福泰製藥 (VRTX) 2014 Q4 法說會逐字稿

Good evening ladies and gentlemen, and thank you for joining the Vertex Pharmaceuticals Incorporated fourth-quarter 2014 financial results conference call.

(Operator instructions)

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

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 begin by reviewing Vertex's strategic priorities for 2015. Stuart will review the full-year 2014 performance of KALYDECO, provide commentary on the outlook for KALYDECO in 2015, and will also discuss preparations for the launch of the lumacaftor-ivacaftor combination. To close, Ian will review the full-year 2014 financial results and discuss our 2015 financial guidance. We will then open the call for your questions. We expect today's 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.

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 the lumacaftor-ivacaftor combination 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 fourth-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. 2014 was a year of continued success in delivering on our vision to be a leader in discovering and developing therapies for cystic fibrosis and other serious diseases. And we made significant progress this past year in establishing a foundation for sustainable growth.

First, we expanded the number of patients treated with KALYDECO through geographic and label expansion efforts. Second, we announced positive data from our Phase III studies of lumacaftor-ivacaftor, and submitted an NDA in the US and MAA in the EU, paving the way to treat significantly more people with CF. Third, we continue to manage our financial position, ending the year with approximately $1.4 billion in cash to support the future of our business. These accomplishments have fundamentally changed the outlook for our business and increased our confidence in the Company's plans for the future and for people with CF and their families.

I had the opportunity to meet with many of our investors and analysts at the JPMorgan Healthcare Conference earlier this month, and to talk about our strategy. So let me remind everyone about our priorities for 2015. First, approval and successful launch of the lumacaftor-ivacaftor combination, while continuing to increase KALYDECO revenues, enabling us to treat even more people with CF and to accelerate our revenue growth.

Second, significantly advancing our CF pipeline with a focus on next-generation medicines that have the potential to create regimens that may increase the benefit for CF patients. And third, expanding and diversifying our pipeline into other areas, as evidenced by multiple programs advancing into the clinic during 2015. If we are successful in meeting our goals, we expect to deliver for Vertex and its shareholders a long-term financial profile that includes significant revenue and earnings growth.

Before turning the call over to Stuart, I wanted to take the opportunity to mention how proud we are at Vertex to be at the forefront of a new approach in developing medicines broadly referred to as precision medicine. KALYDECO, and hopefully soon the combination of lumacaftor-ivacaftor are benefiting CF patients around the world and demonstrating the potential of this approach in developing medicines.

We are pleased that our successes have provided part of the basis for new research initiatives, discussed for the first time in the State of the Union address last week to apply precision medicine approaches across a broad range of diseases. And we look forward to working closely with regulators and other government entities to apply the learnings of precision medicine so that we can help more patients and do it faster. With that, I'll turn it over to Stuart.

Thanks, Jeff, and hello everyone. Tonight I'll review the sales performance of KALYDECO in 2014 and outline our expectations for KALYDECO in 2015 that reflect strong underlying demand and the positive impact of label and geographic expansion. I will also discuss our progress in preparing for the approval and launch of the lumacaftor-ivacaftor combination.

KALYDECO has shown rapid growth since it was approved in 2012. Product sales increased 25% in 2014 to $464 million. At the start of 2014, nearly all eligible patients with the G551D mutation in the US and Europe were being treated with KALYDECO. Growth in 2014 was driven by both additional patients initiating therapy in new and existing international markets and the US approval of KALYDECO for use in eight additional mutations.

Turning to 2015, there are again multiple potential growth drivers based on achieving reimbursement approvals and further label expansions. In the first half of 2015 we expect rapid uptake of KALYDECO by eligible patients in Australia following the completion of reimbursement discussions in late 2014. There are more than 200 children and adults with CF who are expected to be eligible for treatment.

In the US, KALYDECO was approved for use in children and adults ages six and older with the R117H mutation on December 29 last year. The first patients have already initiated treatment, and we expect to see continued uptake in the months ahead.

In the second half of 2015 we expect to see the revenue impact from achieving reimbursement for gating mutations in some European countries. We also anticipate a potential approval in children with CF ages 2 to 5 with the G551D or other gating mutations in the US, which would be a growth driver in the second half of 2015. As a result, we expect the number of patients eligible for KALYDECO to increase from 3,100 today to more than 3,700 by the end of this year.

Although all eligible patients will not be on treatment by the end of the year, and the enrollment of the VX-661 pivotal study in gating patients will have an adverse impact on patients receiving commercial product, we expect another year of significant revenue growth. And KALYDECO net sales in the range of $560 million to $580 million in 2015.

Now to the combination of lumacaftor and ivacaftor. We submitted the NDA and MAA in the US and EU respectively in November 2014 for children and adults with CF ages 12 and older who have two copies of the F508del mutation. In the US we received priority review with a PDUFA date of July 5, 2015.

In the EU we were granted accelerated assessment, and we anticipate EU approval around Q4 of this year, if discussions with regulators progress as expected. Following regulatory approval in the EU, individual reimbursement discussions will begin on a country-by-country basis.

I am pleased to report our launch planning is on track. There are around 8,500 F580del homozygous patients ages 12 years and older in the US who are treated at approximately 275 CF centers. This represents an order of magnitude more patients than we currently treat.

A key priority for us ahead of launch in the US is to scale up our patient services team so that we can help providers and patients navigate the reimbursement process, and also help with patient education and compliance. We have been adding case managers, and we are also working to understand how CF centers plan to manage patient initiations.

We're investing in disease education to help payers estimate the number of eligible patients they may have in their plans. And also, from a medical perspective, to understand cystic fibrosis as a disease, its impact on patients and caregivers, and the systemic effects of CFTR modulation.

Internationally, we are building out the required infrastructure in new and existing European markets to support the lumacaftor-ivacaftor launch. Infrastructure for each new country consists of a small number of medical and commercial staff.

In summary, geographic and label expansion will continue to drive significant growth in KALYDECO sales. And we are well positioned for long-term revenue growth as the number of people that we treat with CF significantly increases with the launch of the lumacaftor-ivacaftor combination later this year. I will now hand the call over to Ian.

Thanks, Stuart, and good evening to everyone. Tonight I would like to discuss our 2014 results, then our 2015 guidance, and how that puts us on track to long-term sustainable revenue and earnings growth. I will be brief on the 2014 results, and for a more detailed discussion of these results, please refer to our press release we issued earlier today.

2014 financial performance was marked by the continuing growth in KALYDECO revenues, controlling the level of our operating expenses, and completing the year with a strong balance sheet. As we look to 2015 and beyond, we see revenue growth continuing based on treating more patients with KALYDECO, and then accelerating this revenue growth with the potential approval and launch of the lumacaftor-ivacaftor combination.

As we anticipate this growth in our CF revenues, we also expect to control the level of operating investments into our Company. We anticipate that this will enable us to deliver a future financial profile that includes high operating margins and significant earnings growth.

Now to the 2014 results. We generated $536 million in total non-GAAP revenues in 2014, including $464 million in KALYDECO revenues. This was a significant increase over 2013 KALYDECO revenues, and we expect this growth to continue. We also recorded $72 million in royalty and collaborative revenues, including $35 million in revenue from the out-license of VX-787, our novel flu medicine, to Janssen.

When looking at the main components of our non-GAAP operating expenses, our combined non-GAAP R&D and SG&A expenses were $920 million in 2014, a decrease of $177 million compared to the prior year. This decrease reflects our prioritization towards CF medicines and continued focus on managing operating expenses.

The non-GAAP loss was $511 million, or $2.17 per share, compared to a prior-year loss of $203 million. This increased loss was the result of significantly reduced HCV revenues from 2013, and they are now excluded from our 2014 non-GAAP financials. With the expectation of increasing CF revenues in 2015 and controlling our operating expenses, we see 2014 as a transition year into revenue growth and future profitability.

Now let's turn to 2015 and our financial guidance for the year, and specifically KALYDECO revenues and the main components of our operating expenses. With the recent regulatory submissions and approvals for reimbursement, KALYDECO is well positioned for 2015. We expect KALYDECO net revenues to be the range of $560 million to $580 million, as we continue to expand the number of patients we treat.

Next to the lumacaftor-ivacaftor combination. We look forward to this midyear launch to further accelerate our revenue growth. However, the revenues from this launch will be primarily US-based in 2015. Based on regulatory timelines in the EU and the subsequent reimbursement timelines, we anticipate the first commercial revenues from ex-US territories will likely occur in 2016.

Now to the main components of our operating expenses. As previously announced, we expect combined non-GAAP R&D and SG&A expense will be in the range of $1.05 billion to $1.1 billion for the full year, and we expect these expenses to be fairly consistent each quarter of this year. We expect the non-GAAP R&D expense to be the range of $770 million to $800 million, an increase of $75 million to $105 million compared to the prior year.

Now breaking down the R&D spend into its principal components. We expect to spend approximately $200 million investing in R, or basic research, to support the creation of future transformational medicines, and specifically in CF. We expect to progress a next-generation corrector into the clinic later this year. This is very similar to basic research spending in prior years.

Now to the D, or development spend, which we expect to be between $570 million and $600 million, and is primarily driven by CF clinical programs. More specifically, the Phase III pivotal program of VX-661 in combination with ivacaftor and the ongoing investment in lumacaftor-ivacaftor combination for patients who remain on long-term extension study.

Other areas of focus for Vertex in research and early development are programs in oncology and neurology. An expectation that certain programs will enter and advance in the clinic in 2015 is incorporated into our guidance.

Turning now to 2015 SG&A guidance. We expect to spend $280 million to $300 million, which is an increase of $55 million to $75 million compared to 2014. The increase reflects cross-functional investment in supporting ivacaftor-lumacaftor combination launch, and establishing a larger international presence as we significantly increase the number of patients we expect to treat with our medicines.

I'll close by stating that we are in a strong financial position today and focused on delivering a financial profile consistent with our large-cap biotech peers. And we look forward to updating you on the execution of our strategy throughout this year. With that, I'll ask the operator to please open the line for questions.

Thank you.

(Operator Instructions)

Geoff Meacham, Barclays.

Afternoon, guys. Thanks for taking the question.

Obviously everyone is focused on the upcoming 661 data. Now, I guess I wanted to get a sense from you guys when you are planning your Phase III what, in looking at the opportunity in heterozygous patients, what population, I guess, would you estimate would be eligible for perhaps the 661 plus KALYDECO? And from your basic research, what population may need a second corrector? And I have one follow up.

Geoff, this is Jeff Leiden. Thanks for the question.

The way we are thinking about the heterozygotes in terms of 661 and KALYDECO is really in two buckets. You'll remember that last year we published a Phase II study adding 661 to KALYDECO in patients who had a 508 allele -- a mutation on one allele, and some sort of gating mutation, in that case G511D on the other allele.

We were able to show, if you remember, that those patients, once they were stable on KALYDECO, if we added 661, we saw a greater than 4.5% improvement in absolute FEV1. So the first part of the heterozygote strategy that we're going to test in the Phase III program is basically a pivotal program around that population where we're trying to maximize the benefit that we can bring by adding 661 to KALYDECO in patients who are heterozygous for 508 and a gating allele. So if you think about that population, it is about 80% of all gating patients will have 508 on the other allele.

The other population is what we call the heterozygous men population, not a very good term, I admit. But it is patients who have 508 on one allele and basically a non-KALYDECO responsive mutation on the other allele. It is about 17,000 patients worldwide.

As we have said, this is the hardest to treat population because those patients express half of the amount of the delta 508 protein that a delta 508 homozygotes expresses. So they need better correction. We know, for example, that 809 plus KALYDECO does not work in that population. We looked at that in our traffic and transport trials, you'll remember.

So we're taking a two-pronged approach to these patients. Because today they don't have any CFTR correction therapy, we're going to take an admittedly high risk, but more rapid approach, and try them with 661 plus KALYDECO, the two drug combination, as part of our pivotal program. And we'll start that program, as we said, in the first half of this year.

The idea there is if we can see an effect, then we will be able to get the medicines to patients much more quickly. But the high probability approach that we are taking is the three-drug combination. That is where we take 661, KALYDECO, and a next-generation corrector.

Our cell-based data suggests that that will work in this population with a higher probability. But of course that is slower, because our next-generation correctors are in lead optimization now and our goal is to put the first of those, and perhaps multiple, in the clinic this year. So that is the high probability but longer-term approach.

I guess that was more my question, of if you get the next-gen corrector in the clinic, you don't necessarily have to have 661 on the market. You'll be able to look at two unapproved drugs and proof-of-concept studies and get an answer pretty quickly?

Well, we will be able to look at two unapproved drugs, but getting an answer pretty quickly, I want to be clear about. We'll have to take these first-generation correctors into the clinic by themselves first, of course. Do a Phase I study in normals. Then we will be able to begin to explore combinations. So if compared to the 661-KALYDECO trial, which we're going to start in the first half of this year and quickly enroll, it is a significantly longer approach.

Right, I got you. Okay, that's helpful. Thanks.

Terence Flynn, Goldman Sachs.

Maybe one follow up on Geoff's question, then a second one.

First just from a strategic standpoint, I was just wondering the benefit of developing 661 plus KALYDECO in the patients that already benefit from KALYDECO. Is it higher barriers to entry? Is it greater revenue per patient? Just maybe helped frame for us the strategic thinking there. And then would love your latest thoughts on partnerships and/or BD within and outside of CF. Thanks.

This is Jeff Leiden. I'll take the first part, and then Ian will take the BD question.

The strategic plan here is really simple. It is to bring the best benefit we can to those patients, and that is our number one priority. And as you know, Terence, we talked about this last year. We were very pleasantly surprised actually by the Phase II data that showed this significant improvement over and above KALYDECO when we added 661 to those G551/D508 patients. And that was one of the things that really pushed to go quickly into a pivotal program so that we could get those patients maximum benefit

And Terence to your second part of your question. In the last year we've had a fairly active and broad business corporate development focus. Three main areas. One being to understand the landscape of other CF technologies and medicines that may combine with what we are doing here at Vertex to enhance benefits from regiments.

Second area of focus has been to consider other technological or research-based approaches to creating medicines. I mean, Vertex has been very successful over the years with small molecule development in targeting certain molecular targets. But there are other things that are going on out there right now that we need to get involved in. So we are considering expanding our scientific footprint as well.

And then the third area of focus has been, can we diversify our pipeline? By that it is both out-licensing non-core assets, which we have been successful with, while also considering bringing in other opportunities into our pipeline that fit with Vertex's future. I hope to update you as we go through 2015 in terms of where we have been spending our efforts. And as I would outline, cystic fibrosis is our number one priority.

Michael Yee, RBC Capital Markets.

Two quick topics. One is on the Phase IIb 661 study that you're finishing and then you moved into a Phase III for both homozygous and heterozygous. I guess, how did you go about being certain on your 100 milligram QD dose? Why didn't you with higher BID dosing? I guess, how could you do all that and pick all of that if you had not even seen the full Phase IIb data?

And then my second question as it relates to the overall heterozygous population that we have been discussing the last couple of questions. I guess you had talked a little bit about why it was high risk at the heterozygous population. But we did see in the population where you did have 551 and 508, it was additive by 4.6%, even with only 0.5 the protein expression. So in the heterozygous het mens, you have 0.5 the protein expression with the mutations. So why wouldn't that work on the 0.5 and still get a somewhat similar effect? Thanks.

Mike, hi. It's Jeff Chodakewitz.

Let me take the first one. I think that really you have to step back and remember that in the fall of last year with the Phase II data that we had, both the data in the 508 homozygous patients and the patients that Jeff Leiden referred to with the 551D/508 patients, we already had four week data from those patients. So we had a fair amount of information.

What, then, the 12-week study really contributed is really its primary objective, which was safety. It is a small study, 40 patients. Only 20 on active. And in fact they're actually divided across a couple of different doses. So that gave us the information at the interim to accelerate because we knew from the DSMV review and our review that nothing -- there was nothing there on safety that fundamentally changed our profile.

So that's really how we looked at it. And it was really the preponderance of data that we had at the 100-milligram dose that gave us that confidence, using the opportunity to move faster.

Got it. Okay.

Yes. Then on your other question, which is a good one, can we just extrapolate from the G551D/508 heterozygous to heterozygous mens, I really think the answer is no. We don't know lots of things about those heterozygous patients who are G551D. For instance, we don't know the effect of 661 on that G551D protein as well.

So there could be a beneficial folding affect on the G551D protein getting more protein to the surface and contributing to the 4.5% or 4.6% increase we saw when we added 661. So we don't, and I really would not extrapolate from that G551D/508 data to 508 het men patient. That's why we think it is particularly high risk.

In other words, it is helping -- it could be helping the 551 allele as well?

Correct.

Thanks.

Matt Roden, UBS.

Great. Thanks very much for taking the question. Congrats for getting the shout-out from the President on the State of the Union address.

Just to follow up on the last question. Jeff, you commented on the 661 Phase IIb data that you see in terms of safety and dosing as a necessary gating factor for moving into the Phase III. What can you tell us about what you saw and the efficacy, if anything? Should we be thinking about this compound as being advantageous relative to 809 because of the drug-like properties and lack of interactions? Or is it actually something to look at on the efficacy side as potentially better?

And then shifting gears. Second question would be on this ATR inhibitor program in cancer. Nice to see that coming forward. Looks like the approach here increases sensitivity to chemotherapy, if I understand it correctly. The question would be, do you need chemo combos for this to work? Or could the approach also work with other targeted agents or immunotherapies? Just trying to get a sense for where we're going with that program. Thanks.

So Matt, I think in terms of the interim results, they really are just that. There's really just no way to comment on those results. I think I do go back to the prior data that we had. It was really the totality of the data from those multiple cohorts across the different populations that we have been referring to. And then getting that information at an interim basis on primarily safety that is really what contributed to our decision-making.

I can take the second part. This is Jeff Leiden.

And Matt, I actually like the way you said it. I think you should think about 661 as the foundation for multi-drug regimens going forward because of its pharmaceutical properties. And that is its best attribute, if you will. We're going to find out more about what it does in some of these populations from the Phase III, certainly not from the 12-week study because of course there were no het mens, for example, and no het 551Ds in that 12-week study. But number one is it really has pharmaceutical properties that allow us to make combination regimens, including the three-drug regimen which is going to be so important, I think, in the het mens.

With respect to the ATR, yes, you're right. This is a DNA repair pathway, as you know. The hypothesis here is that by simultaneously disrupting a DNA repair pathway while you are also providing DNA damage to the cell in the form of either a cytotoxic chemo agent or radiation, you're going to potentiate the radiation of the cytotoxic chemo agent. And that will be the real basis at which we -- on which we look at the drug rather than looking at it by itself.

Great. Thanks very much.

Geoffrey Porges, Bernstein.

Thanks very much, and hope you guys are both warm and free of snow up there now.

Wanted to ask a couple of more questions about 661. Could you give us a sense of your expectations for enrollment of the trials, when we may see data? Is it realistic that any of these trials could give us readouts that you would disclose by the end of the year? Should we be expecting them to all come next year?

And then we sort of seem to be dancing around this Phase IIb efficacy result. But when might that come? And then lastly related to that, Jeff, could you comment on the pharmaceutical properties of what you're seeing in the next-gen corrector? Do you have an optimized candidate there, or are you just sort of really establishing proof that you can target the particular pathway that you are going after?

Geoff, thanks for this.

I'll take the first question in terms of timing of results from the broad Phase III program, and then also the 12-week study of VX661 that is currently ongoing. Firstly, just chronologically, the 12-week study that is currently ongoing, we anticipate towards the end of the first quarter we'll provide you top-line data from that study. I'll just reiterate that, as Jeff has mentioned, that it is a small study. Primary endpoint is safety, and a lot of the data that we have gathered around 661 already has provided us with the green light to head into this broad Phase III program. And I'll also add that that data was discussed with the regulatory authorities to allow us to proceed into the Phase III program.

As far as the timing of the results from the Phase III program, we'd anticipate 2016. We will provide you with a more clear update once we get an understanding of the rates of recruitment to the studies. We don't anticipate results within 2015.

Right.

And then the second corrector?

I think that really, I think as we've talked about, we're really focused on those molecules both driving the efficacy, but also having the pharmaceutic properties that are going to allow it to be used in a three-drug regimen. That's really our goal.

And we do have, as we've talked about, multiple compounds in lead op. Exactly what those properties are going to be, it is really -- until you actually are ready and we've tested them in the clinic, I think it's really too early to say.

Okay, thanks very much, Jeff.

Mark Schoenebaum, Evercore ISI.

Hello, gentlemen. Thanks a lot for taking the question.

I had reasonably simple question. When I look at the designs that you have chosen for the Phase II trials, I'm particularly struck by the design of the heterozygous men population where you plan to enroll 270 patients. If memory serves, that's only about half the size of the traffic and -- each of the traffic and transport trials, which were adequately powered trials in and of themselves.

So presumably the power of 270 patients to effect an FEV benefit is substantially less than it was in traffic and transport. If I were the company designing a trial and choosing that, I would interpret that as having great confidence I'm going to see a big benefit. Why am I correct or incorrect in that line of logic, so to speak?

And then finally, just a follow up on the Phase IIb coming out for the 661 KALYDECO combination. Is there any reason biologically or study design-wise, I know the length is different, to assume or postulate that the data, the FEV data, would be significantly different from the roughly 4.8% improvement in absolute we saw in the prior experience? Thank you.

Hi. It is Jeff Chodakewitz.

So again, in terms of the ongoing Phase II study with 12 weeks, we really just can't comment. That is an interim analysis. And as Ian just said, we're going to really have the results at the end of the first quarter.

In terms of your question around comparing the 661 het men study versus traffic and transport, I do think there are a couple of very important considerations that differ between them. One is that in the traffic and transport we had two doses in that study, which obviously complicates the sizing of the studies. And that's a very big difference. And we were very pleased to be able to focus on one dose as we moved 661 into Phase III.

The other piece of that is that another consideration, an important consideration, in the traffic and transport studies was around secondary endpoints and being able to detect secondary endpoints. The 661 study in the het men population is really focused and powered around FEV1. So that explains the differences that you were noting.

Why was it not paradigm on the secondaries? Then I'll drop back in the queue. Thanks.

Again, I think we also have a study in 508 homozygous patients that is powered both in terms of size and duration for those secondary endpoints. And we think that is really going to be able to anchor our program. So that is how we have constructed the program overall.

All right. Thanks a lot. Great job. Congrats.

Robyn Karnauskas, Deutsche Bank.

Great, thanks. This is Mohit Bansal filling in for Robyn. Thanks for taking my question.

Moving aside from cystic fibrosis and looking at your pipeline, you have assets in oncology and neuro space. Could you please help us understand your strategy with these assets? Do you expect to develop these indications in-house? Or you think partnership or out-licensing is the way to go? I guess my real question is, do see these assets as non-core assets or your core assets? Thanks.

Yes, thanks for the question. I think as -- this is Jeff Leiden. As you know, we outlined our strategy a couple of years ago, which is to make transformational medicines for very serious diseases with large unmet need and scientific opportunity. So if you look across our pipeline, whether it is in neurology or whether it's in oncology, each of the programs fulfills those criteria in difference sorts of ways.

So these are strategic assets. In terms of plans for how to commercialize them, obviously we will be able to make detailed decisions once we begin to see clinical data from Phase II and Phase III studies. We're very confident that these kinds of assets, these transformational assets, are high-value assets for the Company and they do fit with our corporate strategy.

Mohit, I would just add that we face this question a lot when we engage with investors and analysts. And it appears as though there's always a category that we want to fit these assets in, including maybe some of our early neurology assets as well. And the categories tend to be you are either in the area or you are not in the area. And what I would like to be clear on is that we're committing to the studies and we want to find out the results. We want to see where there is a potential for this transformational medicine, as Jeff Leiden has explained.

But we're in the air until we got a data. And that does not mean the Company is committed to the oncology space for the next 10, 15 years. But it does mean we are committed to these studies and finding out whether we have the potential to create new medicines. And I wish there was a third (multiple speakers) (laughter) that I could give you, but that -- we're actually in that third category.

Ian and I talked about that. We're not an oncology company or a neurology company. We're a transformational medicines company, and that is what we are trying to do here.

All right. This is helpful. Thanks a lot.

Liisa Bayko, JMP Securities.

Hi. Thanks for taking the question.

And just to follow up on some discussion earlier. If we see a better treatment effect, a larger treatment effect, in the 661-KALYDECO combo study on the homozygotes, by extension does that make us feel like that heterozygote study is going to have more robust affect than was seen with lumacaftor-ivacaftor? Is that the right way to think about it?

Thanks for the question.

And I know what you are to get at here, Liisa, in terms of will this really readout in the het men study and our impression about its chance of success, and the answer is really no. We won't have a single het men patient in this study that they're obviously the relevant patients, and as I don't think our mind will change in terms of the risk and the speed of these two approaches we're going to take. There's no doubt, no matter what we see, that the two-drug combination is a high risk but more rapid way to get to these patients who today don't have any therapy.

There's also no doubt in my mind that the three-drug combination, from everything we have seen, is a much higher probability approach. But unfortunately, it's going to take us a bit longer.

Okay, fair enough.

And then could you maybe just talk about the presentation of the combo? How many pills will it be? And sort of what with the packaging be, roughly, for the lumacaftor-ivacaftor combo?

Yes, Liisa. So the presentation is a fixed-dose combination. So you'll take the 400 of lumacaftor, that is combined with ivacaftor. You'll take that in the morning and then 12 hours later you're also are taking a fixed-dose combination tablets then as well. So it is a completely co-formulated product

And then just a final question from me on the trajectory that you anticipate for the combo. Can you maybe compare or characterize how we should think of it compared to what we saw for the G551D population? Thank you.

Yes. Great question Liisa.

In terms of a destination, if I can describe it that way, in terms of the overall level of uptake we are anticipating, we expect the level of uptake, the peak penetration, if you want to think of it that way, to be very high for the lumacaftor-ivacaftor combination, based on the things that you already know. It is an incredibly serious disease. The F508del mutation is a serious form of the disease, and there aren't any other treatment options currently available that treat the underlying cause of the disease.

So everything we know about the profile of lumacaftor and ivacaftor and the reaction it has had from patients and providers since the Phase III data become available is very positive. So we are expecting the peak uptake to be very significant.

In terms of the rate of uptake, I am anticipating it's going to be lower than with G551D, and really that's just driven by the sheer volume of patients. You have to think about here in the US there's about 1,000 G551D patients. They are treated at about 250 to 275 CF centers. That is on average three or four patients per center.

You think about the F508del homozygous population, 12 and above is about 8,500 patients, a nearly an order of magnitude greater. That is more like 30 patients per CF center, on average. And so just the sheer volume of patients and the effort that goes into initiating a new patient on therapy, the education, the counseling, navigating the reimbursement process is going to take a significant amount of time. And just the sheer volume of patients I think is going to lead to the absolute rate of uptake to be somewhat lower than what we saw with G551D, which as you well know was virtually vertical.

Great. Thanks for taking my question.

Ying Huang, Bank of America Merrill Lynch.

Thanks for taking my question.

So can you kind of go and talk about the futility analysis after the first 120 patients who will be enrolled in the het men cohort? What will be the hurdle for you to continue to enroll the other 150 patients?

And then I think you made a comment before this that maybe should we assume that the 12-week trial for that cohort in Phase III will not be low enough to capture any benefit in weight gain or exacerbation reduction. Is that a right assumption? Thank you.

So it is Jeff.

Let's talk about the futility analysis, which I think really reflects what we have been talking about in terms of the low probability for the population with the two-drug combination. We don't have an exact final rule that we are going to use in the study, so we can't give you specifics. Let me take a moment and walk you through how it is going to work, to put it in perspective.

As you noted, that we are going to enroll about 120 patients in the initial cohort. We're going to then pause enrollment, and clinical data from those patients will be collected and be reviewed by the DMC. We won't actually here at Vertex be seeing that data. It will be conducted independently by the DMC. And the goal of that is actually to assess the probability, whether we can actually know from that amount of data that it is low probability, that it is unlikely that that combination is going to be beneficial for the patients.

If that is the case, the [DSMV] will tell us and we will stop the study. If they see something that we cannot conclude that, then we will restart enrollment and complete the study. That is really the way it is going to roll out.

I would also note that even if the study continues, we don't know for sure. We really won't know that the study is going to be positive until we get to the end. It is just that at that interim point, do we have enough information already to know that it is not working? That is the way the analysis is structured.

And then your other question about pulmonary exacerbations and so forth, we will certainly collect that data. We will look at it. There Is a difference between saying that we have not sized the study to fully power for it versus that we will try to look and get all of the information that we can out of the study.

That was very helpful, Jeff. Can I just ask one follow-up?

When is the futility analysis conducted? Is it at the end of 12 weeks or in the interim?

So we have not gotten to those details. But again, it is going to be, and it's of course going to depend on the rate of enrollment as well. When we get to that 120, we have to get the patients through some of that, get -- collect the data, and allow time for the DMC to do the analysis.

And Ying, it gives me the opportunity to help you understand what disclosure around this as well. We do not anticipate that there will be a disclosure top line or anything around the futility analysis if it's positive, because we'll just continue to expand that study and recruit more patients. So we will not be making that announcement.

The only announcement that you would hear around this futility assessment is if it was negative and if we decided to curtail the study. So before the question comes, that is our plan of disclosure around this as well.

Thank you, Ying.

Brian Abrahams, Wells Fargo Securities.

Hi. Thanks for taking my question.

A commercial question on ivacaftor-lumacaftor. It seems as if there is a large number of F508del homozygous patients under age 12. I'm just curious if you've gotten a sense as to whether clinicians might treat any of these patients aged 6 to 11 at launch, and whether the drug might be -- or the combo might be reimbursed? When might you have the results of that upcoming Phase III in patients age 6 to 11 to potentially expand the label into this younger population?

I will let Jeff Chodakewitz answer the question on the timing of the study in the 6 to 11 population.

In terms of whether we might see usage in that population post-approval, that's really very much a decision for the physician and the patient. But you raise one of the most important limitations there, which is likely to be whether it would be reimbursed. And given that the specialty products like CF products are managed with a pretty rigorous prior authorizations to the label, my anticipation would be that it would be relatively few patients, if any, who are likely to be able to get access to the product until we have got an FDA approval for that here in the US.

That's not to say that certain patients and their physicians may seek to appeal that with their payer. I'm sure that will happen. But I think it's likely to be a very small number who actually are likely to get reimbursement after the launch later this year.

Then it's Jeff Chodakewitz, just to follow up.

I think it is really too early until we see what the rate of enrollment is for the -- to predict when the studies would be completed and be able to be filed. I will note that there is a little bit of a difference, as you probably remember, between the US and Europe. In that that there is a smaller study that is focused primarily on pharmacokinetics and safety to support filing and ultimate approval in the US, while Europe has historically required larger studies with independent efficacy data. So just to set the stage, that the timing in the two areas will likely differ.

That's very helpful. Thanks so much.

Operator, we have time for two more questions.

Cory Kasimov, JPMorgan.

Hey. Good afternoon, guys. Thanks for squeezing me in.

Most of my questions were asked already, but I have two quick ones for you. First of all, with the launch of the 809 KALYDECO combo expected later this year, what kind of impact do you expect this to have on enrollment in the Phase III study of 661 in homozygous patients, if any? And do open up more sites in Europe to avoid a disruption, given the different timelines there?

Then secondly, I'm also curious how much of an impact FX has on your 2015 KALYDECO guidance. Thanks.

Hi. It is Jeff. I'll take the first one.

One of the benefits of actually being able to accelerate the start of the 661 program, and particularly the homozygous study, is that we do plan to enroll patients in the US, but we think now by starting this coming month, we're going to be able to get enrollment completed, and actually hopefully have patients well into the study. So we don't -- we think that that is really very consistent and we can manage those issues. We don't see it as a big risk.

Cory, to the FX question, I know it's much -- it is a broad topic at this point. We actually gave guidance back at JPMorgan beginning of January. We looked at spot rates at that point. We then did look to see what the ex US revenues that were potentially at risk to currency fluctuations.

We don't see a big impact to our revenue line. We have a hedging program for our ex US revenues, both a hedge against those revenues but also the natural hedge for our investment in the different countries as well. And so we don't see a big impact to the revenue line because of that hedging program. We also compared it to spot at the beginning of the year.

Okay. Thanks a lot.

Howard Liang, Leerink.

Thanks very much. I have a question on expense. Thanks for the color.

Given the development costs, I think it was $570 million to $600 million, mostly for CF. Could that line item potentially decline in 2016 since Phase III may have mostly completed for 661?

Thanks for the question, Howard.

It helps me to talk more broadly about, let's say, the direction of our operating -- our expected direction of the operating investment. Clearly there is a great expectation on our revenue line, which is significant growth. But as we look at the operating expense line moving from 2014 into 2015, but then onwards, we see this increase from 2014 into 2015, as I described in my remarks earlier today. That is because we are doing effectively two Phase III studies through a lot of 2015.

But then also we're supporting the launch of ivacaftor and lumacaftor to treat many more patients. And those are driving the increase between 2014 and 2015. However, as we look at 2015 into 2016 and 2017, we see relatively little additional cost. And the reason for that is because the Company is now starting to move into a steady state. When you look at all the different aspects of the Company that drive the resulting operating expense, we start to become in a steady state in that we are committed to our levels of research, we like what we have got going on in research, we like the productivity and the production of the molecules that come from our research investment.

Our development pipeline, or our clinical pipeline, is [staged] now, Phase 1 assets through to Phase III assets. And we expect that continue to roll. So as a Phase III program comes to an end, we'd hope that a Phase II program enters Phase III. So it rolls.

And then as far as the SG&A is concerned, our infrastructure is -- already exists to support the Company at the scale it is. And as Stuart has mentioned, with the launch of ivacaftor-lumacaftor we are building out commercial infrastructure globally. But that starts to hit steady state as well, to serve the patients that we think we will treat in the future.

So it helps you understand why we look into 2016 and 2017 and talk about controlling of the operating expense, once we make this increased investment from 2014 into 2015. For that reason, bringing it back with the growth of the revenue line, we do believe that in future years and the successful launch of ivacaftor-lumacaftor, that we do actually turn to profitability and growth in earnings and cash flow. And we look for high operating margins.

Thank you very much.

Thank you very much. That will conclude our call. We appreciate everybody joining us tonight. The investor relations team is going to be available tonight following the call if you have additional questions. Have a good evening.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone have a good day.