprevir.

Now to our 2007 financial guidance. We are reiterating our guidance established in February 2007 for our GAAP and non-GAAP loss as well as our expected year-end cash and equivalents position. Additionally, as we look to the fourth quarter of the year, we expect revenues to increase and operating expenses to be consistent with the third quarter of 2007. I'll now turn the call over to Kurt.

Thank you, Ian, and good evening, everyone. I'd like to discuss three new developments in our pipeline. The first involves our deep commitment to HCV. As you all know, progressing Telaprevir is our top priority. I have now been at Vertex for a few months and as we analyze the unmet needs in the treatment of HCV, I like what I see about our position in HCV, our interactions with the FDA and thought leaders and the significant market opportunity ahead of us. Our emerging data that will be released at ASLD reinforces our confidence in the direction of our overall HCV development program, while Telaprevir is setting new standards in the development of HCV, we aim to be a top innovator and leader in the field long term. Because of this, it's the right time for us to be making investments into a second generation HCV protease inhibitor program.

Today, we announced that we have selected our second protease inhibitor, VX-500 for development and expect to enter the clinic by the end of the year. We recognize that the HCV landscape is competitive with many product candidates in development. Telaprevir is leading the field. To strengthen our position as a leader in the STAT-C therapies, we will continue to move Telaprevir ahead as a cornerstone to establishing a broad presence in the treatment of HCV. We will also look to build a pipeline of HCV products with significant depth and breadth as the focus of an emerging franchise and enable Vertex to capture and build the Company on the tremendous opportunity. We are convinced this is the best strategy short and long term for our success.

Secondly, we have aligned our investments to reflect our commitment to cystic fibrosis. A major focus in our pipeline is in CF. We recently selected a second compound for development, VX-809, representing a new mechanism of action. This is a corrector compound and we are excited to now have two compounds going forward targeting this serious disease. Lastly tonight, as we focus our current development priorities on HCV and CF, we've also evaluated data from our recent studies with VX-702, including data from a safety study to evaluate cardiovascular effects, and another one from Phase II, 130 patient trial evaluating VX-702 on a background of methotrexate for the treatment of rheumatoid arthritis.

On the basis of these study results we believe further development of VX-702 is warranted. We continue to believe there are unmet needs and commercial opportunities for our p38 inhibitor in inflammatory diseases; however, as we advance our expanded HCV and CF programs and focus our resources, it is now our goal to seek a collaborator who can support the development of VX-702 going forward. I will now turn it over to John who will provide a larger clinical update focused on Telaprevir.

Thanks, Kurt. Today, I will talk broadly about where we are in development with Telaprevir and upcoming milestones of the program. I would also provide a brief update on our pipeline. Since ASLD begins at the end of this week we are reserving our detailed Telaprevir discussion for the data presentations and the Investor Relations event that is scheduled in conjunction with the medical conference. We have high confidence in Telaprevir. It is our top priority. At ASLD, which starts this Friday, we will be presenting important data from two comprehensive trials involving more than 500 patients.

From a Novel drug development perspective, we believe it's the most extensive data to be presented in the HCV arena in several years. First and foremost, it will be the first time that extensive SVR 24 and SVR 12 data will be presented for an HCV protease inhibitor. Along with the top line data we have also began to characterize the effect of an initial rapid decline in maximizing on treatment response, minimizing viral breakthrough, and achieving SVR. This is truly a meaningful time for Vertex in advancement of our therapies for HCV, and we look forward to speaking with you about Telaprevir data at ASLD.

We told you in our last call that we would begin discussions with the FDA in the third quarter. These interactions began in August and at that time, we presented the data we had in hand. The discussions are progressing and are to date constructive. We continue to submit new data to the FDA as it becomes available to Vertex. More specifically, we have recently provided to the FDA the SVR data that will be disclosed at ASLD. We look forward to continuing our interactions based on the new data. In addition to providing data we plan to discuss a protocol for the next stage of development of Telaprevir. We expect to provide an update on our discussions with the FDA as soon as they are complete. Together, with Tibotec, we're planning additional trials to evaluate Telaprevir in certain important HCV subpopulations. In the coming months we're focused on initiation of a first clinical trial in patients with genotype two or three, and initiation of a clinical trial with Telaprevir dosed twice daily in combination with pegylated interferon and ribavirin. The details of this latter trial can now be found on clinical trials.gov.

In summary, we believe Telaprevir has the potential to significantly advance how we may treat HCV in the future. I'll now turn the call back to Lynne.

Thank you, John. And Chris, we would like to now begin the Q&A portion of the conference call.

Absolutely. (OPERATOR INSTRUCTIONS) Your first question is from Geoffrey Porges, Bernstein.

Thanks very much for taking the question and congratulations for bringing VX-500 out of the closet. I'm sure other people ask about that. I just wanted to talk about PROVE 3. Obviously, we won't see any data from PROVE 3 here at ASLD, but I think you being fully enrolled since June or so, could you give us a sense of when the last patient will come off treatment in that trial for Telaprevir and when we might see the first efficacy results how that might be disclosed, and then give us a sense, John, of why you think that Telaprevir could work in this patient population and setting when Schering's drug clearly didn't work? And then, finally, what the threshold for an IVR rate required for you to justify some sort of early discussion with the FDA about the data would be. Thanks.

Thanks, Geoff, this is John. PROVE 3 is a phase 2B Study of Telaprevir in 440 patients with genotype 1 HCV who have not achieved SVR with the previous interferon base treatment. It's a very broadly defined group of patients who failed previous treatment with pegylated interferon in ribavirin. The study was fully enrolled in the second quarter with the patients being randomized equally across all four treatment arms and the studies being conducted in more than 50 centers in the U.S., the EU, and Canada. We expect all the patients who have completed the Telaprevir duration of treatment which is 12 weeks in one treatment arm and 24 weeks in two of the three Telaprevir treatment arms to complete all Telaprevir dosing near the end of this year, and would expect the first read-out and clinical results from this study in 2008. The study is being monitored by an IDMC who are following some of the more individual data both safety and viral breakthrough data more carefully, but in terms of first data that will be available at a high level to us, efficacy data would be some time in 2008.

It is very different study in terms of the patient population than the results that were recently announced with another HCV protease inhibitor in that it is a broadly defined patient population of treatment failure which would be expected to have a better underlying interferon ribavirin responsiveness than the very strictly defined I would say almost niche population that was included in the other study population, a study that only included patients who had had less than a two log reduction in HCV RNA and that's one of two reasons why we do expect a fundamentally different response. The other reason is that the level of early rapid viral suppression, even in the first 24 to 48 hours that we see with Telaprevir is distinctly -- is unique and as such has the potential, we believe, to convert some of the even some number of the intrinsically or non-responders to interferon and ribavirin to change their responsiveness to interferon and ribavirin. Obviously, ultimately that result will only be, whether that plays out or not, we'll only see it in the data, but it is one of the reasons why we have the IDMC to monitor for if it were that there was a profound number of patients who were having no response or breakthrough, then they could institute changes as necessary.

So I'm sorry, what do you think the threshold is for it being something that you'd engage in as a discussion with the FDA about?

In terms of responsiveness? I think it's too early to say right now. Our focus right now with the FDA is obviously in the treatment naive context.

Thanks very much.

Thanks, Geoff. Next question, please?

Yes, your next question is from Steve Harr with Morgan Stanley.

Thanks. I had a couple of questions. The first one on VX-702. Could you just give us some granularity around potentially either what you consider to be adequate data? Is it a safety or efficacy end point that you were really looking for here in the methotrexate study? And second, when might we actually see the full presentation of the data?

So thanks, Steve. This is John again. On VX-702, in the rheumatoid arthritis study, there was a statistically significant effect in terms of ACR 20 response rate and in terms of thorough QTC study, we believe the, well our analysis of the data indicate that in fact at the 10 milligram dose level that was evaluated, there is definitely a path forward with the QTC results that we have and that it would support further evaluation of that 10 milligram dose, and in particular with the rheumatoid arthritis study results, we would expect to provide more detail at a relevant medical forum. It's too early to say specifically where at this point, we've just recently started analyzing the data and there's a lot of work ahead to fully understand the data in this study and tie it back to the results we had in the prior study.

Okay, and then second, you guys have previously discussed beginning a Phase III trial for Telaprevir prior to year-end. Is that something that's still on the table or just given the timeliness with the FDA, should we think about that as an early 2008 event now?

The results that we're going to be presenting in terms of SVR and overall safety and efficacy results that we will be presenting at ASLD, we believe do support moving Telaprevir in particular with the 12 plus 12 regimen into Phase III. The timing of that and the specific study design is absolutely contingent on the dialogue and the process that we're following through with the FDA. At this point again, they've recently, we've recently provided the most recent SVR data to them, and it's premature at this point to really say, I can't really go into detail of how that will play out, but we are -- we continue to be focused, this is obviously a very high priority for us to reach an agreement with the FDA and move it forward, and in order to respect the integrity of the process for the FDA, I'm not going to comment more specifically at this time on the timing and the specifics of the process.

All right, thanks.

Thank you, Steve. Next question, please?

Absolutely. Your next question is from Hari Sambasivam with Merrill Lynch.

Yes, thank you. John, just a quick question on VX-500. Could you just give us a sense of what aspects of 950 that you're trying to differentiate this particular drug from, in terms of is it dosing, is it safety, efficacy, all of the above? Could you provide some detail?

Hi, Hari. I'm actually going to let Kurt answer that question.

Hari, we're not disclosing too much about the particular profile aspects of the compound right now. We obviously feel with Telaprevir we've got a great asset with a great profile to start from, and as you might imagine when we're looking at a second generation program, our criteria are that we would have to see a compound that has the promise to do even better than what we've already achieved with Telaprevir, and there are a few possibilities for sure in the second generation compound where we see it might have the potential to exceed what we've already achieved with Telaprevir but we don't want to go into specifics at this point in time.

Thank you.

But we're excited about the compound.

Thank you.

Thanks, Hari, next question, please?

Your next question is from Meg Malloy with Goldman Sachs.

Thanks very much. I guess two questions. One on 702. Could you characterize the kind of partnership you would like to establish? Is this something you'd be interested in sort of sharing half the burden of? And then secondly, I respect you probably don't want to go into too much detail as you're still in discussions with the FDA, you just reiterated that you think 12 plus 12 is a likely efficacy arm, but are there other things outstanding that you think need to be elucidated with the FDA before potentially beginning studies with respect to safety or resistance, other populations, anything along those lines you could comment on?

Sure. I'll start out with 702 and maybe John will talk a little bit more about the FDA process. On 702, it's too early to say exactly what type of deal we're going to be looking at. We'll be talking to a number of interested parties that have been in contact with us and that we want to reach out to to figure out what the best deal is but we're looking for someone who can really take on the next phases of development for 702.

So is a royalty kind of collaboration as much in the card s as a 50/50 kind of share?

We'll come back to you with the details on that later.

Okay, thanks.

And this is John. Hi, Meg. On the -- in terms of the specific issues we're discussing with the FDA, I'm not going to, again, I'm not going to go into detail, but just say that in the data we presented to them earlier in the third quarter, and that we reviewed, all of the available safety data with Telaprevir or all of the data, the full set of safety data from PROVE 1 and PROVE 2 were provided to them because that was through to the full duration of Telaprevir dosing in those studies was through to 12 weeks, so all of that information was already available to them in the prior discussion. I think, and it's really the next meeting and discussion will very much be focused on the additional SVR data that comes out of the completion of the interferon ribavirin dosing and the 24 week arms as well as 12 and 24 week follow-up.

Okay, thanks that's helpful. Thanks a lot.

Thanks, Meg. Next question, please?

Your next question is from Annabel Samimy with UBS.

Hi, thanks for taking my call. I just was curious to know, now that you've got some of the discontinuation rates out for PROVE 2 and the drop-outs appear similar to PROVE 1, do you have to rethink your strategy in how to address some of the side effect profiles and is this something that you're contemplating in Phase III and driving some of the designs for Phase III?

Hi, Annabel, this is John. Yes, so the PROVE 1 and PROVE 2 discontinuation rates being similar, in our mind overall it's actually quite reassuring. It's part of what we've, as we've gone from almost a year ago in December when we first looked at the first interim analysis from PROVE 1 to today, as the findings have remained actually quite consistent with no additional safety findings, and in particular as we see more in terms of the skin events where it is a very much, a typical drug induced rash which resolves upon discontinuation. As we've seen more data, we're out to close to 400 patients in PROVE 1 and PROVE 2, we are well into dosing in 300 plus patients in PROVE 2. I think our safety profile and understanding of it is becoming that much more robust and again, the fact that there's no new findings continues to be actually a strong finding.

Now, having said that, we are, as we said, we are evaluating potentially alternative treatment regimens in particular potentially looking at durations of Telaprevir that are somewhat shorter than the 12 weeks. We would expect in the next stage of trials for the 12 plus 12 arm to be the base case, to be at the core of that trial, but we may evaluate alternative durations as well, shorter durations to potentially impact that discontinuation rate, so again, overall, you'll see the data from the 12 plus 12 arm at ASLD starting later this week and it does support evaluating that arm in a Phase III study.

Okay, thank you.

Thank you, Annabel. We have time for one more question?

Okay. And your final question comes from Richard Smith with JPMorgan.

Hello, good evening. Just a quick question on, you mentioned earlier about the timing. If you get the green light on a Phase III trial, how quickly can you usually start that trial after getting the protocol signed off by the regulatory body?

Hi, Richard. There's no real generic answer to that. It really just comes down to the specifics of the trial, the design, and the specific agreements with the FDA. We would obviously be focused on turning around that agreement and starting a study very quickly. We would have all of the operational pieces in place and be able to initiate that as quickly as possible, but I can't give you a, one number. It would really depend on the specific circumstances.

All right, thank you.

Thank you, Richard and thank you, everyone who asked a question tonight. I think we took a range of representative questions based on the call we had this evening, a number of us will be with the IR team taking additional follow-up questions through the rest of the evening, and we look forward to seeing everyone at ASLD next week. Thank you very much, good night.

And that concludes today's conference call. You may disconnect at this time.