福泰製藥 (VRTX) 2009 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. I am your conference facilitator 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 Company's remarks there will be a question-and-answer session. (Operator Instructions). At this time, I would like to turn the conference over to Michael Partridge. Please go ahead, sir.

Thank you. This is Michael Partridge. Good evening, and welcome to Vertex's conference call. 2010 may be the most important year in Vertex's history, which will be defined by the anticipated progress of Telaprevir, for the treatment of Hepatitis C as well as several other programs across our pipeline.

First with Telaprevir, starting in the spring, we will begin to receive SVR data from our Phase 3 program. Dosing of all study drugs is now complete in all Telaprevir Phase 3 trials, and in the second half of the year, we expect to submit the NDA for Telaprevir. Additionally, with the goal of further enhancing our leadership in Hepatitis C, we expect to begin the STAT-C combination trial of Telaprevir and VX-222 in the first quarter. Right now, we are engaged in late-stage discussions with the FDA and global regulators on the design of this trial. We expect to conclude those discussions soon and provide you specific information about the trial design. We continue to expect to initiate this trial in the first quarter, and be able to have the first interim data in the third quarter of this year.

Secondly, for cystic fibrosis, we have completed planned enrollment of two of the three trials in our Phase III registration program of VX-770, our potentiator compound, and we are on track to have pivotal data and submit an NDA for this compound in the second half of 2011. Additional we announced yesterday results from the preliminary analysis of data from the Phase IIa study with VX-809, reflecting continued progress with this compound. On the basis of these data, we anticipate starting a combination study with VX-809 and VX-770 as a next step.

Third and importantly, demonstrating the versatility and success of our research. We are positioned to receive data from additional proof of concept studies in other therapeutic areas in the second half of 2010 with both a novel molecule for epilepsy and a novel molecule for rheumatoid arthritis.

In today's call, these major events and what they mean for our business and strategy will be reviewed by Matt Emmens, Dr. Peter Mueller and Ian Smith. Tonight we also want to introduce to you the newest member of the Vertex's management team, Nancy Wysenski who joined us in December as our Executive Vice President and Chief Commercial Officer. Dr. Bob Kaufman is also here with us today. And he will be joining for Q&A.

Please note that 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 year-end 2009 financial press release which is on our website. All of 2009 expenses and 2010 guidance, discussed in this call are inclusive of stock-based compensation, and executive transition expenses, restructuring expense, acquisition related expenses, loss from exchange of convertible debt and other certain charges.

Lastly, after our prepared remarks, we will accommodate as many questions as time permits. Once the call concludes our IR team, joined by Matt, Peter, Ian, Nancy and Bob will be in the office to answer any additional questions. Thank you. I'll now turn over the call to Matt.

Thanks, Michael. As Michael just said we expect 2010 to be a defining year for Vertex. Our vision has been to build a bio pharmaceutical company that carries out truly innovative research and that focuses on tough medical problems. That vision is becoming a reality starting with the planned NDA submission of our first potential break through compound, Telaprevir, later in 2010, and the planned launch in 2011. The launch of this compound if approved could enable us to build a fully capable biopharmaceutical company that has the scale and future growth opportunities.

Our current portfolio beyond Telaprevir is taking shape. It includes additional potential combinations for the treatment of HCV, and the orphan disease cystic fibrosis as well as other proof of concept studies. It is very exciting and an important time for Vertex.

[Think of] our pipeline is a research engine that continues to create compounds that we believe could potentially transform serious diseases. With the drug candidates we have in clinical development plus approximately 12 preclinical candidates and 12 lead optimization programs, we are making the transition to becoming a commercial company, while also maintaining our commitment to that innovative research we talked about. This is what I mean when I talk about scale. I'm sure you will hear more on these early-stage programs as this year progresses.

We believe that we are building towards the goal of transforming the treatment of major diseases and offering significant returns for our shareholders. Financially, we are committed to turning cash flow positive following the launch of Telaprevir and delivering high operating margins. Our intention is to build a company that provides access and delivers new and innovative medicines across multiple high-value specialty markets. If you take a look at our 2010 defining events, I ask you to imagine our potential shape and profile as we enter 2011, just one year from now. An NDA submitted for Telaprevir and an organization poised for launch of a product into a major disease category, HCV. Additional our registration program for VX-770 in cystic fibrosis will be nearing completion and based on the results, we could be preparing for a second NDA submission in another important disease, cystic fibrosis. Beyond HCV and CF we have product candidates in epilepsy and rheumatoid arthritis that will generate results in 2010, which could expand our opportunities in these important diseases. Overall these events will provide important information as we advance towards our vision.

A key part of the reality of our business is the launch of Telaprevir, and the architect of that launch is someone I would like to introduce you. Her name is Nancy Wysenski, and she is our new Chief Commercial Officer. I have known Nancy for many years, I believe her extensive operational and sales experience can create commercial infrastructure that could position us to lead the HCV market. Nancy is a proven leader. She has the passion both to choose great new people and to manage the talented people we already have in the company. She is someone who will work side by side with them in building successful commercial organization. I'm excited to have her join our team, I will now pass the call over to her for a few remarks. Nancy?

Thanks, Matt. I'm delighted to be here. This is an exciting time for the Company, and I'm very happy to be working with this executive team to prepare for the launch of Telaprevir.

I joined Vertex in December and since then I have had a chance to look under the hood. I'm pleased with a number of the things that are already in place. I believe we have some unique HCV market insights with which to build our commercial strategy. My principal focus right now is the implementation of internal systems and processes, building key elements to support our sales effort, and putting in place important patient-focused programs. The commercial growth prospects for Vertex are promising. What particularly excites me is that Vertex has multiple product and disease area opportunities. The Company has the breadth to not only achieve the long-term leadership in HCV, but also go beyond HCV, and establish long-term leadership in additional disease areas.

I'm also responsible for building the commercial infrastructure of scale that can support not only HCV, but our CF programs if successful, and also for other future commercial efforts. That's just a little bit about what I have observed and I look forward to meeting some of you during your next visit to Vertex or at an investor conference this year. Thank you, and I'll turn the call over now to Peter.

Thank you, Nancy, and obviously my (inaudible) for you in joining the Vertex team.

First to Telaprevir. This is of course our number one priority. We are on track to receive the first results from our Phase III program with SVR data from ADVANCE for treatment-naive patients in the second quarter. This will be followed by data from REALIZE for treatment failure patients over the summer. We have an experienced team in place, managing the NDA preparation and planned submission in the second half of the year. Today, we are producing commercial inventory already, and we are manufacturing at metric ton scale. At this time, everything is aligned with our commercial launch time line in 2011.

Turning now to our STAT-C combination plans. Our goal of furthering the treatment of HCV is a high priority within our business. To demonstrate our commitment, we plan to initiate a trial in the first quarter that will evaluate SVR rights using multiple regiments of Telaprevir and VX-222 based therapy alone and in combination with pegylated interferon and ribavirin.

We are in late stage discussions with the FDA and other global regulatory authorities on the design of this trial, and we'll provide more information to you soon. What is important about the design is, that it could potentially position us to quickly identify the most appropriate STAT-C combination regimens for late stage development. The concept of the trial design focused on 12-week combination regimens with safety and SVR rates being important study outcomes. We expect to have the first interim data as early as the third quarter 2010 to inform the next steps for this program.

Now let's turn to cystic fibrosis. Our Phase III registration program for VX-770 is advancing rapidly. We enrolled ahead of schedule the primary Phase III trial called STRIVE. This trial enrolled approximately 170 patients age 12 and older with the G551D mutation. We believe the over enrollment reflects strong patient and physician interest in compounds that target the underlying defect of this disease. We have other completed planned enrollment of approximately 120 patients in the discover trial, which is primarily a safety study evaluating patients with the Delta F508 mutation. The ENVISION trial, which is enrolling younger patients with the G551D mutation age 6 years to 11 years is ongoing and on track to complete enrollment in the first half of 2010.

We expect that all patients in the STRIVE and DISCOVER trials will have received their first dose of 770 or placebo by the end of February. Patients in STRIVE are being dosed for 48 weeks with primarily efficacy end point evaluating FEV1 at 24 weeks. At this time, it is our expectation to conduct a study through 48 weeks, which puts us on a time line of submitting an NDA in the second half of 2011.

Now turning to VX-809, our second compound targeting [this orphan] disease. VX-809 is our corrector compound aimed at increasing the concentration of functional CFTR channels at the lung surface. We announced yesterday results from a preliminary analysis of a Phase IIa study, which showed proof of concept data that suggesting that VX-809 may increase the CFTR activity.

In the 28 day study, VX-809 met its primary end point of safety and was well tolerated at all four dose levels. VX-809 also met a key biomarker end point with a statistically significant decline in sweat chloride at the two highest doses evaluated, which is 100 milligram and 200 milligram. The totality of the result, the statistically significant decline in sweat chloride and the clear dose response provides confidence that VX-809 is helping to partially restore CFTR function.

On the basis of this data, our goal now is to maximize the response and potential clinical effects of VX-809. In our next steps, we may explore the option to evaluate higher doses of VX-809, we also plan to initiate a combination trial of VX-809 and VX-770 in the second half of this year. It is our belief that the combination of these two compounds could potentially broaden access for a greater number of patients living with cystic fibrosis.

In closing, I would like to also highlight our two earlier stage proof of concept programs, VX-765, our novel Caspase-1 inhibitor for the treatment of epilepsy, and VX-509, our selective inhibitor of JAK3 for the treatment of rheumatoid arthritis. These are two areas that demonstrate our progress in research, and in 2010 we expect to have a better understanding of the efficacy and safety of these compounds in patients.

First to VX-765. Initiating a trial in epilepsy highlights the innovative capacity of our research. Based on the emerging medical literature in the field and preclinical data we have gathered with this compound, there is evidence to support the Phase II proof of concept trial, which is now underway with several clinical sights open already for patient recruitment. In collaboration with the Mario Negri Institute in Milano, one of the most renowned epilepsy centers globally, we found in established pre-clinical epilepsy models, that VX-765 may play a key role in inhibiting the inflammatory processes that lead to seizures and epilepsy development.

As background, targeting inflammation and inflammatory processes is emerging as a new approach for epilepsy treatment and (inaudible) is recognized as a major player of the inflammatory response in this case. As a Caspase-1 inhibitor, VX-765 inhibits the production of (inaudible) and showed in preclinical models reduced frequency and duration of seizures, especially models that mimic chronic epilepsy status closely related to human pathology. It also showed a good safety profile in clinical studies today. We are really excited about the potential to show proof of concept data for this compound in 2010, and I will be very happy to take questions on this compound, following our prepared remarks.

In addition, we have initiated a proof of concept trial with our selective JAK3 inhibitor VX-509 in moderate to severe patients with rheumatoid arthritis. The 200 patient trial is a 12-week double-blind randomized placebo-controlled trial. The key focus of the trial will be on safety, tolerability and clinical activity. We are evaluating four dose levels of VX-509 compared to placebo. The study will measure, ACR 20s, 50s, and 70s, and other disease activity measurements as indicators of clinical benefit.

Before I close, I would like to take the opportunity to echo Matt's comments around our research and product candidate creation efforts. We continue to follow the science and have a number of exciting pre-clinical programs that have the potential to take shape in the coming months and over the next year. We are very energized by the progress in research and development, and are very excited about the roles these advancements could play in building the Company. Now I will turn over the call to Ian.

Thanks, Peter. And good evening to everyone. My comments tonight are focused mainly on financially supporting and balancing the breadth of our business, and with managing our capital structure through to being a cash flow positive and an EPS-valued growth company.

We entered 2010 in a strong cash position of approximately $1.3 billion, combined with a minimal amount of convertible debt and approximately 200 million common shares outstanding. This cash possession, and more broadly this capital structure, enables us to advance our priority HCV and CF programs, while continuing our investment in research product creation to support our long-term business objectives. This capital structure preserves our ability to finance further growth, if necessary. This is a flexible position to be in as we enter this stage of our business, and hold the potential to drive significant shareholder value.

Now to the 2010 financial guidance. Overall, full 2010 guidance is similar to our actual financial 2009 results. The only components that are significantly different to that of 2009 reflect our planning for the launch of Telaprevir. We are spending to put a commercial infrastructure in place, and we are building more commercial drug supply. Our projected overall investment in R&D is consistent with that of 2009.

Specifically the research investment, which focuses on new product candidate creation, is only slightly higher than 2009, and in development, the mix of investment across clinical programs is somewhat different, but overall, the amounts of development investment is relatively similar to 2009. This leads us to our non-GAAP loss guidance of approximately $600 million for 2010, which is approximately $100 million greater than 2009. The increased loss represents increased investment in critical prelaunch activities for Telaprevir, including the building of commercial drug supply, the further expansion of our commercial infrastructure, and the hiring of key employees to support implementation of commercial functions.

From a GAAP perspective, we expect full year 2010 GAAP loss of approximately $700 million, which is an increase to our 2009 GAAP loss of approximately $642 million. The 2010 GAAP loss includes approximately $100 million of stock-based compensation, restructuring expense, and revenues and expenses related to the September 2009 milestone financial transactions. The 2009 GAAP loss includes certain charges totaling approximately $135 million. The details of the guidance for 2010 revenues, R&D, and SG&A can be found in our press release issued today. I will, of course, be happy to address any aspect of our guidance in Q&A later.

In summary, we'll continue to balance and manage our financial profile through the planned Telaprevir NDA submission and launch, and we are making key investments based on market opportunities. Our business priorities for 2010 are defining our future success and our financial strength provides support for these objectives and moves us closer to our ultimate goal of commercializing our first therapeutic products and building a fully capable bio pharmaceutical company. Thank you, Michael, back to you.

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

Thank you. (Operator Instructions). We'll take our first question from Rachel McMinn, BoA ML.

Just two questions for me, one can you talk about Telaprevir twice a day, whether -- where you are in discussions with the FDA? And whether your guidance assumes any spend on a Phase III trial for that program? And then also, what kind of data we can look forward to at EASL this year? Thanks.

This is Bob, I'll answer those questions, in terms of twice-a-day dosing, we are in the process of submitting those data to the FDA, and hope to be in discussions with them soon about the requirements that would be necessary to achieve twice-a-day dosing on our label. As you know, the results of the C208 study were very strong, at twice a day versus three times a day study. And those will form the basis for this submission. That's really all I can say at this point, and we're really moving along as quickly as we can with our partner [Cubitech].

And Rachel to you point of have we planned for the expense for the twice daily study, for in Phase III? Given where our in R&D, I'm going to call it, pool is, these days, we plan for many let's say ins and outs that we may do and we might not do. The way the plan R&D these days is do we have specific activities that are planned for within this guidance. And we also plan for a pool of activities that may occur. So that's specifically what is behind our R&D guidance we gave tonight.

Okay. And then EASL?

On EASL, we expect to have data for the study 107, if you remember that's the rollover study. There will be some additional analyses of our previous trials. That that really, I think is the primary focus for EASL. As you know there will be lots more exciting data coming later in the year, but it will be coming later than EASL so there won't be a chance to present it then.

And just to clarify, are we going to get any 222 data at EASL?

Yes. We'll be showing the initial viral dynamic data -- viral kinetic data from the initial study of 222.

And Rachel, I'll just add that as Bob refers to that data that is specifically data that may be disclosed as part of the conference. As we approach it from an investor relations perspective as well, our approach is to further provide data supporting the drug in the treatment failure setting, and then also provide a better understanding of why we have a belief in the STAT-C combination that Peter referred to in his remarks, where we will probably get into a little more preclinical data that supports the rationale for the study that I expect we will have announced and commenced by that point in time.

Perfect. I'll jump back in the queue. Thanks.

Up next is Geoffrey Porges Bernstein.

Thanks very much. Couple of questions. First on CF, Peter it sounds as though there were some patients in the VX-809 in the high-dose group that got a more significant effect at least on the biochemical marker. Could you talk a little bit about that effect? And is there any clinical correlation with that? Have you had a chance to see whether there was any effect on FEV1 or symptoms? And then related to that, what are your thoughts right now on the duration of the combination study that you could do? You kind of had to do a lot of work, obviously to get the FDA's endorsement for the combination study in hep C with Telaprevir. So what would an 809-770 study look like in 14 day? 28 day? Or shorter? And lastly, I just wanted to ask Ian a follow up question on the guidance and the outlook on the R&D spend. Thanks.

We have Bob here, our clinical representative, so maybe he can start answering those things, and I will chip in if I have to.

Geoff to your first question, as you know in all clinical trials there's variability from subject to subject, and this trial was no exception. There were a range of responses in each of the dose groups. The data we reported are the average data. There were some subjects who responded actually better than others, and we're in the process of analyzing those individual patients to try to understand why that might be.

As you are probably aware, we haven't really completed the PKPD analysis yet, and that may give us some further insights, so we'll be able to say more about that when we have completed those analyses. In terms of the 770-809 combination, I think all I can say at this point is now that we have the 809 data, we're in the process of thinking about our options for the design of that study, including the duration, and it would probably be best not to speculate right now, but really to come back to you in a couple of months when we have all of our data, including the drug interaction data between 809 and 770 that we need to design that study, and be more forthcoming with the design.

And quickly, could I just follow up on the guidance? I know it's early to be talking about 2011 and 2012, but given that inventory build is a significant part of your R&D spend this year and last year, and we have a lot of Phase IIIs ongoing for both 770 and Telaprevir that should roll off next year, is it reasonable to assume that this is a ceiling for your R&D spend for the next few years, as we think ahead to the company generating cash flow?

Well, thank for that question, Geoff. A question that yourself and many others have asked a number of times. It's very difficult to look into a crystal ball and commit to the absolute shape of the R&D line over the next three to five years. One of the things that as a management team, and as we say, what does this business look like in the future, financially? And what was the P&L look like? One thing we are absolutely committed to is, as Matt mentioned in his remarks, is turning cash flow positive, being EPS driven, and also to a high-operating margin business. There are a couple of companies that have gone and done this before us, very successfully in these high-value specialty markets. I don't want to specifically name those on this call, but they're very close to you and others on this call. We look at that from a financial operating performance as a guide to what we hope we can do, given the markets that we're in.

So rather than size the R&D, I would like to think of us sizing our operating margins, which is kind of the key measure of the business and the return to the business. And we're committed to high operating margins. How we carve up that investment that comes underneath, let's say our revenues or gross margin between R&D and SG&A, we'll see, based on the opportunities we have in the markets we're in, and maybe the research product creation. But one thing we are committed to is returning, based on the markets that we're in, to a high-operating margin business.

Thanks very much. That's very helpful.

Next up we'll hear from Ted Tenthoff of Piper Jaffray.

Thanks very much for the question. And congrats on the exciting 809 data yesterday. Two quick questions if I can on the CF side. In terms of the combination, how broadly do you think 770 could ultimately be used as a potentiator? And secondly, I think you said that the ENVISION study would be enrolling, is that both parts of the study, and can you walk us through the design again?

So I take the first part of the question. Bob will talk a little bit about the design.

So my personal assumption and belief is 770 has a broader use than just G551D patients. And the reason for that is because we have preclinical data that show potentiation is possible for a lot of different mutated channels. And so far preclinical data translated very nicely into the clinical performance. Now we have to obviously do a couple of more, either studies and bring different mutations in to the clinical trials, but I think -- I'm not assuming that we are just limited to 551D patients. We'll see what the future holds, but I think there's a possibility given pre-clinical data.

And this is Bob. To your question on the ENVISION trial, yes, the design if you remember in this age 6 to 11 trial is a PK lead-in to confirm the PK in younger children as opposed to the data we now have in adults, and to make sure the dose we had chosen was correct. The first part of the study is complete. We're actually analyzing the PK data now, and deciding on what dose to go forward with, that is looking at the dose we had originally planned, and we expect to have that completed very soon and then start on the second part of the study. Based on the experience that we have in the other trials, we expect the trial to enroll really very quickly. There's a lot of patient interest out there, so we're not concerned about the enrollment at this point.

Great. Thank you so much.

Our next question comes from Mark Schoenebaum, Deutsche Bank.

Hey, thanks a lot for taking the questions. First question just, Roche reported a Pegasus number on the quarter. It was shy of at least three expectations. I was wondering if you guys are seeing any changes in the behavior of physicians over the last couple of quarters in terms of warehousing in preparation for the potential launch of Telaprevir and some other agents? And a couple of other real fast housekeeping follow ups, if you'll permit?

Sorry -- I'm going to take this -- at that point -- this point, sorry. We have been tracking this closely as well. I first of all want to define what you mean by warehousing. Because people talk about warehousing and mean so many different things. I'll say that from just inside our own company. Firstly, we'll tell you how we think about warehousing, which is those people that actually look at future therapies and say I could be treated today, but I'm going to not take therapy, and therefore, I'm going to wait for the future therapy. And they may say -- sound obvious to many on the call, but I'll tell you that also people might look at warehousing as those people that have currently failed and are just there in the system waiting for a drug, which is slightly different.

So using our definition of warehousing, which is how many people -- or how many patients are out there that are actively looking for therapy but now are deferring it until maybe a Telaprevir comes along. We are seeing a buildup in the system. I don't want to comment on the numbers, because it's difficult to get true visibility on it. But we are seeing a buildup in numbers. And then when you look -- and that's specifically in the treatment naive patient setting. And with this disease you always have to look at the two different -- let's say patient flows here, as if they are different indications. One being the treatment naive, and the second being the treatment failure patients.

We are also seeing warehousing in the treatment failure, where patients would like to take on therapy, but they are being deterred away, or deferred away, because they are hopeful that a drug is coming along very shortly that significantly increases the viral cure-rate potential. So we are seeing it. It's very difficult to get the absolute numbers. It's such a gray area. But we are seeing a trend towards warehousing a build-up of patients.

Just to make sure I understand that. So you have seen a change in the naive warehousing behavior, and that change has been more pronounced than in the failure population. Did I understand your response correctly?

No. No.

Okay. Sorry.

You are putting too much inflection in the buildup of patients.

Okay.

There is a marginal change, but to say there was a big change -- it's not huge.

Okay. Understood. And then just really quickly for Peter. Peter, what was the DLT of 809 in animal studies, and have you established it in humans? I'm trying to get at how high you can push that dose?

The only thing I can say is the therapeutic index of 809 is very high. I think it's dependent on species different obviously, but it is very high, and we can push up the dose significantly higher than we currently have.

Okay. And then just finally, Ian a super housekeeping question, but there's been a lot of confusion about this, but can you give us your fully diluted share count with everything thrown in at the end of the year? Is that possible? And then I'll get back in the queue. I appreciate you taking my questions.

I'm not sure what you mean by everything thrown in. So let me define it.

Okay. Sure.

At this point in time when I talk about approximately 200 million shares outstanding, that is the common shares outstanding currently, plus the shares that are outstanding relating to the convertible debt. That's outstanding, and remember, we had approximately, I think $32 million of convertible debt outstanding. So there's about -- I think 400,000 shares included in that. We do have options, and if you are asking for options as well, then it is approximately 20 million options outstanding, so if you want to put the options in as well, it takes you up to close to 220 million shares completely.

That's great. Thanks. I appreciate it guys.

Just as a point as you try to model -- I assume you are trying to model an EPS as we go forward, Mark, what we found in practice is the Company's exercise history has shown that it's 2 million to 3 million shares get added to the common shares outstanding based on option exercises, or restricted stock becoming unrestricted, so if you are trying to model it year to year.

That's great. Thanks a lot.

Next up is Credit Suisse's Michael Aberman.

This is actually Ian in place of Michael. Can you give us more detail about the combination trial between Telaprevir and VX-222 in terms of what kind of regimen you have in mind and what the end point would be?

Well, I -- so I -- so Michael as we -- as we reported earlier, the concept is that we try to basically combine Telaprevir and 222 in one way that on the other hand as a single trial with the two compounds alone. The other thing is that we basically also do a quad with Telaprevir, 222, peg-INF, and ribavirin. The set up is in a way that we have the possibility to basically stop after 12 weeks, which is, I think, phenomenal, and will push us ahead of everybody else. Patient population is around naives, and not (inaudible).

I think this is also a very important differentiator compared to BMS. And obviously they are stopping rules in there, and we measure, basically, SVR rates and safety as the overall outcome, hoping that we have SVR12 as a critical, let's say end point and can see where we go from there. The patients that will fail, let's say by measuring in week two and eight, the stopping road means being not detectable, obviously go on to some safety regiments, that are basically not different from what we do with Telaprevir right now. It's basically 24 weeks, and the relapse is still for 48 weeks. I think that is sort of high level what it is.

We will come with more details when we have the final final, which is very soon, and then you get some [other feelings], but important is, it is a real trial and real patients with populations that matter. It is a 12-week setup that give us the opportunity if it works, to have maybe a regimen out there that is a 12-week regimen, and I think this is a wonderful type of opportunity. We're looking forward to the success.

Okay. Thank you.

Next up we'll hear from Yaron Werber, Citi.

Two questions for you. Just trying again as we kind of all model, as you mentioned, going into the commercial launch. Help us understand a little bit -- I have one question on SG&A and one on COGS. SG&A in the guidance of 175 to 200 is a step-up, so obviously it sounds like there is a lot of commercial planning in there. Help us understand kind of how do we think of that year -- I mean, you are going to be launching your file sometime later on this year, so you are really launching in '11. Are you thinking that by the end of this year, you are going to have salespersons on the ground, or should we model that more as a 2011 kind of cost? And then I had a question on COGS too.

So you -- thanks. I'm -- Nancy is going to jump in here and give you some thoughts on let's say timing and how we're thinking about infrastructure build through the next year to 18 months to launch, and then I'm come back and give you the financial outcomes of what Nancy will tell you.

Yes, thank for the question Yaron, it's a good point. We're right in the midst now. We're early, but I think we're in a good spot being more than a year out from launch to really start driving the build of all of the infrastructure systems that we need, and everything put in place in headquarters, as that is coming to completion later in the year, we'll also be starting to hire on the sales side. We'll obviously start with management. That will definitely begin in this year, and some of that may likely carry over in to 2011 as well.

And how many reps are you thinking? I don't know if you can share with us a little bit, kind of -- what you think, maybe as a -- if you can help us understand a little bit, kind of how you are thinking about the size of what you need to really adequately [detail] the US and just to kind of think about what kind of costs we should be expecting to the out years?

Yes, I think you can actually look at what other competitive companies have done historically to get a general idea of the bounds here. They are usually looking for coverage of about 4,000 physicians in terms of the specialty arena, who are actually doing the treating, and that can be and has been covered by somewhere between 100 to 150 reps, flash with management sales force, so we're evaluating that now, and we'll bring that in to a little crisper focus as the year progresses.

Okay.

And Yaron on the financial answer, as you -- what it sounds like is you are trying to project out what is our kind of steady state SG&A expense. I think what is more easy to do is to say to you that as we look at our G&A, the G&A investment is around $100 million right now up from the 175 that we gave you. And then the 75 is going to grow, because it's not a full-year cost. So as you look out in to the future years, say, 2011, or 2012. I don't anticipate that G&A continues to ramp up. We're in pretty good shape in terms of infrastructure around there. But in terms of that $75 million number, it's directed towards a commercial organization, you are going to see that increase. But there still is a decent carrying cost as we come to the end of 2010, which should move up in 2011.

Right. That's real useful, and just quickly on COGS. You mentioned that the COGS can be very competitive, and pretty much in line with many of the small molecules out there, but it sounds like manufacturing of this product is a little bit more complicated, you talked about kind of the chain, I don't know if you can help us understand a little bit. Typically we think of, let's say high single digits, maybe low double digits kind of cost? I mean is that what you have in mind?

At this point -- let me give you some broad strokes on how to think of the cost of goods for the gross margin calculation, but specifically because we're expensing our inventory, and we have been now for the last couple of years, when we launch the product there isn't actually a cost of goods within our gross margin calculation for the product because we have been expensing it all prior to the point that the drug is actually approved.

So we have a very unusual gross margin as we launch this product, and I appreciate you asking the question, because as we work with a number of the models with the sell side and sometimes the buy side, but specifically the sell side, we find it has been missed sometimes. So there is an unusually high margin on maybe the first 18 months to two years of launch of this drug because there is no cost of goods. As we then look forward in to the future, I think you can look at other small molecule drugs and think about how they are priced and then think about -- more normally how -- what their cost is, and then you can do the normal model for a small molecule drug cost, and then consider that versus what price you may be assuming for the product.

In terms of manufacturing it is not more complicated than other molecules I have develop in my life, which are many. So I think we have the manufacturing infrastructure very well thought through and in place. It's functioning very well. So don't be worried about this. In terms of costs in general, I think we are in a very, let's say good place, and as Ian said really comparable to what you normally see in other small molecules out there, so it's not outrageous, and if anything it's on the better side.

Great. Thank you.

Our next question today comes from Geoff Meacham, JPMorgan.

Thanks for taking the question. A couple of questions on 809. The patients in the 200 mg cohort, I'm curious if you saw NPD differences, [van-C] or electrophysiology in really any of the patients? And if not, you know, how do you guys reconcile these differences?

Yes. This is Bob, I'll try to answer that one. As you know NPD, is very important because it measures potential differences in the organ of interest in the respiratory epithelium. On the other hand it has a relatively narrow dynamic range, and quite a lot of variability just the way that technology is done, and, it just -- there's quite a bit of variability. And so we put NPD in to the trial, although our expectations were not high that we would see an NPD effect, and in fact that is what happened. We didn't see an effect. We have just gotten the data recently, we're going back and looking now at the individual patients to try to tease out something, based on your question, to try to tease out something, but we have not really completed that yet, so there's nothing really much to say.

Okay. Back to an earlier question on 809 --

One comment I want to make on top of that.

Okay.

For the secondary end points, it was not hard to get statistical significance. It was an exploratory type of exercise to see whether any of those markers might pop up and what they do. And so we are currently in the analysis, as Bob said to figure out whether they were strengths or not, I think the jury is open.

Okay. And back to an earlier question on 809, what do animal studies that look at delta F maturation, what do they tell you about synergy with 770 and 809?

We -- so first of all, in [the F] there are no good animal models that you know. The only animal model that there's -- the first models coming down the pike with some people in the University of Iowa, that's the first reliable one, as you probably might be aware of, which is a pig, but I think this model is not validated, so all of the measurements that we did is basically done invitro by taking patient samples, which are HBE, brochial epithelial cells basically from humans, and did our measurements with the compounds, including the combination.

Now, in HBEs what you have seen in 770 so far, 100% translated in to human beings. The same you see for 809. Those systems 100% translated in to human beings in the same range. The only thing we have not yet in humans is basically the combination. But in those HBEs the combination of 809 and 770, is more than additive, so it's a -- 2.5 fold to 3-fold increase. It's basically synergistic to a certain extent even, and I think which we are expecting, given the fact that 770 translated in to humans, and 809 translated in to humans, that there is some positive outcome in 809 and 770. The only open question is is that enough to basically induce a therapeutic relevant outcome? And we will see that when we do the study.

Got you. Okay. And then a final question for Ian, just when you think about R&D for 2009 is there any way in broad brush strokes you can break out any hep C and CF and everything else and maybe extrapolate these trends and how they evolve going forward?

Focus on 2009, yes, I can give you some indication, Geoff, which helps you go forward. Which is total R&D costs for 2009 was approximately $480 million, and first of all you have to deduct the research cost of that, which is -- has always stayed pretty steady now for the last few years and that's about $150 million. So that leaves development investments at around $330 million, of which there is some commercial supply investment in that. So let's just call the development investment about $300 million.

And the way to carve that up is you can't -- I mean, the principal investment is towards HCV and CF and if you think about the number of patients we're studying in HCV which is close to 2500, the number of patients we treated during 2009, and then compare that to the startup cost in the patients we started with cystic fibrosis which was probably 200 to 250 in all of the trials, it gives you a pretty good idea of the spread.

I will point out though, that the cost of running a cystic fibrosis or the cost of a patient in a cystic fibrosis trial is significantly more expensive than that in an HCV. Unfortunately these patients are very sick, and also a lot of the work that we're doing in the CF area is with some of the academic institutions, so it carries a higher cost per patient, but it gives you an idea of how it splits up.

Okay. Thanks a lot.

Our next question comes from Howard Liang, Leerink Swann.

Thank you very much. I have a few questions related to data time line for this year. First for Telaprevir 222 combination data we're going to see in the third quarter would that be on treatment data or follow-up data?

That will be on-treatment data.

Okay. And then for strive, I heard Peter say that I think the data is 48 -- the trial is 48 weeks. I think the design is six month's efficacy, 12 months safety. Is that still the same? And will we see 6-month efficacy data this year?

So -- I mean, you have the trial design right. So I'll take the disclosure question, Howard, and this question has been asked a number of times. There are different scenarios that you may see the 24-week data, but they will generally be if we are being asked by the FDA to file early because the data is so compelling, or the FDA is just requiring us to file early, which will be a combination of the efficacy date and also the 6-months safety data. And there will probably be some patients that have completed a full 12 months at that point. But if not, then you will remain blinded to the 24-week answer through to the trial running its course for 48 weeks, given that that is the trial design. So basically the trigger to think about getting something early is if the FDA is asking us to file early.

Okay. And lastly, could we see DISCOVER data this year?

Are we likely to see DISCOVER data this year?

The answer is no, we probably won't be disclosing that prior to sort of all of the rest of it being disclosed.

Yes, the idea here is that the FDA asked us to run three programs. It was all part of the whole registration package, whether it was in adults, ages 6 through 11, and then the Delta 508, which was part of the registration package for safety, so we're looking at it as our one unit to file with the FDA, unless they ask us to do something differently.

Thanks very much.

JMP Securities's Liisa Bayko has the next question.

This is Eric for Liisa, I just had a couple of quick questions on the STAT-C combo. How much animal tucks do you have for 222. And secondly, I guess this is for Peter -- what gives you confidence in 222 and Telaprevir as a 12-week regimen?

I think that's a good question. So first answer is we have three-month coverage for both molecules, 222, as well as obviously Telaprevir. We have everything all the way through the end, we have basically a year's safety. So we have enough, basically to do what we planned to do. We are basically also conducting longer-term tucks as we go forward, and that is in the works, but as of this point in time, I think we can conduct the trial that we have in mind.

Now what gives me the confidence? The confidence is driven by simulation approaches that we have in our organization, and as you might well be aware of, and we have probably spoken to that already, is we have a very sophisticated HCV disease model that also gives insight in therapeutic regimens and the responsive regimens to infected patient behavior. We use that model to predict basically how Telaprevir will work, and that was the base for basically getting down from 48 weeks to 24 weeks. This model is very sophisticated. Has all of the patient information, including [varying] information in patients and sequencing data in there. When you do that, by adding in 222, you get a good insight what the potential outcome might be, and the confidence level in this model is high. It is actually very accepted by the bio (inaudible) also in the FDA. When you look at that, there is a chance, that a 12-week regimen might at the end of the day do the trick, that's why I'm confident. I'm very confident about that, and we'll see how it goes.

Great. And just one last quick question. Going forward -- I mean, can Telaprevir be dosed for more than three months based on its tolerability profile? As a combination agent?

Yes, this is Bob. We looked at that, and if you remember in the PROVE 3 trial there was one of the treatment arms that included 24 weeks of Telaprevir in combination with Peg-INF/ribavirin and our overall view that was the tolerability of that regimen was somewhat less than 12 weeks, and yet there was no virologic benefit to increasing the treatment from 12 weeks to 24 weeks. So in terms of risk benefit, it really -- there didn't seem to be any real need to go beyond 12 weeks of Telaprevir. And I think for the combination work, we certainly believe that is true. We don't believe that durations is longer than 12-weeks of Telaprevir are going to be necessary.

The other comment I want to make is you have a very different regimen, because you have now Peg-INF and ribavirin as background. That might change the safety profile to the better, and we basically cannot extrapolate from the one to the other.

Great. Thanks, guys.

Jason Kantor, RBC Capital Markets is up next.

Hello?

Jason?

Most of my questions have been asked already. Thanks for taking mine. Sorry I was on mute there. Real quick on the RA program, what sort of data will we see this year? What time frame would we expect this to be in? Would this be kind of final Phase II data? Or would this be interim? And then another question real quick for Nancy, you've mentioned that you -- in joining the firm saw that they -- the Company has a unique HCV market incites. And I'm just wondering what those might be relative to what everybody else is thinking about the market.

I'll answer the first question, Jason. That's a good question. So as we have said, we're measuring ACR 20, 50, and 70, and that's one of the key readouts on the other hand it is basically a safety profile, and we look at everything that needs to be looked at there, so that is the type of data you can expect in the second half of the year. And Nancy --

Is that 12-week data that we'll be seeing?

This is Bob. No it will be interim data.

Okay. So thank you, Jason. This is Nancy. I was very impressed once I joined Vertex and had a chance to start meeting particularly with my direct reports and the staff on the commercial side, that they have done quite a bit of work.

In fact, maybe sort of leading the whole pack in terms of how we think about the HCV market. I can tell you one of the biggest differences that I saw once I got in house and had access to this, really, very sound research, is particularly as it relates to the differentiation of the patients who have been previously treated and their thinking about moving forward, and the physician's thinking about moving forward, versus the naive patients, and really looking at those as two different segments, and we'll be progressing with that thinking moving forward, and I hope to share more details as we learn more.

And I would just add to what Nancy said in that, the understanding of the market -- because a lot of this came earlier on -- our understanding of the market and how to access these patients in these different patient flows has driven how the team has created the clinical studies. And if you think about the studies that we're running today as a Company, and then the fast followers that -- their studies that they are running, they have become modeled after us, so when you look at some of the features in our trial design, specifically the RVR measure that we've driven hard and now we're finding it a major patient motivator to stay on therapy, but the trial design and the following of others are now showing of designing their own studies that are very similar to our own, has all come out of our understanding of this market, the patient, the dialogue that's going on between the physician and the patient, and then also the type of patient, which is difficult to understand, and then clearly the advocacy groups. We have been working very closely with them, and spending a lot of time down in DC with the CDC as well to understand this market and maybe drive more screening for what we think is a really serious disease.

Thank you.

Next up we'll hear from Terence Flynn, Lazard Capital Markets.

Hi. Thanks for taking the questions. First I was wondering if you can give us any update on the plans to conduct a Telaprevir trial in patients co-infected with Hep-C and HIV, and then any plans to get that on an eventual Telaprevir label? And then second question is just wondering if we're going to see any further commercial supply build in the first half of 2011 prior to the launch of the drug? Thanks a lot.

This is Bob, I'll answer the first one. We have a coinfection study, a pilot study actually running right now. And yes, we would hope to get HIV on the label eventually. Everything will depend on the results we see in the pilot study and then subsequent design of a Phase 3 program. But it's ongoing.

Yes. And in terms of supply chain proof, I think yes, you will see something in 2011 because it's a continuous process, and we have to -- it's basically an 18-month type of endeavor, and you have to really have safety stock and everything else, so I think we are not -done in 2010, so just to continue that (inaudible) goes on now, and is driven by market forecast, and other customer needs that we have like Mitsubishi.

To be honest, I'm a little confused by the question. In that we expect that this has longevity in the market. So, as we sell product, we've got to replace it. Of course, in 2011, 2012, 213, and onwards we're building commercial inventory for turning in to product for patients. It will be accounted for in a different manner, but the point is that its approved if that is what the question is driving at. That at the point the product is approved, then we will be capitalizing inventory.

Great. Thanks a lot.

We'll now go to Brian Abrahams, Oppenheimer & Company.

I had two questions on VX-809. I apologize if some of this was already covered, I hopped on late. In escalating doses further with single dose 809, would you be able to do this as an extension of the Phase 2 that just reported out or would this need to be an entirely new trial? And then how high of a magnitude in sweat chloride improvements would you need to get to relative to what you saw with 770 to be confident that 809 is ultimately going to produce functional benefits either alone or in combo with 770? Or are you already there? Thanks.

This is Bob. I'll take those questions. For one the study we reported out is closed, so there is no opportunity to include additional dosage in that trial. We would actually look forward to potentially doing the dose escalation with VX-809 in conjunction with a combination trial, perhaps as one part of it. Those plans are not solid yet, but that's what we're thinking. We obviously have to analyze the current study first and then move on, but we would probably include them potentially as one trial with some dose escalation followed by combination work.

Then your second question is one that I can't really answer because, I think that is one of the major questions in the program, is how much CFTR activity, how much correction is necessary to produce a clinically meaningful effect. As you are aware we saw this in VX-770 with the given amount of sweat chloride change, but it's one point and that's the only point we have so far, so I think it will really depend a lot on what we see in the next set of trials. That's of course the major question for the program, and that's the next step.

Good enough. Thanks very much.

Moving on to Adam Cutler, Canaccord.

Hi, things for taking the question. I'm wondering if you can just remind us what studies you have done with 222 since you bought [Virachem], and anything that you may have learned in particular from those studies about the ability to dose up further or dose down, any other lessons perhaps? And then separate question is, is it still a possibility that you may work with other companies to look at Telaprevir in combinations with other agents?

Okay. So to the first thing, I think we did basically single dose and multiple dose escalating studies in healthy volunteers with 222. We did DDI studies, as you are well aware of. And those -- those data were helping us to basically build the foundation for the combination trial that we're currently having in the works with agencies.

So that's the number one thing, in terms of the other question, can Telaprevir be linked with other type of approaches and molecules? Absolutely yes. The reason that we believe in that is we -- we are -- on our own have still other programs going on like a 5A program that you are aware of, and we are constantly evaluating the outer world whether there are any molecules out there that are commerce rate and compatible with the overall profile of Telaprevir with the goal of a combination therapy.

Okay. And then just one further point on that, do you expect the 750-milligram BID regimen is what you will -- for 222 -- is what you'll use on the combo studies?

Can we just hold on that kind of specifics on the combo studies? What we'll do actually when we announce the combination study, is we're actually give you the data that Peter referred to, and also the drug-drug interaction study that was referred to, and that will help support why we have designed the trial the way we have. So if you just hold on that, we will give it to you shortly.

Okay.

As far as dosing regimens for the combo, you will see (inaudible).

Okay.

But assume that we go with the most straightforward fashion.

Great. Thanks. I look forward to it.

Our next question comes from Davis Bu, Goldman Sachs.

Hi, thank you for taking the questions. I guess I had a question about your CF program or two related questions. The first is look at the discover trial, am I right in assuming that it is powered to demonstrate efficacy? And if so, if you could share with us what the powering assumptions are, and secondly as it relates to that, does the 809 data change the -- your level of optimism for showing positive benefits in the discover trial? And would you consider upsizing that trial?

So Bob, do you want to -- so I'll answer the second one first, and then Bob will talk to the first one. I think 809 is a corrector molecule, and 770, the cover trial is a potentiator molecule. So I think you can't really compare those. Its apples and oranges here. However, has 809 my enthusiasm for the overall success of the combination in the CF program? Absolutely. I'm enthusiastic that we saw what we saw. I think this is real economical, and it gives you a lot of options, as we go forward. So Bob will talk about --

Yes, this is Bob. So the discover trial really was sized for a safety end point based on invitro data, we have a certain set of expectations on the amount of potential activity we would see. It's very much exploratory, we actually don't know what we'll see. And I guess to my confidence level, VX-809 is just a very different drug, so I really wouldn't expect there to be any spill-over effect in confidence from one compound to the other. I think you have to see them as very independent. And the answer is no, we're going to keep the study the size that it currently is.

Thank you.

Operator, I think we have time for one more question.

Thank you, and our final question today will come from Jason Zhang, BMO Capital Markets.

Hi, thanks. Can you hear me?

Yes.

Okay. I have two questions, one I don't know whether it's too early to talk about pricing, but let me just pose this question. Ian you say you have a very good understanding of the market, particularly the difference between the treatment naive and treatment failure. Knowing that these patients are going to come to the treatment differently, and that affects your assumption of revenue, is that something you also would take in to consideration when you price the drug?

Yes, so let's keep it broad right now, and, you know -- because it's early to talk about pricing, but broadly, we can talk by -- we're going to look at the patient flow. We're going to look at the benefit we're providing to the different patient populations. And we need to look at the results that we get in the two different trials that we're running, because that's the benefit to the patients. So I guess part of the answer is absolutely we're going to take a look at treatment failure versus naive, because there is a differential benefit between these two patient populations, and we'll incorporate that in to our strategy for pricing.

Okay. Then the second one, maybe -- I guess this is for both Bob and Peter, given what we have seen with 809 data, I guess Bob you alluded a little bit in that the combination you might include a dose escalating of 809, and based on that data, you might proceed to the combination, or you are going to go straight to the combination no matter what, but I think given the response and given the modest activity at least for sweat chloride decrease, would it make sense to really find the optimal dose of 809 before you actually decide the combination trial?

This is Bob. So, yes, we are obviously committed to going as quickly as we can in to the combination, since we see that as the primary development path for the drug. At the same time we have to get the doses right. And, you just can't run a study at the wrong dose level. So both are true. I think we would do the dose escalation should it be warranted when we take a look at all of the data, and then we could just include those higher doses as part of one study or done as two closely linked trials, and that's what we haven't really completely firmed up yet.

Just a question follow-up on the previous question about discover. Even though, the two drugs works very differently, but we know in preclinical model, particularly if you do test in the 508 deletion mutants the two seem to have a somewhat, I guess, same efficacy, but you put them together like Peter said you have two full inquiries. I'm just wondering again, given what you have seen with 809 in this mutant, what is your view on the discover trial now? Or would they also inform you about your future combination? Would you rather, wait to see what that trial will give you? Because if you have the same effect like you have seen with 809 in that trial, what confidence level do you have for the combination?

I want to give a very high-level answer to that point. I think at the end of the day, as you well know, Jason, it's all about what it really does in human beings, so let's do the trials, figure out what the response is, and then basically make a good and solid discussion and decision how to move forward. My confidence level out of the preclinical data is high that we will see something, but we will see what that means in therapeutic benefit as soon as we have patient data, and that is sort of what I would say, the rest is speculation. You can speculate until the cows come home, and you can have your ideas and I can have mine, and that's wonderful.

Thanks.

Okay. Thanks, everyone, for joining us. We will be in our offices this evening and available for additional questions, and we appreciate you taking the time to participate tonight. Thanks.

And once again, ladies and gentlemen, that does conclude today's conference. Thank you for all for your participation.