福泰製藥 (VRTX) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Vertex Pharmaceuticals Incorporated third-quarter 2014 financial results.

(Operator Instructions)

As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Michael Partridge, Head of Investor Relations. Please go ahead.

Thank you, operator, and good evening, everyone. Joining me on the call tonight are Dr. Jeff Leiden, Chairman and CEO; Stuart Arbuckle, Chief Commercial Officer; and Ian Smith, Chief Financial Officer. Dr. Jeff Chodakewitz, Chief Medical Officer, will join us for Q&A.

Our agenda tonight is as follows. Jeff will review the progress with our cystic fibrosis medicines in the context of our broader corporate vision; Stuart will review the third-quarter performance of KALYDECO, and will also discuss preparations for the launch of the lumacaftor-ivacaftor combination; and to close, Ian will review the third-quarter financial results, and provide commentary on our expected financial profile moving forward. We will then open the call for your questions.

We expect the call to run for no more than 45 minutes. You can access the webcast slides by going to the events section of the Investor Relations page on our website, vrtx.com

I will remind you that we will make forward-looking statements on this conference call. These statements are subject to the risks and uncertainties discussed in detail in today's press release, and our 10-K and 10-Q, which have been filed with the Securities and Exchange Commission. These statements, including, without limitation, those regarding the ongoing development and potential commercialization of lumacaftor in combination with ivacaftor, and those about Vertex 's other cystic fibrosis programs, are based on management's current assumptions. Actual outcomes and events could 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 third-quarter 2014 financial results press release. I would also refer you to slide 4 of tonight's webcast.

I will now turn the call over to Jeff Leiden.

Thanks, Michael, and good evening, everyone. Our vision is to be a leader in discovering and developing therapies for cystic fibrosis and other serious diseases. We outlined a clear strategy over two years ago, designed to establish a foundation for sustainable growth, and I'm happy to say we are well along that path. Specifically, and more recently, clinical data presented at the North American CF conference earlier this month showed just how far Vertex has come, and supports our confidence in delivering more medicines to more CF patients.

Our goal in CF is to reach the vast majority of people with CF, and to continue to enhance the benefit for the patients that we treat. Let me summarize our recent progress.

First, data presented at NACF in early October from the roll-over study of lumacaftor in combination with ivacaftor showed sustained clinical benefits through 48 weeks of treatment, and no new safety concerns, supporting the longer-term treatment for CF patients. We are on track to submit the NDA and MAA in the fourth quarter of this year for patients 12 and older, with two copies of the Delta 508 mutation.

Second, and also in early October, we provided an update to our VX-661 development plans. We now expect to initiate a pivotal Phase III program for VX-661, in combination with ivacaftor, in the first half of 2015, pending regulatory discussions and data from the ongoing 12-week study in people with two copies of the Delta 508 mutation. We believe that VX-661 ivacaftor combination has the potential to benefit multiple patient populations and achieve a broad label.

Third, last week, the FDA's pulmonary advisory committee voted 13 to 2 to recommend approval of KALYDECO in people ages six and older who have the R117H mutation. This is an important step toward making ivacaftor available to the approximately 500 people in the US, ages six and older, who have this mutation.

And lastly, during the third quarter we strengthened our financial position by adding $300 million to our balance sheet through a new credit agreement. With approximately $1.5 billion in cash, and the successful progression of our CF medicines, we are well positioned for future growth. Our financial strength gives us the flexibility as we work to further enhance the treatment of cystic fibrosis, and develop innovative new medicines to treat other serious diseases.

In summary, we are transforming the treatment of cystic fibrosis with medicines that address the underlying cause of the disease. We are advancing our earlier-stage science in pipeline, and we are positioning the Company for sustainable revenue and earnings growth.

I will now hand the call over to Stuart.

Thanks, Jeff, and hello, everyone. Tonight, I'll review the third-quarter sales of KALYDECO that continue to reflect strong, underlying demand, driven by label and geographic expansion. I will also discuss how the commercial organization is preparing for the approval and launch of the lumacaftor-ivacaftor combination.

KALYDECO generated $127 million in product sales, including US sales of approximately $74 million and ex-US sales of approximately $53 million. Underlying demand and adherence in G551D patients continued to be strong, both in the US and internationally.

US sales reflect continued uptake in the eight additional mutations approved earlier this year, and $7 million of buying accelerated into the third quarter from the fourth quarter due to a change in our distribution model, which went into effect on October 1. This change provides scalability in anticipation of the larger F508del patient population. Due to this stocking in the third quarter, reported sales for the fourth quarter will be impacted. We expect to end this year with approximately 2,600 patients eligible for KALYDECO, and momentum with multiple growth drivers going forward, based on further geographic and label expansions.

In Europe, we are working closely with national authorities to achieve reimbursement to make KALYDECO available to the approximately 200 people, ages six and older, who have one of eight non-G551D gating mutations.

In Canada, six provinces and territories have added KALYDECO to their public drug programs, and patients are beginning to initiate therapy. These provinces and territories account for approximately 80% of the 60 G551D patients who have public insurance in Canada.

In Australia, the government recently announced that KALYDECO is expected to be listed on the pharmaceutical benefits scheme as of December 1. There are approximately 250 people with CF, aged six years and older, who are expected to be eligible for treatment with KALYDECO in Australia.

In the US, the FDA advisory committee voted 13 to 2 in favor of approval for KALYDECO in people with the R117H mutation, ages six and older. The FDA is expected to make a decision on our application by December 30, 2014. We have also filed an MAA in the EU during the quarter. There are approximately 1,100 patients, ages six and older, with the R117H mutation around the world.

And lastly, we submitted an NDA in the US, and an MAA in the EU, for the approval of ivacaftor in children with CF, ages two to five, who have gating mutations. There are approximately 300 of these children with CF around the world. As we move through 2015, we expect that the number of patients eligible for KALYDECO will increase from 2,600 to nearly 4,000 by the end of 2015. Although all eligible patients will not be on treatment next year, we expect significant growth in 2015.

Now to the combination of lumacaftor and ivacaftor: We are on track to submit the NDA and MAA in the fourth quarter, and we will be requesting priority review in the US. If granted priority review by the FDA, the submission would qualify for an eight-month review, and a potential mid-2015 launch in the US. There are approximately 22,000 people, ages 12 and older, who have two copies of the F508del mutation in North America, Europe and Australia, including approximately 8,500 in the United States, and approximately 12,000 in Europe.

We are expanding our infrastructure in anticipation of the launch, and working to understand how CF centers plan to manage the increased volume of patients eligible for a CF modulator. In the US, we are in the process of hiring additional case managers, who help providers and patients navigate the reimbursement process, and help with patient education and compliance. Internationally, we have a plan in place to build out the required infrastructure in new markets to support the lumacaftor-ivacaftor combination launch.

In summary, we're pleased with the progress we're making with KALYDECO, as it continues to be made available to more patients globally. Also, our launch preparations for the lumacaftor-ivacaftor combination are well under way, and we look forward to bringing this transformational medicine to CF patients, once approved.

I will now hand the call over to Ian.

Thanks, Stuart, and good evening, everyone. In my remarks tonight, I will review our financial results, update our guidance for the rest of the year, and give some thoughts about our financial profile as we move into 2015.

First, to the financials: This quarter we generated $165 million in total GAAP revenues that include KALYDECO revenues of $127 million. The KALYDECO revenue has increased compared to third quarter of 2013, as we continue to expand the number of patients we treat. Also this quarter, we recognized $30 million in revenue from our recent out-licensing of VX-787, our novel flu medicine, to Janssen.

Our third-quarter non-GAAP total operating expenses were $212 million, a decrease of $62 million compared to the third quarter of last year. This reflects our prioritization towards CF medicines, and cost reductions relating to prior investments in HCV and other areas. More specifically, our non-GAAP R&D expenses were $157 million for the third quarter of 2014, a reduction of $43 million compared to the third quarter of 2013. Our non-GAAP SG&A expenses were $55 million for the third quarter of 2014, compared to $74 million in the same quarter of last year. We will continue to focus on cost control and prioritization of our investments, consistent with the growth and value drivers of our Business.

The non-GAAP loss was $86 million, or $0.37 per share, compared to the prior-year loss of $74 million. This increased loss was the result of significantly reduced, and now excluded, HCV revenues in 2014.

Now to update our 2014 financial guidance: Earlier this year we provided guidance that non-GAAP total revenues were forecast at $520 million to $550 million for the full year. We are now narrowing that range to $525 million to $535 million. We also provided KALYDECO revenue guidance of $470 million to $500 million, based on expected timing of approvals for label expansion and reimbursement in certain countries.

We now expect KALYDECO revenues to be approximately $460 million for the full year, which translates to a fourth-quarter revenue of approximately $120 million. This reduction in the KALYDECO revenue range is principally due to the delayed access to patients in Australia, which has now been resolved. With recent regulatory submissions and approvals for reimbursement, we're in a strong position to see continued growth in KALYDECO revenues in 2015. Specifically, we could see eligible patients increase from 2,600 today to nearly 4,000 by the end of 2015, although we don't expect all eligible patients to be on treatment by the end of next year.

Now to the operating expenses: We're also narrowing our non-GAAP operating expenses to $910 million to $920 million, from the previously guided $890 million to $930 million. This narrowed guidance includes accelerated investment, as we prepare for VX-661 pivotal program to begin in the first half of 2015.

Now to an outlook for 2015: In CF, we expect to treat significantly more patients in 2015, which will require investment in supporting the ivacaftor-lumacaftor combination launch, building inventory, and establishing a larger international presence. We, therefore, anticipate an increased SG&A investment compared to 2014. And from an R&D expense perspective, we will increase the investment as we begin pivotal development of VX-661 in combination with ivacaftor, while still maintaining investment in lumacaftor-ivacaftor combination for patients who remain on long-term extension study through 2015.

Overall, we expect that total operating expenses will be higher in 2015 compared to 2014. However, we will continue to control our operating expenses in future years, as we make progress towards being a steady-state, fully resourced company.

I'll close by stating we are focused on delivering a financial profile consistent with our large-cap biotech peers that includes significant revenue and earnings growth, and high operating margins. With that, I will ask the operator to please open the line for questions.

Thank you.

(Operator Instructions)

Terence Flynn, Goldman Sachs.

Hi, thanks for taking the questions. First, just on -- sorry, I jumped on a little bit late. But KALYDECO for R117H in Europe. Can you just tell us what age range you filed for approval there, for that indication? And then another question -- the second question was, with respect to the 661 and KALYDECO Phase 3 trial, have you guys selected a dose there for 661 yet? And if not, what's going to drive that decision? Thanks.

Hi Terence, Jeff Chodakewitz. So on your questions, for R117H, we did file for greater than 18. As you may know, the -- there are differences in how regulatory agencies in the EU and the US think about data for pediatrics. We -- now having gone through the ACM, we can engage in a little bit in that conversation with them, but that was the filing. In terms of the 661 ivacaftor program, we did choose a dose, and the dose is 100 milligrams of 661, and the standard 150 milligrams twice daily for ivacaftor.

Okay. And then just a follow-up on Europe. Does that mean you guys might have the opportunity to go back to them and ask them for a lower age range on R117H?

I think that the expectation is that it's going to focus on greater than 18. But of course, we're going to have the discussion, because of the need for patience, as we spoke about with the US advisory committee. I really can't predict more than that.

Okay, thank you.

Michael Yee, RBC Capital Markets.

Hi, thanks. This is John on behalf of Michael Yee. As we look forward to the 12 week Phase 2B data for VX-661 combo, we expect it early [2016]. Is there a minimum threshold you're looking for in terms of efficacy? Such as [FEV1], or sweat chloride, that would give you confidence that in fact, 661 is leading to better efficacy? And thus reasonable to invest and go ahead with the extensive Phase 3 trial, as planned for the combo? Thank you.

Hi, it's Jeff Chodakewitz again. So I think really, what we're looking forward to there is two things. One is to get confirmation. And what we've been seeing already in four week data. And the other, of course, is that this is the longest period of time that we'll have studied the combination. So we'll also be confirming that the favorable safety profile continues. I don't think there's any one number.

Is there another question, operator?

Matt Roden, UBS.

Hey guys, this is Andrew Peters in for Matt. Thanks for taking my question. Was just curious, as you prepare for the approval -- or potential approval on launch of the combination next year, curious as to what you've learned with -- from KALYDECO, in terms of reimbursement and pricing, ex-US, that you can apply, hopefully to speed up the reimbursement process? Just thinking of delays that you saw with the -- in the UK, as well as places like Australia? Thanks.

Yes, thanks for the question. The first thing that I would say is, actually we were able to secure reimbursement for KALYDECO in Europe, I think, really very quickly indeed. The UK, although it's five separate countries, England, we managed to secure reimbursement in about seven months, which I would say is remarkably fast for an ultra-orphan product like KALYDECO. Which I think is a testament to a couple of things, which I think do form the foundation of our learnings, as we think about the lumacaftor-ivacaftor combination.

The first one is, this is a really serious illness with few treatment options. The second thing is that these are breakthrough medicines that treat the underlying cause of the disease, and really work incredibly well in children and adults with CF. And so the combination of those two things, I think, is what has led us to be able to have a very productive -- challenging at times, but productive and ultimately successful reimbursement discussions.

Thank you.

Geoffrey Porges, Bernstein.

Hi, this is Wen Shi here for Geoff. Thank you very much, and congrats on the progress. Some questions about the 661 Phase 3 studies, right. So what are some of the gating factors for the start of these studies? Are you waiting for the 12 week data in hand before you finalize the Phase 3 plan? Are you looking for FDA meetings, and those kinds of things? And also, a related one. So for the gating mutation patients, are you looking to conduct head-to-head studies versus KALYDECO with the combination, in a potential to replace KALYDECO in those patient populations? Thank you.

Hi, so it is Jeff Chodakewitz. I think maybe a couple comments. I think in terms of factors or -- that we're looking for information from, I think you hit on the two main ones. Of course, we're going to, as we were just talking about, get the data from our 12 week study. And then importantly, we need to speak about our plans with regulatory agencies. So I think that, that's really -- those are going to be the big drivers. And we think that, that will be consistent with a first-half start, as Jeff Leiden has said.

I think in terms of the patients who have already KALYDECO use indicated for that, I think what we're really doing is building off the observation that we had in our Phase 2 study. And you may remember that, where we had patients who had a G551D mutation on one allele, and were already taking KALYDECO, but also had a 508del mutation on the other allele. And in that study, we were able to show by, by randomizing patients to 661 or placebo, that those patients got incremental benefit, which we think was an important observation.

I think the details of the study really still, of course, need to be worked through, as I said, with regulatory agencies.

Mark Schoenebaum, ISI Group.

Hi this is Odysseas Kostas sitting in for Mark. The question I had -- I have has to do with the third generation -- or I guess the next generation corrector that potentially form the [trip with] therapy. Just curious, I know that when it comes to the clinic next year, trying to predict the timeframe is very difficult, particularly given the number of drugs in the mix. I was wondering if you -- maybe there's a way to appreciate, maybe, how quickly -- so maybe not how long it would take, but maybe how quickly, theoretically, it actually could come to the market? So maybe frame the other end of that?

Yes, I think what we have said before -- this is Jeff Leiden, sorry. What we have said before is, we plan to have at least one, and hopefully more than one, of those next generation, third-generation correctors in the clinic next year. And obviously, the development path to those will be Phase 1 studies, single dose, and multi-ascending dose first, to ensure safety. Then followed by combination studies.

And so I think you can do the math as well as we can, in terms of how long those studies take. They will look a lot like our initial studies of KALYDECO and 809. And obviously, our goal is to get to the combination trials in Phase 2, where we've been able to demonstrate efficacy with our other drugs as quickly as possible.

Thanks.

Robyn Karnauskas, Deutsche Bank.

Hi, thanks for taking my question. Just coming out of NACF, I was just curious, because we also had heard some of the centers are just very busy with patients. Just sort of concerns around the flow of patients into the NACF, or into the cystic fibrosis centers. Sorry, that's my daughter. She is making her guest appearance on our Vertex call after a Halloween party. (laughter)

Hello to her. (laughter)

Hello. Hello, Lily. She is very adorable. Anyway, so I was just wondering about the flow. You're talking about concerns around launching into a bigger CF population. And giving it seemed like there was flow problems already, what are you doing now to prep for the number of patients that are going to have to be treated with the new regimen? Thanks.

Robyn, hi, it's Stuart here. Yes, it's a great question, and it is a topic that, that we've been discussing with CF centers recently, both here in the US and internationally, because it is a concern for them. And the reason why it is a concern for them is not because they are going to be seeing more patients than they currently are looking after. It's more to do with the fact that when you are initiating a new therapy, obviously, there's a number of steps that you need to go through to initiate that new therapy.

There will be things you need to do, in terms of working up the patient, there is -- probably one of their primary concerns is the administration associated with securing reimbursement and access, and going through the approval process with whatever plan or reimbursement authority might be covering that patient's prescription. So that is why one of the things that we're doing, in terms of expanding our footprint, is expanding in the US.

For instance, in our case management team, that case management team's primary role in life is helping providers and patients navigate the reimbursement and access maze. And also providing education and compliance support. And so that's one of the things that we're doing. And obviously, we're going to be trying to do other things to really try and help smooth that administrative burden for the CF centers, so that they can triage their patients onto therapy as quickly as they want to.

Great, thanks, and Lily says congratulations on the progress. (laughter)

Tell her thank you.

Liisa Bayko, JMP Securities.

Hi, thanks for taking my question. First of all, can you just tell us if you're expecting an ad com for the upcoming combination for the homozygous patients?

Hi, it is Jeff. I think we really just don't know yet. That is a determination that the FDA will make during the review process.

Okay. And then, just again, coming off of the NACFC conference, there was quite a bit of discussion about reimbursement. How are you thinking about pricing from the combination, relative to ivacaftor, both domestically and in other territories? If you can just provide us a framework?

Yes, Liisa, obviously, it's premature to make any very specific comments about pricing the combination. I can tell you the sorts of factors that we're taking into account. The first one is how well the medicine works for children and adults with CF. As you know, it's a breakthrough medicine, which treats the underlying cause of the disease. And as a result, has multiple benefits across a range of different dimensions. Obviously, things like FEV1. But important aspects like exacerbations, hospitalizations, time in hospital, things that we know are of great concern and of high value for patients, payers and to patients.

So the first determiner, really, is how well the medicine works. The second one is the size of the population that we're hoping to benefit. The third area is really reflecting the time and expense that it has taken us to develop the combination. And then lastly is our ability to continue on our mission, which is to continue to bring transformative medicines to patients who need them, in cystic fibrosis. And also in other conditions, where -- that are equally serious, where there's very few treatment options.

So really, those are the three or four things that we'll be taking into account as we think about the price of the lumacaftor-ivacaftor combination.

Okay, great. And then just a final question about your guidance. It looks like, when we take out some of the one time events, that it's flat --.

Sorry? The question?

We lost her. And our next question comes from Ying Huang, Bank of America, Merrill Lynch.

Hi this is actually Katherine for Ying. Thanks for taking our questions. Just a couple. What are your reasoning behind skipping a Phase 2 trial for VX-661 in the heterozygous patient population, and heading straight into the Phase 3? And then secondly, are there any restrictions on the reimbursement in Australia? And is payment contingent on achieving outcomes such as FEV1 improvement? Thank you.

So, it's Jeff. I'll take the first part, and then turn it over to Stuart. I think that the reasons for going directly, as we've talked about, to the [admin] population are a couple. But one is that the character -- there are some characteristics about 661 that are somewhat different than 809, which we think could convey a benefit. Secondly, that in some of the clinical studies that we've performed to date in Phase 2, there are some signals that there is some potential advantages for 661.

And then the third part is really the medical need for those patients. So it really is, we recognize a higher risk group of patients, but it's a group of patients that don't have access right now to a therapy that's directed at the underlying cause of the disease. And so we think it's valuable to find out whether 661 with ivacaftor can offer a benefit. The last thing I would just note is that the way we are structuring the program is that there really are four different studies. And so even -- we are hoping that, that study will work for patients. But if it doesn't, there is still, then, multiple pivotal trials to support filing and approval.

And on the reimbursement in Australia, the specific terms of our agreement in Australia are obviously confidential. What I can tell you is that we have reached an agreement where all eligible patients will have access to KALYDECO. No patient types are going to be excluded from reimbursement. And also, no patients are going to have their access to therapy interrupted as a result of stopping rules. And that's really consistent with our belief that patients should really only be discontinuing treatment if they and their physician think that is the best clinical decision for them.

Great, thank you very much.

Brian Abrahams, Wells Fargo.

Hi, this is Shin calling in for Brian. Related to the FDA panel's favorable vote on 117H for a broader population of patients. It was quite apparent that if the questions were posed to the panel, if they were segmented by age, perhaps the votes might've reflected some reservations among the panel members. I was curious to hear your thoughts on the way the questions were constructed? And what that might suggest about FDA's thinking, in terms of approving the drug in children, given the study didn't meet the endpoint in that population?

Yes, hi, this is Jeff Leiden. Thanks the question. Obviously, we were quite pleased with the vote, and we think it reflects two things. One, the results of the trial, which we thought were quite clear. And two, I think a real understanding among the panel members that there are populations of patients at all ages -- in other words, all ages greater than six, who are sick with CF and who can benefit from the drug. And we think the discussion was a very good and lively one, and that the conclusion of the vote represented, really, those two factors.

Thank you.

Liisa Bayko, JMP Securities.

Hi, sorry, I got cut off for some reason earlier. I just wanted to understand the guidance. On a quarter-over-quarter basis, it looks little flattish when we take out some of the one-time events. And so I'm wondering if we could -- if you could just comment on that? And then maybe in the context of that, are you seeing any sort of discontinuations? I heard anecdotally that patients feel so good, but sometimes they don't need to take their medications. So I just wanted to ask if you've -- if there is some sort of discontinuation rate, or lack of compliance? Thanks.

Liisa, thanks the question. I'll take the first one, and then Stuart may -- I think what you're referring to is, rather than discontinuation, it's more widely adherence and compliance, and Stuart can take that. When you talk about the guidance, I assume you're referring to the KALYDECO revenues, which -- yes, you are correct. When they -- there is an anomaly in the third quarter number we reported, which we reported $127 million.

Within that $127 million, there is $7 million of, let's call it, accelerated stocking. We changed the distribution channel as of September 30. And there was some buy-in by the distributors prior to October 1. What that did is, it brought $7 million of medicines, let's say, into the third quarter. Without that, we would've reported $120 million, and we would expect the fourth quarter to be $127 million. So that is the only item.

So as you can see, the natural demand for KALYDECO, and the usage by patients, continues to grow quarter on quarter, if you see it this year, which is what we expect, And then the other comment I made earlier was, as we look into 2015, we're currently eligible for around 2,600 patients. But with the approvals, and the approvals for reimbursement that we have got recently, we can see, by the end of 2015, that we should be eligible to treat approximately 4,000 patients. So there's a nice growth curve there for KALYDECO through this year, and then on to next year. Stuart?

Yes, and in terms of persistence in compliance with KALYDECO, Liisa, not entirely sure what you've heard anecdotally. But if I look at it holistically across all of the markets where we've introduced KALYDECO, there is a very, very low level of discontinuation. Certainly discontinuations for efficacy being too good.

And also, we see very, very high compliance rates, up in the 80%s, which, for a chronic medication, is as high as I've ever seen personally. So whilst you may have heard some of those things anecdotally, I think big picture, when you look at it on a population basis, persistence and compliance are both very, very high with KALYDECO.

Okay, wonderful. That's helpful, thank you.

Yaron Werber, Citigroup.

Hello?

Please go ahead.

Hi this is [Kumado Dane] in for Yaron. There are a lot of data presented at NACFC on the long-term benefits of KALYDECO. Are you able to discuss [with insurers and] probably get reimbursed in a better manner? Or what are you guys doing about that?

There was some data presented at NACFC. And we are able to talk with some of that -- about some of that data to insurers and reimbursement authorities. And have been talking with them about the data that we have on KALYDECO and its long-term benefits for some time. So yes, we have. And I think that data is always appreciated by them, as obviously, this is a chronic medication for a chronic condition. And so that information is certainly of some value to them, as they can see the consistency and durability of responses that we see. And also, the ability that KALYDECO has demonstrated to be able to change the natural course of the disease.

And any update on licensing [VX-509] out?

No, there is no updates at this point.

Okay, thank you.

Katherine Xu, William Blair.

Thank you, and good evening. Just wondering, Stuart, can you just quantify, a little bit, the increase of SG&A next year, as you launch the double combo? And also another question, probably for Jeff. From a theoretical perspective, I'm sure you're conducting experiments with other compounds as well. Is a combination of a one potentiator plus two corrector, potentially, versus one corrector and one potentiator, plus another one, with some kind of other [mix of] action? Do you see, so far, any differences? And do you think that your methodology would come out with a strong one next year?

Katherine, I'll take both of those questions, thanks. So as I mentioned earlier on the call, we're not really in a position to quantify the incremental investments in SG&A for 2015. Although I'm happy to make comments as in -- and it's difficult, without giving a number, to say whether it's significant or insignificant, as you may view it. But the way we look at this is that we are launching a very important medicine in the US in the middle of next year, we hope. And therefore, we want to support that through awareness, and also getting fast access to the drug.

That's principally where the investment is. As you know, given the already high awareness for this combination medicine, and both from patients and physicians, the challenge for us in reaching patients as fast as possible is actually helping them with access. That's where the principal investments will be. This is not a typical drug launch, where you've got consumer brand advertising. It's more about helping access to patients. And so we look at it as a [spot] launch. And as I said on -- earlier, we also look, as we go forward in future years, that we want to hold operating costs, those are R&D and SG&A expenses, to really get leverage off a growing revenue line, which creates the growing earnings and cash flow.

And then the second question, regarding, let's say, more of a broader business development strategy, and how we think about combination medicines of those next generations that we have within Vertex. We are looking at the full field. It's the number one priority in our business development efforts at this point in time. We do see opportunity, both internal, we have multiple next-generation compounds that act in different ways that we may be able to combine with lumacaftor and ivacaftor, or with 661. And so we have great opportunity there within Vertex.

When we go outside the walls of Vertex, we also see opportunities. And whether it's directly on target of how we think about CFTR modulation, or whether it's with other complementary mechanisms, we see a couple of opportunities there as well. They tend to be earlier stage, but we do see opportunities. And I think hopefully, the other side of this is the other companies see opportunities of working with us, given our advanced nature of our medicines today.

Thanks. Operator, I think we have time for two more questions.

Matthew Harrison, Morgan Stanley.

Great, thanks. I just wanted to ask a question about pricing and reimbursement. When you think about Europe, as you try to expand the label with some additional gating mutations, will that require you to go back and renegotiate pricing? Or only when you have a substantial change, like the combo? Thanks.

Yes, thanks. I think it's important, when thinking about gating, to put a few things into context. So the first one is that the additional gating mutations account for somewhere around 400 patients worldwide, about 250 of which are in the EU. So it is a relatively small number of patients. The other thing to know about the patients with additional gating mutations is that some of them are in markets where KALYDECO has already been reviewed by their health technology assessment agencies, like, for instance, England.

But many of those patients are in new markets, where KALYDECO really hasn't gone through a full reimbursement assessment. That's because they have such a small number of G551D patients. A good example there would be Italy. So it really is going to be negotiated on a country-by-country basis. The last thing I would say is that we do know that KALYDECO, in these additional gating mutations, performs pretty much identically to how it performs in G551D patients. And so that the value proposition, if you want to describe it that way, is really the same in gating patients as it is in the G551D population.

Yigal Nochomovitz, Oppenheimer.

Thanks for taking the question. Just one on the cash balance, and your strategic strategy going forward with some of the next-generation correctors. You suggested that the NACFC event that you could see some deals and collaborations with some of the smaller next-generation corrector players in the coming months. So just wondered if you could elaborate a little bit on your strategy there? And whether you would be open to a strategy where you could test internally developed correctors, and the external sourced correctors, in a parallel fashion?

So yes, so that was actually the answer I gave on the prior question. Which is yes. We -- I start, first of all, inside Vertex, which is, we have multiple next-generation correctors. And as you know, we have a great belief in our HBE assays. And so we're doing all the usual work there. They have tended to translate right into clinical results. And then as we go outside of Vertex, there are a number of companies that have -- a couple of companies have a similar approach to ourselves. And those could be interesting.

And we need to compare those opportunities with what we have internally, in terms of adding next-generation type molecules to the portfolio. And then I would say there are other mechanisms that would be complementary to our approach, that may provide additive benefit. And so we give consideration to those, as well. I appreciate you pointing out the strong balance sheet. That gives us our opportunity to participate in these opportunities. And we hope to bring more information to you in the future on this.

Great, thanks. And just one quick question on the guidance. If you net out the KALYDECO guidance revision, it seems that you are raising the non- KALYDECO guidance from [50 to 65 to 75]. Could you just clarify exactly what's going on there? What's driving that?

Sorry, I haven't specifically done that math. But if there is something that is driving the non-KALYDECO, the only -- I would start with the only non-KALYDECO revenue items are collaborative revenues and royalties. And the significant transaction this year that's contributing to that line is the out-licensing of BX-787, the flu molecule, to J&J.

Okay, thank you.

Thank you.

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