福泰製藥 (VRTX) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to Vertex Pharmaceuticals' fourth quarter year end 2010 conference call. Later, we'll conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, this conference call may be recorded. I would now like to hand the call over to Mr. Michael Partridge.

Thank you. Good evening and welcome to Vertex conference call. 2011 promises to be a landmark year for Vertex. This is made possible by successful execution across the business in 2010. Specifically, we achieved some very important milestones with Telaprevir for the treatment of hepatitis C. We completed and disclosed results from three Phase III trials with Telaprevir. We completed the NDA submission in November and we now know that the file has been accepted by the FDA and granted priority review. We have essentially hired all of our entire sales force for Telaprevir and sales training has begun.

Also in hepatitis C, we initiated a study that will enable us to evaluate FCR or viral cure rates in Novel 12 and 24 response guided quad regimens of VX-222 and Telaprevir with pegylated-interferon and Ribavirin. Our aim in hepatitis C is to continue to lead in the development of potentially game-changing regimens. In cystic fibrosis we enrolled and treated patients in three clinical trials that are part of our Phase III registration program for our lead medicine in development for CF VX-770. We look forward to receiving the first Phase III results this quarter.

We also advanced key Phase II programs in epilepsy and rheumatoid arthritis, demonstrating the depth of our pipeline. We maintained our financial strength in 2010. We raised $400 million in convertible notes in September, giving us a strong balance sheet as we begin 2011 that we expect will carry us through to cash flow positive. With me today are Matt Emmens who will kick off the call with an overview of our business focus for 2011, Dr. Peter Mueller who will review our clinical and regulatory progress principally focused on hepatitis C and cystic fibrosis. Nancy Wysenski who will provide an update on our launch preparations for Telaprevir. Ian Smith who will comment on our 2010 financial results and 2011 financial priorities with our projected timeline to positive cash flow and (inaudible). After that, we will be joined by Dr. Bob Kauffman and we will be happy to take your questions at that time. We will ask you to please limit your questions to one with a related follow-up. Once the call concludes our IR team joined by Peter, Nancy and Ian will be in the office to answer any additional questions.

Finally, let me 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 2010 year end financial press release which is on our website. All 2009 and 2010 expenses discussed in this call exclude stock-based compensation, executive transition expenses, restructuring expense, acquisition related expenses, intangible asset impairment charges, loss from exchanges from convertible debt, and expenses related to September 2009 financial transactions. Thank you. And I will now turn the call over to Matt.

Thank you, Michael. 2010 was an extraordinary year. In fact, a defining year for Vertex and it was marked by significant milestones in hepatitis C and important advances in our pipeline. As we look ahead we expect 2011 to be a year when we become a company capable of discovering, developing and most importantly launching our own new medicines. I don't know of any other company in the sector that has the potential to not only execute one of the most successful launches in hepatitis C, and maybe one of the more important launches for our industry. But also has the potential for an NDA submission in the second half of the year for yet another medicine in development for a major orphan disease and that is cystic fibrosis.

Obviously our success is initially dependent upon the approval of Telaprevir. We are focused on the launch and have a solid understanding of the benefit risk profile of this potential new medicine. We know there is strong anticipation and demand for Telaprevir from people living with hepatitis C and the healthcare providers who treat them. We also believe that the value of Telaprevir-based therapy is becoming broadly appreciated in the medical community. We believe that innovative game-changing therapies that make a major impact in treating serious disease offer high value for patients, payers and companies like ours.

Today, people with hepatitis C are at increased risk of liver failure, liver cancer and death. If new therapies reduce the burden of progressive liver disease that could save lives and save money -- they could save lives and save money. At Vertex we only seek cures or significant improvement to the lives of people with serious diseases. This is part of what makes Vertex unique.

From a launch and execution standpoint, I just returned from our first national training meeting last week and I have to say, I'm very encouraged with the caliber of commercial talent that we've assembled and how prepared we are for Telaprevir's planned launch in mid-2011. We're focused on Telaprevir's launch in the near term, but we also think we have the opportunity for sustained leadership in the hepatitis C market for the long term. Patent life is very important in this context and we have an issued patent on Telaprevir. It's a composition of matter patent and it goes out to 2025. You will also hear later in this call from Nancy about how we are working to expand Telaprevir's profile beyond this first phase of launch.

We believe we are well positioned to execute on our broad business plan. 2011 will see significant news flow all across our pipeline. VX-770 and Phase III for cystic fibrosis and other Phase II programs underway in epilepsy and rheumatoid arthritis could build upon the potential revenue base of Telaprevir and provide substantial growth opportunities in other serious diseases.

Obviously, we are preparing for a very promising future. We are pleased with what we have accomplished in 2010 and are excited about the opportunities that lie ahead in 2011 that can transition and grow Vertex as a Company. As I said at the recent JP Morgan conference last month, Vertex is about the science of possibility. We enter 2011 with the fervor and excitement that comes with a potential to launch a breakthrough medicine and we remain committed to making new breakthroughs. Thank you. I'd like to turn it over now to Peter.

Thank you, Matt and good evening, everyone. In 2010 we reached very important goals. These are successful completion of Phase III development for Telaprevir, the NDA submission in the US, and equivalent submissions in Canada by Vertex and in the EU by our collaborator Tibotec. Telaprevir showed substantial efficacy and safety data in all three Phase III trials. This is the culmination of more than 15 years of research and clinical studies to evaluate the potential of Telaprevir-based therapy in more than 2,500 patients, to improve the treatment of hepatitis C. Scientific excellence is the foundation of Vertex, and today I am pleased to review with you areas where we are delivering on the possibilities in our pipeline. I will start with a review of the important events over the past few weeks.

In January, we announced that the FDA had filed the NDA for Telaprevir and granted us priority review. Based on the timing of this acceptance, we have a PDUFA date of May 23, 2011. At the same time, we announced that the new drug submission to Health Canada was granted priority review in this region. On the collaborator front, in the EU, Tibotec was notified by the EMA that the Telaprevir MAA was valid and accepted for review on an accelerated basis. In Japan, Mitsubishi Tanabe Pharma announced last week that they had submitted an application with the ministry of Health, Labor and Welfare for approval of Telaprevir. These are all tremendous achievements. They are not only a testament to the dedication of everyone involved in the development of Telaprevir, but also a testament to the strong data we have generated for Telaprevir both in treatment naive patients and treatment experienced patients.

Finally, as the commercial team prepares for the planned launch and sale of Telaprevir, simultaneously the CMC and supply chain aspect, we are ready to meet what we anticipate will be significant demand.

Turning now to VX-770, our lead program in cystic fibrosis. All patients in the STRIVE trial which is the primary registration trial evaluating patients age 12 and older have completed 48 weeks of therapy. We expect to announce the STRIVE data this quarter. The VX-770 registration program consists of three trials, which support a clear regulatory pathway. VX-770 is an orphan drug that is targeting the underlying defective protein in CF. We don't see any other drug candidate at this stage of development today with the potential to change the course of this disease, which is what we hope to do with VX-770. If data from our Phase III trials are successful, we plan to submit an NDA in the US and an MAA in Europe in the second half of this year. Let me remind you of the outcomes we are evaluating in VX-770s STRIVE trial.

The primary efficacy end point is the absolute change from baseline in percent predicted efficacy from week one through week 24, compared with placebo. The trial was designed to detect a mean 4.5% absolute change in percent predicted efficacy week one from baseline versus placebo at 24 weeks. Secondary end points include CFQR a health related quality of life survey, sweat chloride, hospitalizations and time to first partner (inaudible) and weight gain. We estimate today that at least 4% of people with CF who have the chief CFTR mutation could benefit from VX-770 monotherapy. We have also invitro data suggesting that VX-770 can help to restore CFTR function in our mutations. Our goal is to determine which of these additional mutations are clinically relevant for VX-770 and we are consulting as we speak with regulatory agencies about how best to do this.

I just reviewed with you our near term priorities, Telaprevir in hepatitis C and VX-770 in cystic fibrosis. But we are also working to further improve hepatitis C therapy with regimens that may achieve even higher [cures] and shorter durations of treatment.

One example is the Phase II trial evaluating the combination of VX-222, our polymerase inhibitor with Telaprevir, pegylated-interferon and Ribavirin. This trial includes two quad regiments that are response guided toward 12 or 24 week durations. These studies are progressing well and all patients will be through the 12 week on treatment time point this month. We expect to get a better idea of the potential of this regimen when the first on treatment data will become available this quarter. In addition, we are getting up and running for the triple interference pairing regimen and that is Telaprevir, VX-222 and Ribavirin in a 12 and 24 week response guided regimen. We expect to initiate enrollment by end of this quarter. We look forward to the first SVR results from the control arms of the study and also on treatment data from the triple therapy arm that will inform us of our next steps in advancing this hepatitis C treatment paradigm.

In summary, we see other possibilities with our Phase II pipeline programs. Our Phase II studies in epilepsy, rheumatoid arthritis are advancing and we expect to have data from both of these trials this year, with the first data coming from our Phase II trial of VX-765 in epilepsy this quarter. A Caspase-1 inhibitor VX-765 inhibits the production of Il-1beta, a major driver of inflammatory responses. 60 patients who have had a history of being resistant to current therapy were enrolled in the trial. The trial has three phases. A six week baseline period, to manage seizure frequency, a six week treatment phase with VX-765 and a six week post treatment follow-up wash out phase. Patients have completed the treatment phase and are currently in the post treatment period which may allow us to better evaluate the effect of VX-765 on seizures.

We are also making good progress in advancing the proof of concept study of VX-509, our JAK3 inhibitor in rheumatoid arthritis. We expect clinical data including safety and ACR and DAS scores from this trial in the third quarter of 2011.

Before closing, I would like to thank all the Vertex employees who have worked tirelessly to bring us to where we are today. And a special thank you to the patients, patient advocates and investigators who continue to show their support for Telaprevir in hepatitis C and VX-770 in cystic fibrosis, and who remind us all of the reason why we focus our research and development efforts on serious diseases where new medicines are urgently needed. Now I will turn the call over to Nancy.

Thank you, Peter. This is a very active and exciting time at Vertex. I'm pleased with the progress that's been achieved to date and building our US commercial organization. We're well prepared to effectively execute the launch of Telaprevir following its approval in the US. We're looking forward to educating the community on the potential benefits that Telaprevir could bring to thousands of patients with hepatitis C.

Let me pull back the curtain on some of the progress we're making toward our tactical and strategic plans as we head closer to the potential launch of Telaprevir. The hiring of the field sales force is essentially complete. This is an exceptional group and on average the team has 14 years of pharmaceutical industry experience, with eight years specifically focused on hepatitis or other viral diseases, and they're ready. In fact, we just completed our first national training meeting.

We're also bringing together knowledge and expertise from different groups within the organization who will work in a coordinated fashion to help address the specific needs of people with hepatitis C, as well as the physicians, nurse practitioners and physicians assistants who treat them. Key thought leaders have provided tremendous feedback to us that we'll take into launch to address these needs. We intend to provide specific resources to help diagnose and treat people with hepatitis C, and bring them to the successful outcome that patients, providers and payers all want.

On the payer front, we're continuing discussions as appropriate to understand how they look at hepatitis C, their current cost of treating a patient with hepatitis C, and the value of increasing the probability of an SVR or viral cure. The conclusions we are making are consistent with our market research that confirm our belief that drugs that provide a cure for a significant and urgent need could offer tremendous value to the healthcare system. Over the coming weeks, we intend to launch a website to improve disease awareness by offering education to patients and physicians and also through a nurse support help line.

My comments to this point addressed our near term readiness toward and through the first phase of launch, but we're also equally excited about even better ways to improve treatment for the people who are living with hepatitis C. Let me briefly review what these strategies are.

Our optimized Phase III B trial is designed to evaluate BID dosing of Telaprevir. This trial will further explore trends identified in a Phase II clinical trial that have suggested that Telaprevir based therapy, given twice a day, may have response rates similar to the current dosing regimen of three times a day. Success with this trial could result in a BID label that provides a less complicated dosing regimen for patients. We expect data from this trial as early as 2012.

Additionally, I'd like the to revisit our Phase II Hepatitis C HIV co-infection study. Interim data from the study have been accepted for presentation at a medical conference in Boston later this month. People who are co-infected with hepatitis C and HIV represent a patient population with a very high unmet need. Those who are co-infected and treated with current therapy generally achieve SVR rates of less than 30%. We're also pleased that we'll be studying the potential for further shortening therapy to as short as 12 weeks for people identified with pre treatment markers. This study is in addition to our ongoing study of combinations using VX-222 and Telaprevir.

In addition, plans are under way to initiate studies in other difficult to treat populations. These include pre- and post- transplants and also patients with more advanced liver disease. So as you can hear, if Telaprevir is approved we intend to create and sustain a brand leader. Thank you for your time. And I'll now turn the call over to Ian.

Thank you, Nancy. And good evening to everyone. We entered 2011 with a cash position of more than $1 billion which we believe will support the company through cash flow positive. We aim to be cash flow positive and earnings positive in 2012. As we move through the early stages of the Telaprevir launch, we remain committed to achieving an EPS and a cash flow positive position. On tonight's call since we are not yet supported by sustainable revenues I'm going to report on the GAAP loss and non-GAAP loss for 2010 and then direct the last part of my remarks at how we're managing financially through 2011 to set a direction for 2012. First, for our year end financial results. Our GAAP net loss in 2010 was approximately $755 million. This compares to a 2009 GAAP net loss of approximately $642 million.

The primary line items within our income statement can be found in the year end press release that we issued today. When comparing the loss on a non-GAAP basis, our loss increased to approximately $606 million in 2010, from approximately $508 million in 2009. The change was principally attributable to an increase in total operating expenses and specifically more in the development to commercial areas to support the advancement of Telaprevir towards launch.

Now turning to the guidance for 2011. I think you would agree it is not prudent for us at this time with the pending approval and launch of Telaprevir to provide revenue or bottom line guidance for 2011. However, what we can give you is some insight into how we think operationally this year and in the future, and that should help you model our operating expenses for 2011 and provide some insight for the future years. 2011, we expect total operating expense to increase compared to 2010, with the increase primarily attributable to commercial investment as we execute on the launch of Telaprevir. We anticipate that 2011 total operating expenses consisting of R&D and SG&A expenses will be in the range of $890 million to $930 million excluding cost of revenues and approximately $105 million of stock-based compensation. This compares to $734 million for 2010, which excluded $91 million of stock-based compensation.

Firstly to the R&D. We anticipate the R&D investment will be similar to 2010 with both the R&D components relatively consistent to prior years. We expect D to be principally focused on our programs in hepatitis C and cystic fibrosis, which in 2011 include in hepatitis C the trials we conducted aimed at enhancing Telaprevir's profile including the combination trial of VX-222 and Telaprevir. And a further novel study evaluating certain 12 week regimens and medical fair support. In cystic fibrosis, we expect to complete the Phase III registration program for VX-770 and advance our trial of VX-770 and VX-809 to understand the value of the combination of the CFTR modulators may have in addressing their F-508 delta mutation.

On the commercial side of our business we'll support the planned launch of Telaprevir including key awareness and promotional campaigns, field force completion as Nancy previously described and training. We'll also incur some costs associated with the initial preparation for a potential launch of VX-770 in 2012. I'd also like to point out to you as you model 2011 and future years that we estimate our total NOLs, that is net operating losses, at the time of Telaprevir's launch will be more than $3 billion. As we move forward towards earnings and cash flow positive, these NOLs will be utilized against operating profits and should help increase our initial earnings and cash flow capabilities.

From a cost of goods standpoint, in the first year following the launch of telaprevir, cost of goods will primarily be royalties that, when combined, will be less than 10%. Through 2010, we've expensed the cost of our commercial drug supply and as a consequence we expect there will be minimal impact on our gross margin in the early launch period attributable to the cost of product. Additionally, as we look to 2012, telaprevir may provide significant revenues which could enable earnings and cash flow creation and support a steady state pipeline investment for future growth and product creation.

In closing, I want to join the team in recognizing the great effort that has gone into Vertex's achievement today. As well as your support to enable the company to be in this position today. I'm looking forward to transitioning my future remarks with a greater focus on revenues, earnings and cash flows. Thank you, Michael, and back to you.

We would now like to open up the call to questions.

(Operator Instructions) First question comes from Geoffrey Porges from Sanford C. Bernstein.

Thanks very much for taking the questions. And hopefully we'll be talking about revenue shortly. Ian, just a couple of follow-ups on your remarks on the profitability outlook. I think you said at the very end there, steady-state R&D investment in 2012. Should we infer from that steady state in terms of continuation of the absolute spending that we're seeing in 2010-2011? And then just a question on -- it was very useful to get your comments on gross margin or cost of goods sold near term but once you're through expensing -- once you're through the inventory that's already been accumulated, what do you think is a reasonable range for long-term gross margin for a product like Telaprevir. Just so we can ballpark it, should we assume it's in the 10% to 15% range with royalties and everything associated with it?

Hi, Jeff. Thank you for the question. I had a couple of questions in that -- . Let me see if I can answer both questions which I heard you ask a comment about R&D and steady state. Also gross margins. Let me take them in turn. So firstly, with the R&D, what I was hoping we could convey with our remarks tonight is an understanding of how the R&D investment for the Company has moved from 2010 to 2011 by actually stating the major investments in R&D. When I mentioned the combination trial, a further novel study evaluating 12-week regimens, also medical affair support and then going to the CF which is completion of the registration program plus the combination trials, plus we have the remaining part of the JAK inhibitor proof of concept study.

The reason why I give you that detail is because you can now make your own estimate of whether there is success because we will only incur further costs if programs progress into 2012. So, to ask me what is a steady-state R&D investment for the company, at this point, I mean, I would answer honestly by saying I hope so because that means for example a JAK 3 inhibitor may be in Phase III or a Phase II B significant study. It may mean that in 2012 we're in a Phase IIB, Phase III study for quad therapy. So to me, I tried to give you the components of our R&D investment which then allows you to then think about 2012. And if you want to grant us success in the studies so we continue to invest I would hope that you would also grant the probability of that turning into revenue. So that's what we're trying to do. The items that actually moved the needle for R&D are significant studies that are in the Phase II B, Phase III stage. So think about it in that way.

As far as the gross margin is concerned, I mentioned that in 2011 and through early launch the gross margin should remain below 10% and that's because the product cost has been expensed as we've been manufacturing it. As we look into the future, as we move through that period, I think you can expect a normal -- more normal industry-operating margin, maybe one that's on the higher end of the margins, because we do expect that we'll be dealing with a premium-value product here, yet still it's a small molecule cost of goods. And so when you calculate margins with a numerator that's smaller but a high denominator helps you with a higher gross margin. That's the way to think about the margin in

Thank you very much, Ian. Appreciate it.

Thank you. Our next question comes from Rachel McMinn, Bank of America-Merrill Lynch.

Yes, thank you, and I also have a financial question. Ian, is it possible to give a little bit more granularity on SG&A? I guess where I'm going here is it looks like a pretty big number and you have a big launch in the middle of the year, so should we be expecting more of this to be weighted in the back half of the year? And then are there kind of one-time launch expenses that wouldn't be repeated in 2012 or is that -- whatever we exit on the fourth quarter, that should be the run rate into 2012? Thanks.

Hi, Rachel. Thank you for the question. Again, I'm going to start with a principle that I was trying to explain to Jeff. The SG&A expense could go higher, I'll start there, in 2012 but it would only be upon success. For example, if we are able to file our NDA-with-cystic-fibrosis product and be launching in both the US and Europe, there would be launch costs and commercial costs associated with that launch so that would add to the base we created HCV. As far as the base rate HCV, we're pretty much there. Nancy talked about essentially -- we're essentially complete in the commercial area so the cost that you see us carry in 2011 for HCV is actually a fairly steady state cost. A way to think about this is we have just over 150 people or more in our commercial area. And so I did take a quick look at your models before I came on the call and I would just ask you to take a closer look at the SG&A cost. But it's mainly driven by commercial and think about 150 plus people, and average carrying cost for those people and in this industry that could be anywhere between $150,000 and $200,000 per person. So you should be able to take a look at your models and you may find that the difference in your total OpEx expense and the one guided to tonight is mainly in the commercial area.

Okay. But just again to clarify, is it more back-end weighted to the back half of 2011 or -- ?

No, it's --

Steady state?

It grows slightly. I started with, we're essentially complete. Some of those programs are already being expensed because they're kind of amortized through a period of time that we have the contract to execute the program.

Okay. Thank you so much.

Thank you. Our next question comes from Geoffrey Meacham from JPMorgan.

Thank you for taking the question. Just on 770, maybe a bigger picture, what can you guys learn from the Denufosol result and are your assumptions for FEV1, are they similar between STRIVE and ENVISION? I have a related question.

So this is Bob Kauffman. In terms of Denufosol, it's a very different mechanism. I'm not sure that it's really comparable in any way to 770 so I really wouldn't make any correlations. If you recognize their treatment effect was really quite small in the big picture of things, and so I just think it's a drug with not a great amount of activity in the end. In terms of the two trials, yes, I mean, we -- the STRIVE trial is fully powered for an FEV1 endpoint and we expect to see statistically significant difference between 770 and placebo on the order of 4.5% which is what the study is powered for, absolute difference, a change from baseline, FEV1. In the other trial, the sample size is quite a bit smaller. That's the trial of six- to 11-year-olds, and therefore we do expect to see a similar treatment effect, although that trial is also designed really as a safety compliment in younger children. But we do expect to see treatment effect which would complement that of the STRIVE trial and I would just say that given the small size of the study, achieving statistical significance in that trial may not be achievable but we would be looking to see a treatment effect which is similar to that in the older children and adults.

On top of that, this is anticipated by the regulatory agencies. So there is an understanding that trends in the ENVISION trial is basically an acceptable outcome. So it's not like it was in the Denufosol thing. And the other thing is what we learned from unfortunately this outcome is, you know, a little bit how placebo behaves and I think that speaks in our favor. Because it's not so that basically placebo goes up and up and up. You see a normal behavior like you see in other drug regimens and that's acting-good outcome. That's always the other question, does placebo eat away your benefit and the answer is no. I think that's what you can learn from that trial too. So I think we are confident from the powering point of view that STRIVE will have at least a powering of 4.5% absolute difference and I think we will see the data soon.

And this is Bob again. Just one last point about Denufosol. The patient population enrolled in that trial was quite a bit different than the one in the VX-770 trials. They were people with considerably better pulmonary function at baseline and therefore demonstrating an improvement over that is more difficult. Again, it's not that easy to make correlations between the results of those studies and what we expect with 770.

Very different.

Just as a follow-up to that, Peter you alluded to this but you have younger patients in ENVISION. Does that introduce more variability in FEV1 given that they have more likely better lung function versus the adult population?

I would say the range of pulmonary functions that we're allowing at entry is very similar to the adults, so we're not necessarily expecting that.

And then final question here. You didn't mention the 809 milestones, wondering if you could just talk about maybe what we could see over the course of this year.

We have the combination trial that's ongoing, the 809, 770 combination trial and we do expect some data from the first part of that trial later on this year.

Okay. Thank you.

Thank you. Our next question comes from Howard Liang from Leerink Swann.

Thank you very much. Two questions on the CF program. First is you powered a trial for 4.5% improvement in FEV1 and what do you think is the clinically significant and commercially competitive improvement in that parameter that supports premium pricing?

So the study was powered based on the outcome of the earlier 770 study and we expect obviously that we will meet that in the Phase III trial. This is a unique product that has a unique mechanism of action and we -- there's no other drug out there that really we think can do potentially what 770 can do, and so obviously we expect that we'll have a good outcome from the Phase III program.

Howard, this is Nancy. Following on that, we expect that those results should come in premium pricing if we see the results we're hoping for.

And just a follow-up on the ENVISION trial. Do you expect a efficacy label for that population, six to 12 years old?

Clearly, that will depend a bit on what the results are, but yes, if all goes well we would expect to have the whole age range be part of the labeled indication, all the way from age six to adulthood.

At the first label.

Yes.

Even in the absence of positive efficacy outcome.

Let me just make a point. It's not an absence of positive efficacy. In a situation where there's only a limited number of patients, the efficacy is measured by the magnitude of the treatment effect as much as it is by P value, and therefore I would guide you not to be thinking about this trial in terms of P values. It really is more that the effect of the drug is similar in that age range as it is in adults and that's the basis on which it's going to be evaluated.

Thank you very much.

Thank you. Our next question comes from Mark Schoenebaum from ISI Group.

Hello, guys. Question on 770 and then a related question on Telaprevir. On 770, there's been a lot of people describing the Phase II data and whatnot. I just want to get your perspective. If you look at the New England journal article and you dig around in the appendix, looks to me like in the appendix they actually pulled the two phases of the earlier trial. If you pull those data together it actually looks to me if I'm reading it right it generated a statistically significant -- a statistically significant benefit on improvement of FEV1 from baseline. First question, just simply am I reading that correctly and do you have any thoughts on using that pooled data to try to handicap that coming to phase in the pivotal trial please?

Yes, we agree with that assessment. And yes, the advantage of pooling is you get a larger sample size and allows you to make better inferences in terms of the statistical significance. So yes, that's the value of it. Those are the data that were used to plan the Phase III program and that's why we have confidence in the Phase III program.

And then if I may, a question for Nancy. Nancy, the consensus table that your fantastic IR team has compiled and sent out shows 17,000 patients being treated in 2011, according to the sell-side mean consensus and 53,000 patients in 2012. Are you comfortable with those numbers?

I'm going to let Ian first speak on that topic and then we can come back.

As well as we know each other, you know we're not going to comment on -- We greatly appreciate the question and I'm glad that you're acknowledging the wonderful work that our IR team has done in compiling the data and we look forward to talking to you more.

Do you plan at this point on giving Telaprevir sales guidance once approved?

I think you would see Telaprevir sales guidance as you go later into the launch but not initially, no.

Okay. Thank you.

Thank you. Our next question comes from Ted Tenthoff from Piper Jaffray.

Great. Thank you very much and looking forward to a very exciting first quarter and first half. Maybe just kind of back up a little bit and thinking about the longer term strategy in HCV, some of the trends that really developed at AASLD this year I think got more attention were pan-genotypic and really other than just US and Genotype 1. So how do you guys think about addressing other genotypes in HCV in combination going forward?

So it's Peter speaking, Ted. Thank you for the question. I think there's a couple of things that one has to sort of basically take in consideration. An overall HCV strategy has to be focused, number one, to improve current regimens, you know, as one thing. And that means we have to basically further improve the hopefully -to-be-approved Telaprevir regimen. As we go forward, that means we have to shorten the duration. We have to basically increase the cure rates to a level that is basically a really, really good level. Yes, we will -- so that's the first thing. And going with that, there's also convenience thing and a compliance point of view. So we go with a twice-a-day regimen, because at this given point in time most of the regimens that are out there that you have seen in AASLD are still sort of requiring Ribavirin or other components that are at least one of them is a twice-a-day. And that drives at the end of the day what your compliance picture is.

So this is the first thing and I think we are well advised you know to basically focus on what we control first and do that right. And I think that's our -- one of our key focus, and you have heard all those studies that we're going to do in other patient populations and all this. I think this is the beginning of something really big. In terms of your broader question, where is the field heading and what do we and all those types of things. I think there is, obviously, for Vertex, a couple of interesting questions will be answered. So, here's the first that everybody want an answer. Is there a possibility to come with an interferon sparing in our oral regimen, to treat at one point in time patients. Nobody has an answer to that right now. There are a lot of different compounds in the mix that people try out, and people try it out in many different ways. Looking into either, different genotypes where you could do things or doing other things. We are looking in the same type of bucket. However, I think what we have is a unique opportunity here, because we have Telaprevir 222 and given our data that we have had in our 222 combination trial, I think there is quite a good level of confidence that the triple regimen including Ribavirin has a potential for success. And, so we'll see how that goes.

Now, in terms of the other genotypes. Yes, it is a strategy I would broaden out. It is a strategy that goes in sub-populations. And I think we have internally a lot of discussions what type of populations we want to address. They are different ones. There are ones that respond better, like IL-28B sub-populations or other market driven ones. There are different genotypes in different regions in the world and we, as we speak consider all of this, and that means we look into compounds that have this. Having said that, I know where you are coming from, because, people believe that (inaudible) are the magic weapon that hit all the genotypes. Well, I must say, yes, partly they do, however, there is a lot of other molecules out there that also do that there. There is new PIs there is new 5A molecules so basically, and we are talking to basically all of those companies that have those assets to mix and match and basically go with a stretch that matches Vertex's business the best.

Well, it's going to be really exciting.

It will be.

Ted, this is Nancy. I know I don't have to remind anyone by any measures that one takes right now, the US continues to be the largest market, and we're going to be addressing the largest potential market because of the major advance that Telaprevir will offer over current therapies assuming we're approved. And so, I don't think we're trying to diminish what might come later, but I think other people tend to put a lot of effort behind smaller details for a longer term plan, which we're also looking at, but we don't want to lose our focus on the biggest market by improving the asset that we have at our hands right now and by combining it with other assets that we have.

Fair enough. Thank you so much.

Brian Abrahams from Wells Fargo.

Can you help frame for us, how we should be thinking about the data we'll see this quarter for the 222 Telaprevir four drug treatment arms. What we should be looking for that you'll report, are we going to see an off-treatment data in patients who may have been able to stop at week 12 if maybe they were enrolled a little bit earlier in the study, just to get some sense of how durable the viral suppression is? What kind of relapse rates are you guys expecting in this? Thank you.

I'll take the disclosure question as far as consistent with what we've been saying. In the first quarter, we expect to provide some early on-treatment data from the combination study. As far as on-treatment data or treatment data further on into the study, that would come towards the end of the first quarter, consistent with the timing of the recruitment and the dosing of the patients. So you can imagine something a little earlier on-treatment and something around the week 12 mark that may come later.

This is Bob. Just to answer your question about relapse rates. Obviously, that will depend on patients going all the way through, and stopping treatment to assess for SVR. Those data won't come until later on this year.

How do the results of the quad study potentially influence your business development strategy? Are you still -- if the results look favorable, would you still plan to continue discussions to potentially mix and match Telaprevir with other agents or would you primarily be focused on the 222 Telaprevir combo?

Brian, this is Peter. We, obviously if the data comes out favorably and we have some confidence, we will obviously take the opportunity and move this regimen successfully over the finish line. Because it will set a new bar for everybody else including for ourselves in house. But that's really important because, when you bringing it up to, as we are, to a higher level potentially, and when you shorten the duration, that's basically the new tone. And we have the opportunity nobody else has this, and we are moving as fast we can if it comes out successfully. Having said that, and that is also sort of what we explained beforehand, we are always very interested to improving the regimen further and therefore, I'm really reiterating to you and everybody that we are basically actively pursuing discussions with a lot of potential partners in many different ways. How to mix and match molecules that are available to strive for even better outcome in the future. We will not take away the opportunity for anybody, and the only sort of roadblock at the end of the day is basically if molecules are not compatible with Telaprevir or other molecules that might be in the regimen. We have to have something that is overall a combinable regimen. And that is basically what drives the selection.

And Brian, I'll summarize and answer as well from how we like of it from a BD and portfolio perspective which is, the quad therapy potentially gives every patient no longer than 24 weeks of therapy and definitely as short as 12. That would be a major improvement from what we've already established. We're already getting data on that study, and if you think about it, at week 12, we will have safety information as a combination of Telaprevir and VX-222, that will be very important information for us, because if you can dose the two in combination, we can then consider additional molecules that you may just add on that causes an interfere with Feron or even less pill burden combination. So, we're in a period right now, where very shortly we get a very good understanding of how we may be creating a 24 or maybe a 12 week regimen but then also, we're going to get some very important safety data on 222 and Telaprevir combination that we may choose to add a further mechanism and go down into a Feron free route. So, we're in a very strong position at this point as we consider the portfolio of compounds.

Thank you, that's very helpful.

Phil Nadeau from Cowen and Company.

Nancy, my question is for you. I was wondering if you could expand a little bit on your discussion about payers. Seems like payers are playing a very large part in the success of launches recently and there's several examples where obstacles have been put up by payers who have actually tripped up launches. You're in a bit of a unique situation because you and Merck are going to launch simultaneously. I'm wondering what your strategy is for dealing with payers a little more specifically. Kind of, what tools do you have to make sure that they don't put up hurdles and there's a smooth adoption of Telaprevir by payers? And how would you counteract Merck if they play kind of a silent pricing game by bundling Fosamprenavir and Peg-Interferon?

That's a great question, Phil. As you know, payers continue to try and maintain their cost burden while delivering value to the patients that they support. First and foremost, that applies for both products but in our case specifically for Telaprevir that this is a drug that will bring about a cure. You hear often times folks comparing Telaprevir treatment to other therapies that are chronic treatments, so it's very different, because you have a one time course of therapy with Telaprevir and the standard and the majority of patients according to the data we've really built to date, will achieve a cure. And I think that will tend to make payers looks at this situation differently.

The question about bundling comes up now and then, and if you were bundling with a market leader, that might be a great advantage, but last I saw, I don't think Merck is going to be in a situation where there pegylated-interferon in the US, perhaps in other countries, but in the US, is going to offer them that pull into the marketplace. And our sense is that payers are going to want to give physicians a choice and I don't -- we'll have to wait and see, but I can't imagine that bundling would have a huge effect on that. There are also some legal and other pricing repercussions from bundling. It does affect best price offers to the government so that's something to think about.

Follow up to your first question about the payers and talking about Telaprevir bringing about a cure. Playing devil's advocate, if I was a payer, I'd say, that's great, but chances are, this person is not going to be on my health insurance when they run into problems, maybe they're going to be on Medicare or they're going to be somewhere else. So, you're asking me to pay today to save somebody else money in the future. How do you counteract that argument and what figures can you bring to bear on that argument that seemed convincing to the payers?

Seems like, early looks at the health economics data suggests that treating earlier, rather than later is going to be the way to go. And the more and more data that comes out across this disease are, that's reinforced. What I was trying to say was, that I don't think you can compare the treatment of hepatitis C with the treatment of hepatitis B or HIV, because those therapies have to be used chronically and therefore in treating hepatitis C, payers are going to be looking at a one time course of therapy that will then alleviate further costs downstream.

Thank you for taking my questions.

Tom Russo from Baird.

Most of mine have been asked, but I was hoping to get an update on your work with government with the CDC regarding screening. Maybe your latest thinking on what an expected impact for that might be realistic or what your expectations are for that?

Thank you Tom. As you know, we are always closely monitoring initiatives from any type of private or public health entity. Certainly the CDC is one of the most prominent. We are a strong supporter of their efforts to evaluate the effectiveness of age based screening versus the approaches that have been used in the past which don't seem to be quite as affective. As you know, they are currently running the best C trial which will look at the, hopefully, the merits of age based screening, versus the risk based methodology that had been recommended years ago. We think that's a great thing for them to be looking at and we believe that the institute of medicines report issued earlier this year suggested that could be the way to go really drive more of these patients into earlier treatment for their own benefit of a greater shot at a cure.

Okay, Thank you.

Katherine Xu from Wedbush Securities.

On the pricing of the VX-770, so given that you've only targeted 5% of the 70,000 patients and that's like 3,500 patients, that sort of put it in an ultra-orphan kind of category. At the same time, we have this 20,000 price tag on the antibiotics and then given 4.5% absolute difference that you can improve. How should we think about pricing for VS-770?

It's far too early Katherine for us to comment on pricing, but let me just remind you that looking at 4% of 70,000 patients, that really qualifies as an ultra-orphan indication.

I'd like to add on top of that, outside of pricing, I think as we sited in our script, I think 770 has the potential to potentially also work in other mutations, and we have shown at least in conferences that basically support that. We are currently talking to agencies across the world, you know, how we want to leverage that to basically broaden the patient population that could benefit from 770 therapy. This will be our effort to help for the next ongoing couple months to sort of get clarity and then we will operate accordingly and see what we can do. On the other hand, you should not forget that 770 is also in combination with 809 and this is also basically if that concept works, you know, a huge opportunity to broaden the use of 770 as we go forward.

When the combination targets 80% of the population then the price should come down?

We're not commenting on price at this point. Thank you Katherine.

Thank you.

Lisa Bayko from JMP Securities.

Can I ask both questions? I actually have two. The first one is on reimbursement and the reimbursement process for Telaprevir. Maybe Nancy can you talk to us about how long that process may take and so how long do you think there will be a little bit of a lag in patients really able to get on therapy?

I don't think so. We are very encouraged, as we do our research. I think that typically, managed care organizations will cut you some slack during the first few months while they're gathering data to do their formulary reviews and I can't imagine why this market would be any different.

That's helpful. A question for Ian. As you look out to profitability, I know you sort of mentioned the 2012 timeframe, could that include getting to that point by the end of this year? Maybe in the fourth quarter for example? Or are we really looking at next year?

So, I actually don't want to be specific on comments as specific as that Lisa. What I am trying to convey is that we are committed to creating earnings and cash flow with the launch of Telaprevir we think it's very important it's time for Vertex to be a profitable company and start to earn cash and create earnings. While I don't want to pick the quarter, I very specifically in the prepared remarks, we do believe that 2012 will be earnings and cash flow positive as a full year and to pick whether it comes sooner, I don't want to at this point. It will be pending the launch.

Fair enough.

Jason Kantor from RBC Capital.

On the STRIVE data, just a couple of clarifications. When you said that it's powered for a 4.5% difference, that is placebo adjusted? Wasn't that also based on the original trial size and wasn't it a larger trial in the end?

The 4.5% is absolute change from baseline in FUV 1, it's one way to measure it and we chose that for a particular reason, but if you look at the results of the phase two trial, the treatment effect was certainly well within that range. In fact this is even well within the range of what we saw in that study, so we're actually quite confident in the powering of the trial.

Wasn't it -- the powering was determined on a smaller patient number, right, so it's got more power?

It was, yes, the trial over enrolled, and so obviously that helps us quite a lot in terms of the powering.

Will you have data available this quarter from all of the secondary end points as well as the 24 and 48 week end points?

Not likely, usually we produce sort of the top line data initially and then obviously there is many more analysis to be done. And that kind of rolls out over a period of time.

So, what should we expect on this Q1 announcement?

So, in terms of the Q1 announcement, that will be from the 12 and older study. Plus the Discover trial that was focused on the delta 508 mutation. We'll provide top line data in terms of efficacy and primary end points and safety.

So, it's just the 24 week data, not the 48 week data, is what you're saying?

It would be the full data. The data from the 48 week study. So, 48 week data.

Okay.

We appreciate everyone dialing in tonight. I'm sorry if we did not get to everyone on the list. We will be here in our offices and available to take further questions this evening for the next several hours. So, thank you everyone again. We look forward to talking to you soon.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program for today. You may all disconnect.