福泰製藥 (VRTX) 2009 Q1 法說會逐字稿

Good afternoon and welcome. I'm your conference facilitator today. At this time, I'd like to welcome everyone to the Vertex Pharmaceutical conference call. All lines have been placed on mute. After Michael Partridge's remarks, there will be a question-and-answer period. (Operator Instructions). Michael, are you ready to begin?

Yes.

Thank you, very much. You may now begin your conference.

Good evening. This is Michael Partridge. Let me just clarify that we will take questions and answers at the end of the call after all of the speakers are completed.

So welcome to Vertex's 2009 First Quarter Conference Call. We made important progress in all aspects of our business in the First Quarter. We completed enrollment in Telaprevir's Phase III program. We broadened our Hepatitis C drug development portfolio, which positions Vertex for future HCV combination therapy. We advanced VX-809 into a Phase II A study in F508del patients and we have an agreement to start a registration program with VX-770 focused on G551D patients in the second quarter. And importantly, we further strengthened our Balance Sheet with a public offering and ended the quarter with $869 million in cash and equivalents.

Joining me on today's call we have Ian Smith, Dr. Freda Lewis-Hall, Kurt Graves, and Matt Emmons, Vertex's President who will become our Chairman and CEO in May. I'll remind you of the following. Information discussed on this Conference Call includes forward-looking statements which are subject to the risks and uncertainties discussed in detail in our reports filed with the Securities and Exchange Commission, including our 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 First Quarter 2009 financial Press Release which can be accessed on our website at www.vrtx.com. Unless otherwise noted all 2009 expenses and guidance discussed in this call are inclusive of stock based compensation, executive transition acquisition related and restructuring expenses.

Before I turn the call over to Ian, I would like to remind everyone that we are hosting an investor event in Copenhagen during EASL next Saturday, April 25th. We are planning to Webcast this event. The Webcast will start at 1.00 p.m. East Coast time for members of the investment community who are unable to attend.

I'll now turn the call over to Ian.

Thanks, Michael and good evening to everyone. The financial highlights of the First Quarter was that of raising additional capital. This enabled us to successfully add important complimentary assets to our HCV portfolio, continue our prioritized R&D investments towards HCV, CF and product creation, yet complete the quarter with $870 million of cash and cash equivalents. This cash position continues to support our projected 2009 R&D and business investment.

In summary, we completed the quarter in a strengthened financial position. We have our shareholder base that is aligned with the opportunities within our business. It is highly rewarding for our business to gain this kind of support within this challenging macroeconomic environment.

Now to the First Quarter 2009 financial results. Our First Quarter financial results are largely as we expected. And our full year non-GAAP guidance of $400 million to $435 million which we provide in February remains unchanged. Additionally, today, we are providing guidance that we expect to complete the year with approximately $700 million in cash, cash equivalents and marketable securities. This number assumes no further equity or equity based capital market activities during 2009.

The First Quarter non-GAAP loss before certain charges was $128 million compared to a First Quarter 2008 non-GAAP loss of approximately $82 million. The increase was primarily attributable to a decrease in collaborative revenues. And compared to 2008 an increase in total operating expenses to support the advancement of Telaprevir's registration program and to prepare for commercialization. We also have additional investment towards the fast emerging disease area of cystic fibrosis.

The GAAP net loss for the First Quarter of 2009 was approximately $161 million compared to $96 million in the First Quarter 2008. Total revenues for the First Quarter of 2009 were approximately $25 million compared to $42 million of those in 2008. The 2008 First Quarter revenues included milestone payments of approximately $12 million. These were non-recurring.

Now to the R&D investment. Our total R&D expense was approximately $144 million compared to $116 million in the First Quarter of 2008. The increase reflects investment activity to support the advancement of Telaprevir and the broadening of our efforts in cystic fibrosis including the preparation for the registration program. Our First Quarter SG&A expense was approximately $28 million compared to $20 million in the First Quarter 2008. This increase was the result of building capabilities to support our business and the commercial steps as we prepare for the launch of Telaprevir.

In closing, I'd like to reiterate, our 2009 guidance for our non-GAAP loss that we've provided earlier this year. Specifically, the key financial measures within our business today are those of non-GAAP loss which has a range of $400 million to $435 million and this is a good proxy for our annual cash burn. And our year-end cash and cash equivalents position which we expect to be approximately $700 million. We are managing our business in line with this guidance and we are well positioned with respect to creating cash and revenue from our Business Development activities and prioritizing our investments towards HCV, CF, and product creations.

Freda, over to you.

Thank you, Ian. It continues to be a busy time for Vertex's clinical programs. We're nearing completion of the Telaprevir dosing portion of our Phase III program in Hepatitis C and we entered a new path that may create a further improvement for future therapies for HCV, that of STAT-C combination therapies. Additionally we're advancing in the area of cystic fibrosis and we have agreement to start a Phase III registration program for the potentiator compound VX-770 in patients with the G551D mutation. We have also recently initiated a Phase II clinical trial of VX-809, our corrector compound, in CF patients who had the F508del mutation.

I'd like to begin today by reminding everyone that we will be presenting PROVE 3 data as a part of the late breaker at EASL next week. From PROVE 3, the key new data are the SVR 24 results and the 48 week Telaprevir arm and the control arm. Although I can not discuss these data in detail until the presentation on Saturday, April the 25th, the published abstract data are unprecedented.

These data give us confidence that we can achieve a positive result and realize our Phase III study in treatment failure patients which is the only study to enroll all major treatment failure populations including no responders. Specifically, the PROVE 3 results provide us with the confidence that we have the right regimen to maximize SVR rates in this patient population that of 12 weeks of Telaprevir dosing is a part of a 48 week combination regimen.

Now, turning briefly to the registration program under way with Telaprevir. We remain on track to complete Phase III and file an NDA next year. In January of this year, we completed all portions of Telaprevir dosing in the advanced Phase III trial in treatment naive genotype 1 HCV patients. And today, we announced that we have completed the Telaprevir dosing portion in the supplemental ILLUMINATE study in treatment naive patients. We completed enrollment of the REALIZE Phase III trial in treatment failure patients in February and we expect to complete the Telaprevir dosing portion of that trial next month. This means that all patients in our registration program will be off Telaprevir next month.

As of today, we have dosed more than 2,500 patients with Telaprevir, which will provide a robust safety database to inform our NDA. The registration program is progressing very nicely and we are increasingly optimistic that the outcome of the trial will provide the best-in-class product profile for treatment naive and all treatment failure patients.

I would like now to quickly update you on the status of study C208, say that three times. This study is evaluating response guided Telaprevir regimens and we announced today that all patients in the study which enrolled 160 patients, have completed either 24 or 48 weeks of treatment. Our confidence remains high in the potential to dose Telaprevir twice daily.

As a reminder, this study is being conducted by our collaborator Tibotec. And is in exploratory study evaluating the safety and efficacy of Telaprevir dosed either twice daily or three times daily together with either PEGASYS or PEGINTRON. In November of last year, investigators reported 12 week interim data from this study showing that more than 80% of patients who receive Telaprevir based combination either twice daily or three times daily had undetectable HCV RNA at week four and week 12. In summary we have continued to make impressive progress with Telaprevir during the First Quarter of 2009.

Turning elsewhere in our HCV portfolio, just last month, we announced our acquisition of ViroChem Pharma which added two novel polymerase inhibitors, VCH-222 and VCH-759 to our HCV portfolio. Following the acquisition, we are moving ahead in planning several clinical initiatives to better define the profile of these product candidates in order to initiate the first combination study of Telaprevir with VCH-222 or VCH-759 as early as the fourth quarter of this year.

We're excited about the prospect of combining Telaprevir with our newly acquired polymerases. And today we announced we're initiating a multi-dose, thee day viral kinetic study to evaluate the anti-viral activity, safety, tolerability, and pharmacokinetics of VCH-222 in genotype 1 HCV patients. We expect to use data from this trial to inform the design of the first trial exploring STAT-C combinations with Telaprevir.

Now, turning to cystic fibrosis. I'll start with VX-770, an oral drug candidate that targets the defective or missing CFTR protein, which is an underlying genetic defect that causes cystic fibrosis. We have agreement with regulatory authorities and we will begin the registration program for VX-770 this quarter. As we outlined previously, the VX-770 registration program will consist of three separate trials. Including a primary trial to enroll patients ages 12 and older who carry the G551D mutation on at least one allele, and a pediatric trial for patients ages six to11.

The registration program will include a primary efficacy end point at 24 weeks for patients with the G551D mutation. However, we will conduct the trial for 48 weeks to provide sufficient safety data to meet the requirement for an NDA filing. It will measure the primary end point of FEV1 and secondary end points on additional clinical measures including sweat chloride, which can help evaluate the effect on CFTR.

In the First Quarter, we also made progress with our corrector compound, VX-809, in CF and initiated a Phase II A trial in patients with the F508del mutation. The primary objective of this multi-dose study in patients with CF is to establish the safety of VX-809 in the most common mutation. In addition to safety, the study represents the first opportunity to evaluate whether a corrector compound can have an effect on measures of CFTR function.

While this is primarily a safety study, any clinical effects on sweat chloride and nasal potential difference that we observe will be encouraging with respect to advancing the VX-809 program. Including the potential exploration of VX-770 and VX-809 in combination. We expect to complete the Phase II A trial in early 2010.

We have made great progress in early 2009 and we are advancing in two significant diseases with great unmet medical need; HCV and cystic fibrosis. We're looking forward to profiling Telaprevir at EASL next week and continuing to update you of our progress in the future.

I'll now turn the call over to Kurt.

Thank you, Freda, and good evening, everyone. I'll provide a brief update tonight about our Commercial and Corporate Development activities and plans for 2009. It is exciting and busy time at Vertex as you can hear, and our business is advancing rapidly on multiple fronts that each hold impressive value and growth potential for the Company.

First, we're really seeing a compelling profile for Telaprevir take commercial shape that lines up with what our market research has been telling us the marketplace needs as well as what it will take to differentiate and achieve strong uptake versus potential competitors. Telaprevir continues to set high standards for others to try to match and we remain confident in our position going into EASL and looking beyond. I'll update you more on our market dynamics and our latest insights at our investor event next week in Copenhagen.

Second, with the recent acquisition of ViroChem, we've executed on a major strategic priority for the Company to enhance Telaprevir's mid to long term competitiveness. While also putting in place the STAT-C combination building blocks to shape the leading multi-drug HCV franchise for the future. Much the same way other companies like Gilead have done to build real leadership in a multi-drug disease area by being able to continuously shape and deliver the best combination regimen for patients.

Third, while everyone, including us, is hyper-focused on our progress in HCV, we're quietly but very rapidly advancing our CF and JAK3 programs in the clinic to the point where they are shaping up to be real potential sources of value for the Company. Our lead CF program went for proof of concept to registration in almost the blink of an eye. And our lead JAK3 program is now Phase II ready with the differentiated profile that we and others believe has the clear potential for broad application across multiple billion dollar market segments and indications where there is still significant unmet medical needs.

If you think of Vertex just 12 months ago, we've fundamentally enhanced our position and our growth potential on multiple levels. At the same time, with so many opportunities advancing for us, it has also required us to make some thoughtful and sometimes difficult portfolio and investment choices. To carefully manage our expansion, maintain our execution focus on the mission critical priorities, and also continue to balance our strong financial position in a disciplined way, as Ian alluded to earlier in his remarks. This leads me to the fourth and final point tonight as it relates to our corporate and Business Development plans.

As you've already seen with our recent acquisition and in other ways for the foreseeable future our Business Development activities will play an increasingly central role in our business plan as we strive to balance our financial position while building the Company through to our first launch where we will then have to manage for the potential rapid growth we foresee shortly thereafter. Our BD group will continue to pursue ways to strengthen our portfolio in collaborations in key disease areas. But just as important in these difficult financial times, we are actively engaged in out licensing and partnership discussions on attractive assets like our JAK3 program, where we don't currently believe we have the capacity and/or the capabilities ourselves to maximize the value of those assets on our own.

Last but not least we're also working on opportunities to bring in additional sources of non-dilutive capital via new external collaborations with third parties or updated agreements we have with some of our existing partnerships. Like the one we have with Mitsubishi [Tenabi] in Asia, now that Telaprevir is in Phase III combination studies required for registration and approval in that market.

In summary, 2009 has got off to a fantastic start and there's a lot of energy at Vertex. We've advanced all our key assets on track or ahead of schedule. We've made a significant strategic acquisition in HCV which puts us in an even stronger position for the future; we're building our commercial capabilities for launch. And we've got a full and exciting BD agenda ahead to help us grow the business while also maintaining a strong and well balanced financial position. I look forward to seeing many of you at EASL next week.

Matt, over to you.

Thanks, Kurt. Good evening, everyone. I'd like to make a few brief comments regarding Vertex's recent progress and share with you some of my initial observations since joining the Company.

I've been involved in healthcare, biotech and pharmaceuticals for over 35 years. What's increasingly clear to me is that the way forward for research based companies in this industry is to concentrate their efforts solely on new approaches for serious diseases where there is the greatest medical need. This is where the drugs demonstrate the most value and the best risk benefit profile to patients and can ultimately deliver the most return for shareholders.

I was on the Vertex Board for four years before joining as President a few months ago and I can tell you, I am convinced now more than ever that Vertex has the drug candidates to drive success, both in the near and longer term.

In short, as I've gotten more involved in the every day, I really like what I see. There is a palpable excitement here and obviously a high level of focus on the most critical activities that are needed for a successful NDA filing and launch of Telaprevir. Throughout the Company, people also demonstrate a basic sensibility in both late stage development and in early research programs, you see it. They are working on areas of the greatest medical need.

Today, you heard about HCV and cystic fibrosis; however we have efforts targeting neurological disorders including neuropathic pain and multiple sclerosis. Infectious diseases such as Tuberculosis and immunological disorders which is where the VX-509 compound originated. And just maybe, just maybe we will be successful in one or more of these areas, the result being new truly unique therapies and the continuing emergence of a world class healthcare Company.

I look forward to getting to know many of you and I also look forward to helping guide Vertex through this important period bringing focus and operating discipline. It's a wonderful challenge, it's an honor, and I accept that challenge and we look forward to updating you on our progress as we go.

Michael, back to you.

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

Thank you. (Operator Instructions). Your first question comes from the line of Ted Tenthoff of Piper Jaffray. Your line is open.

Great. Thank you, very much, and congrats on an exciting start to the year. Looking forward to seeing you in Copenhagen next week. Just starting out with the cash position if I may. With the burn rate significantly higher in 1Q, are there any expectations for partnering in that guidance to end the year with $700 million? Or maybe you could give a little bit of color, a little bit more detail on that guidance?

Sure, thanks. I'll take that question, Ted.

Hi, Ian.

If I take it more broadly in our financial guidance both the non-GAAP loss and also the Balance Sheet measure at the end of the year, there is expectation that we will be successful in the Business Development area. And therefore contribute both revenue and cash to the business. So in looking at the First Quarter loss that comes in on a non-GAAP basis about $127 million, the run rate of R&D in our business is pretty consistent through each quarter. But we do anticipate there will be revenues that would occur in the future quarters that will offset some of this investment. That's how we've picked our guidance for the full year and it will be between $400 million and $435 million of loss and approximately a $700 million of cash at the end of the year.

Excellent. That's very helpful and I'll hop back in the queue. Thanks.

Okay.

Thanks.

Your next question comes from the line of May-Kin Ho of Goldman Sachs. Your line is open.

Hello, May-Kin?

Your line is open. Yes, go ahead.

Could we have the next question, please?

Yes. Your next question comes from the line of Geoff Porges of Bernstein. Your line is open.

Thanks very much. Can you hear me there?

We can.

Great. Okay, so I just had a few questions on the development programs and thanks to the additional information. First, on 222, I'm surprised to see you doing another three day study. Could you explain why that rather than a seven day combination study? Secondly, on 813, could you give us a sense you now have that product in the clinic. When will we see Phase I B data? And could you give us a sense of its dose range and dosing frequency?

And then on 770, 12 months is a long trial and 100 centers is a lot of centers. Could you give us a sense of A) how many patients are involved in the different parts of that protocol? And secondly will there be any interim looks or earlier indicators of efficacy other than waiting for the full 12 month duration? Thanks.

Wow, okay, Geoff, why don't I do your last one first on the 770 program.

Yes.

And I'll try and answer as many questions as I can. So, it is three studies. The first study is in patients who are G551D mutation over 12 years old. We expect about 100 patients in that study. Remembering that the G551D population is around 2,000 worldwide. But we consider ourselves very well connected into the experts who treat these patients and the centers who have identified these patients.

The second trial is a trial in patients six to 11. There are a smaller number of those patients, probably around 30ish. And again, these patients are identified in centers around the world. So we feel fairly well connected into the centers that would be required to identify these individual patients and to recruit them into the trial.

The third trial is the F508del population which as you're aware is a larger population and that trial will include about 120 patients. And again we think that recruitment of the F508del population will be a little bit easier just because of their numbers. So I hope I answered your recruitment question.

The number of centers is just reflective of the size of the population and how far you have to go in order to identify them and recruit them into the trial. The duration of the trial, the primary end point is the FEV1 at 24 weeks. And we expect to evaluate the efficacy at that point. However, the G551D mutation studies both of them are expected to run for 48 weeks, primarily so that we can accumulate the safety data at 48 weeks that we think will be required for our file.

We do not expect to share the data in the middle of the trial, we're going from the first 24 weeks if you would with an analysis to the second 24 weeks. And of course we would be judicious in the appropriateness of sharing any data that was derived from any analyses along the way. So I think I answered all of your 770.

That's the 770. Okay, thank you. That is very helpful.

I'm trying to keep up. So, the second question that you asked was about VX-813 and let me take a step back and not just answer about 813. Remember that we have a portfolio, if you would, of second generation HCV protease inhibitors. Telaprevir is establishing a fairly high bar at this point, so our strategy has been to take what we've learned from the Telaprevir program and our understanding of the needs in the marketplace and to set some very specific learnings and some very specific criteria for advancing an HCV protease inhibitor.

So for VX-813 and 985 which is a little earlier in its development, we expect probably later this year to be able to give you more information about how we've evaluated these two compounds against our criteria and our plans for taking them forward. And then last but not least was 222.

222 and the second three day study.

And the second three day study. So, if you'll recall what we have is five patients in three days. So the second study is really articulated to give us some dose ranging data and information so that we can ensure that we have the optimum effective dose to carry forward in our trials. It will provide us with some safety data. We need tolerability data. We need some more pharmacokinetic data to really get our arms around advancing this safely into combination therapy. So that's the reason for conducting the trial as we've discussed it.

Okay, thanks very much for all that, Freda. I appreciate it.

Sure.

Your next question comes from the line of Phil Nadeau of Cowen and Company. Your line is open.

Good afternoon. Thanks for taking my question. First question is on the ILLUMINATE trial. At our recent conference there's a lot of debate among the physicians on the HCV panel about how important the ILLUMINATE trial could be for the commercial adoption of Telaprevir. Could you give us your own thoughts on that question? How important is that trial for the adoption?

I think it's a great question; thanks for asking. It's Kurt. The reason the study is important is our primary pivotal study in naive patients as you know is being looking at response guided 24 week regimens for the majority of patients. So our registration program will focus on that as our primary pivotal study. But one of the reasons we always said we did the ILLUMINATE study was purely for commercial educational purposes at launch. When we launch this drug we'll be changing the way HCV has been treated. Everybody treats this disease with 48 weeks of therapy right now.

So what we learned with some customers was that if you just launch a new drug that changes the treatment paradigm to a 24 week regimen, they still have the question in the back of their head, is it safe for me to stop my patients at 24 weeks or is there any incremental risk benefit of continuing them for an additional 24 weeks? And that's what this ILLUMINATE study will answer for us. As you know based on all the data we have from our Phase II program, we're very confident that we have a profile of a drug that has a 24 week regimen and we think this study will provide further evidence to doctors that they can safely stop their patients at 24 weeks and rely on high SVR rates.

Okay, and do you in your minds have any idea of what increment would be acceptable in SVR rates between the 24 week group and the 48 week group so that that conclusion can be reached by physicians? Is it 1% or 5%, 10%?

No, it's another good question and actually, we talked about that with the FDA when we were down talking about our program. And I think the way the FDA and we are looking at this in all of our clinical Advisors is it is not just an efficacy question, it's a risk benefit question. Because everyone is well aware that an additional six months of interferon and ribavirin is not risk or tolerability free. There's a risk component and there's an efficacy component. So I think you'd need to be probably significantly above 5% before anyone would start to look at is that additional six months of therapy, really a benefit to tolerate the risk that you have to take on with it.

Okay, great, and just one follow-up question for Ian. Ian, I apologize if you said this in response to Ian Somaiya's question but I didn't hear the answer. I think you said R&D is constant through the rest of the year and it will be revenue that increases in the second half to decrease the burn. Where is that revenue coming from?

So I'll just repeat the remarks, Phil and welcome aboard by the way.

Thanks.

So with R&D rather than saying constant, it's pretty even quarter to quarter through this year. So you're correct there. And then in terms of revenue we do anticipate revenue whether it's Q2, Q3, Q4 but it does come later in the year that does offset what you might otherwise have done which is take the First Quarter loss and multiply it by four. Don't do that, because we do anticipate revenues and cash flow in the following quarters from Business Development activities.

Kurt referred in his prepared remarks specifically to two big opportunities that we have. One with the JAK3 program that we're currently in discussion with some pharmaceutical companies and then also we are in discussion with Mitsubishi. Our relationship with Mitsubishi previously was around a monotherapy. They are now advancing the Telaprevir into a Phase III combination study so we're in discussion with Mitsubishi. We expect that will also provide us with revenue and cash flow as well. So all those should flow in the following quarters.

Great. That's very helpful. Thanks.

You're next question comes from the line of Michael Aberman of Credit Suisse. Your line is open.

Hi, guys, thanks. I have a question about your combination study. Obviously ViroChem acquisition allows you to move forward with potential combinations there. But have you ruled out or do you still think it's important to try doing other potential collaborations with let's say other nucleoside -- polymerase inhibitors through different classes for like nuc's versus non-nucs and/or other assets? And is that something we should think of for 2009 or is all of your attention on that kind of combination stats so you're going to be focused on ViroChem?

Thanks for the question. It's a good question on a couple fronts. Strategically, I think the way we look at this field is it's emerging and there's new mechanisms emerging early in the clinic. We made a judgment after looking at the whole field of all the different mechanisms that the assets we acquired were the best ones and the furthest advanced to give us a shot at defining a new better therapy for patients. And we feel that 222 and 759 were the best polymerase assets out there.

But our overall strategy in HCV is focused on continuing to bring better, shorter course, more effective regimens to patients. And we believe there's other mechanisms out there that scientifically still could be part of future collaborations that we might pursue and we are discussing with other companies. We're not looking to go out and buy another Company right now. So collaborations I use very broadly including just co-development studies with some people with some of these other mechanisms. But we're absolutely not only looking at polymerase inhibitors forever in hepatitis C.

Can I follow-up with a BID question? Can you give us some sense as we wait to see those data what we should be looking for in terms of how to judge and how will you be judging whether BID data are sufficient for this to be a BID drug? And did you also contemplate looking at TID versus Q8 or do you think of those as the same way? Because we've heard Q8 is not as good as let's say TID, and how do you think of that in terms of PK and patient compliance in the real world?

So C208 is actually evaluating Q12 hours against Q8 hours of therapies. And the intention of that study is whether or not the relative safety and relative effectiveness of this gives us support to move into the development of a Q12 hour dosing regimen. So we are moving along with the data that we will need to make that decision.

All of the patients are through treatment and we're now awaiting for the trial to conclude. So it's all over but the shout at this point because we are watching patients in the post-treatment phase. So as the data comes in at the completion of the study we'll analyze it. And at that point we'll be able to see if what we saw at the interim analysis holds, and that is that the overall likelihood of a BID dosing regimen moving forward would be upheld.

Do you not have a look at the end of therapy data?

Just to build on what Freda already said, I think the end of therapy data will potentially be coming soon but we're not committed yet to talk about that externally. I think the most important question about the C208 study is really in the first 12 weeks, the central question is there any meaningful difference in safety when you dose the drug twice a day versus three times a day? And we know through the 12 week period when Telaprevir is given there was no meaningful difference in the safety profile. That was a key marker for us so that we're clear on now.

From an efficacy perspective we also know that at four weeks as a marker of efficacy SVR rates, when both drugs are over 80% and very close together in terms of RVR rates, the likelihood that that's going to translate into very similar SVR rates is high from all of our Phase II data. So that's why we've said we have pretty high confidence based on the early data that this should be a BID drug and now we're just waiting for the final SVR results to validate that.

All right. I guess I'll wait with everyone else. Is that going to be something you'll topline or will we wait to see this in a medical conference?

So we're not committing to a specific time or event, Michael. But towards the second half of this year we should see some data and certainly before the end of the year. I'll just take this opportunity to say as we look at BID, clearly it's nice to move Telaprevir from a three times daily drug to a twice daily drug. But the key in establishing this drug as a twice daily drug is the opportunity to combine with a twice daily polymerase in combination therapy. I think sometimes we just look at the drug as a protease and getting it from three times a day to twice a day. But the real opportunity here is if you can combine it with a twice a day polymerase. But data coming to you in the second half of the year at some point.

Thanks.

Your next question comes from the line of Liisa Bayko of GMP Securities. Your line is open.

Hi, guys, looking forward to seeing you next week in Copenhagen. Just actually most of my questions have been answered. Just wanted to get a description of the doses that you're going to be looking at in that multi-dose study for 222.

So I'll take that, Lisa, because we haven't disclosed the doses that we'll be exploring at this point so maybe at a future point in time but right now we're not disclosing those doses.

Okay. Thanks.

See you in Copenhagen.

Your next question comes from the line of Jason Kolbert of ThinkEquity. Your line is open.

Hi, guys. Just a couple of quick questions. I wanted to talk a little bit about the J&J collaborative revenues. Can you elaborate about which way they ran this quarter and what we should expect for the rest of the year? Because quite honestly what I'm trying to do is understand the guidance. And it's that trying to figure out what the right number is for the Business Development payment and the split between JAK3 and Mitsubishi offsetting R&D. So getting as much granularity as we can get on how R&D is going to change and I know the J&J payments are a big part of that.

Thanks, Jason. Let me see if I can simplify this for you, a complex question in terms of the line items of our P&L. But maybe simplifying this as you look at the First Quarter revenues, other than the royalty the majority of the revenues are from J&J. That is the run rate for our J&J payments. And consistent with what I said about our R&D run rate for each quarter of this year, we are reimbursed $0.50 on each dollar we spend on development of Telaprevir by J&J. So if we're running at a relatively consistent rate quarter to quarter on our R&D investment then you'd anticipate that the revenue line would also run at a very similar rate quarter to quarter. So as you look at the revenues for the First Quarter the majority of those other than the royalty were from J&J and that's the run rate for each quarter.

Okay, terrific. Thank you so much. Have a great meeting overseas.

Thank you.

Your next question comes from the line of Davis Bu of Goldman Sachs. Your line is open.

Hi. Thanks for taking the questions. I have two actually. The first is if I can extend off of the earlier question on the BID dosing. So when we actually do see the results, because the key here is its use in combination therapy, is there -- how should we think about a differential and benefit? Is there a tolerance to have maybe a little bit lower cure rates with the BID dose with the idea that you can combine it with polymerase inhibitors and the combination would be better?

So I wouldn't think of it that way if I were you. So just remember that the reason that we are conducting this study is to identify whether or not we can move into q12 hour dosing in a future study. So this would not lead to either the use of or the approval for BID use of the drug. So that's the first thing. So this is to inform us on the future development opportunities. So I wouldn't jump to the clinical application of this based on the outcome of C208.

The only other thing I'd add to what Freda said, I think the ultimate goal if you take a step back and look at why we acquired the polymerase inhibitors once we find out the right doses and then once we move into the combination development work the next step for us is to start to explore whether we can define a new triple. Or perhaps if we're fortunate enough even a potential dual regimen where we are trying to get rid of either interferon or ribavirin in the regimen. And at the same time, provide short course therapy that actually doesn't compromise SVR rates but raises it.

That based on all the knowledge we have in the field and modeling that we've done internally we think is feasible. Of course we have to run the experiments to prove it. But we're looking into not moving back in any dimension it is hopefully getting rid of drugs not well tolerated by patients specifically interferon and ribavirin while providing even shorter course therapies and higher SVR rates. That's the goal of this program.

Thank you. And then if I could, forgive me if you had mentioned this but on 770, given sort of the recruitment issues and so forth, have you indicated when we might see some of the data from the registrational program first? And second is your use of the, your inclusion with the sweat chloride as a secondary end point, is the thought here that ultimately that you want to move toward considering this maybe as a surrogate marker for drugs that affect the receptor and what implication might this have for 809?

So, I'll answer your second question first, because it strikes a nerve because it's so exciting. So the reason that sweat chloride is such an exciting thing for us to continue to study is it's the first time that we have been able to see an effect on sweat chloride within a treatment in CF. So this really tells us that our mechanism or indicates to us that the mechanism that we are proposing in fact delivers. So that is a really exciting proposition.

What we haven't done and what we hope to do in the registrational program with 770 is to make a link to the clinical outcome of FEV1. So we will take the opportunity in the registrational program to take a look at the relationship between sweat chloride and FEV1 and that hopefully will give us a new platform for studying future compounds such as 809 and its effect. So that's the answer to the second one.

And the first is no, this is going to be a very interesting and challenging recruitment opportunity. We really think that we've identified the right centers and investigators and the potential to recruit patients in but because this is groundbreaking work, we are just not certain at this time what the time period of recruitment would look like. Stay tuned.

All right, thank you very much.

Your next question comes from the line of Jeff Meacham of JPMorgan. Your line is open.

Hi guys. Thanks for squeezing me in. Apologies if this has been asked already, but on the Telaprevir trial in the treatment phase of the trial, what are the adverse event thresholds and is the frequency of safety monitoring different than earlier studies that you guys did?

So I'm sorry, repeat your question?

Just in the treatment phase of Telaprevir trials, I was wondering if you've passed any significant hurdles with respect to adverse events? And then how frequently going forward you're going to monitor these things, if it's different than other studies that you've done?

No, no not at all. I mean, the ongoing platform for drug development is really looking at the risk benefit profile. And we take every opportunity to closely monitor all of the safety perspectives as well as the treatment benefits. So we don't see Telaprevir as unique in the requirements to monitor for adverse events.

Okay. And then on the VX-770 part, you talked a little bit about enrollment pace, I guess in the last question, and obviously there is a lot of enthusiasm in the CF community for the drug. But how do you think from an FDA perspective you have an orphan indication but how do you think about the FDA's perspective on the need for length of duration for safety needs of the drug, the duration therapy?

Yes, so we've been actually first of all let me say we've been thrilled with the collaboration with the FDA in this space. There's a lot of enthusiasm at the agency here in the US, in Europe, and amongst the treaters of CF patients, as well as everybody who kind of touches this community. So yes there's a lot of enthusiasm. We believe that we've come to a comfortable agreement around a 48 week study duration for the G551D mutation population. And so that is agreed across the agencies and we feel comfortable with that as a point in time to look at the safety of the drug as well.

I also wanted to make a comment, I was thinking about your question around safety. One of the things that you do in Phase III obviously is to take a look at the larger population. And that gives you a broader view to see things that you may not have seen in the smaller trial. The other thing that it does though is it builds a research program upon a fairly good foundation of understanding the adverse events out of Phase II. And for us, this has been no different, so we have seen the adverse event profiler actually the safety profile carry forward from our earlier work. And this is an area of really high unmet need.

So patients are highly motivated in this space, especially after seeing potential for efficacy that was delivered in the early phase trial. And physicians are highly motivated and realize that if they could work with their patients through any safety issues that may arise that they have a really good potential at the other end for a great benefit. So we've really seen a good evolution of all of the appropriate attention to safety, but a really improved handling if you would as we've seen our Phase III evolve. So I wanted to make sure I had gotten that point across. It's gotten better.

Thank you, Freda I appreciate it.

Can I add something to what Freda said about the question FDA and 770? Because Freda's sometimes too bashful about what she and her team have accomplished with the FDA. And the excitement is real down there. I think having worked in my prior Company on symptomatic treatments for this disease what I'm talking about Tobramycin, Pulmozyme, these are therapies the FDA looked in the more acute phase because they are used episodically to treat these patients.

What we're doing with CF is potentially introducing a drug that's potentially disease modifying. So when you look at our protocol our primary end point is a six-month primary efficacy end point. But we and the FDA, we were fully aligned on this, also want to look at durability of effectiveness and longer term safety because the real potential of this drug is long term treatment for patients. And that's why we've designed the study the way we have. We're fully on board with each other and fully aligned in what we need to demonstrate in the program.

Thanks a lot.

Your next question comes from the line of Howard Liang of Leerink Swann. Your line is open.

Thank you very much. I have a question regarding C208 trial. Your statement that the data to date support the potential of BID. Does that include SVR12 data for the patients who had RVR and who were completed early?

Howard, maybe I'll just jump in because this is the data that we talked about to Wall Street at this point in time was the week four and week 12 data back at ASLD. That's primarily the data that's giving us the confidence. As Kurt mentioned earlier on the call we aren't seeing significant spreads between the TID and BID when measured at an RVR. We aren't looking at the data as we go along so we don't have additional data but it's mainly after week four and week 12 measures.

Okay, great and you'll be presenting data on genotype 2, 3, 4 at EASL. Can you talk about what your plans are for these additional genotypes based on what you've seen so far?

We and our partner Tibotec are talking about this because some of the genotypes we have activity and we can't get into the results until the medical conference. But as you know genotype 1 is the bulk of the patients worldwide with hepatitis, that's the real dynamic in the market. And we know our profile quite well in that area and we're exploring and finding out things in those other smaller genotype populations and we're working with our partner to kind of ratify and focus a development program in that area going forward. We'll share more details on that once we've had those meetings with our partner.

Last question regarding 222. What data do you have regarding the difference in tolerability between 222 and 916, either clinically or pre-clinically? And perhaps do you know either of these compounds crosses the brain blood barrier?

I don't know the answer to your last question. I apologize for that, so either I don't have it or we don't have it and I'm not quite sure which.

We can follow-up on that. I don't believe from the due diligence that 222 does for sure. I'm pretty sure on that one it definitely doesn't.

To your question from the safety of the compounds 916 versus 222, we talked a little bit about this the day we announced the deal. We're really focused on 222 and 759. 916 you'll see some data at EASL, so I am assuming that is probably why you are raising a question about 916. We really don't see that as a lead asset we are going to take forward. We do see the two assets that have a lot of potential is 222 primarily and 759 rated in the same space. And when you look at the safety of these compounds especially versus all the knowledge we have in the field, they are quite distinguished in their safety profile.

The highest criteria we had when making the acquisition of a drug to combine with Telaprevir which is still in Phase III is the safety and combinability of that asset with our drug. So we had very high hurdles on how clean they were, how clean the Tox profile was, how combinable they were with Telaprevir from a drug metabolism point of view from a drug-drug interaction perspective. And both of these compounds look very safe to combine with Telaprevir and that's why we moved forward with the transaction we did.

Thank you very much.

Your next question comes from Terence Flynn of Lazard Capital. You line is open.

Hi thanks for taking the question. Sorry to circle back to this again, but just on C208 have you looked at the ERVR rates and the four arms in that study and can you give us any details on the ERVR rates?

Yes, it's a good question. As you know when you look at the people who are undetectable at week four and undetectable at week 12 in our Phase II data, there's a 95, 96% correlation to SVR. So I understand your question. We have looked at that analysis and the good news is there is no meaningful difference in the patients who achieve ERVR in the study, so that gives us extra confidence that there's unlikely to be a difference in the SVR rates once the finished studies.

No meaningful difference between the BID and TID regimens on both PEGASYS and PEGINTRON?

Correct.

Okay. Thanks and then just a question. I noted in the Press Release it said you'd submitted the PROVE 3 data to the FDA. I was wondering if you guys have an end of Phase II meeting scheduled with them at all to discuss that data or if you're just going to submit it just for completeness sake?

Yes, so we submitted it for completeness sake. And wanted to be sure that they had a complete set of data that was available as it became available to us.

Okay, so then I mean I know you guys have talked about meeting with the FDA to discuss that data and possibly an early filing with that data and study 107. Is that still in the works or is that completely off the table now and the second half 2010 filing is the focus?

Yes, so there's certainly a lot of excitement around PROVE 3 and there's certainly a high unmet need in that population. We remain committed though to our strategy of filing in the second half of 2010. In a broad patient population with treatment naive and treatment failure patients, kind of meeting that broader unmet need and we think that this really has a high probability of success.

Okay, thanks a lot.

Your next question comes from the line of Alan Carr with Needham. Your line is open.

Hi, good afternoon everyone. Thanks for taking my question. A follow-up on 222 and 759. Since the acquisition, I imagine you've had an opportunity to maybe look at a little bit at the data a bit more closely. I wondered if you happened to have learned anything since the acquisition? And if it's changing your impressions either one of those compounds and if you have a preference for which one you might push forward in combination this Fall?

So we're actually treating our -- my earlier comment about looking at an overall strategy in this space, holds through with the polymerases as well. We've moved 222 forward into the next phase to develop what we think is important data in order to move forward to a STAT-C combination. We have a little more data on 759 so 222 is really catching up in the short run. And we plan to use the data from what we currently know about 759 and the data that we'll learn from 222 likely to move forward with the STAT-C combination in the not distant future.

Just want to add to what Freda said if you're wondering how we're looking at 222 and 759 because I understand where you're coming from, the question where we are really leaning. The way I would summarize the way to look at the whole field and then where does 222 and 759 stack up. 759 is the most advanced one right now and it has a profile at the same stage of development. It's right there with best-in-class polymerase inhibitors, true full polymerase inhibitors.

The interesting thing about 222 which we've talked about is it doesn't really act like a polymerase inhibitor. This is the only drug we've seen that has anti-viral activity and potency like that of which we've seen with Telaprevir. It has a combinability profile and a cross-resistance profile which makes it very interesting as a combination drug. And the better your cross-resistance profile is together with that kind of anti-viral potency that's what really matters to help you shape a regimen where you might have a shot at getting rid of interferon ribavirin.

That's why we're focused on accelerating 222 as our primary focus right now. The good news is we've also got 759 there which is if we need it a best-in-class true polymerase. But 222 is a very unique asset in the space, and we're going to move that as quick as we can.

Well I'm not surprised you're still leaning towards 222. Would you do combination studies with both of these or do you think this Fall you'll just pick whichever one wins out after you finish this extra three day trial with 222?

There's a couple ways to answer that. I think what we want to do is make sure 759 is ready to progress if we need it so there might be things in CMC and other areas we would look to do as a Company to have it prepared. But as the data stands right now, 222 has won out. It's got unprecedented anti-viral potency, it's got an unprecedented cross-resistance profile. It looks great from a safety perspective to combine with our drug and that's why we're going to move that as fast as we can.

Okay, great. Thanks very much. Appreciate the clarification.

Your next question comes from the line of Adam Cutler of Canaccord Adams. Your line is open.

Hi. Thanks for taking the question. Just to follow-up on that since you did just note that 222 seems to have won out. What are the gating factors to starting a combo Study of 222 and Telaprevir? Is it this next three day study and doing a little bit more dose finding work? Is it generating a little bit more longer term perhaps pre-clinical toxicology data? Maybe you could just discuss that for a second?

Yes, so, we're going to use the data from the upcoming trial to help inform the design of a potential combination. And we also do have an opportunity to talk to some of the regulatory agencies who are really excited about this area, but also cautious because it's new space for all of us. So we're going to take the time while we're collecting data in the upcoming trial to further our understanding of what the regulatory environment is like and those two things should add together to get us moving forward.

Okay, and then as long as we're on the topic of potential combination studies, but a question on your cystic fibrosis program. At what point do you think you would look at doing a combination Study of 770 and 809?

So we've actually just initiated the Phase II A trial of VX-809 and that would be some of the data that we would need along with the data that we already have on 770. And we'll be again, this is new space for everybody back to the combination, so our discussions will move forward with regulatory agencies in this space as well to define what we think is the safest possible way to move forward in a combination with two experimental drugs.

Okay, thanks a lot.

So a little more data and talks to the regulators for both of those.

Got it. Thanks a lot.

Yes.

Your next question comes from the line of Jason Zhang of BMO Capital. Your line is open.

Thanks. I want to make sure I heard you correct, Freda, that with regard to C208, you said that the data will not be necessarily used for clinical, I guess practice. I understand that because this is a small Phase II study. But I thought that the purpose of the trial was to inform you of future programs that you can run to really make BID a regimen that could be used in the clinical practice. And I was wondering, you focused more on the purpose of the trial data to help you design future combination study I want to make sure that you are still going to explore the opportunity to make BID Telaprevir regimen that can be used in clinical settings?

Jason thank you for the clarification. You're absolutely right. This form, this study helps inform future work on defining the BID drug. And I think that where the confusion may have come in was what the relative importance of BID is. And so one of the reasons that it's important is certainly to improve the profile for patients who would be treated in the three drug regimen with Telaprevir. But the other thing that is now also important is to look at the ability to combine it in a STAT-C combination. So it's both things but the study itself will inform how we would move BID forward.

And are you a little clearer now as to what studies you might do to get BID -- a regimen that can be used in the practice?

So we've not defined fully the study or the route to regulatory file as of yet but we're working on it and as soon as we can, we'll share.

Thanks.

And your last question comes from the line of Geoff Porges of Bernstein. Your line is open, sir.

Thanks very much for letting me ask a follow-up question. On the end point, Freda for the VX-770 trials, could you just give us a sense of how much FEV1 difference you're looking for in that six-month end point? Would the 10% that you saw at 14 and 28 days be sufficient to show statistical significance?

The answer to that is there's still some space given that this is a new environment but 10% in a trial like this appears to be adequate. And it's sized the first study is sized to demonstrate that difference.

Okay, thanks very much.

Yes.

And there are no questions in the queue at this time.

Okay, thanks everyone for joining us tonight. And a number of us will be here in the office to answer any further questions that you have. Thanks again.

And this does conclude today's conference. You may now disconnect.