福泰製藥 (VRTX) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Vertex Pharmaceutical Incorporated third quarter 2011 financial results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session, and instructions will follow at that time. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference. Michael Partridge, you may begin.

Thank you. Good evening, and welcome to Vertex's third quarter 2011 conference call. Our commercial team has had great success with the launch of INCIVEK combination treatment for people with genotype 1 chronic hepatitis C. After only five months into the launch, we have seen rapid adoption of INCIVEK, and increasing penetration into the prescriber base. Matt Emmens will kick things off for us here today, with comments on the importance of the reintroduction of INCIVEK, what it means for the future of the Company, and how we are positioned to just maybe, develop and commercialize more new medicines like INCIVEK, that can cure or significantly improve the treatment of other serious diseases.

Ian will review the financial statement, with a particular focus on the revenue stream being generated by INCIVEK which allows for reinvestment into the business, and also creates the potential for significant earnings and cash flows. Nancy will discussed how she and her team are progressing in the early launch, and particularly, how the increasing penetration of the prescriber base is important to the adoption of INCIVEK. Nancy will also comment on how we are positioning ourselves, to continue to play major role in the hepatitis C market as it evolves. Dr. Peter Mueller will end the call with a review of the significant progress, with the development of our other hepatitis C regimens including the INCIVEK VX-222 combination regimen, and the pipeline of other medicines including the recent NDA and MAA submissions of KALYDECO, also known as the VX-770. KALYDECO is Vertex's second breakthrough oral medicine, and is for cystic fibrosis, a genetic disease that affects children and adults. He will also review the recent progression of the VX-509 in rheumatoid arthritis.

I will comment, that in the weeks ahead, we have data from three disease franchises being presented at major medical meetings. First, the North American Cystic Fibrosis Conference in Anaheim on November 3 through 5, where we will have Phase III data presented for KALYDECO in the G551D population. We will also have there, Phase II data for the KALYDECO VX-809 combination in F508del patients. Then, ASLD the major liver meeting, taking place in San Francisco from November 5 through 8. We will have data there for INCIVEK in patients who are co-infected with HCV and HIV. And also data for our short duration Quad regimen for INCIVEK VX-222, pegylated interferon and ribavirin. Finally in Chicago, the American College of Rheumatology Conference or ACR, taking place from November 5 to 9, we'll feature the first presentation of data for our selective JAK3 compound, VX-509. We are looking forward to highlighting our robust and diverse pipeline of medicines at these prominent conferences.

After our prepared remarks today, we will be joined by Dr. Bob Kauffman, and we will be happy to take your questions. We expect today's call to conclude at 6 PM. 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. These statements, including those regarding the market launch of INCIVEK, are based on management's current assumptions, and are subject to risk and uncertainties that could cause actual outcomes and events to differ materially.

GAAP and non-GAAP financial measures will be discussed on this call. Information regarding our use of non-GAAP financial measures, and the reconciliation of those measures to GAAP is available in our third quarter 2011 financial press release, which is on our website. Thank you. I will now turn the call over to Matt Emmens.

Thank you, Michael, and good evening, everyone. There are three key themes that we want to convey in today's call, that we believe are defining our Company. First, early INCIVEK revenues are impressive, and we have only just begun to treat the many people living with hepatitis C. Second, Vertex is more than just INCIVEK. We have a diverse and robust pipeline of eight different medicines in development. And third, we are well along in establishing Vertex, as a global health sciences Company. Vertex is fulfilling it's mission of bringing transformative medicines to people with serious diseases world-wide. And INCIVEK combination therapy for hepatitis C is now available for patients in multiple countries, including the US and Canada, where we are commercializing the medicine ourselves, four countries in Europe where it is marketed as INCIVO by Janssen, and Japan where it will be sold by Mitsubishi Tanabe, under the brand name, Telavic.

INCIVEK has a compelling profile, and many groups across our Company have done an outstanding job of understanding the needs of patients and physicians in this market. We believe that we are delivering real solutions for the hepatitis C community. With INCIVEK, we believe we have set a high bar in the treatment of hepatitis C. Our goal is to sustain leadership in this disease. That means continuing the very successful launch of INCIVEK, continuing our efforts to explore new ways of achieving high viral cure rates, and furthering shortening treatment duration, and continuing to improve treatment options and outcomes for people living with hepatitis C.

We are expanding our commercial portfolio rapidly. Just five months after the approval of INCIVEK, we have a new drug applications under review by global regulatory agency for KALYDECO, our second potential breakthrough medicine. If approved, KALYDECO would be the first medicine to address the underlying cause of cystic fibrosis or CF, a major step for Vertex and the cystic fibrosis community. I want to recognize the many people at Vertex who have been dedicated to this program for so many years. I also want to thank the CF Foundation who provided us with early financial support to help advance our research programs. We were able to move forward quickly, thanks to the efforts of many doctors and nurses at CF centers in the US, Europe, Canada, and Australia. The families who are touched by this disease every day, and most importantly, the children and the adults living with cystic fibrosis who remain ever hopeful that new medicines are just around the corner. The CF program sets the stage for Vertex to become a global Company. We are focused on ensuring a successful global launch of KALYDECO

We are putting significant effort into hiring exceptional commercial leaders, and therapeutic specialists with experience in CF or other orphan disorders. The CF program is at the sweet spot of Vertex's mission and vision, and exemplifies who we are, that is a Company committed to taking on the biggest challenges, in areas with the greatest need for new, more efficient medicines. Data from our pivotal studies for KALYDECO validated the scientific hypothesis, that the CFTR protein is the right target. This validation makes us optimistic, that with continued investment we will have a good chance of improving the lives of many more people living with this very difficult disease. Breakthrough science is the common thread that leads us to innovative, transformative medicines that can have significant impact on patient lives. Our broad and diverse pipeline also includes mid-stage opportunities in rheumatoid arthritis, epilepsy, and flu. These are areas where we hope to repeat our successes in Hepatitis C and CF.

Heading into 2012, we have significant momentum in our business and commercial development and research, and we will keep investing in areas where we believe we can make important advances in treatment. Thank you for your time. And I would now like to turn the call over to Ian, who will review our third quarter financial results.

Thanks, Matt, and good evening to everyone. Our financial performance in the third quarter was principally driven by the successful introduction and launch of INCIVEK. We had significant revenues from the sale of INCIVEK, and it enabled us to record profitability and cash flow, in just our first full quarter since the INCIVEK launch. With the continued, strong INCIVEK revenues, we can create a financial platform of value creation by reinvesting in our pipeline, as well as generate significant earnings and cash flows.

Let's now turn to third quarter results. First, total revenues for our third quarter of 2011 were approximately $659 million, compared to approximately $24 million in the same quarter last year. The higher revenue in the third quarter of this year was primarily due to approximately $420 million of net product revenues from INCIVEK. And $200 million of revenues for the achievement of approval and launch milestones for INCIVO in European geographies. Our third quarter net product revenues of approximately $420 million were derived from gross product revenues of approximately $466 million. In the third quarter, our gross to net adjustment was approximately 10%, similar to what we saw in the second quarter earlier this year. And we expect that the gross to net will widen further, as our contracts are signed, and our payer mix continues to evolve. The INCIVEK net revenues of $420 million for this quarter includes 2.5 weeks of INCIVEK in the distribution channel at September 30, 2011. As of today's call, this product in the channel has already been sold through. We continue to see, and expect to see, an average of two to three weeks of INCIVEK in the distribution channel going forward.

Now to the GAAP and the non-GAAP net income. In the third quarter, due to significant INCIVEK revenues, we achieved profitability on both a GAAP and non-GAAP basis. Specifically, the GAAP net income attributable to Vertex for the third quarter was approximately $221 million or $1.02 per diluted share, compared to a GAAP net loss of approximately $209 million or $1.04 per share for the third quarter 2010. The GAAP net income includes an intangible asset impairment charge, stock compensation charges, and revenues related to INCIVO European milestones. Although we saw future rights to these milestones in 2009, according to GAAP reporting, these payments pass through our income statement, and appear as revenues on the collaborative revenues line. In connection with realization of these milestones, we have to record a non-cash expense of approximately $11 million, and we expect record an expense in the fourth quarter of approximately $7 million with the closure of this transaction. We recorded all other expenses related to this transaction in prior periods.

Our non-GAAP income attributable to Vertex for third quarter of 2011 was approximately $151 million or $0.70 per diluted share, compared to a non-GAAP loss of approximately $175 million or $0.87 per share for the third quarter of 2010. The non-GAAP financials exclude stock compensation and intangible asset impairment charge, and the revenue from INCIVO European milestones. With respect to detail of our operating expenses, the increase compared to 2010 was principally driven by the support to launch INCIVEK, EU commercial build for CF, and the expansion of the development portfolio. For more information, please refer to our income statement, which can be found in our third quarter press release.

The successful launch of INCIVEK has made us cash flow positive for the third quarter, and we ended the quarter with approximately $660 million of cash, cash equivalents and marketable securities. Looking now to the remainder of 2011 and 2012, we expect to benefit from the significant INCIVEK revenues, and manage total operating expenses for the Company, with a view to a financial profile to support the planned launch of KALYDECO in 2012, and maintain reinvestments into R&D, while creating future significant earnings. Thank you. And over to you Nancy.

Thanks, Ian, and good evening, everyone. For the next few minutes, I would like to review with you certain aspects about the launch of INCIVEK, as well as provide some insight into our thoughts on the evolution of Hepatitis C treatment. Let's start first with the launch. I'd like to thank the hundreds of people at Vertex who contributed to the development, distribution and launch of INCIVEK. It is amazing that a group could produce such a phenomenal launch, having never worked together in this capacity before. Physicians have been able to prescribe INCIVEK combination therapy to more than 17,000 patients during the first five months following approval. The rapid acceptance by physicians and patients, is evidenced in the high market share of INCIVEK.

INCIVEK's profile is compelling, for both people with hepatitis C and their doctors. People initiating treatment with INCIVEK include those new to treatment, as well as those previously treated with pegylated interferon and ribavirin. Our research indicates that 60% to 70% of INCIVEK prescriptions written today represent patients who are new to treatment, and many are also fairly early in the course of their disease. Consistent with the specialist-driven nature of the Hepatitis C market, adoption of INCIVEK is highest among gastroenterologists, hepatologists, and infectious disease specialists, and the nurse practitioners and physician assistants who work within these practices. However, I would point out that we are also seeing a number of additional prescribers, who had not recently been prescribing pegylated interferon and ribavirin. This is another encouraging sign of acceptance and broadening of the prescriber base.

In terms of payers, we are in the process of contracting with various commercial and government plans, and we are pleased with the progress so far. Through recent favorable formulary decisions, our co-pay assistance and free drug programs, we continue to ensure broad patient access to INCIVEK. To date, INCIVEK is available on formulary in healthcare plans that represent more than 180 million covered lives in the US, following formal drug utilization reviews. That means that more than half of the population of the US, now has approved access to INCIVEK post-formulary review. Most other patients also have access to INCIVEK, but their plans have not yet reviewed the protease inhibitor class of medicines.

Now, allow me to dig into some of the specifics of the launch. First, I would like to briefly describe for you, our way of thinking about the hepatitis C market. A common way of understanding treatment behavior is by grouping physicians into deciles or 10 groups, based upon how many prescriptions they write. Since the highest prescribers write many more prescriptions, there are far fewer of them in these top deciles. For example, historically, there were less than 100 physicians in the top decile who were producing 10% of all Hepatitis C prescriptions. On the other hand, in the lowest decile, there were more than 2,500 physicians who wrote the same number of Hepatitis C related prescriptions, as those 100 prescribers at the top. Key opinion leaders, many of whom are also involved in clinical trials, typically see the greatest number of people with Hepatitis C, and are well-represented within the top few deciles. Naturally, these physicians possess high awareness of medicines before they launch, and this was no different with INCIVEK.

Through their understanding of INCIVEK, bolstered by our commercial support after launch, this group of physicians rapidly accepted therapy, at a level that has been unprecedented in the treatment of Hepatitis C. INCIVEK, therefore, achieved significant penetration in this segment, and has built a strong base of prescriptions moving forward. Based on our research, we believe the high adoption rates and market share in this segment could result in greater acceptance by the other prescribers, as physician behavior in the top deciles tend to influence the broader prescribing base. At this time, there are thousands of doctors in the mid to lower deciles, who have not yet prescribed any direct acting anti-viral and represent future opportunity. Our goal is to continue to educate and engage healthcare providers who are already prescribing INCIVEK, as well as those in deeper deciles. We are ready have a solid base, as INCIVEK performs more strongly than any other PI in each of the 10 deciles. In fact, based on the most recent data, INCIVEK commands more than 70% market share in any decile of prescribers.

Now I'd like to make a comment on how we have seen the launch of INCIVEK progress from a sales perspective over the past few months, using some of our internally drive data and metrics. I'll refer you to the graph on slide number 24 in our webcast slide deck, which plots our monthly ex-Factory sales of INCIVEK through September, together with data that describes wholesale inventory levels. I'll make that comment, that we have seen continued strong demand, so far in October. Following our launch, we saw an extremely rapid take of uptake -- I'm sorry, a rapid uptake of INCIVEK. In fact, for the first few months, it is not only faster than any other medicine launched within the Hepatitis C market, it may be one of the strongest launches within Pharma in this timeframe. In addition, wholesale inventory levels have remained fairly constant at 2.5 weeks, since the start of the third quarter. This slide is not intended as a forecast or guidance, and we won't necessarily be providing this level of detail in future quarterly calls. But we thought it was important for you to appreciate some of the key metrics we see, at this early stage in the launch.

Now, some thoughts on how we believe Hepatitis C treatment will evolve with different combinations of medicines, and new regimens. We believe the advancement of Hepatitis C treatment will occur in waves, and we intend to continue to provide new options for patients and physicians as treatment evolves. This will be visible in a number of clinical studies, that you will hear more about at this year's AASLD. The initial wave will be built on expanded indications for interferon-based regimens. A second wave will likely feature more powerful direct-acting antiviral combination regimens, that still include interferon. And the third wave, will hopefully offer all oral or interferon-free regimen. We're excited to be developing medicines that may contribute to these future waves of treatment.

Each year during AASLD and other scientific conferences, we get a glimpse into investigational approaches that may benefit patients in the future, and this year is no different. Building upon the strong foundation that the label for INCIVEK already offers, you will begin to see our plans in the first wave to address patient groups that are considered the most difficult to treat, through large well-controlled randomized trials. One such potential group, includes people co-infected with HCV and HIV. Another group is those with recurring hepatitis C, following liver transplantation. Peter will tell you more about these in just a few moments.

Relevant to the second wave of this year's AASLD, we will show [FVR] data from the Zenith trial investigating our Quad regimen. Zenith explores the use of INCIVEK, the VX-222 and pegylated interferon with ribavirin, to shorten the duration of therapy for patients even further. In addition to helping people who are new to treatment, this Quad regimen could also help patients whose Hepatitis C is considered difficult to treat, including nulls and cirrhotics.

You'll also hear about our trial looking at INCIVEK, pegylated interferon and ribavirin in patients with the CC genotype known as IL28B, who may have the potential for total treatment duration of 12 weeks. These individuals represent approximately one-third of the treatment naive group. But we are not stopping there. As we look further into the future, our strategy is to develop all oral interferon-free regimens for the third wave in the second half of this decade. Soon we will see results from an all oral regimen of INCIVEK with VX-222 and ribavirin, as well as steps we are making to add our allele [nucs] into the mix. And again Peter will address this in a moment.

Now like to turn your attention to our next commercial program, which is in cystic fibrosis. This is an orphan disease affecting approximately 70,000 children and adults in North America and Europe. Earlier this year, we began building the global infrastructure to prepare for the launch of KALYDECO, previously known as VX-770, including the establishment of our European headquarters in Geneva, Switzerland. We carefully built the commercial team when we launched INCIVEK, focusing on the needs of healthcare providers and people with Hepatitis C. Now, we're refining this model to support the launch of KALYDECO, taking into account the unique needs of people with cystic fibrosis. This model will focus on building a long-term relationship with the cystic fibrosis community.

In phase III registration studies, KALYDECO showed rapid significant and sustained improvements across a variety of disease measures, including lung functions in people aged 6 and older with the G551D mutation. KALYDECO is intended to provide patients with a twice-daily oral medicine, to be used with their current medications. It's the first medicine of its kind, to target the underlying cause of CF. Physicians have made great strides over the years in treating CF with the current medicines, and have improved treatment and care for people living with cystic fibrosis. However, these therapies treat only the symptoms of the disease, and it's complication. We're hopeful that KALYDECO, if approved, will build upon the treatment regimen that physicians are already using to offer a significant benefit for the people with cystic fibrosis.

So let's look for a moment at the CF market that we hope to address with KALYDECO There are approximately 1,000 people in the US and Canada who have the G551D mutation on at least one allele, and who are also six years old or older. In Europe, we estimate approximately 1,000 people with the G551D or other gating mutations who are six years old or older consistent with our MAA submissions. Assuming KALYDECO is approved, we will be providing financial and other support services, in order to help patients and their caregivers before and during treatment. The Vertex teams who will lead these efforts will make information about CF as a disease, KALYDECO, reimbursement and support services available to the CF community. I will share more about these programs following approval. We are in a unique position, and feel a great sense of responsibility in launching KALYDECO There are several areas where we are focusing our attention today, to ensure that we get it right. This includes understanding and establishing the value of KALYDECO, as well as focusing on educating the community on the importance of each person knowing their genotype. In this way, we can be sure that KALYDECO can be prescribed for the right patients. We have a lot to do, and we will be ready.

Thank you. And I would now like to turn the call over to Peter.

Thank you, Nancy, and hello to everyone listening to today's call. Vertex's approach to serious diseases has yielded two transformative medicines in two distinct disease areas, Hepatitis C and cystic fibrosis, and a pipeline of opportunities. Our pipeline is the direct consequence of the innovative approach we take in R&D. Mainly, we have the willingness and passion to tackle the toughest diseases. And we don't, and we won't develop (inaudible) medicines. We seek to understand the complexity of the disease pathologies first, and then let the signs lead the away. I think that it is pretty unique, and it makes me optimistic about what we can do beyond INCIVEK and KALYDECO, to transform the treatment of serious diseases.

I'll start the day with a review of our Hepatitis C program. INCIVEK combination therapy as Matt noted, is now available in multiple countries. With INCIVEK entering the market so successfully, it obvious that we are now looking to expand the label (inaudible), the combination therapy, and therefore broaden the patient population that may have the opportunity for INCIVEK. We have several drugs underway and planned. These drugs include first, the CONCISE trial which is a Phase IIIb study that will evaluate the potential of INCIVEK combination therapy be to shortened to a total of 12 weeks in some patients. The CONCISE trial will enroll approximately 350 genotype 1 hepatitis C patients, who have the CC variation near the IL28B gene. This study began this week, and is evaluating twice-daily dosing of INCIVEK.

Second, a Phase 2 HCV HIV co-infection study. Data from this study will be presented at ASOD next week. We will use what we learned from this study to inform the design of a pivotal co-infection study planned for later this year in approximately 150 people with HCV HIV co-infection. And thirdly, a Phase IIb study evaluating approximately 80 genotype 1 patients, with recurring hepatitis C following a liver transplant. We expect to begin this study also by the end of 2011.

As you might expect, to sustain our leadership role in Hepatitis C, beyond our INCIVEK combination medicine, we diligently continue to explore additional, new and improved treatment regimens, allowing potentially for higher cure rates, shorter treatment duration, improved tolerability, higher compliance, increased convenience, and eventually being all oral. In this context, I want to focus your attention to the ZENITH study. This study is investigating the potential of two 4 drug or Quad arms of VX-222 and INCIVEK with pegylated interferon and ribavirin to raise [SVR] rates, and shorten treatment durations to as few as 12 and no more than 24 weeks for people with genotype 1 hepatitis C. This study also includes two arms evaluating on all oral, 3 drug regimen of VX-222 and INCIVEK and ribavirin.

During the third quarter, I'm pleased to announce that we completed enrollment of the two all oral arms. And we are nearing the point where all patients will reach the week 12 all oral treatment end point of the study. The study is progressing well, and to date, neither arm has met stopping criteria, with respect to safety or viral breakthrough. We expect to have end of treatment data from these arms early next year. Beyond the ZENITH trial, we are planning additional studies aimed at creating an all oral short duration regimen with high viral cure rate. As part of this strategy earlier this year, we licensed two nucleotide compounds, ALS-2200 and ALS-2158 from Alios Biopharma. Based on impressive in vitro data, we have an opportunity here with this medicine, in combination with INCIVEK and/or VX -222 to explore and develop, several highly potent oral/oral combination regimens for hepatitis C. We continued to work with Alios to initiate first-in-human trials later this year with ALS-2200, followed by a study of ALS-2151 in early 2012.

Turning now to our second disease area, our CF program. We are fully committed to driving forward this program with the goal of treating many patients with this life-threatening disease. As you know, we submitted the NDA for KALYDECO last week, seeking approval for this medicine in the US for a subset of people age six and older with the G551D mutation. The MAA has also been submitted in Europe. The MAA was submitted for approval of people with the G551D mutation, as well as those with other gating mutation. Data from our Phase III program that supported our global regulatory submission, will be presented by leading CF physicians at the North American CF conference next week.

Early treatment of people with cystic fibrosis is of utmost importance, and we have defined a Phase II study to evaluate KALYDECO dose as monotherapy in young children with the G551D mutation, ages two to five years old. We have developed a pediatric formulation for this age group, and are looking forward to initiating this study in 2012. The next stage of development for KALYDECO monotherapy is to initiate studies in people with the CFTR mutations other than G551D for which literature or our own research showed the potential to significantly increase the CFTR function with KALYDECO. We are in discussions with global regulatory agencies about innovative medical strategies to move forward. We anticipate that these studies will also explore biomarkers that correlate with clinical benefits. We will have more to say about this studies, as our discussions evolve with regulators, and the studies get underway which is expected in 2012.

Everyone working on the CF at Vertex has a share vision in what we are trying to do here. For us, it is not about simply making another medicine. It is something we feel deeply committed to, personally and professionally. We see the same passion in the healthcare providers in the areas where we specialize. As such, KALYDECO is just the start, and we feel a real sense of responsibility to develop medicine that can treat many more patients with cystic fibrosis. From the beginning of our cystic fibrosis program, we have focused on ways to improve the lives of people with the most common CFTR mutation, the F508del mutation. These patients have minimal CFTR function, and we believe the best approach is based on therapy called the corrector. We have two correctors in the development, VX-809 and VX-661. Today, we announced that we have initiated part two of our Phase II study of VX-809 in combination with KALYDECO.

Part 2 will be geared toward identifying the right dose range for the corrector (inaudible) combination, and we'll evaluate higher doses of VX-809 monotherapy for four weeks, followed by KALYDECO dosing combination with VX-809 for another four weeks. This study will measure sweat chloride, [FVB1] and safety, as well as other markers of clinical activity in about 100 patients with cystic fibrosis, with either one or two copies of the F508del mutation. For VX-661, we are currently working with regulators on the design of our Phase II study to evaluate monotherapy, followed by dosing of VX-661 in combination. Our goal of the Phase II study of VX-809 combination therapy, and the Phase II study with VX-661 is to generate sufficient data by the second half of 2012, to better inform us how to best to move forward in later stage clinical trials.

Turning now to our third and emerging disease area of inflammatory disorders. Specifically, our selective oral JAK3 for the VX-509. In September, we announced top line clinical data from our Phase II proof of concept study in rheumatoid arthritis, in which VX-509 showed significant clinical benefit to people with rheumatoid arthritis, as measured by the ACR-20, ACR-50, and ACR 70 scores. We are also encouraged by the data which showed that 35% of people in the 100 milligram treatment arm, and 37% of people in the 150 milligram treatment arm, experienced a clinical remission. These data has been accepted as a late breaker poster at the upcoming ACR conference in Chicago next week. Based on this data, in the first quarter of 2012 we expect to begin a six month Phase IIb study of VX-509, in combination with methrodrexate that will enroll about 350 people with moderate to severe rheumatoid arthritis, despite stable methodrexate therapy.

Altogether, we have eight medicines in development, including those that I have already covered. And I would close therefore, on a brief update on VX-765 for epilepsy and VX-797 for flu. VX-765 is on track to begin a Phase IIb study in approximately 400 patients with treatment-resistant epilepsy by the end of this year. VX-765 is an anti-inflammatory medicine that works by modifying (inaudible) immune responses, and is designed to treat people who did not respond to standard treatment for epilepsy, and who are often severely debilitated by frequent seizures daily. We are looking forward to getting the Phase IIb study underway, and learning more about the potential of this medicine in the course of the next year. For VX-797, in the third quarter, we initiated a Phase I trial in healthy volunteers, and we plan to start a proof-of-concept Phase II trial by mid 2012.

As you have just heard, we have a lot going on in R&D. We are confident in our approach to tackling diseases that have historically been considered among the most difficult to treat. And we look forward to keeping you updated on the progress in our pipeline. We hope to bring more medicines like INCIVEK to people living with serious diseases. And I want to thank you now, and back to Michael.

Thank you, Peter. This now concludes our prepared remarks. And we would now like to open the call to Q&A.

(Operator Instructions)

And our first question comes from Geoff Porges from Bernstein

Thank you very much for taking the question. And congratulations, really on a spectacular launch. Great start, and nice to see profitability finally. It has been a long time. And hopefully, you can move beyond the controversial phase of the Company's development. I just wanted to ask a couple questions. First, on gross margin, you've got just the royalty showing in the gross margin now. How long before that goes up to a more normalized level, and what might it look like? And then your patient number looked as though it was flat, in total versus September. Can you tell us what you are seeing, as the month has progressed? Is there genuine (inaudible) in patients? And then lastly, for Nancy. Are there a lot of patients still on the sidelines here, or are we seeing some sort of slowing down of the accumulation of patients? I mean, what proportion do you think we are really tackling, in terms of the addressable market right now?

Jeff, I'll take the first one, which is your asking about the gross to net adjustment, which this quarter was approximately 10%, and that is consistent with the second quarter. As we start to put our contracts and then formulary decisions are made, and that channel comes online, we do expect that gross to net adjustment to start widen. We don't anticipate a significant change in the fourth quarter, although if it should start to widen, but as we get into 2012 and probably and mid 2012, we expect it to be starting to get towards a more normal state.

Ian, I'm sorry, I don't know whether that was my accent or your accent, but I meant gross margin not gross to net?

Oh, you mean as far as -- well, let's just be careful on the definition. Gross margin, in terms of revenues, cost of products, and that?

Yes, the cost of products. You are right now, only reflecting royalties. But presumably at some point, you are actually going to reflect true manufacturing costs, and when might that be and what would it look like?

Yes, so we expect to get to a more normal gross margin, probably about 18 months following launch, given the amount of inventory we built, to be ready for launch. More normal gross margin, would be close to normal pharmaceutical margins of around 90%. You would then have to add on to the product royalties.

Great, thanks.

So, Geoff, to your question, I wasn't exactly crisp on what the first piece of it was? I think talking about patients, we continue to see new patients coming into therapy every week. As we stated, we are above 17,000 now. And in terms of prescribers, at this point, we're seeing between 100 and 150 new physicians prescribing INCIVEK for the first time each week. And that is more than double the rate for any of the other compounds that are competing out there. So, I think you'll agree that, that uptake rate is ahead of any of the other launches in this market. And the only thing I would say is, you look at that, and you add in a constant wholesale inventory, fairly constant between 2 and 2.5 weeks for the last 6 or 7 weeks. And you can come to your own conclusion.

Great. Thank you very much.

Thank you. And our next question comes from Rachel McMinn from Bank of America.

Hi, Matt. And I'll add my congratulations as well, on a -- an amazing first start here. I guess I wanted to ask a little bit more about that one slide that I think is going to be the focus of everyone's attention, the $40 million to $45 million, in weekly sales? Is that -- I guess, how are we supposed to look at that? I guess, first question is, is that a gross sales or a net sales number? And then I guess, as we think about that for 4Q, I mean are we talking about $560 million in revenue, if we just kind of use that as a 13 week number? Should we be thinking about $2.3 billion in 2012 sales? I'm just trying to understand what -- I guess those questions. And then -- the next to last question on this is, it was pretty flat between September and October, so what do you think the barriers are, to increased growth beyond what you're seeing in October? Thanks.

Rachel, thanks for the question, a lot of questions in there. First of all, let me give you the basis of the data in the chart. And then you can use the data as you wish. It is actually net revenues that we record. And to validate that, what you'll actually be able to do, is take the quarters with the revenues. And you will be able to actually calculate back, and you will get approximately $420 million of net revenues. It is calculated as taking the months worth of net revenues, and then averaging out a weekly net revenue for that month. So you will find that it does equate back to our net revenue line, in our income statement, appropriately so. Now as far as -- should you then take the number that is between $40 million and $45 million in September and October, and translate that through to both November and December, I'll leave that for you to do a forecast. It is not intended as a forecast.

The reason we put this slide up, was to get people -- to get a -- help people get an understanding of the high volume of patients that are actually being treated, and the high volume of scripts that are being written by prescribers. Our feeling has been that this has not always been tracked the way, that we are tracking it internally. And we believe that we have the most accurate internal metrics of how this launch is going. And we believe hat that's revenues, and looking at the inventory in the channel, because we monitor that on a daily basis. And so, we wanted to give people an idea, of where this launch currently stands. And I think the best way to do that is on the revenues. And Nancy will make a comment -- assume about how we look at the future from there.

Yes, in response to the chart, Rachel, I think -- you are noticing that the rate of growth has changed. But I think that is more a reflection of the exceptionally quick ramp early in the launch. There are further opportunities for penetration into this market. There are many more patients to treat. And we are going to continue to do everything we are doing, with a highly effective sales team to target those prescribers and that patient base.

Great, thanks very much.

Thank you. And our next question comes from Terence Flynn, Goldman Sachs.

Congrats as well from me. I was just wondering if you guys think you have the appropriate sized sales force to maybe target the rest of the prescriber base. Has it kind of broadened your reach? And then, just had one question on the cystic fibrosis program as well. I was wondering -- I know in the first part of the combo trial of 508, and going after 508 patients, you were looking at homozygous patients. But I noticed in Part two, you're going after, both homozygous and heterozygous patients. And just wondering, for the reason in the change there?

So, Terence, maybe I'll go first. This is Nancy, in the question about the sales force. I think our commercial strategy right out of the gate was absolutely the right one. And that was that we had an appropriately sized sales force. And let's remind everyone, we were up against two companies, not one. We focused on the KOLs and the top prescribers. And we know that those behaviors that they generate, influence people who are prescribing in the deeper deciles.

We also know that the top half of physicians generate 90% of the prescriptions. And those are the physicians we are targeting on, so the very top of that list, on down. Now, in response to what we saw as additional prescribers, who I mentioned that hadn't been in the market in the recent past, in the last year or two. And in response to the fact that, now we are starting to really into some pull through, that we have got half of those covered lives, past a formulary decision. We are likely to make a minor adjustment, and add a few people here and there, as we find where we could use a little more backup.

This is Bob, I'll take the second part of your question about CF. So yes, you are right. We studied homozygous patients first in the 509 -- in the 809 study -- I'm sorry. Because it was a homogeneous population, and because all of the CFTR in that case is of the same type, carries all the same mutant protein. Obviously, that is 40% of the population. However, there is a large group of patients out there who are heterozygotes. They are a little bit more heterogeneous, because they have another gene on the other allele. And it is important as we think about Phase 3, and what populations we would want to study, to get an understanding of what the effect of the combination of treatment in heterozygotes is. And that's why it was added into the second cohort, kind of looking ahead to where we will ultimately want to be, obviously in the market, and also for the studies, of course.

And will 551D patients be excluded, patients who have 551D on the other allele?

Yes, of course, they would, because they would obviously respond to 770. And of course, many of those patients already in our trial. The addressable populations are already our trials, so there aren't too many of those out there.

Okay, thanks a lot.

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

Wow, I'm moving up in the queue. So congrats on the launch, first of all. I have a couple of questions for you guys on CF. So you are studying in Delta F different doses and durations for the combo, but how do you think a larger study will be designed? And is a response guided, is something that you think is really feasible for registration type of study? And I have one follow-up.

In terms of how we go forward, we obviously have to see the result of the current trial, before we can design the next one. And that is obviously, what we are trying to do. I think the issue of a response guided therapy, will depend on our analysis of the data that we are getting. Part of our goal is to collect information to allow us to decide whether there are response markers, that we can use to identify responsive patients. And that is the goal of this next trial. I would not speculate as to whether it would -- what its regulatory utility would be, until we actually see the strength of the data, and make a determination of that.

Got you. And just from a reimbursement perspective, is -- what have your initial discussions revealed, for the core G551D patients? And do you get the sense, there is a worry from insurance companies about off label use, in Delta F for getting these patients or is there more flexibility given the orphan disease?

Orphan diseases and ultra orphan diseases, particularly as we will initially be entering command prices in the range of rare diseases. And I would think because of that, the managed care community is going to be a little bit careful about what they will reimburse for. But you have to balance that with the fact that these are kids who are really, really suffering from a debilitating disease. And we've got really profound data to show what it can do to change their lives.

Okay, thanks a lot.

Okay. Our next question comes from Mark Schoenebaum, ISI Group

Hi, guys. Add my congratulations. I had a couple of questions maybe for Nancy. Number one, are you surprised that -- unless I think -- please correct me if I miss -- if I heard incorrectly on any of these things, but are you surprised that the majority of patients coming on to INCIVEK are naives? And then related to that, if we could drill on to the refractory population. I remember pre-launch for many years, there was a lot of discussion around the size of the, quote, Refractory warehouse of patients. I always heard figures between 100,000 and 300,000 patients that were out there that had been treated before, and it failed.

And you're telling us that only 17,000 patients so far have been treated with INCIVEK. So, A, why wouldn't there just be a massive acceleration into that warehouse? And, B, the deciles that you talked about, are they the same, when you look at the naive population versus that warehoused population? Are the doctors the same? Or would those deciles look different? Thanks a lot.

Okay, well, first of all thank you, Mark, and everyone who has already said, congratulations. We really appreciate that. It feels good. Let me see if I can get all of those questions you had. I'll start with the last one first. And that is, although perhaps the top decile physicians might be likely to see a group of patients who are a little more skewed toward the difficult to treat. And therefore they may be seeing more of the re-treat patients, or I think where you are going with the warehousing, the more difficult to treat patients. You might make that assumption, but it is really a guess. Because to my knowledge, we have never measured that, and there are no data sources for that. That would require a proprietary one-off study.

Onto the naives, I think the rate of patient uptake is reflective of a balance that, yes, goes a little bit more toward naives than we had originally thought. And so it isn't that the re-treated or more serious patients aren't there in the mix. It is just that, this is such great news, that not only patients, but physicians who hadn't been treating are rejoining. And we hear physicians telling us that patients are just showing up. So, what that means, in terms of your other questions about a massive acceleration into that warehouse, it is not quite that planful a process.

Each office comes up with their own approach. And I have really only heard of one yet, one academic practice in the entire United States, that went through a very formal thought-provoking process to call patients back. Otherwise, it is sort of a mix of, who happens to be on recall, which patients are aggressive about calling in. And I think the patients who know they've got a great shot at being cured with the new therapy, are likely to put more pressure, and come in early, and that's likely what we are seeing.

May I ask one follow-up?

Sure.

Do you have an updated estimate as to the size of that refractory warehouse? And within that group, how many are addressable, meaning accessible? Thank you very much.

I do not have an updated size of the warehouse. But I can tell you that the patients are coming in fast and furious. And they're -- more and more physicians are stepping up to treat them. And we can't keep up with new patients kits.

Thanks.

You're welcome.

Your next question comes from Yaron Werber from Citigroup

Thanks for taking my question. So congrats as well. And I have a couple of questions sort of follow on Mark's questions. So help us understand maybe just a little bit, what you seeing in terms of, we've been hearing a lot on whether practices actually have enough capacity to treat these patients? And what are you seeing maybe in your top deciles, versus sort of the lower deciles, in terms of their capacity? And then I have a follow-up, also.

Yes, thanks. That's a great question, and we actually have done a little mini survey to look at that. And as you might imagine, the people who are most known for being the really experienced treaters, where we went first, to get their support, their practices in some cases are filling up. Now it is less than half. But I would think that it is skewed a little bit toward the highest prescribers, because they are known hepatology centers. There is still capacity. I would remind you again in the other offices, and in deeper deciles, and in those new physician offices who are coming back to prescribe again, or deciding to prescribe for the first time. And a lot of offices who are feeling the crush of that demand from the patient side, are adding new staff, et cetera. So each practice addresses it a little differently. And I would say, that is a great challenge to have.

And then let me ask you, in terms of net, and that is very useful. About eight years ago, it was thought that about 100,000 patients or 120,000 patients came on therapy. And let's say about 75% of those with genotype 1, I mean do you think that this time around, we're going to get to the same patient number? Or it is going to be higher, or maybe perhaps it's going to be lower this time, since these drugs are a little bit more difficult to use? And it's going to take longer to treat them? Do you have any thoughts about that?

Yaron, I think that with, if you laid out either the number of prescribers and how fast they are coming online to use INCIVEK -- and by the way, there is another drug, so they are adding some more effort here, right? But just INCIVEK alone, and/or you look at the rate of uptake of INCIVEK, it far outpaces what we saw when the pegylated interferon's were launched. So, I have no reason to be concerned about that.

As far as the difficulties to use this regimen, that has not been an issue, whatsoever, in physician selection at the rates that you're seeing. I don't understand the question.

The question really has to do with -- it is not just the ramp, but sort of the amplitude of how many patients are going to come on therapy, and are going to be treated at any one-time.

There is no survey of patients, you really don't -- we know how many patients are infected. And we took a guess at how many patients are out there. And you can see by the sales, that are a heck of a lot of patients are showing up. And some of the top prescribers, they are at a flow rate that they want to be at, but we have a whole bunch of physicians to go. So were going to go after that business.

Yaron, I would just add to your point about the usage of the drug in the physician's office. One thing that comes back constantly from the field is viral cure. It came back through our clinical trials, of the importance of maintaining a high viral cure. And so when you comment on the use of the drug, viral cure and potentially 80% of patients that go on therapy have a chance of a cure. That drives the rapid uptake of INCIVEK.

And Nancy, you mentioned there is another drug out there? (Laughter). I didn't hear about it.

Okay. Nevermind.

Thank you.

Thank you. Our next question comes from Philip Nadeau from Cowen and Company.

Good evening and thanks for taking my question. Actually just a follow-up to Yaron's question. Nancy, when you were answering his question, you mentioned that some of the high prescribers are undertaking efforts to hire new staff. Could you talk a little bit about what you guys do to facilitate that process? And is there a pharmacological economic case that can be made? Or maybe more specifically an economic case that could be made for physicians, where adding that staff, is actually profitable for their practices?

I think that is an economic situation, that each physician has to look at. It probably becomes more relevant, when you look at all of the specialties a center offers, and they want to be seen as a liver center, and they therefore want to be able to really give great effective treatment for the HCV patients, along with other issues. Your other question was about bringing staff on. They used to do things like that years ago. It is really not allowed anymore. It is no longer considered a compliant practice, and that is not a strategy that we are pursuing.

Okay. And just one clarification. When you were answering Yaron's question you said about half of physicians are seeing a capacity issue. And I wasn't clear if that was half of the top decile physicians or half the physicians overall?

No, no, what I said was, it is less than half of the physicians that have any kind of complaint or issue about capacity constraints. But that one might logically go to the next step, where the largest practices that are best known, had an aggressive flow of patients. And I think those are oftentimes the physicians we all go to for opinions. So there is plenty of capacity left. There are plenty of patients lining up. And as I said, I think this is a great challenge for us to continue to face, with our sales force who has done a great job to this point.

Great, thanks for taking my questions.

Thank you.

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

Congrats. Two questions, first, make sure I heard it correctly, did Peter say that in Europe, KALYDECO was filed for G551D and other activating mutations?

Yes, for -- so that, Howard, that is true. The submission in Europe based on discussions we had over there with several regulatory agencies and registers was basically sent in, by covering 551D and the obligating mutations.

Okay, great. And then I think it was Nancy, who mentioned wave two. Can you talk about when you might be able to start Phase 3 for your Quad, and what data you need to make that decision? Thanks.

So -- want to take it?

Obviously, we are going to be looking at the results of the current study, the results of which are going to be presented at the ASLD meeting next week. We are really considering that, and will be formulating a plan, and going to the regulatory agencies, likely within the next couple of months. And hope to have a registration strategy within that time frame.

On top of that, Howard, there is also something we have to consider the, the triple oral -- that is currently in the makes and then we have beginning of next year data, that might actually also influence, how we develop the entire going forward. We really want to keep your attention on this triple oral too, because so far as I said, it's going nicely, and well. And we will have patients at the 12 week treatment point in a couple weeks from now. And this is something you should not forget.

Thanks very much.

Thank you. And our next question comes from Ted Tenthoff from Piper Jaffray

Thank you very much. Let me add my congratulations too. And I'm really excited about all the moving parts of the story right now. And I think there is a lot of growth drivers that we're looking at. Just one quick question if I may. Have you heard of cases, of either death from anemia in cirrhotic patients, or any cases of Steven Johnson syndrome that have popped up?

So, this is Bob, I'll take that one. We obviously can't -- we can't really comment on specific cases. I'll just say that, obviously we appreciated our responsibilities for monitoring safety, very aggressively during the launch. And we have a very intensive post-marketing surveillance system. We are looking at that very carefully. At this point, all I can say is that the safety profile we're seeing post launch, is consistent with the profile that is in our label. And beyond that, I'm just not able to comment on any specific cases.

Okay, Great. I appreciate that. And I have heard feedback that the training programs are going well, so I do appreciate the efforts that you are making there. Thanks so much.

Yes.

Thank you. Our next question comes from David Friedman with Morgan Stanley

Thanks for taking the question. The is questions about the average weekly INCIVEK revenue chart. And the first question is, it seems like that chart includes stocking revenue. Are there figures on an average weekly, that you could give ex -- inventory? And then the other question is as you look week to week with your data, that you guys have access to that we don't, how does that compare to what you see in IMS? Is there a consistent delta between the two, or is it more variable?

So, let me -- a number of questions there, Dave. And maybe Nancy will help me out as well, with the final piece of IMS as well. But as far as the chart is concerned, the key numbers that I think you're focusing on, is both Q3 and then October. Through that period, the inventory in the channel stayed at 2.5 weeks. So it's not really affecting our net revenues that we are reporting. There is some slight growth, but it is really not having that significant of an effect, given that the inventory in the channel is spinning very quickly -- 2.5 weeks it sits there. And then it gets out to the pharmacists and to the patients. So the inventory holding period, because of the brevity of the holding period, really isn't having an effect. So what we tried to show in this chart, was a couple of things. And this may be where -- this is where Nancy will take up for me as well. But it is that the inventory holding period is flat through the Q3, where we have recorded the significant revenues. And it remained flat into October as well, the inventory holding period.

And then we are still recording the significant level of revenues, on an average weekly basis, which for September and October was between $40 million and $45 million. So it helps you understand the -- to use a financial term, run rate of the revenues, that we are recording at this point, and -- which is the measure of the number of patients we are treating. The reason we did put this chart up, is that all of our internal metrics of measuring this launch, including our financial statements, suggest that we are treating many more patients than might be tracked on some other sources. And we felt it was appropriate to address that. I don't know whether Nancy has a--?

Yes, so, David, I really don't want to talk specifically to IMS, I mean that's not what I'm here for. I think you should refer to the three product bulletins that they have issued within the last three weeks. And I would also remind you that most of the data, that many of you are using are the NPA data, and they only represent retail sales.

Okay, I guess just back sort of to Ian, your comments, if I could quickly. If you look from 1Q -- or sorry, sorry -- the first Q of sales or 2Q, the inventory build was $37.5 million. And you say, that is sort of two to three weeks, and so that was about $15 million a week implied. So it would seem like there would be sort of a one-time build up to get to a higher run rate, that would have been captured in 3Q? Is that not correct, or?

We can talk about this off line, David,.

Okay.

The second quarter inventory build is all about filling the channel, so you can get the product to the patient as quickly as possible. And that is all about launch, and that is very typical as I'm sure you're aware. The key part of this graph is more about the third quarter. And then into current data, as recently as the end of last week, where we have seen inventory levels start to stabilize is our wholesalers get a very good understanding of how to send that product to the pharmacy. The fact that the wholesalers are understanding now -- that how to stock inventory. And their maintaining two to three weeks of inventory is the key part of this chart. It's less about that initial piece at the beginning, which is atypical for stocking.

Okay.

Thank you. Our next question come from Brian Abrahams from Wells Fargo Securities

Good evening. This is Matthew Andrews calling in for Brian. Thanks for taking the questions. Can you give us any sort of sense on what you're seeing, in terms of the first and second refills for INCIVEK? Is it consistent with the compliance rate you have seen in the Phase 3 studies?

That's a great question, Matthew, and it is a little early. We are just starting to get early samplings of those data. It is small, but what we have seen, suggests that it is consistent with what's occurred in our clinical trials.

Great, thank you.

Thank you.

Thank you. Our next question is from Jason Kantor from RBC Capital Markets.

Thanks, and let me also add my congratulations. I'm a little confused by these lower decile prescribers. Are they in fact, still prescribing two drug regimens, or are they just not treating anyone at this point? And I think you said, you were adding 100 to 152 -- to 100 to 150 new docs per week? Where do you think that trajectory maxes out? And over what period of time, do you think you're going to be penetrating some of the lower decile prescribers?

Yes, so. Let me see if again, I can be more clear about that. There are about -- and every Company cuts this a little differently. But we believe there are about 8,000 prescribers out there, who historically looking, at pegylated interferon and ribavirin were using some amount. If you took those 8,000 prescribers, and cut it in half, the top 4,000 wrote 80%-some of the prescriptions. 85% approximately. Okay? So I guess the point I am trying to make on that one, Jason, is just that people say, well, some people here -- well, you haven't called on this doctor, or that doctor.

Well, that is a good thing because you want to start with the most prolific writers up in that top decile, where you can get a huge stream of prescriptions going. And they will also influence the people deeper in those deciles. So, I'm just trying to encourage people to think about that it is not a straight run rate. This is not a doctor for a doctor. Sometimes we're comparing your kitchen faucet and the stream of water that comes out of that, at the bottom, with what you see when a fire hydrant is flushed in the top decile.

Right. But you're suggesting that these top decile, at least not the top 4,000, but something about that are -- have a lot of built-up demand, we're expecting it. And in some cases, are running at full capacity, whereas perhaps some of these others haven't come online yet. So in terms of the incremental growth, it seems that a lot of that is in these new docs that you are targeting.

Okay. Let me give you a couple more numbers that should help with that. Of those 4,000 prescriptions -- I'm sorry -- 4,000 physicians who write 85% of the prescriptions, right? At least -- or we are approaching, just about half of them, have now written at least one prescription for INCIVEK. That is the hardest thing, is getting someone to try the drug the first time, right? So that is pretty aggressive penetration -- 4 or 4.5 months into a launch. The other way that we look at this -- so, is there more opportunity? Yes. But the other way we look at this is, we look at how many physicians in each of those deciles, have written for your drug, at least one prescription.

And I can tell you, that when we do that, the number for the top decile is the highest percentage. And literally, it goes down like you couldn't have planned it more beautifully to -- in the 20% range at the bottom. And it is up, in the mid-to high 80%s at the top. That is exactly the way you want to do it. So we've gotten the biggest bang for the buck out of the gate. But there is more usage out there yet, that we will be continuing to pursue throughout the coming months.

Okay. One last question, so the people that are not prescribing, either your drug or Merck's drug, are people actually starting patients without protease inhibitors at this point? I mean, that seems almost crazy but.

Yes, that's a great question, Jason. Yes, there are, because we don't have indications for the co-infected patients yet, for liver transplants. So there are always going to be -- I mean until we get additional expanded labels, there are always going to be some physicians who are prescribing that. And it is also hard to tell, how much of the total prescription usage that is still in that -- the old standard of care, is just the patients who started earlier, and they are just still finishing out, because it takes them a year to through the therapy.

There is also phenomena that is kind of interesting, in that when you -- even if you are a teaching physician or an influencer, or one of these top prescribers is many of them will try a drug for a while, and see how their response is, until they put more patients on it. That phenomena, is probably has not happened yet. That is generally six month to a year out, when you see that happen. That is in most markets, I'm not predicting this one -- but most -- if you talk to physicians, they will often say, I want to give it a try, in so many patients, so you can see how -- in clinical trials, so to speak.

Thank you very much.

Operator, we are at 6.15 PM. We will just have time for two more questions.

Thank you. And our next question comes from Matt Roden with UBS

Thanks for having me on the call, and extending the time of the call. It's very generous of your time, and we appreciate it. Also, just wanted to congratulate the entire organization on the launch. Really very impressive. So, Nancy, you mentioned that you are seeing prescribers new to Hepatitis C. And can you say what proportion of INCIVEK volumes are being written by those physicians new to hep C? And then, Bob, when you think about this 770 809 trial, the Part 2 of this trial, are you confident that the treatment duration is sufficient enough to see a difference in lung function, secondary endpoint. The feedback we've heard from docs, is that maybe two months treatment might give a better shot of seeing an FEV-1, but is that -- do you think that that is right? Is that something you take issue with?

Let me get the easy question out of the way. When I talk about prescribers who haven't been historically prescribing, they are not necessarily new to this. They might just not have written for the last couple of years. Sometimes that is because they know there are new therapies coming. So, they are not brand-new to HCV. They just haven't written in the last year or two. And they are, I can tell you there are about 500 of them. And they write a low volume of prescriptions. So there are people who are just sort of dabbling and coming back in, because they -- I'm assuming because they see advances, and a new opportunity. And now I will turn it over to Peter.

So, the question about response and length of treatment in combinations. I would say, when you go back, I think what you normally see, is for single regimens, correct, or, I think we have data for 809, that shows that in the course of four weeks, you basically can see a statistically significant difference in FEV, but also in some of those, let's say, response, markers that we basically have investigate, as sweat chloride is one of them, and maybe LCI is another one, and so on. So I think this is basically being driven by our earlier 809 studies, where we can see that. In terms of the potentiation, when you go into the combination mix, I think potentiation is a shorter-term type of response, because you basically potentiate what is already out there on the surface. And I think we believe that you are also there, in a four week period we'll see a substantial difference, if it is really working out. It is all driven by the right exposure levels that you have to have for those compounds, and the right target organs. And I think that is the reason why we do dose range findings, to figure out how that all works.

Do you expect the results of these studies to, essentially give you proof of concept, because it sounds like it is a relatively short duration without necessarily having optimized dose?

I can (inaudible) at least, I would say that. Proof of concept is more linked to therapeutic long-term value. It could come out that way, but I think that needs to be seen.

Okay, thanks very much.

Okay. And our last question comes from Katherine Xu from William Blair.

Hi, thank you for taking my questions. I'm just curious, Peter or Bob, can you describe the profile differences between 809 and 661?

Yes, I can. So that's -- so both of them are basically molecules, number one, that are in the same class of correctors, and they bind basically to the same site of CFTR. So I think from that point of view, they are identical. The difference is tissue penetration. On the one hand so 661 has a higher tissue penetration in animals, into tissues of relevance like lung. And you have -- potentially if, that holds true in patients, which we don't know yet, a 4 point higher chance of penetration, which could impact the therapeutic benefit, if it ever comes to that point.

That is one of the things -- and we could also go on the other side, with a lower dose regimen, which will basically make the pills more -- and the compliance and convenience of the entire thing better. That is the one thing. The other thing is half-life of 661 is substantially different from 809. It has a longer half-life, and that gives you at least an option for once a day, if you ever want to go for that. That is probably the two biggest distinctions. And then there are some smaller ones, in terms of how to take the compound and manufacture it, and all those type of things, which are less relevant, because they are sort of in the same price class.

Great. And then finally, what do you know so far about the pricing of the INCIVO in East European countries? So far I think we know, in the UK it is 35,000. There is a negotiated pricing with the French government, but it is being launched right now, country by country, any information there?

Well, we can tell you that it is available in the UK and Germany and Sweden and France. The only price that we know of that is available publicly is in the UK. There will be a range of prices in Europe, depending on local factors.

All right. Sorry, one last question, if you don't mind. Just wondering about your RA program strategy going forward? Phase 3 will be very large, and involves a lot of investment. Just curious what are the thoughts there, in terms of partnering, or take it all the way yourself?

Well, Katherine, the first step for that program, as Peter said in his comments, is that we plan to do a six month study, in which we have Phase 2b study, that we expect to start at the end of this year. That's the next step. So when you talk about Phase 3, progress to Phase 3, we would like to see good data from that Phase 2b, before we commit to the breadth of the Phase 3 program, which as you know in this disease, would be thousands of patients. But that would be -- much further out, that would be 2014, or 2013 around there.

We will make that judgment at that time. But I would stay consistent to comments financially, which is if we continue to perform well, with INCIVEK. And following along with the launch of our CF opportunity, I think we're going to have plenty of financial capacity to still reinvest in the Company, and still have significant earnings. And I think the JAK3 compound gives the Company a significant growth opportunity for the 2015 plus period, which I think is very important when you look at the Company long-term.

Thank you.

You're welcome.

At this time, I would like to turn the call back over to Michael Partridge for any closing remarks.

Thank you. We will now conclude the call. We certainly appreciate you taking the time to turn in. Tonight, the IR team, joined by Ian, Nancy, Bob, and Peter will be available in the office to answer any additional questions you have. Thank you.

Ladies and gentlemen, this does conclude your conference. You may all disconnect, and have a wonderful day.