福泰製藥 (VRTX) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Vertex Pharmaceuticals Incorporated fourth quarter 2012 earnings and 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 be given at that time.

(Operator Instructions)

As a reminder, this call may be recorded.

I would now like to introduce your host for today's conference, Mr. Michael Partridge. You may begin.

Thank you, Operator; and good evening, everyone. Joining me on tonight's call are Dr. Jeff Leiden, Chairman and CEO; Dr. Peter Mueller, Head of Research and Development and Chief Scientific Officer; Stuart Arbuckle, Chief Commercial Officer; and Ian Smith, Chief Financial Officer.

Our agenda tonight is as follows. Jeff will begin with Vertex's strategy and key business priorities heading into 2013. After that, Peter will update our progress with our clinical development programs. Then, Stuart will discuss INCIVEK and hepatitis C market trends and provide some commentary on the outlook for KALYDECO in the US and Europe. To close, Ian will review the fourth quarter and full year 2012 results and our 2013 financial guidance.

After the prepared remarks, Dr. Bob Kauffman, Vertex's Chief Medical Officer, will join us for Q&A. We'd like to conclude tonight's call at 6 PM. We want every analyst who has a question to be able to ask it, so please be considerate and limit your questions to one with a related follow up.

I will 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, including our 10-K and 10-Q reports, which have been filed with the Securities and Exchange Commission. These statements including, without limitation, those regarding the market launch of INCIVEK and KALYDECO, our development plans and expectations, and our guidance are based on management's current assumptions and are subject to risks 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 these measures and a reconciliation of GAAP to non-GAAP is available in our fourth quarter 2012 financial press release, which is on our website. I would, also, refer you to the information on slide 5 of tonight's webcast.

Thank you. I will now turn the call over to Jeff.

Thank you, Michael.

Good evening. I had the opportunity to speak with many investors at the JPMorgan conference earlier this month. What I spoke about then, and what I'd like to reiterate now, is that during the last two years Vertex has undergone a rapid and profound evolution. We launched two transformative medicines in that time -- one for people with hepatitis C and one for patients with cystic fibrosis. The successful launches of these two medicines allowed us to significantly strengthen our financial position over this period. We finished 2012 with approximately $1.3 billion in cash and equivalents.

During the same period we also progressed multiple potential transformative medicines into late-stage development, and we are now poised to expand our presence in the important disease areas of hepatitis C and CF. Our evolution has positioned us for the future with a clear focus -- using innovative science to develop new transformative medicines for people with serious diseases in specialty markets.

Let me, now, take a moment to discuss the four strategic priorities that we believe will enable us to achieve this goal. Priority one -- we are focusing investment on key development programs in cystic fibrosis, hepatitis C, and autoimmune diseases. In cystic fibrosis, Vertex's long-term strategy is to provide benefit to as many CF patients as possible and to maximize the benefit for these patients with our approved and investigational medicines. KALYDECO is already approved for people with a G551D mutation in the CFTR gene. There are approximately 2,000 such patients worldwide, age six and older, that we hope to treat.

In 2013, we are conducting multiple Phase 3 and other proof-of-concept label expansion studies of ivacaftor monotherapy. Ivacaftor is the generic name for KALYDECO. If successful, these studies would allow us to treat up to 7,000 patients worldwide with ivacaftor. We also expect to initiate a pivotal Phase 3 development program, this quarter, for a combination regimen of VX-809 and ivacaftor in people with CF who have two copies of the Delta-508 mutation. These patients represent approximately 50% of the worldwide CF population, or about 35,000 people.

In hepatitis C, our long-term strategy is to develop simple, all-oral regimens with durations of 12 weeks or less that provide a high viral cure rate. In 2013, we plan to conduct multiple Phase 2 studies of 12-week, all-oral treatment regimens that include our nucleotide analogue VX-135. Our goal is to generate both safety and viral cure data in the second half of 2013 to support the start of pivotal development of one or more all-oral regimens in 2014.

In autoimmune diseases, our strategy is to maximize the value of our JAK3 inhibitor, VX-509, across multiple autoimmune diseases globally. We continue to progress our Phase 2b study of VX-509 in people with rheumatoid arthritis, and we've initiated a small Phase 2 MRI study in RA, as well, and we expect data later this year. To broaden and accelerate the global development of VX-509, we will evaluate collaborative opportunities that could provide both funding and capabilities.

Priority number two -- we will continue to invest in innovative research programs to support development of new specialty medicines for serious diseases. Vertex's research efforts are concentrated on additional advancements in CF and other genetic diseases such as Huntington's disease, as well as serious diseases in specialty markets, such as progressive multiple sclerosis and cancer. Innovative research is what creates our transformative medicines, and we will continue to support these productive efforts.

Priority three -- we plan to maximize revenues and cash flow from our marketed products, INCIVEK and KALYDECO. In particular, we see the potential for increased uptake of KALYDECO for patients in Europe and other countries outside the US.

Finally, priority four -- maintaining our financial strength to support future long-term growth and shareholder returns. Ian will discuss this in a few moments.

There are important milestones in 2013 that will allow both you and us to measure our business progress. We described these milestones to you on January 7, and they're shown here again on slide 7. In many ways, these milestones position us to provide more certainty around the market opportunities for our clinical stage medicines throughout 2013.

In summary, as we enter 2013, we are executing on a clear strategy and set of goals, and we look forward to keeping you informed of our progress throughout the year.

I will now turn it over to Peter.

Thank you, Jeff; and good evening, everyone. My comments this evening will focus on the priority development areas that we have identified for investment in 2013, those of cystic fibrosis, all-oral hepatitis C therapies, and autoimmune diseases.

Beginning with cystic fibrosis, we are pleased that both KALYDECO and the VX-809 plus ivacaftor combination regimen received breakthrough therapy designation from the FDA. While the specific implications of this new designation are not yet clear, we are committed to working with regulators to explore novel and potentially more rapid development strategies for both the KALYDECO label expansion and VX-809 plus ivacaftor combination regimens.

Pending the outcome of our discussions, we hope that this will enable us to reach more patients as soon as possible. Currently, we are working toward agreement with regulators on Phase 3 trial designs for our combination regimen to treat CF patients homozygous for the Delta-508 CFTR mutation. We expect to complete these discussions and initiate a Phase 3 program this quarter.

As for the KALYDECO label expansion studies, all of these trials are currently ongoing and we anticipate having the first data from these trials in the second half of 2013. Vertex expects to discuss with the US FDA and European regulatory authorities any potential implications of breakthrough therapy designation on the timing and content of regulatory submissions in the US and EMA to support expansion of the KALYDECO label. Also in CF, we are on track to report data from the VX-661 plus ivacaftor Phase 2 combination study in 508 homozygous patients. We plan to report safety and efficacy data from this trial, including FEV1 and sweat chloride, on each of four cohorts in the first half of this year.

Turning now to hepatitis C. In the first half of 2013, we expect to get three 12-week Phase 2 studies under way -- VX-135 in combination with ribavirin; VX-135 in combination with GSK's NS5A inhibitor, GSK805; and VX-135 in combination with the protease inhibitor, TMC435. We expect to have 12-week safety and first [SBR] data from these regiments in the second half of 2013, and our goal is to choose one or more regimens to move into pivotal development in 2014.

Now, moving to autoimmune diseases and our selective JAK3 inhibitor, VX-509. We expect to have data from the Phase 2b study in rheumatoid arthritis in the second half of 2013. Additionally, we recently initiated a 40-patient MRI study to evaluate the potential for VX-509 to improve joint health and structure in rheumatoid arthritis patients. We also expect results from this trial in the second half of 2013.

Finally, I'll note that we are in the process of analyzing and reviewing the VX-787 data from our Phase 2 challenge study in influenza, and we expect to report the results in the coming weeks.

In summary, our clinical pipeline is advancing as planned, and I really look forward to updating you as we progress.

I will now turn it over to Stuart.

Good evening, everyone. Tonight, I'd like to give you some background on our performance with INCIVEK and KALYDECO in 2012 and what we foresee as we head into 2013.

In hepatitis C, we remain the market leader, with approximately three out of four new patients in the US initiating therapy with INCIVEK -- a measure unchanged since launch. As we have said previously, in 2012, we saw treatment rates change in anticipation of the potential for new, more convenient regimens that may treat hepatitis C. This led to a reduced number of HCV patients initiating treatment, beginning in the second quarter and continuing through the rest of 2012. As a result of these dynamics, INCIVEK revenues in 2012 were $1.16 billion, with $223 million of revenues in the fourth quarter.

In 2013, we anticipate maintaining our market-leading position. However, we do expect a further decline in patients initiating treatment. We expect continued demand for INCIVEK from motivated patients who don't want to wait for treatment as well as patients who are too advanced with their disease and can't wait for treatment. Therefore, we expect INCIVEK will continue to be an important revenue contributor to our total revenues in 2013.

In the EU and in other areas outside the US, the use of INCIVO to treat hepatitis C patients increased in the fourth quarter compared to the third quarter of 2012, resulting in an increased royalty to Vertex. INCIVO is now available in 40 countries, and we expect modest growth in the INCIVO royalty in 2013, resulting from the expansion of INCIVO into new geographies and a slower anticipated rate of patient warehousing in advance of potential new therapies compared to that in the US.

Now, turning to KALYDECO. We achieved $172 million in revenues for KALYDECO in 2012, following the US launch in February. Specifically, in Q4, total revenues were $58.6 million, with the majority of those revenues derived from the US. We are treating the vast majority of G551D patients, age 6 and older, in the US, and we expect to maintain the level of our current US quarterly revenues.

We anticipate growth for KALYDECO in 2013 will come from Europe, beginning in the second quarter as a result of the previously announced access and reimbursement decisions from Scotland and England. Reimbursement discussions are progressing well in the other markets, and we expect to have completed them across the major EU markets, that is the UK, Ireland, Germany, and France, in 2013. Combined, these markets represent approximately 80% of the G551D population in Europe.

In summary, I am pleased with the performance of the commercial organization in 2012. And, as we begin 2013, we have two important medicines for patients that contribute significant revenues for our Company.

With that, I will turn it over to Ian.

Thanks, Stuart; and good evening to everyone.

Tonight I'd like to discuss our financial position and the strategies that support plans for 2013. Specifically, I will focus on our 2013 financial guidance and the basis for such guidance. A detailed discussion of our 2012 financial results was provided in the press release we issued earlier today, and I'm happy to address any aspect of those results during Q&A.

Firstly, to our financial position and how we may expect to progress through 2013. As Jeff mentioned, INCIVEK has been incredibly successful for Vertex, generating more than $2 billion of revenue since launch, and we expect it to continue to contribute significant revenues in 2013.

We expect INCIVEK revenues, combined with the expected growth in KALYDECO revenues and other revenue sources, will enable us to complete 2013 in a strong financial position, while also supporting investment into the Company. This investment will provide important data throughout 2013 to guide our future business opportunities. We are in an investment period for our Business, and we expect to return to revenue and earnings growth based on the successful advancement of our late-stage medicines.

Now to the 2013 financial guidance and the basis for such guidance. We expect 2013 total revenues to be in the range of $1.1 billion to $1.25 billion. These revenues will enable investment into our Business, while maintaining our strong financial position. Our 2013 non-GAAP operating expenses will be in the range of $1.09 to $1.15 billion and principally consist of our R&D and SG&A expenses. Our non-GAAP OpEx guidance excludes cost of revenues, charges for stock-based compensation, and expenses related to the accounting for our Alios collaboration.

Now to the components of our total revenue guidance. We expect worldwide KALYDECO revenues to be in the range of $280 million to $320 million. These projected revenues are based on maintaining our currently quarterly rough revenue rates of approximately $50 million in the US and EU revenues that will grow in 2013.

The two main factors that will impact growth are one, the time to complete reimbursement negotiation processes with each of the remaining major European countries, Germany, Ireland, France, and the rest of the UK; and two, the rate of adoption by G551D patients outside of the US. Because of this, the growth will likely not be linear. We anticipate that the first quarter 2013 KALYDECO revenues will be similar to that of the fourth quarter 2012 and that growth in revenues should commence in the second quarter of 2013.

For the combination of INCIVEK revenues, INCIVO royalties, and collaborative and other royalty revenues, we expect a range of revenues of $820 million to $930 million. We anticipate significant revenues from INCIVEK, although we do expect a continuing decline in the HCV patient treatment rates and reduced quarterly revenues compared to $223 million in Q4 2012.

With respect to INCIVO royalties, in Q4 2012 we realized $36.8 million of royalties, compared to a third quarter of $20 million of royalties, and we expect INCIVO royalty to show modest growth in 2013, compared to $118 million in 2012, consistent with the reasons Stuart mentioned earlier.

Finally, we have collaborative and other royalty revenues in 2012 of $76 million, and we anticipate a similar level in 2013. These revenue assumptions are based on existing relationships and do not include any potential collaborative and other royalty revenues. To reiterate, we are providing 2013 total revenue guidance of $1.1 billion to $1.25 billion.

Now to the operating expenses. We are providing 2013 non-GAAP operating expenses guidance of $1.09 billion to $1.15 billion. The operating expense will vary quarter to quarter. However, we anticipate that the first quarter 2013 will be similar to that of the fourth quarter 2012, given the timing and the initiation of planned clinical trials and certain marketing expenses, as well as the realization of identified cost reductions. The main components of our operating expense are R&D and SG&A expenses, and our 2013 guidance for these expenses is $750 million to $790 million and $340 million to $360 million, respectively.

I'd now like to take a few moments to provide a better understanding of this R&D investment. Essentially, you can think of it in three categories. First, we plan to invest approximately $200 million in basic research to support the creation of future medicines. This is consistent with our 2012 levels.

Second, we expect to spend between $400 million and $440 million on late-stage development programs. Over 80% of this development amount is in to support cystic fibrosis and hepatitis C and also includes significant supply-chain investments to prepare commercial supply for the potential clinical success of VX-809.

And finally, we expect to spend approximately $150 million on a variety of essential activities and obligations relating to our commercial products. These include safety, pharmacovigilance, medical affairs, quality, and post-marketing commitments for INCIVEK and KALYDECO.

Turning, now, to the 2013 SG&A guidance of $340 million to $360 million. We are anticipating a reduction in SG&A, compared with the $390 million in 2012. This is a result of reduced US marketing expenses for INCIVEK and KALYDECO and a broad review of our Business where we made cost reductions for which we expect to see the full effect in 2013.

In summary, we are committed to managing our operating expense at a level to 2012 while increasing our R&D investment to support our late-stage medicines and reducing our SG&A expenses. We believe our 2013 guidance reflects our ability to maintain financial strength while we continue to invest in our pipeline of medicines to drive future growth. We are carefully balancing these priorities.

With that, I will ask the Operator to please open the line for questions.

(Operator Instructions)

Geoffrey Porges, Bernstein.

Just a follow up on Peter's comments about the CF combination programs -- could you confirm that the 400-milligram BID information has been provided to the FDA and that you're just waiting for them to come back before starting that Phase 3 -- and by implication that you've applied to add that arm to the study?

Secondly, on 661, you mentioned the cohorts, Peter. Could you give us a little bit more color on where you are in the recruitment of the cohorts? Specifically, is the first 120 patients being recruited and being studied out to the, I think, it's 28 days, or the end of treatment, so that you're starting to get that PK/PD data in now? Thanks.

Geoff, this is Bob. I'll take the first part of the question. If you remember, the Cohort 3 was designed really to provide PK/PD data to fit into our PK/PD model as well as safety data at the dose level of 400-milligrams BID. Data have been provided to the FDA, along with our plan for the Phase 3 program; and yes, we're in active discussions with them, at this point, to finalize that program. And obviously, we'll provide further feedback once we get that information.

Great, thanks. And 661?

With respect to 661, yes, the study is well along and recruited, and we're waiting for the data to come in. As we said before, we'll be providing that for that study in the first half of the year.

Okay, I'll get back in the queue. Thanks.

Geoff Meacham, JPMorgan.

For the KALYDECO, the ongoing monotherapy trial, can you give us any updates you have on the enrollment status for the different studies? And then, maybe speak to the review timeline, given your interpretation of the breakthrough designation? I have one follow up.

This is Bob. I'll take the last part first. Yes, obviously, we have breakthrough designation, although we're working with the FDA now to determine exactly what impact that will have on those programs. With respect to the review time, I can't really give you any further update at this point. Those discussions are ongoing.

The studies are moving along very well, particularly the mutations -- other gating mutations, aside from G551D, is fully enrolled and moving along. R117H doing very well, as well, and the NF1 study, again, also doing well. So, no issues with recruitment.

Then, for KALYDECO commercially in Europe, I don't know if it's possible to get a little bit more granular with what you think the pace of reimbursement discussion will be? That will be helpful, but maybe if you could also address other regions, such as Australia that may be also similar to the [ninth] review cycle? And, maybe any other gating factors that you feel like when it comes to your European reimbursement that we could get some clarity on in the next quarter or so?

Sure, Geoff, it's Stuart. I have to say, we are pleased with the speed with which the discussions have gone; and frankly, I'm delighted that we've already been able to come to a satisfactory and positive conclusion with England. And as we said, we're expecting that to really pick up from Q2.

As you'll know in Scotland, they created a special orphan drug fund and have said that all patients with G551D mutations in Scotland will be eligible for that fund which begins in March. All I can really tell you about the other discussions is that they're very active; they're ongoing; they're very productive. Nobody has any doubts about the clinical benefit that KALYDECO brings, and we're working as quickly as we can the to bring them to a successful conclusion across the major markets in Europe.

In terms of Australia, we've filed and we're hopeful that we'll see an approval for the product this year. As you know, the process for reimbursement in Australia is as rigorous and lengthy as anywhere else in the rest of the world, and I wouldn't necessarily be optimistic that we'll be able to conclude that within 2013.

Geoff, let me just add to Stuart's comments. In my prepared remarks, how this translates to revenue expectations in 2013, I do want to reiterate that we anticipate in Q1 the KALYDECO revenues to be similar to that of Q4 2012. And, based on Stuart's outlining of the timing of approval for reimbursements in these markets, and specifically, those four major markets in Europe, we would anticipate growth starting to be seen in the second quarter of 2013.

Okay. Thanks.

Mark Schoenebaum, ISI Group.

First one is why would the FDA not allow you to include a 400-milligram BID dose in a pivotal trial, hypothetically? And number two, what should our and investor expectations be for the 661 trial? Small number of patients, no run-in, should we be expecting a FEV change or not, in your opinion? Thank you, very much.

Thanks, Mark, I'll have Bob answer the first question, and when we talk about investor expectations -- always an awkward one to set expectations. I'll take the second question.

For the first one, we've submitted data to them, and we're in discussions. I can't comment on the nature of those discussions; but obviously, in every case they'll be looking at the data we send in to verify for themselves that they believe the risk/benefit is favorable for the inclusion of that dose, and I think we'll see how that goes.

Mark, to your second question, thank you. The VX-661 study in combination with KALYDECO, or ivacaftor -- it is a different study design than the VX-809 and ivacaftor study. You've given me an opportunity just to describe the study design, but then, in terms of what that means of readouts. It is a dose escalation study, so low-dose monotherapy, moves into that low-dose combination therapy; and then, as you move through that, you move into higher doses monotherapy, and then, move in combination therapy. It is sequential dose escalating study.

We're moving nicely through it, as Bob mentioned earlier, and we would anticipate in the first half of this year providing you a top-line result of that of FEV, sweat chloride, and safety. So, we look forward to providing that data at a later point in time.

The only comment I want to make on top of that is it is a different set of patients in the monotherapy versus in the combo. It's not like what it was in 809, so there is no lead-in phase or any of those things going on.

Is that a risk, Peter -- and then I'll drop off -- that there is no lead-in phase, or am I over thinking it? Thanks.

No, there is no risk, as much as we can see it.

Thank you.

Rachel McMinn, Bank of America Merrill Lynch.

Just, I guess, to go back to the question that's been asked a couple of times on the high dose of VX-809 inclusion in the Phase 3 -- do you view that as a potential sticking point in the conversations, or is it really focused on the actual end point? Because, I think you guys have talked about the potential to have a 6-month efficacy end point, as opposed to 12 months.

Then, separately on KALYDECO 4Q sales, was all of the growth in the fourth quarter Europe, so US was flat? I just want to make sure I understand that.

Then finally, can you give us a little bit more color on your 135-ribavirin study? It says in clinical trials that you're enrolling 150 patients as a target, but I think you've talked about, initially, being a much smaller cohort. I wanted to get a sense of how many patients are really being enrolled, initially, in that study? Thanks.

This is Bob. I'll take the first and the third, and I'll leave the middle for Ian. In terms of the 809-770 combo trial, no we don't see any sticking points here. I think the only thing I'll say about some of the other points you mentioned is that, obviously, we have breakthrough status for this program as well; and clearly, the discussions we're having with the FDA may be colored by the discussions regarding breakthrough status and what impact that might have on the study. Right now, I just don't have anything to report about that, so I think I'll have to leave it that way.

For the third point about the 135 and ribavirin, yes, the study is -- we have a clear way forward to begin that trial. We have been asked to go slowly with some exploratory number of patients, initially, with very careful monitoring. We have included the monitoring in the protocol, and we're about to get that under way.

The exact patient numbers, yes, I know what's listed there. We'll be going a little bit slowly to begin with, and then we expect that that will accelerate once we have some initial data. We are quite cognizant of the need for safety data in that program to progress into Phase 3. So, we'll be looking at that very carefully as we go along.

On KALYDECO, Rachel, yes, the majority of the growth between Q4 and Q3 was as a result of Europe, as we said on the Q3 call. Back then, we had already had the vast majority of G551D patients in the US were already being treated. We added a few through Q4, as they rolled off some of the long-term extension studies and things like that, but the vast majority of the growth in Q4 was due to Europe.

Great. Thank you.

Michael Yee, RBC Capital Markets.

On the Cohort 3 of the combo study, can you perhaps describe qualitatively what you were looking for in your PK/PD analysis, and whether the data you saw there generally supported what you were looking for?

Then, on 661, I know you described the design of the study, but what is your stopping criteria -- how do you define when you would actually stop and report results?

In terms of Cohort 3, we have a PK/PD model for the combination. Really, what we're looking for is consistency with the model, and we always look for whether we're getting more bang for the buck with higher doses, and that's really part of the assessment.

Actually, I would say that that is the same philosophy regarding the stopping criteria in the 661 trial; again, we always look for a PK/PD relationship, whether we're getting plateauing of the PK and PD responses. And obviously, safety factors into the decision about whether to continue to dose escalate or not. So, it's just a combination of things. It's pretty hard to give a hard-and-fast rule.

Okay.

Liisa Bayko, JMP Securities.

Hello, Lisa. We can't hear you if you're asking.

Sorry. Can you give us a little more color -- maybe this has been asked already, but just on the discussions, let's say, in the key European countries, France, Spain, Italy -- it's really important for timing and modeling, where we might expect those to roll out? Thanks.

With France, I'll say the discussions are ongoing and our next important time point with them is likely to be around February is when they've said that they would get back to us, and they've been public about that being the date, when they would next have reached a decision. In Italy -- Italy really isn't a major market for patients with G551D, so I won't comment more on that.

Then in Germany, the product is available, currently, and is reimbursed. And, we're in discussions, as is the normal course of things in Germany, to establish the ongoing price that the product will be reimbursed at. Those discussions are ongoing. Again, tough to predict exactly when they'll come to a conclusion.

I wish I could be more precise, but just the nature of these things is that they are difficult to predict in any event. I think they're particularly difficult when you're dealing with such a breakthrough medicine, where they have a real desire to try and get them available for their patients. So, it's tough to be more specific, I'm afraid.

Liisa, something that sometimes happens in these -- let's say the discussions with -- if investors are asking about this expectation, it helps to frame the market for people. It's not always clearly understood. Approximately 80% of the G551D patients in Europe are actually in France, Germany, UK and Ireland, and then 80% of that 80% is actually in UK and Ireland. So, as you try and triangulate the timing, and let's say, the revenues -- that might give you a little more understanding of Stuart's point that we're engaged in discussions with all those countries.

Okay. Any more granularity on -- I know you had some pushback with pricing, but there's been some funds set aside with some of the other countries -- sorry, the other regions within the UK. When might we expect to start seeing revenue there?

Well, in terms of --

Ireland, Scotland --

Revenue from England and Scotland -- so Scotland, they've set aside a separate fund. In England, they've agreed to reimburse it. We expect to see commercial sales in England from Q2, and the Scottish fund is supposedly open from March 1. So really, as Ian said, we're expecting Q1 to be similar to Q4, and then Q2 is when we would expect the growth really to pick up as patients get broader access and reimbursement in those major markets like England and Scotland.

Thank you, very much.

Yaron Werber, Citi.

Just a couple questions. One, just to follow-up on Liisa. Stuart, just to clarify, in Germany sounds like you're still negotiating the price to a certain degree. As you said, the product is available, and it is being used, so I'm trying to get a sense -- are you recording most of the revenues in Germany, with a potential contingent reserve against potential discounts in the future or how do we think about that?

Second, and I hate to bring this up, I just want to be clear -- in terms of your communication and the combination data this quarter on the combo of the KALYDECO and 809 -- the high dose, the 400-milligram BID, are you going to show us the full efficacy data once you communicate whether you're taking that into Phase 3? Or, is that something that will be communicated in the future, after Q1?

On the question on Germany -- so, Germany has, essentially, a two-step process. Products are reimbursed, almost immediately following their approval; and yes, we are recording commercial sales in Germany already. And then, in parallel to the product being available, as is a standard part of the process in Germany, you then negotiate the price that the product will be reimbursed at on an ongoing basis. We're in that part of that second part of the process, currently.

And then, on the combo data, I'll pass that off to Ian to answer.

Yaron, thanks for the question. Again, it gives us a chance to continue to clarify how to expect this data disclosure. As we've said in the past, we're currently in discussions with the FDA regarding the protocol design for our Phase 3 with ivacaftor combination with 809, and that discussion is now under the umbrella of breakthrough designation. So, we're still engaged in those discussions.

Once those conclude and we have a clear line of sight for that Phase 3 protocol, we will find out whether the BID -- 400-BID dosing of 809 is included as a dose arm in that Phase 3. Consistent with that disclosure, we'll provide the basis for that inclusion in the Phase 3 protocol or its non-inclusion. So, that's the point we would expect.

Now, the basis for that disclosure would be based on the basis that we find it is included or not included within our protocol. So, we look forward to clarifying all of that in the first quarter. As we've announced, we expect to initiate this Phase 3 study in the first quarter of this year.

Yaron, this is Jeff. Maybe one comment on Germany just to make sure that you're thinking of it the way we are. As Stuart said, we are reimbursed at this point and in the pricing -- final pricing discussions.

During that first year when those negotiations are going on, there is not full uptake, nor do we expect full and rampant uptake in Germany. There tends to be a much slower uptake until formal reimbursement is attained. Just want to make that sure you're thinking of Germany as something that, clearly, is not fully penetrated, at this point, and will continue to grow when and if we get reimbursement.

Got it, thank you.

Robyn Karnauskas, Deutsche Bank.

I guess two -- for 661, so will the Part-A data that you're going to release the first half of this year give you enough information to have a sense of whether or not you're going to take that product forward, or do you really need to see the Part B and C to give you greater comfort?

Then, regarding Ireland, what gives you confidence that you can get reimbursement? Is it just the pharmacoeconomic question, or do you -- is it really a price negotiation at this point?

Peter will take the first question, Robyn, and then Stuart will follow up.

Yes, in terms of the value of 661 and our decision to move it forward, the study as is Part A would basically give us enough confidence to make a decision whether we move forward or not. I want to just reiterate at one point in time, it is not a discussion any longer whether we exchange 809 with 661. 661 is a separate molecule, and if [we decide so] has a different base for future regimens, like combination regimens with other correctors. And, 809 is basically on its own and on a fast-track moving forward.

On Ireland, I guess the first thing I would say is while the past is not necessarily a perfect predictor of the future, I would say the success we've already had with gaining access and reimbursement for KALYDECO gives me a lot of confidence that we'll reach a successful conclusion in Ireland. In addition to that, as I said, the discussions are ongoing. They're going well. There's clearly a high level of unmet need in Ireland. It has the highest incidence of G551D mutation in the world, and so there's a desire on both sides to reach an amicable solution, and I'm optimistic that we'll do so.

Terence Flynn, Goldman Sachs.

Was just wondering, in terms of, I guess -- first on the CF combo program, if you can provide us with any insight on how you're thinking about a 6-month versus 12-month end point, with respect to, I guess, exacerbations? Because, it seems to me like there's a focus on 12 month for the exacerbation data. So, I was wondering if that's in line with your thinking?

Then, on 661, was wondering in terms of the dose escalation if you could provide us with some additional details on how, and I guess, who made the decision to stop at the dose you decide to stop on? And, if you think that's enough, or if you think there's a possibility that maybe you have to go back and do some further dose exploration work, how you did with 809? Thanks.

This is Bob, maybe I'll do the second one first. The team has made a decision about the dose escalation all the way through the trial and that's who's empowered to do that. That's all I can really say about that one.

In terms of the 809-770 combo trial, I really can't comment on durations at this point. I think that's still a topic of discussion. Again, largely a part of our breakthrough designation discussion with FDA. All of the end points, if you measured, are certainly ones that are of interest to us. They are all very important ones, and they're all going to be included in the trial, but the durations, I think, are not at all settled at this point.

Matt Roden, UBS.

Going back to the 400-milligram BID dose, Bob, you mentioned PK/PD models that you'll be comparing the data against. Can you help us with what your bar is for inclusion in the Phase 3? In other words, does it have to be better than the 600-milligram QD dose, or could it be similar and justify inclusion in Phase 3. What I'm trying to get to is would you caution us against drawing conclusions about what the data implies simply by its inclusion or exclusion from Phase 3.

Then secondly, just real quick, can you update us on how you plan to address the Delta 508 heterozygous patient population? Haven't heard about that in a while.

To answer the first part of your question -- it is just a complicated equation about how one factors in all the pieces here. Remember that the cohort is relatively small. The PK/PD data tend to be more powerful than just estimates of the effects that are seen in a small study. And, we are really looking for consistency with our model, and that will determine whether we go forward or not. Clearly, the safety piece of it was also a factor, and all of that was provided to FDA, and we're looking forward to completing those discussions.

Matt, as we've said before, this isn't only about an increased overall dose -- this is Jeff. Importantly, the BID dose potentially changes both Cmin and Cmax, and we're learning a lot about what the effects of Cmin and Cmax may be on efficacy as well. As Bob said, it's more complicated than simply a higher dose. It's really how that dose is distributed and what exposures are, both at Cmin and Cmax, and that's why it was so important to confirm the PK/PD model.

In terms of the heterozygous -- I think there's no comments to be made, number one. I think we anticipate that we have basically include some heterozygous in our Phase 3 program, from a safety point of view. So, we will explore, basically, the combination there. The other thing is as we go forward with the dual corrector and other programs, that's basically the main route that we try to explore value for patients of that category.

Thank you.

Ying Huang, Barclays.

This is Christina Zhang on behalf of Ying Huang. First, I had a question around whether the decision has been made to include a VX-809 monotherapy arm in the Phase 3 trial?

Secondly, on VX-661, also wanted to drill a bit further on the stopping criteria. Did you see any dose-limiting toxicity, or have you seen satisfactory lung function improvement to stop the dose escalation?

Lastly on VX-135, have you conducted any pre-clinical tests to rule out cardiovascular [tox]?

Okay. Let's see, I'll take the last one first. And yes, as part of our standard battery of testing, we always do cardiovascular evaluations, and they were satisfactory to move the molecule forward. For 661, it's an ongoing study and I just can't really comment on the findings or -- the criteria for stopping or not stopping in that trial. When we report the results, you'll really see how we came out. In terms of an 809 monotherapy arm, again, I'm not able to comment on that until we complete our discussions with the FDA.

David Friedman, Morgan Stanley.

This is Sarah calling for Dave. On a slightly different topic, just had a quick question about the upcoming flu data. Can you give us a sense of what information we could expect in the press release, and I think the initial guidance we've got is actually 4Q, so if you could talk about what's causing the delay? Thanks.

In terms of the delay, really, the recruitment went on a little longer than we thought. There was also a little bit of a delay in some of the bioanalytic work that supports that trial, particularly, some of the viral-titer work, which is very extensive, and it just took a little longer than we thought.

Can you repeat the first part of the question?

Yes, what you should expect in the press release.

I think we talked about this once before, but clearly, the primary end points that we're interested in are the anti-viral effect measured by virus excretion, and also clinical symptomatology, as well as the safety of the molecules. I think those are the three key pieces that you'll be looking for.

Great. Thanks.

Brian Abrahams, Wells Fargo.

Thanks for taking my question, and congrats on the progress. A question on 135, obviously, one of the last [nucs] standing, I'm just wondering if there are any external assets or classes that you are still considering for potential combinations to leverage its scarcity value and ensure that it's a backbone in future combinations -- wondering if getting through that initial highly monitored cohort is gaining factor?

Then, just a quick follow up on the KALYDECO commercial dynamics in the US -- just wondering if there's any opportunity for additional use in the label indication, perhaps with slight increases, improvements in compliance, and why are those few patients who are not on it still on the sidelines?

Brian, this is Jeff. I'll take the VX-135 question. I think you remember that we said, probably five, six months ago now, that our strategy is to find the best combination of all-oral medicines for patients with HCV, both by combining VX-135 as a backbone with our own medicines, but also potentially with those of others. Of course, that led to the collaborations with JNJ and GSK, which we're very pleased with.

With respect to additional assets, if we found an asset that we thought added significant value to VX-135, we would be open to combining with that as well.

Just on the KALYDECO in the US, frankly, there's very few patients on the sidelines. The vast majority have been exposed to KALYDECO at some point in time.

In terms of compliance, is there an opportunity to increase that? Possibly, but actually, the compliance rates are remarkably high -- much higher than we would see with virtually any product I've come across in 26 years doing this. So, there may be some marginal increases we can get, but they really are on the margin, which is why we say that kind of net-net we're expecting to maintain the quarterly revenues we're seeing here in the US in Q4 as we move into 2013.

Thanks very much for the color.

Howard Liang, Leerink Swann.

Does the breakthrough designation cover all of additional indications for monotherapy KALYDECO, including patients with residual CFTR function? When should we expect to see the Phase 3 data? Could it be this year?

The breakthrough designation has the two components. One is for KALYDECO and the label expansion intent that we have, which covers basically those populations that you have mentioned. We will know when we know what we discussed with the agency in terms of breakthrough, at what point in time we have a submission criteria, and then we will also see what data we will release at that point in time. It's still ongoing discussions, and therefore, it's hard to predict.

Howard, to the second part of your question of when you could see KALYDECO monotherapy data in the other mutations, we've guided to the second half of this year, we anticipate to start seeing data from those studies.

Thank you.

Katherine Xu, William Blair.

With regard to VX-135, I'm wondering in the initial [crossover] study, how many patients do you need to get to? I might have missed this because I couldn't hear very well. How many patients do you have to get to to get a sense of safety that could be satisfactory to go on?

Then, on the pricing of KALYDECO in Europe, just curious, can you give us some kind of guidance on the pricing relative to the US -- in Germany, in UK, Ireland, and France, relative to the US, how should we think about pricing?

For VX-135, we are looking at a relatively small number of patients in that initial cohort, and then an expansion once we receive those data, and we expect that will occur relatively quickly to allow us to expand. That is in the first of the trials, the ribavirin 135 trial. As you know, we are also initiating trials with the GSK and the TMC molecules, and those will be following the initiation of the ribavirin trial.

Small number would be 20 or 100 --?

Yes, in the order of 20 or so.

Okay.

And then Katherine, on price, I'm obviously not going to talk to the specifics of the pricing discussions that we are having in Europe. What I will say is that, obviously, we view KALYDECO as a breakthrough medicine and we priced it as such for the value it brings to patients, and we believe we know from clinical trials it brings the same value to patients in the EU as it does in the US. And we're going to be, and are, defending that value in our ongoing discussions with reimbursement authorities.

Jason Kolbert, Maxim Group.

I'd like to explore a little bit about what's really next with flu? What kind of expenses you're prepared to spend in order to support that program, or whether you're going to be looking for other sources of funding outside of the Company?

If we -- thanks, Jason, for the question. If we progress forward, I think we've been very clear about our priorities for investment in 2013; and if we haven't, I'll take the opportunity to say cystic fibrosis, hepatitis C, all-oral therapies, and autoimmune diseases; therefore, that does exclude investment towards flu. We're still waiting on the data. If the data's good and signals for a progression forward, then we would use, maybe, collaborations or external monies to fund the next steps of development for the flu molecule.

Thank you, very clear.

Our next question is --

Operator, I was going to say, I think we have time for about one more question. We're right up on call time.

Phil Nadeau, Cowen and Company.

Stuart, I wanted to follow up on some of the comments you made about Ireland. I think you said that negotiation's going well there and proceeding, but the dossier from the National Center for Pharmacoeconomics is actually available online, and in that, it says that, basically, it can't recommend reimbursement at the submitted price, and you need to either fortify the clinical data -- the long-term clinical data, suggest a mechanism, such as performance-based risk sharing or significantly cut the price. So, can you talk a little bit more about why Ireland is going well, and what the next steps are there, and when we might get clarity on when or if they're going to reimburse?

Sure, just to set expectations, these reimbursement-type discussions have a number of phases. There's usually an evaluation of the clinical benefit. That's always been unanimously positive for KALYDECO. Then, there is often an assessment, from a cost-effectiveness point of view, and then you get into a more substantive discussion about the data and the discussions on price.

And, all I'll say is that those discussions continue; they're ongoing. This is all part of the process. These things aren't linear. You get these kind of tos and fros; and as I say, I remain optimistic that we will reach a successful conclusion in Ireland. Exactly when that is, I can't say, but I remain optimistic.

Okay, and could you give us some sense of what additional data you have to submit to them, either on the long-term clinical benefit or a performance-based risk sharing?

I really can't go into the details of the data that we're submitting.

Okay, thank you.

Thanks, very much, everyone, for listening tonight and for your questions. We will be in our offices tonight, following the call, for any follow up. Jeff will provide the final word.

Yes, thanks, Michael.

I think, as you heard tonight, we feel that we're very well positioned as we go into 2013. We have a strong financial position, we have two products that are performing well and we expect to continue to perform well, and we have a late-stage pipeline that's advancing very nicely with a number of milestones coming up through the year that will allow us and you to judge our progress. We look forward to updating you as we get those milestones, and we're looking forward to 2013. Thanks.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.