福泰製藥 (VRTX) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for your patience. You've joined the Vertex Pharmaceuticals Incorporated first-quarter 2014 financial results conference call.

(Operator Instructions)

As a reminder, this conference may be recorded. I would now like to turn the call over to your host, the Vice President of Investor Relations, Mr. Michael Partridge. Sir, you may begin.

Thank you, operator, and good evening, everyone. Joining me on tonight's call are Dr. Jeff Leiden Chairman and CEO; Dr. Jeff Chodakewitz, Chief Medical Officer; Stuart Arbuckle, Chief Commercial Officer; and Ian Smith, Chief Financial Officer. Our agenda tonight is as follows.

Jeff Leiden will begin by reviewing Vertex's strategic business priorities for 2014 Then Jeff Chodakewitz will review our clinical progress in cystic fibrosis, including the results of the study of VX-661 in combination with KALYDECO and G551D F508del patients. Dr. Chodakewitz joined Vertex at the start of 2014 and we are happy to have him join us on this and future calls.

Next, Stuart will discuss KALYDECO product revenues and provide some commentary on the outlook for KALYDECO growth in 2014. To close, Ian will review the financial results and discuss our updated financial guidance. Joining us for Q&A are Dr. Bob Kauffman and Dr. Peter Mueller. We plan for the call to run for a total of one hour.

(Caller Instructions)

This conference call will include forward-looking statements, which are subject to risks and uncertainties, including those discussed in detail in our reports filed with the Securities and Exchange Commission, including our 10-K and 10-Q. These statements, including without limitation, those regarding the performance of 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.

Information regarding our use of GAAP and non-GAAP financial measures and a reconciliation of GAAP to non-GAAP is available in our first-quarter 2014 financial results press release. This press releases is on our website and I would also refer you to slide 4 of tonight's webcast. Thank you. I will now turn the call over to Jeff Leiden.

Thanks, Michael, and good evening, everyone. Vertex is in many ways a Company in transition. We have made cystic fibrosis a clear focus of our business and we've made a decision to no longer invest in hepatitis C. At the same time, we're continuing to invest in early-stage research to identify compounds in CF and other areas that could become transformative medicines for patients with serious diseases, as well as opportunities for Vertex growth.

This transition to Vertex business represents our continued execution against three strategic priorities for 2014. I talked about these priorities earlier this year and I'd like to review them again now. First, focus on driving forward our cystic fibrosis development programs to enable the launch of multiple transformative CF medicines globally. Our clinical and commercial teams have made significant progress in CF already this year.

For example, we have expanded the US KALYDECO label to include additional patients. We have now completed dosing in the Phase 3 studies of V-X809. We have recently received orphan status for VX-661 and we are today reporting positive clinical results for a study of VX-661 in patients heterozygous for G551D and F508del.

Second, continue to invest in research. Internal research is a critical growth engine for Vertex and we expect that it will produce more transformative medicines to provide sustainable growth in the future. And third, maintain financial strength so that we can continue to invest in the discovery and development of our new medicines. We ended the first quarter with more than $1.3 billion in cash and with KALYDECO revenues of approximately $100 million, that we expect to grow through the year and in future years. This financial position supports our investments for future growth.

Our goal in CF is to treat as many people as possible and to enhance the benefit for those that we treat. Jeff Chodakewitz will give you more detail on our recent CF clinical progress, but before I turn it over to him, I would like to acknowledge that today marks the start of CF Awareness Month and recognize all the patients, families, doctors, nurses, and caregivers who are involved in the treatment of CF. Thank you for your continued support as we seek to improve the lives of more people with this devastating disease. Our continued progress in CF clinical development is a strong sign that our commitment to people with CF is unwavering. With that, I'll turn it over to Jeff.

Thanks, Jeff and good evening. It's a pleasure to speak with you all today. I'll provide an overview of some important progress we've made with our three CF development programs -- specifically ivacaftor monotherapy, lumacaftor and ivacaftor combination therapy, and VX-661 and ivacaftor combination therapy.

Let me begin with ivacaftor monotherapy -- our clinical and regulatory efforts are focused on demonstrating clinical activity in additional patients that may benefit from this medicine. In February, following approval from the US FDA, we began treating patients with eight additional mutations with KALYDECO. These are all mutations for which in vitro data predicted clinical responsiveness to KALYDECO. We submitted an MAA variation to the European Medicines Agency and expect to receive an opinion from the CHMP for these additional gating mutations around mid-year.

An additional mutation for which we are seeking ivacaftor label expansion is R117H. As you may recall, we announced results in December from a Phase 3 trial in this population. We did not achieve statistical significance in the primary end point for the overall population of this trial but ivacaftor did produce a statistically and clinically significant improvement in FEV1 and other measures in a prespecified subpopulation of participants 18 years of age and older.

We plan to submit an sNDA and MAA variation for people with CF ages 18 and older with at least one copy of the R117H mutation. The sNDA submission is planned for mid-year, with the MAA variation to follow in the second half of 2014. We expect to continue our discussions with the FDA following our sNDA submission. We estimate that there are more than 700 patients age 18 and older worldwide with the R117H mutation.

We also believe that ivacaftor may be able to help other patients who have residual CFTR function. We are conducting a proof-f-concept study in these patients and we are on track to report results later this quarter. In our view, a successful result in this study of approximately 20 participants would lay the groundwork for pivotal studies of ivacaftor in patients with residual CFTR function.

Finally, we expect to report results from our pediatric safety study of ivacaftor use in two- to five-year-olds with gating mutations in the third quarter. All patients in the pediatric study who have completed 24 weeks of treatment have now progressed into the rollover study.

Moving to our lumacaftor ivacaftor combination program, the six-month dosing period is complete for the Phase 3 traffic and transport studies in patients age 12 and older who are homozygous for the F508del mutation. We are on track to report 24-week results from these studies around mid-year. If these studies are successful, we expect to file an NDA and MAA later this year.

In traffic and transport, we are seeking to demonstrate a statistically and clinically significant improvement in absolute FEV1, the primary endpoint of the study, and also benefits in important secondary endpoints, including weight gain, pulmonary exacerbation and CF Q-R. We estimate that our studies are more than 90% powered for an absolute improvement in FEV1 of 3% from baseline compared to placebo at week 24.

In addition to lumacaftor, we are developing another first-generation corrector, VX-661. Our principal strategy with VX-661 is to develop it as part of a future triple combination therapy with a next-generation corrector and a potentiator. Dosing has begun in our 12 week study of 661 plus ivacaftor in patients 18 and older who are homozygous for the F508del mutation.

We expect to enroll approximately 40 patients who will be treated with 661 plus ivacaftor or placebo. Our goal of this study is to assess the safety and efficacy of 661 plus ivacaftor over a longer duration of treatment. If successful, this study would be enabling for future development of VX-661 for use in a triple combination or potentially to progress it as part of a dual combination.

Today Vertex announced results from a proof-of-concept study of the corrector 661 in combination with ivacaftor in CF patients who have the G551D mutation on one allele and the F508del mutation on the other allele. The basis for exploring the VX-661 plus ivacaftor combination in this population is based on in vitro observations from HBE cells, in which adding VX-661 to ivacaftor improved chloride transport. The purpose of this trial was to see if the improvement in CFTR function that we observed in the lab could translate into a signal of clinical efficacy in the G551D F508del heterozygous population.

We dosed VX-661 as 100 milligrams daily in patients who were already taking 150 milligrams of KALYDECO twice daily for an average of one year. We were testing this clinical hypothesis for the first time and were not sure if we would be able to detect the signal. The patients that we enrolled were G551D patients who had already been receiving commercial KALYDECO and therefore we are likely to have already seen a significant clinical benefit from taking this medication. Also the study was small. We enrolled just 18 patients and the duration of therapy was short, just 28 days for which VX-661 would be added on top of ivacaftor.

The results do, in fact, show a clear signal of efficacy. There was a mean 4.6 percentage point absolute improvement within group in PPFEV1 through 28 days. The relative FEV1 improvement was 7.3%. These improvements were both statistic statistically significant. We also saw a small reduction in sweat chloride on treatment within group on, with a P value of 0.053. FEV1 sweat chloride returned toward baseline in the four weeks following completion of the 661 treatment period. These off-treatment effects were statistically significant within group as well.

In this study, four patients already receiving KALYDECO were randomized to placebo to maintain study blinding. From a safety perspective, the regimen was generally well tolerated over 28 days and all 18 patients completed the treatment period. The most common adverse event in the treatment group were cough, pulmonary exacerbation, headache, and upper respiratory tract infection. And we expect to present more details on these results at a medical meeting in 2014.

For us there are really three important takeaways. First, once again in vitro data with our CFTR modulators has been predictive of a clinical benefit in a specific patient population. Second, correctors like 661 appear to be clinically active on a single F508del allele. And lastly, these results suggest to us that treatment for heterozygous patients may be further enhanced with CFTR modulators that are tailored toward each allele.

Based on the data announced today from this study and pending the results of the 12-week study, we could decide to develop VX-661 as part of the dual combination for certain heterozygous patient groups. Also based on these data, we plan to discuss with global regulatory authorities the potential approval pathway for VX-661 in combination with KALYDECO for people with CF who have the F508del mutation and another mutation known to respond to KALYDECO alone. In summary, I'm pleased with our progress with our CF development programs and I look forward to updating you throughout the year. With that, I'll turn it over to Stuart.

Tonight I'll report on first-quarter product revenues and outline our expectations for KALYDECO revenue growth in 2014. KALYDECO generated $100 million in worldwide net revenues for the first quarter, including US sales of approximately $56 million and International sales of approximately $44 million. This represents an increase of 61% from revenues of $62 million that we reported for the first quarter of 2013.

The reason for the decline from the $109 million we reported in the fourth quarter of 2013 was the favorable impact of stocking and other nonrecurring business adjustments in the fourth quarter that we discussed on our quarterly call in January. We continue to see a very similar level of underlying demand and strong patient adherence to treatment.

We expect KALYDECO revenues to grow through 2014, beginning in the second quarter, based on the following anticipated key factors. First, label expansion. Since receiving approval from the FDA in late February for eight additional mutations, we have seen strong uptake, similar to what we saw in patients with the G551D mutation. We expect uptake to continue as we seek to reach the vast majority of the approximately 150 newly eligible patients in the US by year-end.

We have filed an MAA variation with the EMA for a similar label expansion and currently anticipate approval in the second half of 2014. Following EMA approval, we will seek reimbursement for these new patients, both in countries where KALYDECO is already formally reimbursed such as France, and in new countries like Italy where, because there are so few G551D patients, the medicine has not yet been formally reviewed. There are approximately 250 eligible people with these additional mutations living in the EU.

A second key factor of KALYDECO growth is geographic expansion from securing public reimbursement in Canada and Australia. The reimbursement process is unfortunately taking longer than we, and more importantly, people with CF wanted. Reimbursement discussions in both countries are active and ongoing and our goal remains to get this transformational medicine to all eligible children and adults as quickly as possible. There are approximately 300 people with the G551D mutation in Canada and Australia, and we know they and their families are anxiously consciously awaiting a positive outcome from these discussions.

To summarize, we expect label and geographic expansion to enable us to grow our KALYDECO revenues beginning in the second quarter and continuing throughout the year. This growth is reflected in our KALYDECO net revenue guidance, which we are maintaining. I look forward to updating you on our continued progress throughout the year and I'll now turn it over to Ian.

Thanks, Stuart and good evening to everyone. Tonight I would like to discuss our current financial position, our first-quarter 2014 results, and our updated 2014 financial guidance. During the first quarter, we further prioritized our development activities towards cystic fibrosis. Our financial results and guidance reflect this prioritization. As we enter the second quarter, we are a Business primarily funded by CF revenues in a strong cash position. We are investing in the discovery and development of medicines for CF and the creation of new medicines in other areas.

Now to our cash position. We finished the quarter with over $1.3 billion in cash. This balance sheet strength, combined with the expected growth in our KALYDECO revenues, supports our business investment, but still allows us to exit 2014 with a strong balance sheet. We continue to manage this cash position as a priority, as it enables the transition of our Business to growth and profitability, driven by our CF medicines.

An example of our prioritization to protect our financial strength is shown by our decision not to proceed with VX-135 in hepatitis C, amending our arrangement with Alios, and our decision to outlicense the compound. This is all reflected in our updated 2014 financial guidance that I'll discuss in a moment.

Now to the first-quarter 2014 results. We generated $108 million in total non-GAAP revenues in the first quarter. $100 million of this was KALYDECO. Based on our decision to end further investment in hepatitis C, as announced this evening, the HCV-related revenues totaling approximately $10 million are excluded from non-GAAP revenues.

Now to our operating expense. Our first-quarter total non-GAAP operating expense was $234 million, down $41 million or 15%, from Q1 2013. The first-quarter non-GAAP operating expense includes $182 million of R&D expenses compared to $195 million in the first quarter of 2013 and $52 million of SG&A expenses compared to $80 million in the first quarter of 2013.

These reductions of 7% and 35%, respectively, reflect our commitment to prioritization towards the CF medicines and the protection of our financial position. Our GAAP net loss for the first quarter was $232 million or $1 per diluted share. Our non-GAAP net loss was $151 million or $0.65 per diluted share.

Turning now to our financial guidance and, firstly, our revenue guidance for the full-year 2014, we are maintaining our KALYDECO guidance of $470 million to $500 million that we provided earlier this year. Achieving this guidance depends on three key drivers of growth, the continued uptake for the eight additional mutations in the US, and achieving reimbursement for the G551D patients in Australia and Canada, and the approval for other additional gating type mutations in the EU.

With the exclusion of our HCV revenues, we are revising our total non-GAAP revenue guidance to be in the range of $520 million to $550 million. This range includes some revenues for the potential R&D collaborations. Based on our move away from HCV and further focusing our investment towards CF, we are reducing our operating expense guidance. We now anticipate 2014 non-GAAP operating expenses to be $890 million to $930 million.

Additionally, I will just note that Q1 non-GAAP OpEx for R&D and SG&A provide a reasonable basis for modeling our expenses during the rest of the year. Total spend may declined slightly towards the end of the year based on clinical development activities. In summary, we are committed to completing 2014 with a strong balance sheet and managing our operating expense at a decreased level compared to prior years, while we grow our CF revenues. With that, I'll ask the operator to please open the line for questions.

(Operator Instructions)

Geoff Meacham, JPMorgan.

Got a couple on the 661 KALYDECO combo study. I'm assuming that the patients on the placebo arm, on just a KALYDECO monotherapy, were stable. That data isn't in the slides but I'm assuming that, that has largely unchanged over the evaluation period?

Geoff, it's Jeff Chodakewitz. It's important to step back and say why those patients were in there. It's really -- it was only four patients, as we mentioned, and they were really there for blinding. So we really focused on the within group analysis that you saw. It wasn't really intended as a controlled trial with the placebo group. They were just there so maintaining the integrity of the blind.

I see. Okay, that makes sense. And then does this data change your view ultimately about the need for a second corrector and I joined the call a little bit late so I wasn't sure if you guys gave on update on the next-gen corrector behind 661? Thanks.

Hi Geoff, it's Jeff Leiden. Our view of 661, first of all, has been enhanced by this data. We are learning a lot as we progress 661 and from this trial we learned a couple things. One, that it's possible to correct a single delta-508 allele, at least in these patients with a G551D on the other allele, and second, that you could do that on top of patients who have been stably on KALYDECO for quite a bit of time, most of the patients have been it on for a year or so. And that was an important finding.

We're still thinking about 661 as part of a potential triple regimen to get the enhanced benefit for everybody, that's homozygotes and heterozygotes, but that what this data tells us that 661 one may also have a role in certain of these heterozygous patients and that's worth exploring. You'll remember, we talked about this being an interesting trial from that perspective a while ago.

Got you. Okay. Thanks.

Geoff Porges, Bernstein.

I'd just like to follow up on the 661 combination. So first, Jeff Chodakewitz, you mentioned the control group, but could you tell us whether there was a difference in the cough, exacerbations, and other adverse events between the control group and the treatment group? And then, secondly, the G551 patients, are they typical of G551D patients? They seem to have a pretty low FEV1 as a starting point in this trial. And then, just to push a little bit more, why wouldn't you be contemplating now taking 661 with the standard dose of KALYDECO into a larger study in the homozygous delta-F508s?

In terms of the placebo patients, again, it was really there for blinding. That's really what our intent was. In terms of the severity, it was a little bit lower, as you said, than perhaps we've seen in some of the studies but it's well within the range and the groups were -- it was pretty balanced and it was really just a -- we think it was really pretty representative of what we've seen in our 551D studies. I'm sorry. Your last question was around--?

Why wouldn't you --

Next question is 661, Jeff, and whether we consider going into a larger study for the delta-F508 homozygous?

For us, really, we think we're just getting this data. We really have to understand it a little bit better. It's early days. We also have the ongoing 12-week study for 661 and ivacaftor in the F508del homozygous population. And what we're going to do is really step back when we get those results and really say, what's the right path forward for 661?

Okay. Look forward to that. Thanks.

Robyn Karnauskas, Deutsche Bank.

This is Alethia for Robyn. Just another 661 question, but just curious if this information that you have about 661, how does this change your perspective on acquiring or looking at complementary assets for your CF program?

Jeff's going to take that question in terms of our portfolio approach.

We've said all along that we want to continue our leadership position in CF and that's going to come in two forms. One is to continue to develop our expanding portfolio of medicines, so not only 809 and 661, but next-gen correctors, which we think are going to be very important in both expanding the reach and expanding the benefit.

But the other thing is we have a very active, as you can imagine, ongoing surveillance program of all of the potential other assets out there in CF. And we'll continue to watch that and make sure that we're either partnering, or acquiring, or doing whatever we can to get the best regimens we can in combination with our drugs.

Great. Thanks.

Mark Schoenebaum, ISI Group.

Thanks for all the detail on the call. I find it helpful, especially the commercial commentary. I just wanted to -- on the placebo issue, would you guys be willing to characterize the behavior of -- I know it's only four -- but would you guys be willing to characterize the behavior of the four placebo patients, maybe give us some reassurance that they didn't behave as well as the treated patients or something like that? Then my second question was in the data where you removed the drug, were both drugs removed or was that just 661? Thanks a lot.

Thanks, Mark. Sure. Let me try to give you a little more color. Again, it's four patients. I would say that what we observed in those patients was really that there were modest shifting around. It was variable, as you'd expect, in this disease with four patients getting placebo, and it was very typical of what we've seen in general with smaller cohorts of patients receiving placebo. So hopefully that gives you a little better flavor of that.

So modest would not be 4.6% on an absolute basis, I would imagine?

Correct. It's modest changes.

Thank you.

The other piece in terms of the study design was really that we started and then stopped the VX-661. KALYDECO, which the patients were receiving in the marketed setting, was continued throughout the study. And in the follow-up period, they just stayed on their KALYDECO.

Great. Thank you.

It's Jeff Leiden. We've obviously had a number of questions on this and on the placebo group. And maybe let me take a step back, if you will, as I often do on these Phase 2 data, and tell you how we look at this data, which is we always look at the entirety of the results and we try to look at it from every direction to see if we're seeing a consistency and to see if we're seeing statistical significance. ¶ When I look at this data, the thing that is very convincing to me is that when you start by looking at what we saw in the lab in cells, which was this additive effect of 661 on KALYDECO in exactly these cells -- G551D, delta-508, that again has translated into what we're seeing in the clinic, and obviously now there were five, six, seven trials like that where the in vitro results translates into [these in vivo results].Then we saw the on effect when we added 661 to the patients who were stable on KALYDECO and, honestly, with only 14 patients, surprisingly we saw a statistically significant on effect.

And then of course, the off effect is important. We removed the 661, left the patients on KALYDECO, and we saw a statistically significant decrease and that pattern in the Phase 2 trial is always very important. And then, finally, it correlated with sweat chloride, which always gives us confidence that what we're seeing is an on-mechanism effect. So when I look -- when I walk around the trial and look at it from all perspectives I see a consistency of statistical significance and this nice correlation from in vitro to [in vivo]. That's what really gives us the high level of confidence.

Thanks so much.

Michael Yee, RBC Capital.

A quick question. First, I will ask a question not related to placebo, which is, in your ongoing traffic and transport study, I know they're still thinking about secondary end points and Wall Street is looking at how to evaluate that. Have you done any work around correlating weight gains and exacerbations and how that correlates to FEV1 effects? Obviously, we know what the results were in the KALYDECO monotherapy studies and the effects there and what that translated to for weight gain exacerbations, but given potentially less effect in the delta-508 homozygous population, how do you predict what would happen there where we [find a bit blind]? And I have a follow-up.

It's Jeff Chodakewitz. Let me take a start your question. I don't think we looked, recently at least, at -- in a formal way at correlations between these different measures, but I do think you raise a couple of important points. First of all, that we have to really understand the totality of the disease and really we're assessing the benefit for patients on all of those endpoints.

It's really not just about any one of them, but as you imply, it's really about understanding all of them and then understanding the pattern and seeing what benefit the drug [brings]. We do have a set of secondary end points that we have preplanned and prespecified and that's going to include a number of important outcomes, like BMI as you're talking about, in terms of pulmonary exacerbations as well as patient reported outcomes like CF Q-R. So we're really going to take a look good look at all of that and take the time to really understand all the results.

Okay. And then the follow-up is, I'm sorry I have to sneak in one more, on the placebo [bled palm]. These patients in the study, they knew it was a randomized study versus placebo. They didn't know the exact randomization. I'm just trying to think about how much placebo effect there really would be given the randomization of seven to two?

People were informed, of course, that was a placebo-controlled study. The patients knew that and they [formed] informed consent but as is the intent, we were very careful with the placebo so they would not be able to detect which one they were on.

Okay. Thanks.

Terence Flynn, Goldman Sachs.

First, just was wondering on the -- again, sorry to go back to it, but the placebo group in the 661 combo trial, can you give us any sense of the sweat chloride data in those patients? I know you said it was -- that it sounds like the data bounced around a little bit, but just wondering if you could characterize that on a basis versus what you saw in the treatment group? And then maybe just remind us -- I know you guys had changed the endpoint of the Phase 3 combo study for KALYDECO 809, can you just maybe give us some background there of what drove that decision again? Thanks a lot.

Sure. Again, in terms of the sweat chloride in the placebo patients it was quite -- it was variable. There were modest changes. Again, very typical of what you'd expect to see with a small number of patients receiving placebo, and that was true across all the measures.

Plus even KALYDECO was placebo.

Sorry. Yes. They received placebo on top of KALYDECO. In terms of the Phase 3 endpoint change, just maybe so I am clear, which -- can you say a little bit more about which aspect of it that you wanted me to comment on?

Sure. You guys had switched from a relative to an absolute improvement on that [Phase C]. Was just wondering again what drove that decision?

Right. We think, in fact, both measures are important. We -- the specifically shifting to absolute was based on a request that we got from the FDA, but we are going to have relative as a key secondary measure. That's really the basis for our change.

Brian Abrahams, Wells Fargo.

First question on biology, do you believe that the increase in group FEV1 and the 661 KALYDECO study is due to enhancements of the G551D CFTR function or an action of the combo on the F508del CFTR? And then, just another question on placebo -- sorry about that -- but I realize the study wasn't powered or designed this way, but if you were to do a statistical test on the 661 group versus placebo, just given the variability you described for the placebo and the statistical significance on the in-group effect for the drug arm, would it be safe to say that placebo-adjusted mean FEV1 improvements would have been also been statistically significant? Thanks.

It's Peter speaking. I'll answer the biology question. The belief that we have -- and there is some in vitro data that justifies that is that adding a corrector to the mix enhances trafficking of the CFTR protein to the surface. So part of the additional increase in activity that you see here is basically enhancing the amount of CFTR protein to the surface. When it is on the surface, it also gets potentiated by KALYDECO, so therefore you get basically a double effect. Enhancing, trafficking and--

Peter, the question was, do we believe the effect was predominantly on that G551D allele or the 508 allele and we believe the effect was predominantly on the 508 allele from everything we see have seen in vitro.

Yes. That's correct.

Jeff, do you want to take the second question? Or the, I don't know, 100th question (laughter)?

I actually think that probably we've covered this quite completely. We think that the important analysis that we've talked about and that's Jeff Leiden has referred to as really the within-group analysis, both in terms of the sweat chloride and FEV1, the on and the off.

Okay. Thanks.

Ying Huang, Barclays.

I'm not going to beat a dead horse by asking about placebo again. First of all, can you tell us, you plan to file R117H indicating here. Is that based on the recent feedback from FDA and also EMA? And then also secondly, also, I noticed that in this trial, you only tested 100 milligram dose for VX-661. Have you determined that, that's going to be the dose you will take VX-661 forward, going into a potential pivotal trial? And then lastly KALYDECO, can you talk to us about the underlying demand by, for example, bottle dispensed in 1Q over 4Q last year, and also maybe patients on therapy, even with though we know there's an inventory drawdown here? Thanks.

It's Jeff Chodakewitz. Let me take the first couple of those and I'll pass it on to Stuart. In terms of the R117H, we can't comment on our discussions with the FDA or speak on behalf of the FDA. As we presented, we think that the data coming out of that study for the patients who were greater than 18 was both statistically and clinically significant, recognizing that we did fail on the primary endpoint and we plan to file based on that analysis and we'll have ongoing dialogue with regulatory agencies.

In terms of the dose of 661, it was very early in our program. That was the dose that we studied, but I don't think we're in a position yet to say that we've decided on what a VX-661 dose would be.

And on revenue, the fourth quarter of 2013 was inflated by some one-off business adjustments. The first quarter was negatively impacted by some of those same impacts such as increased stocking in the fourth quarter. The underlying patient demand is absolutely rock-solid and was very similar in terms of total patients, in terms of compliance, persistence, and all those sort of things between the two quarters.

Thank you.

Katherine Xu, William Blair.

(Operator Instructions)

Howard Liang, Leerink.

I have a couple of questions. One science question, the other one commercial. In the lab, can you remind us, did VX-661 have a bigger effect in the G551D F508del heterozygous cells or 508 homozygous cells? How do you think about the difference between G551D, 508 heterozygous versus homozygous? Why a positive signal that you saw here may or may not have read-through for the upcoming traffic transport studies?

Howard, it's Jeff. We don't mean to imply that this signal has implications directly that we can read out in the upcoming traffic and transport. So if you heard that, that's certainly not our implication. We believe that there's a lot of data that supports the upcoming traffic and transport results from the in vitro data to the in vivo data and that's really where our confidence comes for from for traffic and transport.

What we did learn here that was very, very important is the patients who are stably treated on KALYDECO, with all of the benefits they get on the G551D allele who also have 508 on the other allele can see enhanced clinical benefit by adding in a corrector. And that was obviously a big question in our minds -- could you translate that out to an improvement in FEV1 once you'd already fully treated the 551D allele? And the answer from this study is clearly yes and that does have implications for how we think about developing 661, but not the traffic and transport.

Can I just follow-up? Why wouldn't it have read-through to traffic and transport?

The read-through that we had before, right? In other words, we know that corrector plus potentiator is effective in patients that have Delta F508 alleles and we've seen that in 809 and in multiple studies and five Phase 2 studies and we've seen it now with 661. So if you said we have yet one more study that shows a corrector plus a potentiator can enhance 508 function, yes, it does, but we had a lot of evidence there. Where we didn't have a lot of evidence is what happens when you add a corrector on top of KALYDECO in a 551D with one 508 allele? We just didn't know what was going to happen there. That's really what we learned from this trial.

Okay. That makes sense. Can I follow, commercially, most G551D have delta-508 on the other allele, so when you add 661 to KALYDECO, do you expect to realize more revenue per patient, and do you think the market can bear higher costs than KALYDECO?

You're correct, about 70% of them have 508 on the other allele, the G551D patients. In terms of pricing, much too early to talk about that. We literally just got this data in the last few days. The thing we're really excited about is the fact that we appear to be able to be bringing additional benefit to patients who are already doing well on KALYDECO and that's about the maximum take-home you can take right now. It's really much too early to comment on what pricing implications that may have.

Thanks very much.

Matt Roden, UBS.

I had 12 placebo questions lined up, but you've answered all (laughter) so I'll ask something else. Congrats on the 661 data point. So if you integrate everything you know about the correctors, all the preclinical and clinical data, do you have any basis for thinking about how the benefit, assuming there is one, changes over time, once you get out past four weeks?

We have two four-week observations of combination therapy. I'd like to get your thoughts as to whether or not you think there's a basis for believing the benefit can increase, stay the same, or maybe wane as you go out to 24 weeks past the four-week readout? I know we have to do the experiment, but I'm just wondering if you have a basis for a view on that?

I wish I could give you a real data-based answer. I just can't. At this point, what we have is four-week data. The only relevant piece of data I can give is what we know about KALYDECO, right? Which is now we have multiple years, up to four to five years in some patients, some of which has been recently published, in which we're seeing a tremendous stability of the response starting at two weeks and going out multiple years, but obviously that's KALYDECO, that's a potentiator, and unfortunately we just don't have longer data than that.

We'll see the first evidence of this, obviously, with traffic and transport. And then as Jeff said, the 661 plus KALYDECO three-month trial is going to be very, very important. First, obviously, for safety, but also because it's the first time we're going to see that three-month data with 661. Rather than speculate, I'd rather just show you the data when we have it.

Okay. And then, on the multiple sclerosis remyelinating program, you previously described this as further along than your other pre-clin programs, just wondering if this is something we could see in the clinic this year?

Matt, you asked the same question on the last call, but yes, we do have program in this area. It is early and there will be a time when we give you more information on that.

Thanks very much.

Liisa Bayko, JMP Securities.

You talked about now exploring a regulatory pathway for the combination of 661 and KALYDECO in that ideal situation where you have someone that responds to KALYDECO -- an allele that responds to KALYDECO and another allele that's 508 -- sorry, another allele that's -- yes, 508. Can you maybe talk about what the patient population size is for that just so we can have a better sense?

There's two ways to think about that. One is in the G551D patients where Stuart mentioned before, somewhere between 65% and 70% or so of patients who had G551D on one allele had 508 on the other allele, so that's directly applicable to what we showed today. The other one, though, would be other KALYDECO-responsive allele, such as gating and residual function.

So the math that's a reasonable thing to do is to assume around 65% to 70% of all those patients with a KALYDECO-responsive allele on one side will have 508 on the other side. The thing we don't yet know is what is really the numerator there -- how many of all those residual functions are going to be responsive to KALYDECO? That's what we're going to figure out as we begin to get the results from these [other trials]. Did that answer your question okay?

It does. Thank you very much.

Brian Skorney, Robert W. Baird.

Congrats on the data. Very compelling. The only thing I'm questioning -- I thought this was going to be a high hurdle because the patients were always on baseline KALYDECO. I would have expected them to be relatively healthy, but just on the FEV1 measurement, it actually looks like they're sicker than patients who are enrolled in the original KALYDECO Phase 3 study who are on nothing. So can just you help us put us in context how sick these patients really were, even though they were on KALYDECO, and how meaningful the improvement winds up being from the addition of 661?

It's Jeff, Brian. First of all, it is a high hurdle, as you said. We were not sure, given that and the fact that a very high proportion of patients who get KALYDECO, respond. We were not sure that we'd be able to show an improvement. In terms of the baseline, when we look back, we do see some variability, again, in terms of where patients end up after a period of time.

The patient's baseline characteristics here were a little lower, but really not out of the range that we might expect to see. Again, the fact that they were on stable KALYDECO for an average of about a year, as we talked about, that's really -- just emphasizes the high hurdle that the small study had for showing a benefit. And that's why we're enthused about the results.

Okay. Thanks, Jeff.

Ravi Mehrotra, Credit Suisse.

This is Koon, actually, asking a question on behalf of Ravi. I just wanted to know if you'd comment on the range in the changes you saw in the absolute FEV1 and sweat chloride? Thank you.

I really think, as we said, this is really very early results. It's a small study. We're really going to have to continue to evaluate it. We will be presenting the data in a scientific forum in the coming year.

Okay. Thank you very much.

Thanks for joining us this evening. And we look forward to catching up with most of you soon.

Ladies and gentlemen, that does conclude Vertex Pharmaceuticals Incorporated first-quarter 2014 financial results conference call. You may disconnect your lines at this time. Have a great day.