福泰製藥 (VRTX) 2008 Q3 法說會逐字稿

Good afternoon. My name is Ken, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Vertex Pharmaceuticals conference call. All lines have been placed on mute. After the Vertex's remarks, there will be a question-and answer-period. (OPERATOR INSTRUCTIONS). Michael, are you ready to begin, sir?

Yes.

Thank you, may now begin your conference.

Good evening. This is Michael Partridge. Welcome everyone to Vertex's third quarter 2008 conference call. For Vertex, 2008 has been marked by significant progress. In the area of Hepatitis C, were with Telaprevir. We now have our first Phase 3 trail fully enrolled, in treatment-naive patients and a second Phase 3 up and running in all major treatment-failure groups and in the area of Cystic Fibrosis where with compelling clinical data for VX-770. We have created a potential opportunity to move rapidly into registration program in the first half of 2009. Being in a position to have possibly two pivotal programs in parallel, targeting diseases of significant unmet medical need represents an unusual and very valuable opportunity and Vertex is fortunate on the basis of successful financing activities in 2008, to have a financial position to support Late Stage Development of both our Hepatitis C and our Cystic Fibrosis programs.

Joining me on the call today to discuss our progress so far this year as well as the opportunities ahead, are Ian Smith; Dr. Freda C. Lewis-Hall; Kurt Graves; and Dr. Joshua Boger. I will remind you that we may make forward-looking statements on this call and these statements are subject to the risks and uncertainties discussed in detail in our 10-K and other reports filed with the SEC. This call includes discussion of GAAP and non-GAAP financial measures. Information regarding our use of these measures and a reconciliation of non-GAAP to GAAP is available in our third quarter 2008 financial press release, which was issued today after the market closed. Generally, any 2008 expenses discussed in this call will be inclusive of stock-based compensation.

As always, can you visit our website to listen to the conference call, view a Power Point presentation and/or download a podcast. We'll take your questions after our prepared remarks tonight. Following our call, our Investor Relations team joined by Ian will be in the office to answer any additional questions you may have. I'll now turn the call over to Ian.

Thank you, Michael and good evening to everyone. The key financial headlines of Vertex in this period of economic uncertainty is that we are well capitalize with $920 million of cash, cash equivalents and marketable securities at September 30, 2008. We have strengthened our balance sheet in several important ways this year and we have the capital resources to fund our very important Late Stage Clinical opportunities in Hepatitis C and Cystic Fibrosis. As we progress our business we remain sensitive and aware of the external environment and on our reliance upon external capital as an important source of funding our business progression. However, given the current economic environment, that source of capital comes at a high cost. Therefore, as we look to 2009, we need to plan our business to drive our key priorities and make the right choices. We'll provide further information to our future operating plans as we enter 2009 and remain sensitive to the economic environment.

Now to the third quarter 2008 financial results. The third quarter non-GAAP loss before certain charges was $115 million compared to a third quarter 2007 non-GAAP loss of $93 million. The decrease in loss is mainly attributable to a reduction in total revenues and an increase in commercial related expenses as we advance our product candidates towards registration. The GAAP net loss for the third quarter of 2008 was $130 million, compared to $107 million in the third quarter of 2007, which includes stock-based compensation. Total revenues for the third quarter were $32 million, compared to $41 million in 2007. The decrease in revenues is attributable to, one, reduced royalty income. We sold our HIV royalty for $160 million in cash earlier in the year and the royalty income recorded since the disposition relates to the amortization of the gain from such a sale. And two, the reduction in collaborative revenues that are derived from Telaprevir development. This is due to both Vertex and Tibotec sharing more of the development activities as we advance Telaprevir.

Now to our R&D investment. Our total R&D expense was $130 million compared to $129 million in the third quarter of 2007. R&D expenses have remained relatively similar to the prior year, despite the advancement of the development programs. This, again, is due to sharing more of the development activities with Tibotec.

Our third quarter SG&A expense was $27 million compared to $21 million in third quarter of 2007. This increase was primarily the result of infrastructure build to support our business and the initial steps we have taken to build commercial infrastructure to support Telaprevir.

Now, turning to our balance sheet. We ended the third quarter with approximately $920 million in cash, cash equivalents and marketable securities and we have approximately $288 million of convertible debt outstanding and due in 2013. This convertible debt has a conversion price of $23.14 per share and it has a non-call feature through February 2010. Before I close, many of you have asked about our invested balance sheet capital and I would like to take this opportunity to provide you some of this year's key aspects to management of these investments. Firstly, we are investing these monies to capital preservation, as a priority and we are focused on high grade investments. The great majority of our balance sheet investments are invested in short-term, Government Guaranteed Securities, which are more conservative investments with lower yields and carry less exposure to market volatility and liquidity. And, consistent with our capital preservation philosophy, we have closely scrutinized our investments with advice from our external money management advisors and we are happy to report to you that we have been fortunate so far during 2008 and have avoided significant impairments. In fact, for the year-to-date, we have not taken any write-offs of significance on our invested capital. We'll continue to approach our investments in this manner.

In closing, we're in a fortunate position to be capitalized with $920 million of cash and equivalents and have the financial resources to support the advanced stage clinical trials in the areas of Hepatitis C and Cystic Fibrosis and we'll take the right approach to managing our business priorities as we move into 2009. I'll now turn the call over to Freda. Freda.

Thank you, Ian. It's a busy and exciting time for Vertex's clinical programs. Just last week we announced data from our Cystic Fibrosis development program at the North American Cystic Fibrosis Conference in Orlando. And now this week we're preparing to present data on Telaprevir and AASLD, the Major Liver meeting in San Francisco. Telaprevir is the primary focus of our development resources and energy at the moment. We believe that Telaprevir's profile is strong and differentiating and we are working diligently and deliberately on advancing toward a potential NDA in the second half of 2010. And now additionally, we are advancing toward another new and exciting opportunity in Cystic Fibrosis. Operationally, we are strong and prepared to handle the challenges of preparing for pivotal programs in both Cystic Fibrosis and Hepatitis C.

I'd like to focus my remarks first on where we are in the development with our HCV program. AASLD begins at the end of this week and in conjunction with that conference, we will be discussing data for Telaprevir. At AASLD we'll present for the first time to the HCV community, SVR12 data from our PROVE 3 treatment-failure study. As you know, in June we reported unprecedented SVR data with Telaprevir in this study. Specifically, in an interim analysis, we announced that 52% of patients randomized to receive treatment with a 24-week Telaprevir based regimen, that is 12-weeks of Telaprevir in combinations with pegylated interferon and ribavirin (RBV), followed by 12-weeks of pegylated interferon and ribavirin (RBV) alone, maintained undetectable HCV RNA 12-weeks post treatment for the SVR12 The adverse event profile for PROVE 3 has been generally consistent with the PROVE 1 and PROVE 2 clinical trial data with rash and [peridial] and anemia being the primarily Telaprevir related adverse events. Also at AASLD, we expect to present 12-week end-of-treatment data from the C208 clinical trial. An exploratory clinical trial evaluating twice-daily dosing of Telaprevir based combination therapy. In the study, Telaprevir's being dozed in combination with ribavirin (RBV) and PEGASYS or peg. interferon (per-IFN). Based on week 4 and 12 data, we believe that further evaluation of twice-daily dosing regimens is supported. We look forward to speaking with you further as Telaprevir data are presented at AASLD.

Now, turning briefly to our broad registration program under way with Telaprevir. First, the advanced Phase 3 trial is focused on treatment-naive, genotype-1 HCV patients and we announced today that we have completed enrollment as planned in this 1,050 patient study. Completion of enrollment means that Telaprevir dosing in all patients, in advance, should be finished by the end of January of 2009, which keeps us on track to have SVR24 data in the first half of 2010. Second, we initiated in September the realized Phase 3 trial in genotype-1HCV patients who failed to achieve an SVR with prior treatment of pegylated interferon and ribavirin (RBV) . This is an landmark trial, as it is the only Phase 3 trial to evaluate all major treatment-failure patient categories including the difficult to treat and all responders. This trial complements our current advanced trial, potentially further differentiates Telaprevir and helps to solidify our leadership position in the current evolving landscape of HCV treatment.

We also have a third major trial under way in genotype-1, treatment-naive patients named Illuminate. Illuminate is an open label trial and will supplement our registration program by adding data on response guided therapy for total durations of 24 and 48-week. The trial will enroll approximately 500 patients. Additional details of this trial can be found on ClinicalTrials.gov..gov.

Before I turn to our Cystic Fibrosis compound, I'd like to remind everyone that our second generation HCV program is progressing well. We initiated a Phase 1B study of VX-500, and we expect to have our first proof of concept data from this study in the first quarter of 2009. In addition, we fished this month a Phase I clinical trial of our third HCV protease inhibitor VX-813 in healthy volunteers. We look forward to advancing these programs and understanding the opportunities they may present for further advancing the care of HCV patients.

Now, to our two Cystic Fibrosis development programs. I'll start with the Phase 2A data we recently announced for our potentiator compound VX-770. At the North American Cystic Fibrosis Conference last week, clinical investigators presented positive 28-day results from a preliminary analysis of Part 2 of the Phase 2A clinical trial of VX-770 in patients who carry the G551D CFTR mutation. As you may recall, the results from part one were announced in March. The CF community was pretty excited about these results and I'll talk more about that in a moment. The 28-day results are important and we believe provide support for moving into a registration program in the first half of 2009. These results should be looked at in a broad context. We conducted one Phase 2A trial that we separated into two parts. Part one, which evaluated 14-days of dosing and Part two, in a different patient group, which evaluated 28-days of dosing. A total of 39 patients ranging in age from 18 years to their early 50s were enrolled, all of whom had the G551D CFTR mutation. The primary end point of the Phase 2A study was safety and we got the results we hoped for. VX-770 was well tolerated through 28-days at doses as high as 250-milligrams, twice-daily, with no serious adverse events reported that were attributed to VX-770.

In the Phase 2A trial, we also wanted to gain an understanding of VX-770s activity on the CFTR protein, the underlying cause of Cystic Fibrosis. We were fortunate to observe clinical effects that correlated with significant modulation of the CFTR activity. From an efficacy perspective, in the Phase 2A trial, we observed that VX-770 demonstrated, first of all significant improvements in lung function at 14 and 28-days as measured by an increase from baseline. Supporting this improvement in FEV1, was a trend toward improvement in the respiratory domain of the Cystic Fibrosis Questionnaire Revised or CFQR, Quality of Life Measurement.

Secondly, significant improvements in the function of CFTR protein as measured by changes from baseline and biomarkers of CFTR activity, sweat chloride levels and nasal potential difference (NPD) and a dose response with measures of lung function and CFTR activity. The data from VX-770 arms in both Part one and Part two, support the hypothesis that improving chloride I on transport in CF patients may correlate with improvements in lungs function. While the placebo response in Part one of the study was flat, in Part two of the study the placebo showed a mean increase of 7% and FEV1 at the end of 28-days. We do not discount this placebo response. After having consulted with investigators, we are confident that VX-770 is strongly differentiated from placebo. The placebo group was comprised of only four patients and the response was not statistically significant. Also, we observed that the response in the VX-770 treatment group was rapid and sustained, a pattern we did not see in the placebo group.

I want to make a comment here about how these data were received at the North American CF Conference. Many times in discussions with investigators, the senior medical team from the CF foundation and others at the conference, the data were described as phenomenal and making the impossible possible for CF patients. I left the conference very encouraged by the CF community's level of understanding and appreciation of the data. We know we have more work to do. Based on these results, Vertex intends to work with global regulatory authorities to finalize the design of a registration program for VX-770 to begin in the first half of 2009. Cystic Fibrosis is very serious disease and we are excited for the potential of VX-770 to provide a gain-changing approach to the treatment of this disease. Unlike current treatments that only address the signs and symptoms, VX-770 targets the defective or missing CFTR protein, which is the underlying mechanism of Cystic Fibrosis, a truly novel approach. We have also completed two Phase 1 trials of VX-809, a corrector compound for CF. This compound has fast track designation with the FDA. And based on the results from the Phase I trial, we have initiated a single-dose PK and safety study of VX-809 in patients with CF. We would expect that the Phase I results, if positive, would support initiation in the first half of 2009 of a Phase 2A trial that may run in parallel with the possible registration program for VX-770.

In closing, I want to point out that our development programs have strengthened since the start of the year and continue to strengthen as we move closer to potential regulatory filings in two major disease areas. I look forward to updating you as we make further progress. I hope that this update has been helpful and I'll now turn the call over to

Thanks, Freda and good evening, everyone. We are advancing the business in two important and very attractive disease areas. As dynamics change all around us in the industry, we believe our strategy at Vertex, to target very high unmet need diseases, that are specialty oriented and focused, with truly transformational therapies is right where you want to be as the industry moves forward. We believe true innovation that dramatical improves patient outcomes will continue to be rewarded while other forces in the industry will free up resources to be able to pay for it. HCV and CF represent two very attractive specialty markets that are well-known for their high morbidity and mortality rates, as well as their devastating impacts on the healthcare system and family members. In each of these markets there is an opportunity to create and capture tremendous value with truly innovative products that have the potential to transform patient outcomes.

With that as a backdrop, I would like to open with a few remarks about Telaprevir and HCV as we head into AASLD in just a few days. Now in the field, and the broadest Phase 3 program now well under way, Telaprevir's product profile continues to show the potential to set new standards for SVR and duration of therapy in HCV, together with a well documented safety and tolerability profile now in more than 1,000 patients from our Phase 2 studies alone. In addition, the unprecedented interim treatment-failure SVR-12 data and our emerging twice-daily dosing data could potentially strengthen our product profile should we succeed in obtaining marketing approval for launch and post launch Life Cycle Management plans. Going into AASLD, Telaprevir's out in front and our data continues to set the tone for Stat C agents, whether it be stage of development, SVR levels achieved across all genotype-1 patients, the potential for shorter durations of care, and now, even the potential to come to market with a twice-daily dosing schedule shortly after launch, assuming data from C208 and additional twice-daily development work are are successful in the future.

While Freda and I have our teams working very closely together to deliver a differentiated target product profile, we also have to make sure the target product profile is in sync with important market dynamics in HCV treatment and how Telaprevir fits in competitively. For example, tonight I thought I would highlight one of those. One of the most important patient dynamics in the part of the HCV population, who have failed a prior course or courses of HCV interferon and ribavirin (RBV) therapy. We estimate that there will be well over 300,000 treatment-failure patients in the United States when we could launch Telaprevir. In terms of unmet medical need and commercial importance, from a patient flow perspective, there is not a higher priority patient population for us. The treatment-failure population poses a significant public health concern, as it's now becoming well-known and published that morbidity and mortality rates are projected to reach upwards of 43% of patients within just seven years of failing their first course of interferon based therapy.

For many of these patients, there are no other treatment options. additionally, we know from extensive market research that the far majority of these 300,000 plus patients are already under care in just over 2,000 specialist's office and both they and their doctors, from our research have a high intent to pursue new therapies once they become available. With Telaprevir, we're looking particularly good here as our data to date shows significantly higher SVR potential across all treatment-failure segments, even in non-responders. While other sources of patient flow will be important for us over time, getting the treatment-failure segment right and doing it quickly is critical for these patients who are at significant risk. It's also critical for payors to avoid massive system cost and last but not least, it's important to support our value proposition, our differentiation, and a potential blockbuster launch trajectory.

About 18 months from today, we expect to have SVR-24 data from our controlled Phase 2trials and our first ongoing Phase 3 program. We're now in the early stages of building our customer facing, go-to-market model and we continue to strengthen our organization with key talent and leaders that have a proven track record of being innovative and successfully building organizations and launching important brands. We have thoroughly analyzed and segmented patients, physicians, payer dynamics, competition, and other influences to identify the key barriers and opportunities in the HCV marketplace. Telaprevir has the potential to transform those dynamics in HCV. And with other complementary therapies coming behind us, we're more assured than ever that HCV could be one of the most dynamic growth categories in Pharmaceuticals over the next 5 to 10 years. We aim to get out first and stay out in front in the lead with Telaprevir, then our second generation programs, and other potential Stat C collaborations that can enable us to build a leading franchise in the area.

While we're focused on flawless execution today and through the first few years of launch, we're also keeping our eye on future evolution of HCV regimens with the end game goal of developing regimens without interferon, which is a major barrier to treatment for many patients. Our business development team continues to have ongoing discussions with select companies developing other Stat C agents, in order to evaluate the potential of Telaprevir in combination with compounds having other mechanisms of action. We believe we're out in front in Phase 3, and now as some of these agents advance into Phase 1 and early Phase 2 studies, we will remain very active in this area and I look forward to providing an update on our plans and progress as we move forward.

Lastly, I would like to make a few concluding remarks in our emerging opportunity in CF and follow up some of the comments by Freda. As you know, there is no therapy right now that addresses the underlying defects of CF. Having worked in the CF field at my prior company, the Standard of Care today treats only the signs and symptoms of this disease and there is still a huge unmet need to provide both short-term and longer-term outcomes, which will require disease modifying therapies. Data from studies of VX-770 has opened the door and the path way to that possibility and like Freda, having been at the North American CF Conference, just a few days ago, there was a genuine enthusiasm and a new level of hope for what might lie ahead for these and other CF patients. We know we've still got many things to learn about our CFTR therapies and we will balance the need to move quickly in an orphan disease while also being smart, as smart as we can, with every new piece of information we get from our ongoing trials. Our data in early you studies of patients with G551D mutations suggests that the drug is active and that it can produce, at least in short-term studies to date, both clinical FVE1improvements as well as biomarker improvements which suggests that VX-770 may have an an ability to address the root cause CFTR defects we know are behind CF. Based on these results and ongoing analysis of our data with internal and external experts we are working on the design of a registration program which Freda outlined, which we plan to discuss with regulatory authorities and which we hope to bring the first half of 2009. While there is still more to be done, and more to learn as we go, there is no doubt that we have potentially another transformational opportunity for Vertex in an area of high unmet medical need.

In summary, we've made significant progress in bringing our lead HCV product candidate towards marketing approval and have the potential to demonstrate tremendous value in another attractive specialty market like Cystic Fibrosis. We look forward to keeping you apprised of future developments. Joshua, over to you.

Thank you , Kurt. Vertex is experiencing a very significant and I believe a very exciting period of change right now. We're a company that was founded on strong research and a deep commitment to innovation that can transform the way we treat diseases with serious unmet needs. We've continued that commitment to innovation and building expertise and development. We're now establishing an innovative commercial infrastructure for our promising product candidates. For the first time in Vertex history, we're preparing for the possibility that we may have two compounds in registration programs at the same time, in diseases treated by specialists, HCV and Cystic Fibrosis that has the potential each to provide us with multiple opportunities for commercial growth. This is exciting for us at Vertex and for the HCV and CF communities. We are prepared for the challenge and work that will be involved to potentially file two NDAs over a similar time frame. This will not be an easy task, but an opportunity like this does not come around everyday. With great execution driven by the outstanding people at Vertex we will continue to take decisive and responsible steps to meet these challenges head on. Michael, back to

That concludes our prepared remarks and we will now open up the call to your questions.

(OPERATOR INSTRUCTIONS). Your first question comes from Rachel McMinn from Cowen and Company. Your line is open.

Thanks very much. A a couple of questions. One, I guess to start off with you, Ian, can you give us a better sense of what was in your P&L as variable, the guidance range is still quite wide, you haven't really changed it. There's only two months left in the year. Is it on the expense side or on the milestone side?

Thanks, Rachel.

Thanks for the question. Let me just make sure that we are talking about the same thing. We actually provided financial guidance in our second quarter call where the loss was projected to be between $390 million and 410 and that's where our guidance remains at this point. As we look to the fourth quarter, we do expect to be an increase of R&D expenses just commensurate with the stage of the programs and the starting of the treatment-failure registration program. That should also drive revenue but it should move the loss up in the fourth quarter but I believe we're still trending towards that 390 to 410 loss.

And then in terms of, I guess two other questions, on VX-809, is there anything you can tell us there, based off of the early clinical work, I know it's very distinct from 770, chemically, but is there anything we can learn from the initial data that you have there as to your expectations of what it should look like when you put it into patients?

That's an excellent question and of course we're very excited about being able to analyze and report out the data on 809. Unfortunately, we don't have anything that we could share with you now.

Okay. And then just lastly, in terms of PROVE 3 when the full data become available for the control arm, is that something you plan on updating investors in a timely manner or will it just be we'll have to wait until a medical meeting to get the final data?

I'll take that question. It sounds like a disclosure question. As you know, our policy with trials that have the potential to be used for significant advances with our FDA, we like to preserve the integrity of those trials. At this stage, to ask us how we're going to disclose the PROVE 3 control arm, at this stage I would hope that we're preserving that for discussion with the FDA first. That's how we think about it right now.

Okay. Thanks very much.

Your next question comes from Geoffrey Porges. Your line is open, sir.

Thanks very much for taking the question. A few questions on 770 and I suspect maybe we won't get answers, but I'm curious about whether you think the drug might have utility in patients with other groups of CF patients like stop mutations and also obviously Delta 508, when are you likely to start doing studies in those patients, or are you going to wait until you have combinations with 809? Secondly, when do you expect to meet with the FDA? And then related to the first part, what additional studies should we think that you're going to study, start looking at children, infants, I mean, where are you going to go with this in addition to this pivotal program which obviously I'd love it if you would give us a sense of duration, amount of safety exposure, kind of number of patients but I suspect you can't help us on that at this point. Thanks.

That was a lot of questions.

It's an important drug.

Let me think if I can tackle just a few of those. So first of all, we do intend to study the VX-770 primarily in G551D mutation as a part of our pivotal program. We understand however, how interesting, if not provocative and frankly important relative to safety it will be to study additional mutations and we are in discussions with regulatory agencies about how to go about that. In addition to that, we understand that it's important to study the full range of patients and as you heard in my earlier comments, we've taken a look at patients from 18 to their early 50s and we're certainly interested in going in the other direction and looking at patients in their adolescent years as well as patients younger than that. All of these things we're currently in discussion with with the regulatory agencies.

Could I just follow up further. Do you think those discussions will be resolved by year end or could you give us a time line on that?

We're hoping to begin our pivotal program in 2009 and based on these 28-day results, we are seeking feedback from the FDA as well as regulatory agencies outside of the US.

Okay. Thanks very much.

Your next question comes from Steve Harr from Morgan Stanley. Your line is open.

Thanks. Just give us an update on discussions with or timing of discussions with regulators around potential alternative filings strategies for Telaprevir, rather than waiting to have full Phase 3 data across all three trials?

Yes, thank you, that's an excellent question. So right now, we are working very diligently towards a second half of 2010 filing. And of course, we do have data coming in between now and then and certainly would look at taking advantage of that data in discussions with the agency, should the opportunity arise. But right now, our plans are to aggressively advance to that filing towards the end of 2010.

With the Company's significant burn, how are you guys managing building out your commercial infrastructure then? Are you -- you say you're beginning to take steps to build it out. Are these very preliminary steps or are you trying to have an infrastructure in place in case you have the ability to launch early.

It's Kurt Graves. Good question. It's a very step-wise approach to this, obviously, given the uncertainty around different filing scenarios. I do believe that with data coming in, whether it's the first data coming in for treatment-failure or whether we would have to wait for our Phase 3 naAve data, that we'll have plenty of lead time from health authorities to help the large piece of the commercial scale -up, which is your customer facing part of it. We have done and doing a lot of the design work around that right now. We've hired a few key leaders like I said that have a lot of experience, building organizations and launching brands. But before we pull the trigger on large amount of hiring, for the customer facing component I think we'll have enough of a lead from health authorities before we have to do that.

Steve, I would just add, as we look to the potential for an earlier filing, the key components in our business that we need to plan and invest for which has less flexibility is actually commercial supply. And so we certainly need to ensure that we're ready if there is the opportunity to move faster, that the aspects to Kurt's commercial infrastructure that he refers to can be turned on a little quicker. But commercial supply has little less flexibility. But if the opportunity arises, we will be ready from a commercial supply as well as commercial infrastructure position.

Thank you.

Steve, just to follow up one more comment, it's Kurt. I think the nice thing about HCV and for that matter even more so in CF if we're fortunate enough to get there soon is that we're not talking about massive field forces here. We're talking about in the US, if you look at where 80% of the current business is, it's in about 2,000 to 2,005 offices. It's a pretty focused commercial effort. That's one of the nice things about this.

Your next question comes from Geoffrey Meacham from JPMorgan.

Hi. Thanks for the question. Wonder if you can give us some updated thoughts on your strategy for triple combination therapy for Hep C and then what would you expect a decision to be to set this in motion. Is it FDA discussions or key data sets and I have a follow-up.

Yes, this is Kurt. In terms of Stat C discussions and gating pieces of this, first and foremost I think what we have been doing in our discussions with all the different potential companies that have complementary therapies is making sure now that we're in Late Stage Phase 3 trials that when we do initiate combination work, whether that's just a collaboration to generate joint data for labeling or whether it's a bigger type collaboration, we want to make sure that we've got an asset that we can find as much as we can about, about how complementary it is to our drug. We obviously have a high hurdle for finding out that potential safety profile of the drug and, therefore, that tends to lead us with a priority focus of assets that are in Phase 1B, just going into Phase 2A type of trials, because that's the first time that we really start to see what the profile of those drugs look like and how combinable they could be with Telaprevir. The nice thing is, as I mentioned, now that enough of these assets are getting into the 1B, 2A phase, I think we've got a good chance going forward to figure out one or more collaborations that would make sense for us going into 2009.

Thanks, that's helpful. And then on the Illuminate study, you guys talk in the release about having SVR data in the first half of 2010. Is that based on 48-week or 24-week data and then could the 48-week data be the getting factor here for filing?

It's based on 48-week data and so our expectation is -- and that's -- so we framed the timing in a way that we would not be looking at any gaiting that we would be looking at the 48-weeks of therapy.

Okay. And final question and thanks for taking three, VX-770, can you talk a little bit about your initial take on some of the design of the study, from just an end point perspective. Would you be looking at maybe a composite end point that includes other end points just outside of FEV1 or are you looking at maybe a head to head or could you give us a little comfort here with what you're looking at going into your FDA meetings? Thanks.

No, thank you, that's a really good question, especially since we've talked a little bit in our release and took a careful look in our studies thus far at things in addition to the clinical outcome of FEV1. So I think that FEV1 remains a very important focus in the design of the study and I doubt seriously that we would be able to abandon that in the short run, given that our other end points would be unprecedented in this area. We do think that there will be additional value in looking at the biomarkers, if you would, of CFTR activity as additional end points and those are things that we would certainly discuss with the regulatory agencies as well. And last but not least, we talked a little bit about the Quality of Life which we think is an important measurement and these patients and in particular over time, so that would be another end point that we would bring up in discussion. So the clinical end point of FEV, the additional end points, looking at NPD and/or sweat chloride and then last but not least, keeping a careful eye on a Quality of Life measurement.

Okay. Thanks.

Your next question comes from Yaron Werber from Citi. Your line is open.

Good afternoon, thanks for taking my question. I have questions for Freda also about VX-770. There was a little bit of variability, certainly in the placebo case but also in the 250-milligram arm between days 14 and 28 which are not -- which are hard to explain because the FEV1 I'm referring to actually went down back to the level of placebo so there was a very nice response between baseline and day 14 in the 250 arm but then it's almost as though you were giving it right back and you went back to placebo. The 150 obviously did well. It was flat lined between day 14 and 28. Do you have a sense of what might explain that or what specifically are you seeing in those patients. We're not talking about a lot of patients. What would this mean to your Phase 3 trial design in terms of sizing it correctly to avoid this kind of variability and then if you don't mind I have one quick follow-up.

So let me take the first one first. And if you don't mind, that's a very good question, but let me take a little bit of a step back to contextalize this for others on the call as well. So we looked at 25, 75 and 150-milligrams in the first part of this Phase 2 A study. And during that, we saw a very neat, if you will, dose response. We became interested with that in looking in the second part of the study at 150-milligrams and 250-milligrams, in part to continue to look at the safety, if you would, but also to find out whether or not there was any dampening of the treatment response at higher doses, to help us triangulate around the dose that we would move forward into the next trial. So 250-milligrams was not studied in the first part of this study. It was studied in the second part of this study.

And so what we saw in the first was 14-days where the treatment response was seen early and held out to the 14-days. Arguably 14-days isn't very long. We saw essentially the same thing in 28-days, with 150-milligram in particular, and also saw some increase in response in the 250-milligram that did not to your earlier point bear out as sustained over time. You can ask two things about this or actually three things. The first thing we wanted to know is whether or not 250-milligrams was safe. And we think it was very positive that a 250-milligrams we saw no difference in the safety profile than we did at 25, 75 or 150-milligrams. That was great. The second thing is that we wanted to see if we had durability out at 28-days and in fact 150-milligram response as well as the response earlier in the study for 250-milligrams proved that out for us as well. It dampened toward the end but we don't know how that would bear out in terms of the difference in that response, in larger, longer trials. So that's still left to see. But the excitement or the enthusiasm was that what we saw at 14-days held out at 28-days. The third thing was the correlation between the clinical outcome or FEV1 and the biomarkers. So what we saw in sweat chloride and what we saw in NPD were held for both the first and the second study for the active treatment arm. So that was really the third parameter that we felt was important and also suggested a durability of response over 28-days.

Okay. So in the Phase 3 study, would you only take the 150-milligram dote forward and -- I don't know if you can help us understand a little bit as to how you might size that study.

You bet. First, let's talk about dosing in the study. Absolutely, the work that we've done is to help us triangulate around what we think is the best dose and we still have some PK PD data that we're currently analyzing, along with the data that we've reported out to you that will help us triangulate around a dose. And again, with the robust response that we have, as well as the safety margins that we've seen, we feel very comfortable that we'll be able to identify a dose to take forward in the next phase of study. And then the sizing of the trial, again, in conversations with the regulatory agencies, we think that we'll be able to size the trials around the active arm response, if you would. So we believe we'll be able to triangulate around a dose and we also believe that we'll be able to size appropriately to the response that we've seen at that dose. And we've got ongoing work with our PD PK data that's going to help us do that, we believe.

Just the final study, final question is Cystic Fibrosis is absolutely sew severe unmet medical need. But we are facing an FDA that it just seems that the bar keeps on being raised all the time as to what they actually require for approval and one of the areas that they seem to be requesting more indications is two years of carcinogenicity studies which you guys haven't started those studies yet. So that if FDA demands that data that might be a rate limiting step for you. Can you share with us your thoughts on that and what have you talked with FDA about that so far.

So we have been in discussions with the FDA around their requirements for longer-term carcinogenicity studies and we believe that we'll be able to come to an agreement with them that would allow us to move into the next phase of development and that we would also come to an agreement with them that it would not become a rate limiting step. So these will be ongoing discussions. I'm not promising anything but we have had robust discussions with them and they will continue.

Terrific. Thank you.

Your next question comes from Meg Malloy from Goldman Sachs. Your line is open.

Thanks very much. Just want to follow up on VX-770. I guess FEV1 being the primary focus, normally you would see about a 1 to 2% per year decline. Wondering what does that look like in the GE551D patient population and given the results that you've seen so far, do you have a sense of the number of patients that would be required, to repeat what you did in Phase 2 for pivotal end point?

So, that's an excellent question. Going into the pivotal program, what we would really focus on would be improvement in FEV1. So we believe that we would be able to size the study based on what we've seen both in part one and part two of the study that would allow us, given the small size of the G551D population that might be available to the study, to identify a treatment or to take into account a treatment effect that would allow us to size a study that was feasible, if you would, from a size standpoint and again, this has been a part of our ongoing discussions with the regulatory agencies, not just in the US but outside of the US as well.

Can I just -- I just want to clarify. Is it about a 1 to 2% decline in that subset of patients? I understand it is overall, but wondering if there is any difference in the G551 Ds.

So the rate of decline really varies, not just by mutation but also by age or status. So the rate of decline varies over age with patients who are affected with Cystic Fibrosis in kind of all categories. So in part the answer is yes, at some point during the G551D patient's life they would see a rate of decline at about 1 to 2% but in some patients and during some periods of life that's accelerated quite substantially to 3 to 4% per year.

And how would you control for things like sudamones infections and treatment for sudamones.

I'm not sure that we could actually or that -- I'm not sure how we'll necessarily control them but we'll control for them, looking at exacerbations in patients is one of the other things that we do intend to do. We don't expect or intend to all officer the baseline therapies or the foundation therapies of patients in this trial either. So it's important to know that patients are going to go into the trial on their baseline therapies and that the clinical activities that would be done to control their exacerbations and kind of other intervening circumstances would be expected, one, and then accounted for, two.

Thanks very much, Freda.

Your next question comes from Annabel Samimy from UBS. Your line's open. Annabel Samimy, your line is open. No response. Moving on to the next participant with a question, that's Howard Liang from Leerink Swann & Company.

Thanks very much. I would like to ask a question to Kurt. You mentioned you have market research that there are 300,000 patients, non-responders, currently available. Can you give us a sense in terms of how you get to that number, how you got to that number? Also, I was wondering whether treatment capacity might be an issue in going through that population, I think you talk about 2,000 specialists in the US, maybe you could give a sense of how many patients each doctor can treat per year.

Yes, Howard, thanks for the questions very much. In terms of sizing the market, there's actually quite a bit of data that's already publicly available, epidemiology studies. On top of that, we've been doing extensive market research through various third party sources to double-check that and including going out in the top prescribing offices and getting a sense for just how many of these patients are in the average high prescriber's office. Right now, if you look at the top two decile physicians, the top two highest prescribing decile physicians, on average each of those doctors has about 80 to 100 patients in their practice, actively being monitored and waiting for a new cure. So as it relates to the numbers, we feel we've got multiple sources that triangulate around that number. Obviously everybody's whose getting treated today, 50 to 60% are going to add on top of that, and in terms of capacity, none of our analysis so far suggests that capacity is going to be an issue for treatment-failure patients. That's because there's a very high sense of urgency. In fact, in our market research, when we show them our product profile that we're seeing with Telaprevir right now and we ask what's your intent to prescribe, we have asked this both on the doctor side and the patient side, over 90% of doctors and patients have a high intent to pursue new therapies that would give a profile like what we're seeing with Telaprevir. And that makes sense, because these people have on average much more advanced disease and there's a real high sense of urgency on both sides to try and get a cure, as soon as they can. So we don't think capacity is going to be an issue there. Capacity could become an issue, once we start getting a lot more of the undiagnosed population diagnosed and brought into the system and our commercial model, that's one of the things we're looking at, how to deal with that, but I don't anticipate that to be a problem with treatment-failure at all.

Okay. Great. Regarding VX-500, can you tell us what dosing you're testing in ongoing Phase 1B?

So thank you for your interest in this program. We are actually just beginning our program now and so this is really information that we're not yet sharing but stay tuned.

Okay. And then if I could circle back on VX-770, just I'd like to ask you about the comparison of the magnitude of FEV1 change for VX-770 in comparison to the other agents such as [tobramycin], I think there's something not easy to deal with all the raw data, I'm wondering if this is something you have looked at this comparison.

So, yes, we have looked at the comparison and I have to say that as we look over the magnitude of response, this is a very robust response, compared to what we see and what I'll refer to as symptomatic treatment for CF. The real winner here, though, we think is the correlation or the potential correlation between the biomarkers, so the sweat chloride and the nasal potential difference (NPD) and the consistency with which we see an impact on those biomarkers, along with the change in FEV1. So in early response, a robust response and one that's correlated with the biomarkers.

Thanks very much.

Howard, it's Kurt. I want to add on a little more perspective on [TOBI] sice I worked on it in my prior company. If you look at pivotal studies around these diseases and compare it to what we show in our. In the pivotal studies and what's in their label, you do not see a placebo effect in this disease. Some diseases like CNS disorders or gastroesophageal reflux disease, one of the challenges you have in development is seeing a high placebo response rate and then showing an incremental advantage on that when you add your drug on. You do not see that in CF patients. In pivotal studies, actually some people on placebo actually continued to decline. I think that's what we expect to see when we go forward into bigger, longer-term studies with our drug. In terms of FEV1 level improvements, they tend to be mid single-digit to high single-digit improvements in FEV1. So if we see a sustained effect in an order of magnitude of 10 or 11% plus the biomarker data that Freda talked about, that would be impressive data in a 6 month study.

Your next question comes back from Annabel Samimy from UBS. Your line is open.

Thanks for taking my call. Apologies for that technical glitch. Really quick on the BID for Telaprevir, you had mentioned that that would come shortly after launch. I was just wondering what is it you need to actually get a BID dose on the market. I'll follow up with a second question.

So it's yet to be determined exactly what we'll need with the BID to get it on the marketplace. I don't want to speculate too much about it. Part of it's going to depend on final result from study C208.. We think based on the data we've seen so far, basically that we have almost the same RVR results, both BID and TID over 80% and we don't see any substantial differences in safety at 12-weeks. We feel good based on boats of those markers that we've got a really good shot of seeing BID as affective and as safe TID regime. Once we have that data we'll have to have discussions with the FDA about a couple different approaches to get that on the label as soon as possible. The worst case scenario would be that we would have to do another clinical trial of BID and show it's comparable to TID in a larger study but that's yet to be determined.

Great. And also on CX-809, you had mentioned that you were going to do the Phase 2A in parallel with 770. Given they're different mechanisms, are you also contemplating possible combination trials during that registration path had.

Yes, we do. We're very excited. It's a great question. We're very excited about the potential of combining these two. Of course, there's some clinical challenges or clinical development challenges in doing that and we are anxiously awaiting data, early data from 809 and continued data for 770 so that we can anticipate the appropriate ways for us to do the combination.

Can you characterize the clinical development challenges?

Well, I mean, they're very obvious. I think in that you're talking about combining two investigational compounds. And certainly there are guidance with the regulatory agencies in some cases that help but they're not -- there's not a lot of precedent for this in any therapeutic area. There's some examples of attempts at it but there isn't a lot for us to go on. So this will be truly breaking new ground in how we would specifically combine two investigational compounds, moving towards an approval.

Okay. Great. Thank you.

Your next question comes from Jason Kolbert from SIG. Your line is open, sir.

Close to the end here, so I'll make this easy. Most of my questions have been answered. We never really talk a lot about what's happening in Japan and the timing of Europe. I'm wondering if you could just touch upon that. There's some pretty significant royalties that flow back to Vertex off of those programs.

Yes, Jason, thanks for the question that's a first one that we've had so I appreciate it. And you're right, it is a significant opportunity in the big picture for us. In terms of time lines, first and foremost for Europe, we're pretty much on a very similar time line in terms of registration possibilities and regulatory approval time lines between the US and the EU. So I think the headline there is very similar time lines. If you look at what's going on in Asia right now, Japanese authorities are actually very up to speed on the data that we've generated with Telaprevir in the US and Europe and based on the strength of that data, there's ongoing discussion was the PDMA about moving into Phase 3 studies in 2009 as well. And those studies would be obviously Japan-specific, tend to be smaller than the types of studies we have to do in the US and in Europe and could actually move along quite quickly. But --

That's great news, thank you very much.

Yes.

Your next question comes from Tom Russo from Baird. Your line is open.

Most of mine have been answered as well. Just real quick, can you comment, Freda, on the expected time between enrolled in pivotal CF trial based on maybe the feedback you've received from investigators?

Thank you. That's a great question. What I can -- I guess what I might be able to share with you is how we think our recent history with enrollment in Part 2 and part one might inform our enrollment in our pivotal program. So we were able to enroll part two of this study, the additional 19 patients, in a very shortened time frame. Much less than we had originally expected, given the rarity of the disease. And that experience, coupled with the enthusiasm of the investigators and clinicians that we have had an opportunity to share the data with, suggests that we will be able to recruit substantially faster than one might expect.

Okay.

Does that help?

Yes, it does. Kurt, I was wondering also as the commercial infrastructure gets broke out if you've had any recent discussions with payors on the price point that the market will bear for Telaprevir? Thanks.

Yes, the answer to that is we actually have been doing quite a lot of payer ad boards, both in the US and outside the US as well. (inaudible) A lot of that right now is making sure that they understand the epidemiology behind this disease, making sure they're up to speed, which they're not right now, on the morbidity and the mortality and all the publication that's are coming out about the cost of the healthcare system if we don't get in front of this disease and cure it as quickly as we can. They've had this infection for 20-plus years. I would say right now a lot of the efforts we have with payors are educational around those points before we start to get into price discussions. I think we want them to understand the unmet need and the cost to the system if we don't act in a different way and then we'll start engaging more around price as we get closer to launch.

Okay. Thanks very much.

Thank you.

Your next question comes from Jason Zhang from BMO Capital Markets. Your line is open, sir.

Thanks, thanks for taking the question. Freda, two questions on 770. Actually, I want to go back a little bit, talking about Phase 2A study. I remember the study actually had two parts, so 14-day treatment and 7-days a wash out period I guess, and then another 14-days of treatment. Could you remind me the data we have seen before, is that at the end of the first 14-day treatment or the end of the second 14-day treatment? And also I wanted to ask, do you still follow these patients after they are off 770? I wonder whether you see -- I know the improvement dropped to pretty much the baseline after they were taken off the drug. Have you screen improvement of FEV1 after the treatment? I assume other drugs have been given to these patients and then I have a follow-up on the trial, too.

Okay. So thank you for those really good questions. Let me start by saying first of all, the patients in the first 14-days and the patients in the second 14-days were primarily a different set of patients. So these were not patients who were exposed for 14-days, and then re-exposed for 28-days. It was an essentially different patient population. And so the effect that we saw in the first 14-days was in one set of patients and the second -- the data from the 28-day is in a second set of patients. So what we were not able to test or to look at was the durability of response in a single patient. So this isn't across a single patient for 14-plus then again 28-days. I just wanted to make sure that that was clear because we have talked about this as a single study. We are not following these patients beyond their 28-days of exposure or for the first set of patients beyond their 14-days of exposure. I think that was the second question that you had. And again, the way that we evaluated the durability of response was to look at the effect of FEV1 in the 28-day study in particular, over the course of the measurements in that 28-days. So I want to make sure that I answered all of your questions, though.

Okay. And then another question is I know in the first part of the study you do have one mutant. I wonder if you have data to show that patient actually to have the best response because from a biologic point of view that patient should have the best response to 770. I wonder whether that's actually clinically true.

So that's an excellent question and we are enthusiastic about the mechanism. I am sorry to say that I don't have the data on that single patient available.

And as for -- are we going to see some, individual patient data at some point or so far we haven't seen the individual patient data yet.

So far, our plan is to take the data that we have available and kind of use it to analyze and plan for the next phase of development and to share it with the regulatory authorities. And we currently do not have plans for broader release of the individual data yet.

Okay. Thank you.

Your next question comes from Terrence Flynn with Lazard Capital Markets. Your line is open.

Hi, good afternoon. Thanks for taking the questions. Just two quick ones. First, just wondering about the VX-500, the design of that Phase 1B, if that's going to be a 3-day monotherapy study, given the new requirements out there and then the second question relates to Telaprevir Phase 2A genotype 2-3 study, I believe you have interim data in house. Just wondering when we might hear about that data. Thanks.

I'm going to take your first question. I'm going to ask you to repeat the second question. So the first question is around VX-500 I will say, yes, we have -- we're anticipating during the 3-day study, based on evolution of the guidance in this area.

Okay. And second question --

will you repeat your second question for me?

Sure, it relates to Telaprevir and the Phase 2A genotype 2-3 study that I think is ongoing, just wondering when we might see some data from that study and future plans in that indication. Thanks.

Yes, so, thank you again tore the question. The study is ongoing, you're correct on that, and we do expect to share that data in 2009.

Your next question comes from Geoffrey Porges. Your line is open again, sir.

Thanks for taking the quick follow-up. Just on the Phase 3s, you said before that there aren't going to be any interim looks. Can you tell us what is scheduled for the examination of the safety reports, by the DSMB there will be and will you be notified of that? Thanks.

So I will tell you right now, I dot do not have the DSMB schedule before me so I don't know the specific answer to your question on that one. I apologize for that. So that I don't know and, of course we'll be apprised of any major safety issue that arises from those evaluations and we'll monitor the study as is kind of usual and customary.

Okay. Thanks.

And your next question comes from Vernon from Rodman & Renshaw. Your line is open, sir.

Thanks for taking my question. Earlier this year, your Tibotec posted its intent to evaluate PK interactions with Telaprevir in (inaudible) based HIV treatment combinations and HIV co-infected patients. Just wondering when we would see data from this study and what is your strategy with Ritonavir and Telaprevir.

Yes, so that's an excellent question. We have certainly a set of interactions as well as other patient populations that we think are pertinent to the study of Telaprevir and we're currently in discussions, ourselves and Tibotec, as well as with the regulatory authorities and experts in this area to really nail down both the timing and the character of these various studies. So we'll look forward to sharing those with you as we get kind of further information about the studies and their timing.

Thank you.

And your next question comes from Yaron Werber from Citi. Your line is open.

Thanks for taking the follow-up. Question for Ian. I'm not sure you can answer this but I'll ask anyway just to help us model. Can you help us understand a little bit, when you complete enrollment in your pivotal studies does that trigger any payments from Tibotec and if so can you remind us what you said about that.

Thanks for the follow-up question. There are not milestones that are linked with completion of enrollment. The key milestones that will continue to provide important funding to the Company come upon filing and launch. Those are the principal milestones that remain and those would be received commensurate with the time line.

Is it fair then, it sounds light we should model revenues next year being lower than this year, just for modeling purposes?

For modeling purposes, I think what is easier to do, I think you understand the relationship that we have with Tibotec, which is it's a 50/50 share of development expenses and of course we received an upfront so from accounting purposes we spread that upfront over the period of the relationship. So as you project out your R&D expenses for the development of Telaprevir and all the different patient populations and different studies, then you should take 50% of the R&D investment including the internal cost and put that as revenue.

Thanks, Ian.

There are no further questions on queue.

Thanks very much, everybody, for joining us tonight. We are in the office for any further questions you may have. Thank you.

This concludes your conference call. You may now disconnect.