福泰製藥 (VRTX) 2007 Q4 法說會逐字稿

Ladies and gentlemen, this is the operator. Today's Vertex Pharmaceuticals conference call is scheduled to begin momentarily. Good afternoon. My name is Jonathan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vertex year end 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. Mr. Partridge, you may begin your conference.

Good afternoon. This is Michael Partridge, Senior Director of Strategic Communications. Welcome everyone to Vertex's 2007 year end conference call. Today's call is focused on reviewing Vertex's business priorities for 2008, and outlining the financial strategy that supports these priorities. This evening we also announced that we have filed registration statements for a combined offering of our common stock and convertible debt. We will not be providing any information about the offering in today's call, and refer you to the press release for specific details.

Joining on today's call from Vertex are Kurt Graves, Ian Smith, Dr. Joshua Boger, and Dr. John Alam, who is also here with us, and will be available for the Q&A portion of today's call.

Before I turn the call over to Kurt I will remind you of the following. 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).

GAAP and nonGAAP financial measures will be discussed on this call. Information regarding our use of nonGAAP financial measures and a reconciliation of those measures to GAAP, is available in our fourth quarter and full year 2007 financial press release, which can be accessed on our website at VRTX.com.

Unless otherwise noted all 2007 expenses and 2008 guidance discussed on this call are inclusive of stock-based compensation. As always, you can visit our website to listen to the conference call and view a PowerPoint presentation, or download a podcast. Lastly after our prepared remarks, we will take as many questions as we can, but in the interest of time we will conclude the call at about 6:00 PM. Once the call concludes, our IR team joined by Ian, Kurt, John and myself will be in the office to answer any additional questions.

I will now turn the call over to Kurt.

Thank you, Michael, and good evening everyone. We started out 2008 with a major accomplishment on Telaprevir and the FDA, as well as the EMEA, and we believe the fundamental value drivers for telaprevir, and for the rest of our growing portfolio, have never been stronger or more promising.

With that said, it is a great pleasure to be here tonight speaking with you about our 2008 business plans. I would like to start off with a focus on our pipeline, our portfolio strategy, and our key priorities for 2008. Then I will hand it over to Ian, to give you an overview of our financial results, and our 2008 financial strategies and outlook for the year. To start off there are four major components of our portfolio strategy, that each aim to expand the breath and depth of value across our pipeline.

First and foremost, we aim to execute Phase III flawlessly, to fully leverage the differentiated profile and first-to-market opportunities with telaprevir and key telaprevir life cycle programs. Second, now that telaprevir is in the final stage of development, we aim to take definitive steps to build a multi-drug HCV portfolio around telaprevir, our second generation protease inhibitors, and other targeted external assets, to build a leading HCV franchise.

Third, we aim to demonstrate the value of key assets outside of HCV, that are advancing in our clinical pipeline with a focus on progressing two novel compounds for cystic fibrosis, and a novel JAK3 program for immune-mediated inflammatory diseases. The fourth and last area of our portfolio strategy is to partner and/or outlicense assets where Vertex does not have a core therapeutic area of focus, and/or where we see a collaborator that can add unique value to our assets.

Let me briefly expand on each of these four strategies in our portfolio. First starting with telaprevir, we plan to leverage the agreed Phase III trial design, which is solely focused on 24 week durations with the RVR design, to realize the full potential of telaprevir's profile.

Our aim remains to deliver high rates of cure, together with a compelling reduction in the duration of therapy for patients and their doctors. In doing so, we believe we can and will set high competitive hurdles at launch, and continue to improve upon them through ongoing life cycle development activities, in the areas of dosing and novel combination studies, just to name a few of the things we are working on in 2008.

We also have plans to prepare and leverage first to market opportunities, which are so valuable in the HCV category in particular. Our plan with important studies like PROVE 3 in treatment failure population, is to generate additional data that will put us in a position to fully capitalize on this first-to-market growth opportunity. There are many treatment failure patients in the market, some having failed standard of care several times, that urgently need new therapy, that gives them a shot at virological cure.

Our aim is to be the company that first meets these needs, and capture the full opportunity. For naive patients, we already have robust Phase II data, showing significantly higher cure rates of SVR with our 24-week telaprevir-based regimens, compared to 48 weeks of standard of care. We believe that we have designed a pivotal Phase III trial that could at a minimum, replicate the efficacy and safety results that we achieved with the 24-week regimens of PROVE 1 and PROVE 2.

Beyond the pivotal Phase III trial, we are also focused on meeting three core elements of an overall registration package with the FDA for treatment-naive patients. Let me outline each of those three elements. Element number one is obviously the pivotal Phase III 3-arm trial starting this March.

The second element of the registration package is having a safety database of 1,100 to 1,500 patients treated with our highest potential dose of telaprevir, and the third element is a second well-controlled study, either in treatment naive patients, or treatment failure patients. To meet our registration package requirements on patient database size, and a second well-controlled study, we have chosen a plan that we believe gives us flexibility, and also covers our bases with two solid study options.

Option one is with a 400 patient treatment naive trial that will be enrolling this year, where we aim to generate confirmatory data, that a telaprevir-based 48-week regimen, offers no risk benefit advantage over the 24 week regimens, that we will utilize in our Phase III study and plan to take to the market. We believe this data is helpful for meeting our registration and labeling goals, but even more important, we believe adding supportive data showing there is no risk benefit advantage of a 48-week regimen, could help us speed the adoption and comfort level with our 24 week regimens in the marketplace, where it is most important.

A second study possibility for registration purposes is represented by PROVE 3. PROVE 3 is a well-controlled 440 patient study evaluating different telaprevir regimens in treatment failure patients. I want to be clear here. Out expectation that this trial could be included as part of a registration package, depends in part on the strength of the data.

All patients have completed telaprevir dosing in this trial, and we anticipate receiving interim data during the second quarter of this year. At which time we and Tibotec would then discuss the results with FDA and EMEA. Both options give us flexibility, and support a rapid time-to-market. We project having final SVR data from PROVE 3 by year end 2008, and final SVR data from the other two trials within the first half of 2010.

Moving on to our second portfolio strategy, which is focused on building a leading and sustainable franchise in the HCV category. Beyond the core registration strategy with telaprevir, we have built multiple life cycle efforts underway to improve and optimize telaprevir's profile further. We also aim to build a leading multi-drug HCV franchise. We believe HCV will require multi-drug regimens to achieve high cure rates, and that this is unlikely to change for some time. Therefore one of our key goals is to stay in the forefront of innovation in defining the most effective regimens for patients.

To build out our HCV portfolio in 2008, we aim to strengthen our protease inhibitor positions, by bringing forward two second-generation protease inhibitors, specifically VX-500 and VX-813 as rapidly as possible. Telaprevir has set very high hurdles on the two most important attributes of efficacy and duration of care. However, if something can be designed to compete with it, or even to find a new combination treatment approach, we aim to be the company that brings that to the marketplace, through our knowledge and expertise in the area.

In parallel, we aim to use our leading protease position with Telaprevir and our two second generation proteases, to evaluate and attract combinations with novel interferons in our attractive STAT-C combination products, like polymerase inhibitors, to build a leading multi-drug HCV portfolio. Through collaborations, joint studies, and/or product deals, we are targeting multiple options in this area to build our strength, and we believe our strategy is a win/win for those with complementary therapies.

The third component of our portfolio strategy goes beyond HCV where we have chosen to focus our portfolio, and compete in other specialized disease categories, with very high unmet medical needs. I will briefly review three potential opportunities we are focused on in 2008.

First in cystic fibrosis, we are leading the development of two novel compounds that work on the fundamental underlying biochemical defects in CFTR. VX-770 is a CFTR potentiator compound in Phase IIa trial. And VX-809 is a CFTR corrector compound in a Phase Ia clinical trial in healthy volunteers.

CF is a specialized and devastating disease and it affects approximately 30,000 children and young adults throughout the U.S. It is another example of a disease category where we believe Vertex is targeting the right market, one with huge morbidity and mortality rates, where our approach to therapy isn't just another symptomatic therapy, but instead with a potentially transformational therapy that could, if successfully developed, be disease modifying for patients who today only have an average life expectancy of 37 years. We hope to change that life expectancy.

In addition we have ongoing preclinical activities for a number of early stage compounds that we plan to take into clinical development this year, specifically we announced today that we expect to initiate clinical development of a novel and potentially differentiated JAK3 inhibitor in mid-2008 for the treatment of multiple immune-mediated inflammatory diseases, such as rheumatoid arthritis, psoriasis, organ transplant, and other serious diseases. During 2008 we plan to generate data that could establish the potential of these compounds as potentially disease modifying, breakthrough product opportunities.

In the fourth and last component of our portfolio strategy, consistent with our disease area, and overall portfolio strategic direction, we aim to partner or outlicense assets in our earlier stage pipeline, that either don't fit with our targeted disease areas, and/or where we believe a collaborator can add unique incremental value to the asset. An example here could be with our JAK3 program, which has the potential to be developed in multiple autoimmune inflammatory disease areas in parallel.

In summary, we are at a new and very exciting stage of development as a company, where we are focused on rapidly progressing the company towards our first significant commercial launch with Telaprevir, and at the same time, we are fortunate enough to have a growing portfolio of novel assets in the clinic, or just about to enter the clinic for HCV, cystic fibrosis, and multiple immune-mediated inflammatory diseases.

We look forward to updating you on progress throughout 2008. Thank you for your attention this evening, and I will hand it over to Ian. Ian, over to you.

Thanks, Kurt. Today I will cover two topics, first I will discuss our 2008 financial profile, and how we are directing our investments in our business compared to 2007, and second, our financial strategy to support our planned investment profile. As you have heard from Kurt, we have identified four key business and portfolio priorities for 2008.

In summary, we are investing to drive and expand the first-to-market opportunity with Telaprevir and our next-generation HCV portfolio of assets, while advancing our clinical development of drug candidates for other important diseases, such as cystic fibrosis, and autoimmune and inflammatory diseases. In addition, we maintain our proprietary research, and continue to productively add to our clinical pipeline.

Now to the 2008 investment profile, and how this compares to 2007. We are guiding to a 2008 loss excluding charges and gains, to be in the range of $320 million to $350 million, similar to that of our 2007 nonGAAP loss of $325 million. In 2008 we are fully funding our opportunity in HCV, and this is a priority in our business. In the other areas of our business, we are tailoring investment levels, to reflect data from ongoing studies and our balance sheet profile.

Specifically, we have important ongoing studies and commitments to early stage and mid-stage compounds that may result in significant opportunities in the near term. Our level of investment commitment into these areas will be data-driven, and will reflect our assessment of our financial profile as we proceed through the year.

We expect full year 2008 GAAP loss in a range of $380 million to $410 million, which is similar to the 2007 GAAP loss of $391 million. Both numbers include approximately $60 million of stock-based compensation and restructuring expense.

We are forecasting total 2008 revenue in the range of $200 million to $220 million. This represents a slight increase from 2007 revenues of $199 million, and is mainly driven by revenue derived from our development based collaborations. Our revenue forecast for 2008 is consistent with that of prior years. We are principally reliant on our existing development collaborations, including revenues from milestone achievements, most notably a $45 million milestone, which we expect to receive upon the initiation of dosing of patients in a Phase III study of Telaprevir. We anticipate new collaborative revenue that could be between $20 million and $40 million.

Now to the R&D investment. We are forecasting in 2008, the R&D investment will be in the ranges of $490 million to $520 million for the full year, which includes approximately $45 million of stock-based compensation. This is similar to our [2000] R&D expense of $513 million, and it also includes our investment in Telaprevir commercial supply. Our priority is HCV, and we are managing the investment into earlier and mid-stage opportunities, based on important clinical data and our financial profile.

We expect SG&A expenses to be in the range of $110 million to $120 million in 2008, including $10 million of stock-based compensation. This is an increase over 2007 SG&A expense of $85 million, commensurate with our commercial expansion to support HCV, and internal organizational development to support the progression of our business. In summary, we believe we have balanced our 2008 investment towards advancing our HCV portfolio, while advancing and creating other significant clinical opportunities.

Now to the balance sheet. We enter 2008 with cash and equivalents position of approximately $468 million. We are currently engaged in a process that may result in the monetization of our HIV royalty, to add further capital to our business. With additional cash inflow from our R&D collaborations, including milestones that I have mentioned, we are well-positioned to drive significant value from important clinical events. In closing, we are fully funding our opportunity in HCV as this is our priority. While we progress other aspects of our business, we have managed the operating investment, to be dependent on both data from ongoing studies and the balance sheet profile.

Josh, over to you.

Thanks Ian. We are increasing the fundamental value in our business. We believe the progress we are making with Telaprevir, as well as across our organization, is positioning us to succeed with our corporate and commercial goals. We have established a financial strategy to support these objectives, and look forward to making focused investments in 2008.

In the past several months we completed productive interactions with both the FDA and EMEA, relating to the registration program for Telaprevir. We are confident our Phase III program, one that is being viewed enthusiastically by the clinical community, will confirm the benefits of a 24-week Telaprevir-based regimen. We believe it will help to usher in a new paradigm for the treatment of HCV. We look forward to starting the pivotal trial in March.

We talked about several milestones for you on the call today. We know it is up to us to deliver, in order to establish a successful business for many years to come, and we are focused on delivering. I look forward to reporting to you on the progress of Telaprevir in the year ahead. There are a lot of data being generated from clinical trials across our pipeline. It should be an exciting year.

I will turn the call now back to Michael.

Thank you, Joshua. We will now open up the call to your questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Geoff Porges from Sanford Bernstein.

Thanks very much for taking the question, and congratulations on getting the financing hopefully out of the way in the near future. A number of questions on development strategy here. You are sounding a little bit more bullish in your comments on PROVE 3. Why are you becoming more confident? Could you give us a sense of what you are seeing, and frankly when we might hear about it, but also is it true now that you are actually seeing end of treatment data for the 24-week [comps] already? Is that the basis for your stance?

Secondly on the enrollment for Phase III for the Telaprevir study, what assumptions are you using behind the completion of enrollment at the end of the year, as that seems a little bit longer than in the past, given previous run rates?

And finally on additional deal flow, could you give a little bit more color, Kurt, on what opportunities you see from the early stage assets where you might be focusing your attention on the BD activity? Thanks.

Thanks a lot, Jeff, it is Kurt. I will start out, and I think I will -- I'll ask John to make a couple comments here as well. On your first question, on the development strategy and maybe sensing some more confidence from us around PROVE 3, I think that the most important thing I can say about that for us as an organization, and for the compound in general, is that this particular segment of patients, the treatment failure patients are the highest unmet need segment in the marketplace, and as we continue to do market research and talk to customers about this and actually go out and see patients, which I had a chance to do a couple of weeks ago, it made a firm impression on me just about how much demand there is out there for new therapies, that can present an opportunity to cure these patients.

So for both reasons of unmet need, market size, and having a first-to-market opportunity focused on that opportunity, it is very key to us as a company, and I will turn it over to John to talk about it from a clinical scientific perspective.

Okay. So in terms of the PROVE 3 trial itself, it is obviously an important trial for the very reasons that Kurt outlined. The treatment failure population is an area of great unmet need. And then the clinical community has a tremendous amount for that reason, has a tremendous amount of interest in the outcome of a trial of the size of PROVE 3. It is a significant trial. It is a 440 patient trial. The status of the study at this point is that, as Kurt said, all the dosing in the Telaprevir arms have been completed.

And more specifically, all treatment is now complete in the two 24-week arms, which includes one arm, which is the 12 + 12 arm, that has performed as well as it has in PROVE 1 and PROVE 2. The first interim will be focused on SVR 12 data in those two 24-week arms, and that will be done within the second quarter. We obviously don't have the data at this point.

But we are optimistic particularly around, and personally I am optimistic around the 12 + 12 arm, because of the data that we have obtained with the 12 + 12 arm in PROVE 1 and PROVE 2, and I think with that we can, we are optimistic about getting a differentiated result with the 12 + 12 arm, even in the treatment failure population.

I am not going to go through the specifics of the data from PROVE 1 and PROVE 2 of why we are optimistic. Suffice to say that it is clear, that if you go through the data in detail that there are patients who would have been non-responders if they had been treated with just interferon and ribavirin, who are getting clear responses, and even to SVR with the 12 + 12 regimen, and there are patients who would have relapsed with the standard of care, who are not relapsing and getting to an SVR with the 12 + 12 regimen.

Thanks. Enrollment, John?

Enrollment in Phase III, I don't think we have changed the guidance, the study is said to be initiated next month, within the next several weeks, and we are looking to a six- to eight-month enrollment period for that study. It will be done within the fourth quarter, which I think is right on target for a 1,050 patient trial.

Geoff, there was third component of your question around additional deal flow?

Yes. Where you are going to focus where you see the value opportunities there?

I alluded to it a little bit, Geoff, in the call. One area that we have an exciting compound is our JAK3 compound, which is obviously a very interesting hot area in the industry overall right now, and we feel that we have got a potentially novel, and potentially differentiated compound there. The issue for us as a company is that JAK3 as a target is a highly interesting target, because it can potentially be used in several, really we are talking here four or five, up to six different diseases of significant size.

And to be able to maximize the value of that asset, we are going to be having discussions with people about how to maximize the value of that asset for each disease state, but also from a development timing perspective, developing multiple indications in parallel. When we sit back as a company and we look at our priorities, and HCV being our top priorities, both around Telaprevir and our second-generation program, we know that we probably need a collaborator here to maximize the value of the asset with JAK3, if we intend to develop it in multiple diseases.

That is an example of one where we are focused on discussions with collaborators. We also have areas in the area of oncology perhaps around PLK and c-Met. We are obviously still working on 702, and are having different discussions with partners there, so that should give you a feel of what we are looking at.

Thanks very much.

Next question, Steven Harr, Morgan Stanley.

A couple questions, first off, Ian, as we look out over the next couple of years, where do you expect to see the burn rate going? It has been above $300 million now for a couple of years. With the potential for Telaprevir not to launch until 2011, your need for capital could be extensive.

And second of all, John, if you want to just comment a little on BID dosing? I know you guys had RVR data in-house, or you should have it in-house either already or very soon, any chance we can see something from that?

Third, I know you already went over PROVE 3, John, but if you could help us understand why you think that Telaprevir might be different than what we saw for [Baceprevir] which really struggled in this environment? That would be great. Thank you.

Thanks, Steve, thanks for the question. A very common question the Vertex burn, thanks for bringing it up. Asking me to look out into the future is very difficult. Honestly the way that we look at it, is the burn is reflective of the investments that we choose to make to drive the opportunities. So for example, we have a very large opportunity in HCV, and how do you take the most of that opportunity in HCV, looking at all the multiple patients, and building commercial supply, multiple patient population building commercial supply to launch the drug successfully.

Looking out into the future, very difficult to comment into the future when you ask me about 2009 and 2010, it will be a function of the opportunity at that time. Clearly we will be focused on Hepatitis C at that point, which brings me back to 2008, which is something clearly I can comment on. What I hope you see in our financial guidance of today, is a number that is similar to 2007. The guidance is $320 million to $350 million of nonGAAP guidance, which is consistent with 2007.

If you look underneath that loss guidance, the principal driver of our loss is our R&D investment. When you look underneath the R&D investment, what you see is a large development investment. And the large development investment is principally driven by Hepatitis C, and the investment to build commercial supply, to launch this drug into multiple patient populations. We are managing the burn, as I look at this, in a very balanced way. We are looking at Hepatitis C as a priority investment.

We want to fully fund Hepatitis C. The rest of our pipeline we are awaiting data. We progress it. We evaluate the balance within research and development in the early stage pipeline, versus a late stage opportunity, and as always, we are looking at our balance sheet profile, and trying to manage it accordingly. But to ask me to look out multiple years, will depend on the opportunity at that time.

On your two clinical questions, Steve, this is John again, I will start actually with your second question on PROVE 3. Again, given the data that we have seen with PROVE 1 and PROVE 2, and the design of PROVE 3, and the patient populations that we are studying, I personally and I think as a company, we do believe that we can and will be successful in the PROVE 3 trial.

Now the comments regarding [becepravir], one has to keep in mind they did not actually study the broader treatment failure population, the study that they had conducted. It was in a very specific population that actually represents a distinct minority of the overall treatment failure population. Now whether or not Telaprevir can be successful within that niche we will see the data.

But I think given again the level of activity that we have seen in PROVE 1 and PROVE 2, we should see a high level of response in the broader, both nonresponder, and the relapser population that we are evaluating in PROVE 3, and in fact represents the broader treatment failure, and the medical need in that population.

With regard to BID dosing, we expect the first pharmacokinetic data within the first half of the year, and actually clinical data from patients, in terms of response on treatment response rate within the second half of the year.

Thank you.

Your next question comes from the line of William Sargent from Banc of America.

Hi, thanks for taking my question. Two quick questions. First I guess based on your anticipation of getting data from the Phase III programs, do you also anticipate a filing in the first half of 2010 for Telaprevir? And then also I was wondering if you could help us by differentiating a little bit more for the second-generation PIs, how they might differ from each other, and what this new addition to the PI pipeline could bring to the table? Thanks.

On the first question with regards to timelines, what I covered in the script is essentially telling that you we have coming out of the meeting with the FDA, an agreement that we have one Phase III pivotal trial that is focused on 24 weeks, and that as a company, the rest of the registration package will require that we have a second well-controlled study. We have two options to meet that.

One option could be PROVE 3 pending the results of that study, which we will finish and we will have results on the end of 2008. The other study is the 48-week study. That study will finish like the first pivotal Phase III trial, and we will have SVR data from both of those in the first half of 2010. Theoretically that creates different filing assumptions.

We think for a base case assumption for planning purposes right now, you should assume the 2010 filing timeframe, based on the results that we talked about. But there could be an opportunity based on when we finish the first pivotal study, and if PROVE 3 is positive, that that could work for a filing package as well.

And then the second-generation PI?

Could you restate your question on that?

I was just wondering now that you have got two second-generation PIs, and beginning to look at them from a clinical development standpoint, if you could help us differentiate the two a little bit further, or is it the same scaffold just looking at slight modifications?

We haven't given out any particular details, and rather than start going down and giving out details of that right now, I think the most important thing on the second-generations is that we obviously know the hurdles we have established for Telaprevir, and we think those are very high, and we have designed these specific two second-generation compounds to meet or beat the hurdles we set on Telaprevir, in at least one or more dimensions as it relates to efficacy, safety, dosing, the obvious areas that you consider. But right now we are not prepared and we are obviously focused on generating data as soon as we can, and when we have relevant data we will disclose that to you at the appropriate time.

Would you anticipate that being in 2008?

Depends on the data. If anything it would be later 2008, early 2009 timeframe, most likely given where we are in clinical development.

So there is a potential that we would not get any further data on these compounds in 2008, if the data is something that, I guess, what depends on the data, I guess, could you clarify that a little bit further?

You are asking for a disclosure commitment to this point regarding the second-generation compounds. The way we look at these is the most important data is when we are in patients, and how these drugs act in patients. So at the point we have that data, we will provide it to the Street.

Thank you.

Your next question comes from the line of Meg Malloy from Goldman Sachs.

Thanks very much. I guess two follow-up questions. One is, could you clarify what data, what top line data we will get from PROVE 3 in Q2 versus year end? And from your perspective, can you share with us what you think would constitute a registrational result?

So, Meg, thanks for the question. Maybe the disclosure question you are asking I will take, and I will let John take the second part of your question, which was a registration result, if I believe, if I got the question correctly. So PROVE 3, as John and Kurt both explained, a very important study for us, based on the population, but also some of the excitement you heard John talking about to the opportunity for a good result there.

Now we want to preserve the integrity of that study, and the result that we would get from that study, take the data which we will have available to ourselves early in the second quarter, and talk to the FDA regarding that result. At that point based on the discussion with the FDA, we will have a better understanding of the path forward in treatment failure patients.

Once we have more clarity on the path forward in treatment failure patients, then we will look to disclose that as it is relevant to the market, which could come around the middle part of the year, maybe the first part of the, the second part of the year. So that's the disclosure path, in terms of protecting the PROVE 3 data. John, do you want to comment on the registration?

I think it really just comes down to the strength of the result. In the broader treatment failure population, relative to what one would expect within the standard of care arm. So it is probably a little premature at this point, to give a specific expectation but it really does come down to consistency of response, and level of response.

I will actually just take the opportunity to add a little bit to the prior response on [becepravir] versus Telaprevir in this patient population, because it is, it is in this specific population where potency and early HCV RNA reduction, is where you would expect the most impact as much as in the treatment naive it has an impact in terms of duration of treatment.

And being able to bring the duration from 48 down to 24 weeks, I think in the treatment failure population, and particularly in the nonresponders, it becomes a question of whether they are going to respond or not, based on whether you have an early and potent reduction in HCV RNA or not. Which is why as much as, yes, the nonresponder population, the niche population, Beceprevir was evaluated, is going to be tougher to treat, but at the same time, I think there is a reason and a specific scientific rationale, why Telaprevir may in fact have a very different effect in that population relative to Beceprevir.

Can you give us a sense of what percentage of the patients will be no responders or nonresponders versus relapsers, and would you have statistical power to show a difference in both subsets?

The study is about 60% nonresponders and 40% relapser, and it is powered to be able to show an overall effect, and obviously be able to look at trends within the subpopulations. Depending on the result within the standard of care arm on how low it is, and we do expect that actually to be very low, we may be able to make some specific inferences within the sub-populations, but it is not really the design, because in the actual clinical community, sometimes the specific distinctions aren't made, it really is more from a patient perspective, what matters is whether you achieve an SVR with Peg interferon and ribavirin or not.

Thank you.

Next question, Rachel McMinn from Cowen.

I am a little confused on the belief that PROVE 3 would be supportive of FDA approval in the treatment naive setting, is that just because you think you are fulfilling a safety issue there, and that the 48-week trial is really not relevant to supporting approval? On the manufacturing planning, I wanted to better understand if you are taking into account if there is any way you believe that PROVE 3 could be registration enabling on its own, or if we should really just be, your manufacturing planning is all geared towards the 2011 launch?

Rachel, it is Kurt, let me try and answer both of those questions. As it relates to the FDA registration package, you are actually correct. All that is required for registration is our primary pivotal Phase III study, the 3-arm Phase III pivotal trial that we have. The second component that we got clarity on from the FDA, is that we will need a safety database of 1,100 to 1,500 patients.

And the third component for that registration package is that we would need to have a second well-controlled study as part of the overall NDA package. That second well-controlled study doesn't necessarily have to be in a treatment naive population. So if PROVE 3 is positive, we assume and we discuss with them that that is one potential option to have a registration package based off of that data. But it obviously depends on the data which we haven't seen yet.

And Rachel, to the manufacturing question, it obviously strikes right at the heart with some of the conflict within manufacturing the financial profile and investing in the opportunity. So the way that we are looking at PROVE 3 and the potential for an early launch is that at this point in time we are investing, and we are looking forward to the potential for an early launch, but we get data in the next couple of months, that will actually help us understand the opportunity for an early launch.

So as we run the business we are investing. We don't want to be caught short with the opportunity for this, what would be a significant upside for ourselves and patients, with the drug and treatment failure population. So we do our best to maintain that opportunity, but if the data comes through in the next couple of months, next few months, then we will be able to tailor our investment, based on our expectations, and that is exactly how we are managing the business, and I hope that was coming through with some of the prepared remarks that I had.

Okay. And then just last question for John, on PROVE 3, is there a particular number like a threshold SVR number that we should be thinking about, as being the FDA list?

No. Again, it is the answer I provided earlier. It comes down to the level of clinical benefit, and it is just hard to project at this point.

Okay. Thank you very much.

Thank you.

Your next question comes from the line of Richard Smith from JPMorgan.

Good evening. Just to go back to PROVE 3 one more time. My understanding is that you just need to show an improvement over the standard of care of one of the other arms, irrespective of whether the patients are nonresponders or relapse patients, so basically pooling nonresponders and relapse together?

That is correct, that is how the trial is designed and powered.

So if you get a response you can maybe distinguish between nonresponders and relapsers, but you are saying based on sort of the real world, it doesn't really matter, so you could actually not succeed in nonresponders, but succeed in relapsers, but that doesn't matter, as long as the arm overall is a success versus the control?

I think ultimately how the drug used clinically, which would be defined by the label and the results, would be based on what the data show. If there is a result that is specific to relapsers, then that is how we would expect the drug to be used. But again I think that we are going to be data driven, and then within, there are several categories of treatment failure patients. There are relapsers, there are nonresponders that are not null responders, and there are nonresponders that are null responders, in that they have no response at all.

And they may, in the case of peg interferon and ribavirin, they do break out very specifically. How they break out in terms of response to Telaprevir is something that we are going to be able to define, based on the analysis, and one of the key objectives of the analysis that we will be conducting in the second quarter.

That kind of break-out could be something on the label, or is it just, yes, could it be something on the label?

I think the label would always be driven by whatever the results are. But in terms of population sizes, the partial responders who respond but don't get all the way to undetectable, is actually the most, is the largest population within the nonresponder population, followed by the relapsers, followed by the null responders, which is actually the smallest population of the overall treatment failure population, which again is part of the reason why we are optimistic, because the largest component of the treatment failure population actually does have underlying interferon ribavirin response, but it is simply not complete, and given the potency of Telaprevir, we would expect a good response in that broader population.

Thank you.

Next question, Brian Abrahams of Oppenheimer.

Thanks for taking my questions. Two quick questions, one for John, and then one for either Ian or Kurt. Going back to PROVE 1, among the patients in the 12 + 12 arm who didn't fulfill the RVR criteria, and were counted as failures, and rolled into the 12 to 36 regimen, can you give a sense as to what proportion of those patients ended up achieving an SVR?

And for Ian or Kurt? Can you quantify the component of R&D that is allocated for the commercial supply investment in 2008, and give us a sense of how we should be thinking about that going forward? Thanks.

On the first question, I actually can't provide you that answer, because they are still actually in follow-up. And the full SVR from the patients who went on to 48 weeks, the SVR 24 results, we won't have, we don't have at this point.

Are you seeing any patients who have achieved an SVR 24 or an SVR 12 from among that sub-group at this point?

I don't know the answer to the question, because it wasn't designed that way, the analysis at specific interims, and the specific interim that you have seen, those patients were simply anyone who is continuing on interferon and ribavirin, they were considered a failure.

What I can tell as you is in the 48-week arm, where of the patients who achieved an SVR, there were a number of patients who when they went on to 48 weeks did not have an RVR, but when they completed 48 weeks, the 5% of that group of the overall treatment arm actually achieved an SVR 12.

And I know the answer because that was part of the analysis plan. So we do expect because of that in the Phase III trial, because of the design of the Phase III trial where patients who don't achieve an RVR, that they would get 48 weeks of treatment, and if they achieve an SVR they will be included in the analysis, we do expect relative to the PROVE 1 result, that we would see a, for the 12 + 12 arm, we would see a higher SVR result in Phase III than we saw in PROVE 1.

Brian, to your second question, which was regarding commercial supply, we are not providing guidance on that this year, we did last year because it was a new investment criteria within our business. We started to invest because of the timeline to market. It is part of the Hepatitis C commitment, which is the main component of our development investment, and we are going to build the commercial supply based on the timeline to market.

Thanks for the added information.

Next question, Thomas Russo from Baird.

I was just trying to clarify the meeting with the FDA for the interim results of PROVE 3, and the possible discussion of a 400 patient trial, is that the same meeting and the same discussion, or are those separate meetings?

There is, at this point there is no further anticipation discussion around the treatment naive registration plan. I think Kurt very specifically outlined the discussions and the agreements; it is the one Phase III trial, that we have described to you that we are going forward with, and an understanding that there is a requirement for a second adequate and well-controlled trial. And that can be fulfilled a number of different ways. And we have made the decision, and it is up to us on how we proceed there.

The discussion that we do anticipate later in the second quarter, would be around treatment, the treatment failure registration plan and the path forward, and that would be based on the PROVE 3 interim analysis that I described earlier.

And based on typical enrollment timelines, do you think you could wait to have that meeting before kicking off a potential 400 patient trial?

We are going forward with that trial. The 400 patient trial in the treatment naive setting, our plan is to go forward in that trial and actually not hold off and wait for the discussion to really both manage, to manage our timeline, and we are going forward with that, and we do have aside from fulfilling the requirement for the second adequate well-controlled trials, we have a specific other set of reasons to conduct that trial, in order to, and the reason is to accelerate the move to, in the shift in the treatment paradigm to the 24-week regimen, which I may ask Kurt to comment on further, of how that trial fits into our overall strategy.

Thanks, John. The point John is making is based on a lot of our market research, and obviously where physicians who have treated patients with standard of care for 48 weeks, for so long in genotype 1 patients, we feel that the primary data obviously for our labeling is going to be based on the Phase III trial, which is solely focused on 24-week durations, but to accelerate adoption of that 24-week regimen, we think it will also be important to have data and information that shows that there is no additional risk benefit advantage of a pure 48-week arm, versus what we will show and intend to show with our 24-week arms. And by having both pieces of that data we feel it will help clinicians feel comfortable stopping therapy at 24-weeks in everybody who has achieved an RVR.

Thanks a lot. Makes sense.

Next question, line of Hari Sambasivam from Merrill Lynch.

Thank you. My questions have been answered.

Next question, Annabel Samimy from UBS.

Really quickly on PROVE 3, can you give us an idea about whether one can expect the same type of drop-out rate as in a treatment naive population, given this is a sicker patient population, and maybe more motivated with fewer options, what has the drop-out rate historically been for these treatment experienced patients?

Annabel, it is a good question. Thanks for asking it. I mentioned on the call I was just out in the clinic just over a week ago, and I asked the investigators there to show me up close and personal a lot of treatment failure patients.

So actually I was fortunate enough to see a lot of people treated in the HALT-C trial, and as you know, most of those patients were treated and failed standard of care therapy 3 or 4 times, and were actually so motivated to get a viral cure they enrolled in the HALT-C trial, which is still ongoing treating patients for up to two years on maintenance lower doses of standard of care medicines.

My strong take-away from that and listening to the investigators talk about that patient population, and what the PROVE 3 results could mean is that, if anything there is very likely to be less of a tendency on the patients and doctors, to discontinue in this treatment setting, because these people are really sick. I saw a woman that had failed standard of care three times, already had pulmonary hypertension, was on a ventilator, and was basically on her last days because there was really nothing left for her. There is a high motivation in patients and doctors to treat here, and I think we will see that in the PROVE 3 results.

How about when looking at the study, are all the arms going to be looked at in conjunction with each other, or are they powered enough to be looked at separately and show a strong enough treatment effect?

The study is sized for, obviously dependent on the magnitude of the effect, but it is sized so that any one arm can show, demonstrate superiority, and effectively demonstrate efficacy as compared to the standard of care.

Great. Thank you very much.

We have time for one more question. Liisa Bayko from JMP Securities.

Most of my questions have been answered already, but two quick ones, can you please describe the type of data, and perhaps when we might see data from the cystic fibrosis program? And then secondarily, I just want to clarify that your revenue projections for this year do not include the monetization of the HIV program?

Why don't we start with the easy one first, which is the revenue projections do not include the monetization of our HIV program.

The cystic fibrosis program, there are two different compounds for different mechanisms, each of which from a clinical and scientific standpoint, has the potential to, as Kurt described, have significant impact on the underlying mechanism of disease, and biochemistry, and ultimately to the disease process, that are now in the clinic, with VX-770 we expect the first data from the two-week cohorts, all within the next several months. It will be end of first quarter, early second quarter.

And then there is based on that, we will, we are going forward into a 28 day cohort, which will obviously provide both more safety and efficacy results. And the data from that cohort, we expect in the second half of the year. And then VX-809 has just recently gone into the clinic, and based on the Phase Ia results, we would then proceed to a multiple dosing study, and then into a proof of concept study.

Okay. Thanks a lot.

So that concludes our call for tonight. Thank you very much for listening to our call. If you have additional questions, or would like to conduct further follow-ups, we will be available in our offices this evening to talk with you. Thanks again.

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