福泰製藥 (VRTX) 2008 Q2 法說會逐字稿

Good afternoon. My name is Kristin, and I am your conference facilitator today. At this time, I would like to welcome can everyone to the Vertex Pharmaceuticals Conference Call. All lines have been placed on mute. After Vertex's remarks there will be a question and answer period. (OPERATOR INSTRUCTIONS). Michael Partridge, are you ready to begin? Thank you. You may now begin your conference.

Good evening, this is Michael Partridge. Welcome, everyone, to Vertex's second quarter 2008 conference call. On today's call, we will review key recent developments in our business. First, we'll discuss the emerging broad product opportunity for Telaprevir, which is based on clinical results and treatment naive hepatitis C patients as well as HCV patients who failed to achieve viral cure with prior therapy. We will also discuss interim data that supports the continued evaluation of twice daily dosing of Telaprevir. Next, we will review other drug candidates directed at important diseases, particularly because of the VX770 for cystic fibrosis and then we'll review second quarter financial results, our mid year financial profile, and second half financial forecasts.

In 2008, we have made important progress in our business. We have moved our clinical pipeline forward with our key HCV and cystic fibrosis product candidates and we have financially strengthened our business by adding approximately $550 million of new capital through a capital raise and the monetization of a non-core financial asset. Joining me on the call today to discuss these topics are Dr. Freda Lewis-Hall, our Executive Vice President of Medicine Development, Kurt Graves, Ian Smith, and Dr. Joshua Boger. 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 SEC, including our 10-K. 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 second quarter 2008 financial press release which can be accessed at www.VRTX.com. Unless otherwise noted, all 2008 expenses and guidance discussed in 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 questions.

Following our call, our IR team joined by Ian, Kurt and Freda will be in the office to answer any additional questions you have. I'll now turn the call over to Freda Lewis-Hall. Freda is the newest member of Vertex's executive team. She joined us in June from Bristol-Myers Squibb, where she was Senior Vice President of US Pharmaceutical and Medical Affairs. Freda also served on the BMS US operating committee and on numerous internal governor teams. We welcome Freda, and look forward to you getting to know her.

Thanks, Michael. It's an exciting time to join the Company and I'm pleased to have the opportunity to contribute to Telaprevir's development and lead the development of Vertex's other emerging product candidates. In my prepared remarks today, I will briefly summarize our recent progress with Telaprevir in Hepatitis C and VX770 in cystic fibrosis. I will also provide a perspective on the remainder of the year.

Important data have emerged from Telaprevir's development program that has given us insights on the potential product profile, and has informed our development program. We're excited to have embarked on our Phase III program. In treatment naive genotype one HCV patients, we are well under way with our pivotal study advance. This study is focused on 24 weeks of therapy and is on track to complete enrollment in the fourth quarter of this year. We are also on track to begin in the third quarter a 450 patient study in the treatment naive population that will include an evaluation of 24 and 48 week Telaprevir-based regimens. In treatment failure patients, European agencies have agreed to the start of Phase III in this patient population and we're engaged in discussions with the FDA to transition to Phase III in the US. We expect to start the global Phase III program this quarter. Our progress in the treatment failure patient population is supported by the impressive PROVE 3 and Study 107 interim results.

I'll now turn to the 12 week interim results disclosed today from Study C208, an exploratory clinical trial evaluating twice daily dosing of Telaprevir based combination therapy. This four arm Phase II study is evaluating Telaprevir dosed at 1125 milligrams every 12 hours, compared to Telaprevir dosed at 750 milligrams every eight hours, in approximately 160 patients. In the study, Telaprevir is being dosed in combination with ribavirin and Pegasys or Peg-Intron. The available interim data from this study support continued clinical evaluation of twice daily Telaprevir dosing. Specifically, from the safety perspective, the interim analysis showed that the type and frequency of adverse events across the study arms were generally consistent with the previous studies we've conducted with Telaprevir. In addition, we did not observe any substantial differences in safety profile between twice daily and three times daily dosing regimens.

In terms of antiviral activity, at week 4 and week 12, the interim analysis showed greater than 80% of patients receiving either twice daily or three times daily Telaprevir plus Pegasys and ribavirin had undetectable had HCV RNA. We expect that a more detailed presentation of the interim data from the current study will be presented at a medical conference later in 2008, and, based on the completed study results, we're discussing with Tibotec, different options of how to best advance this dosing opportunity within the context of our broad development program.

Now, briefly to our two cystic fibrosis development programs. I'll start with our current Phase II A trial for our potentiator compound, VX770. In the second quarter, we started a 28 day Part 2 portion of the trial, which will dose VX770 in patients with a mutation known as G551D. Enrollment in this study has been rapid and is now complete with 18 patients. The primary end point in this study is safety with secondary end points that were included to determine if a potentiator compound could improve the function of the detective CFTR channel that is responsible for CS. We look forward to completing dosing of the 28 day study in the third quarter of this year, with data by the end of the year. We expect to present data from the 28 day study at a future medical meeting.

Now, let me briefly review results from the 14 day, part one portion of the Phase II study. In June, we presented results of 20 patients at the European Cystic Fibrosis Society Annual Meeting. The results presented showed an average improvement in lung function of 10% with the highest dose of VX770 at the end of 14 days compared to pre-treatment. There was no improvement in the placebo group. In addition. results show the VX770 improve CFTR function as measured by significant reductions in sweat chloride levels, and changes in membrane potential in the nasal passageway. We currently are engaged in a constructive dialogue with US and EU Regulatory Authorities about the path forward for VX 770, and pending positive results from the 28 day study, we believe will be in a position to agree with the authorities on the initiation of a registration program for VX770 in 2009.

We're also conducting two Phase I trials in healthy volunteers with VX809, a corrective compound for CF, that based on its mechanism could treat a greater number of patients living with this disease, including patients with a Delta F508 mutation. Depending on the results from these trials, we would look to progress into a single PK and safety Study of VX809 inpatients with CF by the end of the year. Our first group is continuing its high level of productivity and has advanced other early stage compounds including our next generation protease inhibitor for HCV and a JAK3 compound for immune-mediated diseases.

In summary we have made important progress with our late stage opportunities in HCV and CF, and remain focused on advancing these programs. I look forward to updating you on data coming out of our program throughout the year. I'll now turn the call over to Kurt.

Thank you, Freda, and good evening, everyone. As you can imagine, the first half of 2008 has been an exciting time at Vertex as we've advanced our business quite significantly. With our lead asset, Telaprevir, we're well into late stage development and at the same time, we're generating new treatment failure data and interim twice daily dosing data that has the potential to strengthen Telaprevir's commercial potential and competitive profile. The treatment failure results to date have really impressed our key opinion leaders and external advisors. It's fair to say that these results have exceeded internal and external expectations. From a broader program and portfolio management perspective, we've also met our pipeline objectives and milestones to date, regarding advancement of our second generation protease inhibitors, our two CF programs, and the initiation of our first clinical study in our JAK3 program. While we're pleased with the pipeline progress to date, I also want to assure you that we remain highly focused on our top strategic imperative. That imperative is to build leadership in HCV by delivering the best-in-class profile for Telaprevir, getting it to market quickly with the competitive label, and then building around our Telaprevir position with potential deals and collaborations aimed at establishing the leading stat C franchise in the category.

The progress we have made to strengthen Telaprevir's profile in the first half of the year can be broken down into three key areas. First, the opportunity in treatment naive patients. Second, the opportunity in treatment failure patients, and thirdly, with interim data that further support clinical evaluation of Telaprevir in a twice daily dosing regimen. While final results and more studies may be required, all three of these support the broad potential of Telaprevir in treating this serious disease.

In treatment naive population, Telaprevir has shown unprecedented SVR rates ranging between 61 and 68%, and that's with a treatment duration that cuts standard treatment times in half for the majority of patients. The recent results in treatment failure patient population, estimated now at over 300,000 patients in the US alone, are even more compelling, particularly in light of the extreme difficulty of successfully retreating these patients and high levels of unmet need in this patient population.

If you take a step back and look at our treatment failure data to date, there are at least three things that we are seeing in our PROVE3 and Study 107 trial results. First we're seeing potential of Telaprevir to be effective across all categories of treatment failure patients. No responders, partial responders, and relapsers. This bodes very well for the value proposition of Telaprevir and the most high unmet need segment of this market. Second, in PROVE 3 we've seen a 73% SVR 12 rate, and the highest SVR12 rate seen to date with Telaprevir and a 41% SVR 12 rate in the non-responder population which is critically important because the historical success rate in these patients is 10 to 15% at best with retreatment. We still see a need for final SVR24 data from these trials but these results are very encouraging. Thirdly, Telaprevir really stands out in treatment failure patients, especially in non-responders where other Stat C agents have failed and existing therapies just don't hold much if any promise for patients.

The non-responder population poses a significant healthcare issue as we know from recently published studies including a study published in the Annals of Internal Medicine in November that showed up to 43% of treatment failure patients with advanced disease run the risk of liver failure, cancer, or death, within seven years of failing current therapies on the market. Taken together with PROVE 3 and Study 107, treatment failure results reported to date, we and our advisors believe that we have demonstrated the potential to deliver a very important clinical benefit that Telaprevir may provide to many patients, treatment failure patients, that are desperate from the potential to deliver a very important benefit, for new treatment options before it's too late. We look forward to starting a Phase III program as soon as possible and our ongoing discussions with health authorities.

Now on to a few remarks about the second half of the year. In addition to refining Telaprevir differentiated profile we are also focused on capturing first to market opportunities and to building an HCV Franchise around Telaprevir's lead position. We continue to discuss and evaluate novel Stat C compounds that when dosed in combination with Telaprevir and either interferon or ribavirin could define a new triple therapy with potentially higher SVR rates and shorter durations in the future. Evaluating additional Stat C combination therapies and external collaborations for the future remains a high priority for us, as we aim to build on our lead position with Telaprevir and our second generation program.

In order to capture the full opportunity in HCV, we are also working to build a commercial model that is highly focused on giving appropriate patient access to Telaprevir. This includes addressing the important medical needs in treatment failure patients I spoke about earlier. We're also focused on addressing the barriers in the healthcare system that currently result in unacceptably low diagnosis rates, treatment rates, and referrals to specialists. We are working closely with the medical thought leaders, patient groups, and health economic experts to raise the education and awareness of the burden of illness and the expected increase in HCV-related morbidity and mortality for patients that have had their viral infection now for 20 to 25 years or more.

In summary, we are advancing Telaprevir in our pipeline in multiple fronts in the first half of 2008. Our organization is hard at work and I look forward to updating you on our portfolio and business progress throughout the rest of the year. Ian, over to you.

Thank you, Kurt, and good evening to everyone. I'm pleased with the strong progress across our business in 2008. This was mainly visible in the clinical advancement of our Hepatitis C and cystic fibrosis product candidates, and importantly in strengthening our financial profile. Financially, we completed the second quarter with approximately $832 million of cash, cash equivalents and marketable securities. The strong financial position by any measure and one that supports our R & D investment. Notably, the clinical progression and the advancement in Hep C and cystic fibrosis have exceeded our initial 2008 expectations and for this progress we are increasing the investment into these programs to drive our products forward and protect the opportunities being created.

Now to the 2008 financial results. The second quarter non-GAAP loss before certain charges was $74 million compared to 2007 non-GAAP loss of $95 million. Increased collaborative revenues are the principal reason for the decreased loss and such collaborative revenue will continue to be an important contribution to funding our business. The GAAP net loss for the second quarter of 2008 was $91 million compared to $118 million of 2007 which includes stock based compensation. Total revenues for the second quarter was $69 million compared to 38 for 2007. The increase in revenue was primarily driven by a $45 million milestone payment from J & J for the commencement of our Phase III registration program with Telaprevir, and this amount was fully recognized as revenue in the second quarter. Our revenues will continue to be comprised by collaborative revenues that are derived from Telaprevir development.

Now to the R & D investment. Our total R & D expense was $127 million compared to $136 million in the second quarter of 2007. This decrease over the prior year reflects the variability in expenses incurred in connection with Telaprevir development with higher expense in 2007 to support PROVE 1 and 2 clinical trial and the investment in Telaprevir's commercial supply chain. Our R & D investment in 2008 second quarter reflects reduced investment during the initial start up period for Telaprevir 's advanced trial and a period of preparation before entering Phase III registration program inpatients who failed to achieve viral cure with prior therapy.

We anticipate that our R & D investment will increase commensurate with the increased development activity and investment into commercial supply as Telaprevir progresses, and will also increase as VX770 development activities expand following favorable clinical data achieved in Part 1 of the Phase II trial in patients with cystic fibrosis. Our Second Quarter SG&A expense was $29 million compared $23 million in the second quarter of 2007. This increase was the result of infrastructure build to support our business and the initial commercial steps we have taken to support Telaprevir. Now to our balance sheet. We ended this quarter with approximately $832 million in cash, cash equivalents and marketable securities, and we have approximately $288 million of convertible debt outstanding and due in 2013, which has a conversion price of $23.14. Our balance sheet position has significantly improved compared to that we had at December 31, 2007, of approximately $468 million of cash and equivalents. This improvement was driven by equity and convertible debt financings resulting in $400 million of cash, and the monetization of our HIV royalty stream, $460 million, excuse me, adding approximately $550 million of cash to our balance sheet.

Now to the financial guidance for 2008. As I remarked in my opening comments, our business has progressed and advanced during 2008, most notably in our development of our HCV and CF products. In response to the favorable progression and results from clinical trials in these disease areas, we're increasing the originally forecasted 2008 investment. In particular, we are increasing our development investment relating to Telaprevir, including investment in Telaprevir chain as a result of the favorable progression and results from clinical trials of Telaprevir in treatment failure patients. And, increasing the expected investments in VX770 development, for cystic fibrosis due to the favorable progression and results from our initial Phase II study. I'll also point out that the accounting treatment for the monetization of our HIV royalty asset increased the 2008 net loss by approximately $14 million, there for we are revising our 2008 guidance.

We expect our 2008 loss, excluding certain charges, to be $390 to $410 million. We expect full year 2008 GAAP net loss in the range of 450 to $470 million and this includes stock based compensation. In summary, the progress in the first half of 2008 and the increased investment to progress the opportunity that continues to emerge in the areas of HCV and CF are supported by significantly improved financial position. I'll now turn the call over to Josh. Joshua, over to you.

Thank you, Ian. And I'd like to add my hearty welcome to Dr. Freda Lewis-Hall. First half of 2008 has been data rich and we are pleased with the profile of Telaprevir that continues to build. We are grateful to shareholders who support Vertex and our employees who work tirelessly to build Vertex on this important medical advancement. We're also making traction in our other pipeline programs like cystic fibrosis. In the second half of the year, we expect data to continue to rollout and further shape Telaprevir's future medical and commercial opportunities. We look forward to continuing to report our progress to you throughout the year. Michael, back to you.

Thanks, Joshua. That concludes our prepared remarks. We will now open up the call to your questions.

(OPERATOR INSTRUCTIONS). Your first question is from Geoffrey Porges with Sanford Bernstein.

Thanks very much for taking the question and congratulations on the BID results. That's very helpful and encouraging. I have a quick question that maybe is a semantic one about the BID results and then a string of questions on 770. The question on BID is, could you give us a threshold for what would be a substantial difference in safety profile? And you said that there was no substantial difference, and I'd just like to have an understanding for what would amount to a substantial difference between the two arms and then on 770, could I maybe follow-up with just a couple questions on that?

Sure. First of all, thank you for the congratulations on the BID results. We are encouraged by them. As you know, Tibotec and Vertex are anticipating giving the details of our results from the BID at a conference later in this year, so stay tuned.

Okay. All right

This is Jeff. Maybe as we go through this call there's a couple of other folks that are going to help answer questions here. So in terms of a disclosure because that's really what you're asking,of when think will be further data on the BID data. This is a top line release. We understand that people were anxious and wanted to understand the data the BID dosing schedule. We want to provide this top line data release at this point. We believe we've communicated the critical pieces of this data and as Freda said later this year we hope to be at a significant medical conference giving you all of the specific details on that data, but at this point it certainly supports progressing with a twice daily regimen.

Okay, so I'll just ask on 770, and the question on 770 seems to be, its breadth of application and we've had the 10% before, you've top-lined released so it's hard for me to see that there's anything new in what you've had to say about that other than progressing to the 28 day study. When will you know if that 10% increase is longer exposure, when will you know whether the drug has utility beyond the G 551 B patient subset and when will you know if the drug works in teenagers and children?

So let's answer the first part. Obviously the 28 day results are going to be critical to the design of our overall program, and we expect at that point to be able to address the inclusion of children as well as the inclusion of other mutations as a part of our overall program.

Okay.

Was there a follow-up question?

No. Do you think that, so beyond the 28 day study won't include any of the other mutations?

No. Our plan now is for the 28 day results to include only G551 D mutations.

Okay, have any of the patients continued beyond that 14 days in the first study?

No.

Okay. All right, so that's all we know right now. Thanks. I'll get back in the queue.

I think I'll comment as we move into 2009, I think we want to explore other mutations in this disease, the delta 508 mutation is one that we're very interested, to affect a broader piece of this population. We're focused on the 551 mutation at this point which is what Freda is referring to but as we move into 2009 I think you'll see us look to explore as we get more comfortable with the progression in this patient population.

Okay. Thanks.

Your next question is from Rachel McMinn with Cowen.

Thanks very much and I'll add my congratulations on the BI D data but I did want to ask about if you can comment or if it's fair to assume that the virologic breakthrough between the two arms BID versus TID are comparable and then also I notice that you left out Peg-Intron from your commentary. Is it fair to assume those data don't look as robust?

Yes, actually, I'll go back to the point. This is top line data. We are encouraged by it and we anticipate giving kind of pooling our answers to questions around this data when we present it at a medical conference later in the year.

Okay, and then I guess in terms of the naive study, it looks like you've decided to include a 24 week arm in addition to the 48 week arm and I'm just curious what the impetus was for that.

Rachel, it's Kurt. As you remember when we talked earlier this year about our registration program and the treatment naive population, one of the pieces of advice the FDA gave us beyond the pivotal study that we're running, the advance trial which is now enrolling is they thought it would be helpful for us to run a smaller study looking at if there was any benefit of 48 weeks versus 24 weeks. Not in the straight head-to-head study but in patients who achieved RVR and EVR at Week 12, and that's the current proposal we're discussing with the FDA right now and plan to move forward in the third quarter this year.

Okay, and then just last question, in terms of the spending increase, can we walk away thinking that you have more comfort in Telaprevir coming to market earlier because of the commercial supply or this is, it's more related to the additional investment based off of the failure, the treatment failure data in terms of clinical trial expense.

The increased investment Rachel. as I said in my remarks is around Hepatitis C and cystic fibrosis. I think we have great opportunity in both areas. It's both progression which exceeded our expectation and what I mean by progression is we're ahead of where we thought we would be and that includes things like recruitment and also we do need to invest to protect the opportunities. As you know, as we talk about, as we're asked many times about early filing opportunities, our base plan here is focused on a 2010 filing launched towards the end of 2010 and early 2011. We're going to make the commensurate investments where we are with the program at this point in time so we continue to focus on a late 2010, early 20 11 launch.

Thanks very much.

Your next question is from Steve Harr with Morgan Stanley.

I have a question on C208. My recollection is that this trial included both Peg-Intron and Pegasys patients or as background regimens, you gave us the data for Pegasys. What does the data look like with Peg Intron?

I'll take that because we specifically have chosen at this point not to provide the data on Peg-Intron. That will come later at the medical conferences as Freda mentioned. We see the important data in terms of the profile, the large revenue and the understanding of the development of our drug and that provided a top line data on the Pegasys arms, as we're studying our drug with Pegasys in Phase III Registration program at this point.

Is there any reason for us to believe it would be different between Pegasys and Peg-Intron given what's known about both Telaprevir and the pegylated interferons?

Why don't we wait for the data, at a later medical conference. As I said we're focused on the development of Telaprevir in combination with Pegasys and ribavirin so that's what's more important for our development.

Okay, thank you.

Okay.

Your next question is from Meg Malloy with Goldman Sachs.

Thanks very much. Good afternoon. Question on the thought process around advanced patients in the US. I know you've indicated what the plan is for Europe and that you plan to begin the screening in the US. Could you share with us your thought process and what that study looks like?

So the treatment failure trial, we are currently in discussions, in advanced discussions with the FDA on that trial, and we are on track to start our patient screening this quarter actually.

So is it expected to be different than the study under way in Europe in terms of size or patient criteria?

No. Our expectation now, our proposal that's on the table is that the studies are going to be very similar to one another and so we're awaiting the conclusion of our discussions with the FDA in order to get started.

So it going to be about the same size, 650 patients?

It will be about the same size, yes.

Okay, and if I could just follow-up, assuming that BID results hold, what would be your plan to advance that regimen given the pivotal studies already under way with TID ?

Meg, it's Kurt, maybe I can address that. I want to provide a clarity point, it's probably clear to you but the treatment failure trial, we are talking potentially about one trial there. Our goal is to do one global study just like we're doing in treatment naive but like Freda said, we're in final discussions with the FDA. They're really advanced and as soon as we have that finalized, we'll let you know. As it relates to your question around twice daily dosing and how we would advance that, obviously we want to see the final results from this ongoing study. That's encouraging, as to continue to evaluate this but we do anticipate having to do additional studies and probably file an SNDA post-launch to get that on our label and as long as the results are consistent with what we've seen so far in the study, we would try to move quickly to do that.

Thanks and I'm sorry to be dense on this, so the total size of the treatment failure is just over 1200 patients? 1300 patients?

Ideally, that was what I was clarifying.

Okay, so the whole thing is 650 patients.

That's right.

Thank you.

That's our current proposal, Meg.

Thanks.

Yes.

Your next question is from Yaron Werber with Citi.

Thanks for taking my question. I just wanted to get a little bit of an update on Study 107. What do you think we might be able to see next year and what's the earliest time frame in which we can start seeing end of treatment data and SVR data as well. Thanks.

So I think on Study 107 we anticipate having final results on that study some time in the second half of 2009. So we would have results prior to the 2009 AASLD.

Okay, but can you give us a sense maybe along the way or give us an update as to how many patients you've enrolled so far and would we see any data at the upcoming AASLD, any updates there?

So as you know, we don't pre-announce what we will be disclosing at AASLD, they have an embargo, but as you've seen, it is an open label study and it would be nice to think that we could provide an update to that study of the progression of the patients and also the new patients coming to the study. We've always anticipated that there would be between 100 and 150 patients in that study, and in fact we still have those expectations.

And maybe just a final follow-up and I know you've gotten a few questions on the call already, just to get any data, just to clarify if you can and I appreciate it's still early but it sounds like the data is very promising. Would you wait until your ongoing Stage 3 are fully enrolled and then start your BID pivotal study or is there any chance you could do them in parallel or is it parallel that maybe physicians or patients are going to start using it twice a day in the current Phase III? I'm just trying to get a sense as to how fast that's we're going to move along.

We remain very encouraged by these results, and as I mentioned earlier, we are in conversations right now with Tibotec on how we would evolve the BID dosing in the context of our overall program.

And can you, do you have a sense as to when you might be able to communicate that to us?

We need to run the course of the study, Yaron, and I think underneath your question what I also heard you say or heard you ask was that is there an opportunity here as we think about our registration program, is there an opportunity to roll this twice daily opportunity to registration programs? Absolutely not. Let's be clear on this. We're focused our registration programs on a three times daily dosing schedule. That is is what we discussed with the FDA. That's what we're committed to as we look to label this drug. In terms of advancing the three times daily opportunity, there is going to be a discussion with Tibotec, as Freda said. This is our early data, we're very encouraged by it and we'll work into the plan at a later date, I think Kurt referenced that, specifically thinking about an SNDA which would come later.

Great. Thank you.

Your next question is from Geoffrey Meacham with JPMorgan.

Thanks for taking the question. This is Terry Kline in for Geoff today. Just on or thoughts ahead of discussion with the FDA following the PROVE 3 results, just trying to get a sense from you how you're going to approach the meeting and what your suggestion is going to be to the FDA ahead of that or in that meeting.

If your question is about where we're at with the overall treatment failure program, we're in advanced discussions with the FDA already. And the European authorities. In fact the European authorities discussions have already concluded and we have a committment from them to go forward with the recommended treatment failure studies. That same set of data and the same trial design is what's done at the FDA now and we're in final late stage discussion s with them to hopefully get the same study under way in the third quarter in the US.

I'm actually curious about plans to try to file on that, on the PROVE 3 data.

It's really too early to speculate on any potential for early filing until we get final PROVE 3 data and our 107 data in the second half of 2009.

Okay, thanks.

Thank you.

Your next question is from Annabel Samimy with UBS.

Hi, thanks for taking my question. Just on the same vein regarding the PROVE 3 as well as the 107 study, you started the two Phase III when the treatment naive and I'm sorry, the second Phase III and treatment naive but also in the treatment experience. Given that the second treatment naive study was really to answer a question for physicians, do you still think that PROVE 3 could serve as a second confirmatory study to potentially file on one Phase III the PROVE 3 and maybe go for the broader label more rapidly than if you waited for the Phase III for the treatment experience?

That's a very good question. Thanks for the question. We do believe that based on our prior discussions with the FDA, we have to do one pivotal study which is now under way and we did discuss at the time that PROVE 3 were to be a successful study that it could qualify for a second and well controlled study, so it is currently still our position that we are now in that position that we're seeing positive PROVE 3 results. The other study we're so committed to doing, Study 111, that Freda was talking about earlier, and that's the one that we hope to get underway in this quarter.

So it's primarily commitments used more as a precautionary measure if the PROVE 3 strategy doesn't work.

It's precautionary but it's also really more importantly for our label to help get a clean 24 week label and we also think it's valuable information for doctors and patients to stop therapy at 24 weeks. Okay. And then just on a separate note, I guess Roche has made it pretty clear they're starting combination studies with other antiviral agents at the nucleus inhibitors about now, I mean , they're checking it out right now so by the time they come out with some of their own products, they may have that

What's your strategy around that? Is there --

So we've heard bits and pieces but I don't think there's been any confirmation to my knowledge yet that any studies are about to start on that. I know that a lot of people are talking about STAT-C combination studies and obviously including us. We are under active discussion with many companies that have potentially complimentary STAT-C therapies, and I think the fact that Telaprevir is so advanced in clinical studies right now, it would make a lot of sense for anyone who has a STAT-C combination product to work with Telaprevir since we'll be on the market quite a bit earlier than any other protease inhibitor that really has potential especially in treatment failure patients so we feel good about our position right now and we're and we're under active discussion with people that have those complimentary drugs.

Okay, thank you.

Your next question is from Brian Abrahams with Oppenheimer.

Thanks for taking my question and my congratulations as well on the BID data. Without getting into what the specific data looks like, I'm just wondering what's your view in terms of what an allowable delta might be in the 12 week undetectable rates, between BID and TID for you to be comfortable that there's essentially no clinically meaningful difference between those two regimens.

That's a good question and I want to give you an answer. I think the most important thing we can look at in the study at the 12 week time point, the two most important parameters to us are the four week RVR data, because we know that that correlates very well to SVR from all of our data so far and the 12 week safety data, which like we said, we're not seeing substantial differences in either any of the anti- viral activity or the safety data across the BID or TID regimen with Pegasys. That's what we're encouraged about. That's what gives us confidence to continue to proceed with the BID program. I think where the EVR parameter is important is only in those patients that have achieved RVR, because we know from our data that if we also achieve EVR at 12 weeks there's an even higher confidence interval, about 4 to 5% higher confidence interval that they get to SDR for short duration therapy. That's the way we look at the results that we have right now.

Okay and then just one follow-up question about that study. I'm wondering if you can make a comment on the dropout rates between the BID versus TID arm. I know you said that the undetectable rates looked similar on intensive treat basis and I'm wondering if that could mean increased dropouts offset by maybe increased activity with BID or was it generally the same for both?

Thanks again for the question. Right now with this top line announcements we are not seeing substantial differences across any antiviral or safety parameters.

Okay, thanks very much for that information.

Thank you.

Your next question is from Liisa Bayko with JMP Securities.

Good afternoon. A question about AASLD. For the C208 study, is it possibly you might get a look at more advanced data such as the 24 week data which you may have by that point?

I'll take it. I'll just take that as a disclosure question, Lisa, so thanks for the question. We don't want to pre disclose what we're committing to in AASLD, and clearly if we're submitting abstracts we need to see if the're going to be accepted but clearly we'll be providing the data that we have in hand at that point in time, the study will progress at that point in time so if we have the opportunity to update, we will do it. This is a Phase II A, it's 160 patients, it's 40 patients per arm, a small number of patients but it gives us a good understanding of the twice daily opportunity. Okay, great. And then just Kurt, you talked about combination studies in the context of your second half comments. Does that, should we infer that to mean that you might be starting some combination studies in the second half and then have you done any pre-clinical work yet towards that? So my general comments around my strategy and pursuing STAT-C combinations is that our strategy and our strategic objective is unchanged. We've been actively discussing the potential collaborations with multiple parties now for months and really where we're at right now is we're in a great place with Telaprevir. The drug is in late stage development. We've got a significant lead both in timeline and profile on protease inhibitors behind us, and what we're doing is a careful analysis of the most attractive and what I would say is later stage STAT-C combination products, but also others, to try and figure out the best ones to take into Phase I B / 2 A type study toss see if there's potential time PROVE upon where we are with Telaprevir. We don't feel that we need to be rushed to move into those studies too quickly. We want to make sure that when we do go into a combination trial that we have a fair amount of clarity about what it is and once we get that we're well positioned to potentially do multiple different kinds of studies and/or deals with people that have those complimentary drugs. So once we are at that point in time we'll update you as appropriate.

All right, thanks a lot.

Thank you.

Your next question is from Howard Liang with Leerink Swann.

Thank you very much. Just have a question about the second Phase III study in treatment naive patients. What is the design of that study, superiority versus inferiority and can you talk about the powering, what would be considered equivalent for a trial of that size?

In terms of the details I'd rather wait until we get our final feedback from the FDA, as I mentioned we're in late stage discussions with them about our treatment failure Phase III study and this is also a component of that. What I can tell you about the design is it's geared to answer what I would call the labeling and educational piece of information we think will be helpful to doctors and patients and that central question, is there any incremental benefit of 48 weeks over 24 weeks in the subset of patients that achieved RVR and EVR? Now based on all of the data we have today and the pool data from PROVE 1 and PROVE 2, we don't think that people who achieve both RVR and EVR, there is any meaningful difference in SVR rates from people that get treated with the 48 week regimen or a 24 and this study is aimed to give us additional data to show them.

Okay, I just have one another question on C 208. I know that you've said that both arms, BID and TID have a treatment rate greater than 80% but is there any medical difference between the two arms?

Right now, all we're prepared to say and I know you guys want all of the data on this, we really have to protect this data. We're submitting it as an abstract to the AASLD, and we want to respect their policy and embargo policy that we don't give all of the data around this because we've put the abstract at risk and the presentation at risk. What we're seeing with this as we said is no substantial differences in the antiviral activity or the safety parameters for this drug.

Okay.

And I think that's the main take away from it. We're encouraged by this data.

Last question regarding AASLD. Would the PROVE 3 SVR12 data on the 48 week arms be mature enough for presentation?

That's going to be close, Howard, just in terms of timeline of the study it's going to be very close. The answer, the complete honest answer is if we're able to gain that data that presentation and that presentation is accepted, then we'll be providing it but it's going to be close whether we can insure that we gain the data, we do our QC on it, and but if we can do all that I'm sure we would like to put it out at the conference.

Thanks very much.

Your next question is from Tom Russo with Baird.

Good afternoon. I have to ask a question about 208 also but I'll try to keep it to what you have disclosed. With the 80% EVR being higher than I think what we've seen before, do you think that we're heading towards potentially higher SVRs than we've seen before in this trial?

I'm sorry, could you repeat your question one more time?

The 12 week time point being above 80% in study 208 for both arms based on what you've seen before, do you think you might be heading towards higher SVR rates in this trial?

It's a good question. It's hard to speculate on that right now, and the reason why there is a difference in this trial, we've designed the study as a response driven trial, and we also are using our rash management program in this and I think in PROVE 1 and PROVE 2, what we did see is some patients that ran into a adverse event, they were stopped on all three drugs and I think what we're seeing in all of our ongoing studies right now is investigators become more comfortable using our drug and the triple therapy in general is that when they run into one of those adverse events instead of discontinuing all three drugs, many times they're continuing people on interferon and ribavirin and that we believe is one of the potential contributors to these higher numbers but it's too early to speculate on whether that translates into higher SVR. It could happen but it's too early and that would be speculation at this point.

And just PROVE 3, do you have any visibility at this point? I know the expectations would have been for low relapse after SVR12 but do you have any visibility yet now that we're a couple months further out into how that's trending?

We don't have any increased visibility on that yet.

Okay. Thanks very much.

Thank you.

Your next question is from Alan Carr, with Needham.

Hi, good afternoon. Thanks for taking my question. Just want to make sure I got this right on the Phase III program in treatment experience patients. You're planning just one 650 patient trial and you're just waiting for feedback from the US or from the FDA before going forward with that, is that right?

That's correct.

Okay, good. And then on the commercial, US commercialization strategy, wondering if you can give an update on that, how that's progressing if there's any changes in your strategy, scales, salesforce, that thing potential for partnering in the US.

In terms of your first question, overall, I mean, I think the one thing that we can say about the data that we're showing here is that with new treatment failure data showing this drug has potential broad application across the treatment failure population and if our interim data, albeit small numbers in Study C208 right now, if the interim data on BID continues to pan out and we continue to evaluate that further and have a chance to are a twice daily drug, I think our commercial strategy overall is strong, and we believe with a profile like this and the specialty audience that's very focused on special that we will continue as we always have thought that we will be commercializing this product ourselves in the US.

Can you give us an estimate on what you think the scale of that salesforce might be?

The scale of the salesforce would be somewhere between 150 to 200 reps at most. You're talking about specialty offices in the US, many of these where they have more than one physician. There's about 1500 to 2000 clinics that represent about 70% of the prescriptions in the category today, so it's not a broad primary care general audience. It's a very focused audience of specialists that are really expert at managing this disease.

Great. Thanks.

You're welcome.

Your next question is from Terence Flynn with Lazard Capital Markets.

Good afternoon. Thanks for taking the question. Just a question on the second Phase III naive study. I was wondering if there's a chance that that study might be larger than the 450 patients that you originally talked about if the FDA comes back to you and decides to change the design of the study a little bit.

I think the best comment I can give you on that is the core part of the registration program from our dialogue with the FDA is the pivotal Phase III trial. The standard we have to meet is demonstrating adequate efficacy and safety in that study like we saw from our Phase II trials. That's the primary study. What they did is they gave us I think helpful advice that to get our clean 24 week label which is our goal with this, to move the medical practice of this disease forward, it would be helpful, not mission critical but it would be helpful based on their advice to have additional data to support a clean 24 week label. That's why we want to run the study and we think it will also help in the Marketing and sales of this to be able to show doctors and patients what we learn so far that there is no benefit of adding 48 weeks of therapy, a second 24 weeks when someone has already achieved RVR and EVR.

Okay. And then just a question on 208. I'm not sure if you're going to answer it but just the timing of the breakthroughs that we're seeing, I'm assuming there was some but in PROVE 1 and PROVE 2, I think the breakthroughs were all clustered pretty much in the first four weeks. Can you just comment maybe if there were any difference in the timing of the breakthroughs between the two arms or if it kind of replicated what you've seen in PROVE 1 and PROVE 2. Thanks a lot.

Yes, so I'm not going to get into specifics about that. I think if you take a step back from Steady C208, we're talking about a Phase II a study with somewhat small numbers , so I think we need to be careful of the conclusions we try to draw out of this. This is a study as we're running it right now, we do not see any substantial differences in the antiviral activity or the safety profile, the BID versus TID regimen, but the reason we say final results and more studies will be required is because this is a Phase II A study and we'll have to move forward as long as these results are consistent when we get final results with a more definitive trial. Right now we're not seeing anything that discourages us from continuing to evaluate

Great. Thanks a lot.

Your next question is from Jason Zhang with BMO Capital Markets.

Hi, thanks, that's BMO Capital Markets. A question for PROVE 3 and also study 107. In the past, we have the expectation that by the end of the year, mature data from PROVE 3 should be available and given that interim data was very positive and there's certainly hope that the mature data is still good, you will be able to talk to the FDA and then hopefully to find out whether there is a pathway for approval but I heard you saying today on the conference call, you have to wait for mature data from Study 107 in the second half of 2009. Is that something you got from FDA or just since you have started I guess the Phase III treatment population you just don't want to even try anymore?

So actually, it's a good question and thanks for asking it because we do get a lot of questions around this. We have not heard to be very specific to your question, we have not heard from the FDA that would require having 107 in hand. What we don't want to do is speculate that PROVE 3 by itself would be sufficient, and the reason for that is while there's clearly a high unmet need in these patients and we have compelling early interim data from the PROVE 3 study, there are some questions that aren't answered in PROVE 3 and I'll just give you one example. One of them is is there any difference in a 48 week regimen and no responders? That question is being addressed in study 107, so what we're saying is to be transparent with you guys as we can right now, we think having a package of data that answers the right clinical and potential labeling questions, if we were ever to have an opportunity would probably be best served by having PROVE 3 and 107. It may not be the case, but conservatively speaking we think that that would be the right kind of package to be able to talk about the how the drug treatment failure patients. Obviously when we have the PROVE 3 data, we'll be sharing that and our continuous ongoing dialogues with the FDA and that may change but it's too early to speculate on that right now.

Can I just follow-up, you said some questions that could be answered, of course, in the bigger Phase III, the data will be richer to answer a lot of questions. I'm just wondering for Study 107 given that it is an open label study, what critical information you can get that you don't really have in PROVE 3, and to increase your confidence, the regular confidence that whatever treatment regimen will be appropriate for approval.

I think the one thing that's different about 107 versus PROVE 3 is in PROVE 3 as you know everybody was treatment, not everybody but in the arm where we have seen compelling data it's on a 12 plus 12 regimen, 12 weeks triple therapy followed by interferon and ribavirin for 12 more weeks. One of the questions ribavirin for 12 more weeks. One of the questions based on the results we have in that arm that was not addressed specifically in PROVE 3 was would a 48 week regimen, 12 weeks triple therapy followed by 36 weeks of interferon ribavirin, would that provide any incremental SVR and relapse benefit over and above a 24 week regimen? That question, we will have some data on in Study 107.

Okay. Thanks.

Thank you.

Your next question is from Bryan Skorney with SIG.

Hi, guys, Jason Kolbert here actually. Just a couple of questions. You haven't talked that much about the Next Generation PIs, what are the attributes of the Next Generation PIs and how do you see the development of them going forward.

Thanks, Jason, for the question. As you know, we are choosing to develop the second generation PIs and we are at this point, we're not ready to provide any data on those programs. The principal focus is on Telaprevir and the important data that would come from the Next Generation programs I think is in the future so we're going to continue to focus on those as many ways as they could add or have features that can enhance how we treat this disease, but at this stage we're not in a position where we provide data on those compounds.

Could we switch gears to manufacturing a little bit? I'd like to just ask you a question about who is actually in charge of manufacturing? What roll do you have have in terms of sourcing intermediate ingredients? For example, I know that one key intermediate in greed ingredient is sourced out of China. Is there second sourcing? Is that Vertex sole responsibility or is that a J & J operation?

So Jason, thanks for that question. It's an all too infrequently asked question in terms of how we protect our supply. We're in great shape with our manufacturing and commercial supply. We outsource all of it. We do start in China. We come through Europe and then establishing in the US, we're already making this drug at commercial scale and have advanced significantly over the last two or three years. In terms of J & J's role in manufacturing, when we put in the collaboration, two or three years ago now, we did actually have J & J committed to also building manufacturing capabilities and also contractually provide us with a support if we do run into a problem with our own outsourced Supply Chain, so we have nice diversification of risk in Supply Chain with J & J, but right now we're in great shape in terms of starting with our own Supply Chain outsource, starting in China as you refer to coming through Europe and then into the US and we're producing the drug to scale at this time.

Perfect. Thank you for that very detailed answer. So I want to just turnover to my associate to ask you a pretty detailed question on the delta 508 mutation and CF associated with VX770. [Yugo,] go ahead.

Good afternoon. The question pertains to more clarity on where you're going for future mutations for CF. It's hard to understand that Delta 508 actually leads to a polypeptide that doesn't reach the membrane and would not be relevant to the mechanism of action of 770 so I presume you're not going to be looking at a homozygous mutations in delta 508 and you'd be looking at heterozygous ones, is that right?

So appreciate the question, so for this call let's take that question later. What we will tell you at this point is that we've got in vitro results that support production of the drug in the delta 508 patients, but we'll have to talk to you in detail in terms of the signs after the call is complete.

Okay, thanks and I just want to give a shot out to Dr. Freda Hall and say it's really great to see you at Vertex and great to connect with you again.

Thank you.

I think we have time for one more question.

Your last question is from Geoffrey Porges with Sanford Bernstein.

Thanks. Just a quick follow-up on the change in your net loss guidance. Ian, could you give us a little bit more detail on where the $70 million delta comes from? You mentioned the $14 million. Could you just talk about what's contributing that and is it principally going to go through the R & D line or the SG&A line? Thanks.

Sure, thanks for the question, the number you referred to $70 million is a little higher when the move was actually made but in terms of principle of what you're asking, there is a change in our guidance just because we know longer recording the full revenue and cost of revenue from our HIV royalties and that's approximately $14 million. The remainder of the investment is principally into Hepatitis C and cystic fibrosis. As Freda referred to earlier in her remarks we've made tremendous progress in cystic fibrosis and had some great discussions with the US and European authorities. We have to think about 2009 and the potential of being in a registration program in the 551 patients and that is ahead had of our expectations. We need to start preparing for that so we're in position to commence that trial subject to the results from the 28 day study. Similar to cystic fibrosis we're also investing in Hepatitis C because the results were also beyond our expectations.

Frankly, in the treatment failure patient population, we did have expectations that begin every year and expectations for the progression of the program. The results that we saw in the PROVE 3 and interim analysis were beyond where we thought and again what it's translating to is the progress of the program and we need to invest to support that progress of the program which is ahead of where we initially thought at the beginning of the year. Those are the principal investments Hepatitis C and cystic fibrosis that are good opportunities and we need to protect those opportunities.

And on the P & L and other parts of your guidance?

We haven't specifically want it tied the effect on the R & D but it's principally in the R & D line if that's the question you're asking the change in the guidance is principally in the R & D line other than the comments I made on the royalty loss.

Okay, thanks. That's helpful.

Okay. Thank you very much, everybody, for listening to our call tonight. We are in the office if you have any follow-up questions, and we look forward to talking to you. Thanks.

Thank you.

This concludes today's Vertex Q2 financial results conference call. You may now disconnect.