福泰製藥 (VRTX) 2016 Q2 法說會逐字稿

Good evening. This is Michael Partridge, Vice President of Investor Relations for Vertex. Welcome to our second-quarter 2016 financial results conference call.

(Caller Instructions)

You can access the webcast slides by going to our website, where a replay will also be available later tonight. Dr. Jeff Leiden, Chairman and CEO, and Ian Smith, Chief Financial Officer, will provide prepared remarks this evening. They will be joined by Stuart Arbuckle, Chief Commercial Officer, and Dr. Jeff Chodakewitz, Chief Medical Officer, for the Q&A portion of the conference call.

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, which has been filed with the SEC. The statements including without limitation those regarding the ongoing development and potential commercialization of our drug candidates, our expectations regarding our approved medicines, and Vertex's future financial performance 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 tonight's press release. I would also refer you to slide 4 of tonight's webcast. I will now turn the call over to Dr. Jeff Leiden.

Thanks, Michael. Good evening, everyone. It was just over one year ago that we received FDA approval for ORKAMBI, marking the most significant step to date in our journey to develop new medicines for people with cystic fibrosis. Tonight, I'm pleased to report on our significant and steady progress in CF, and I'll review three key phases on efforts to bring all people with CF medicines to treat the underlying cause of their disease. If we're successful in these efforts, we believe significant and sustained revenue and earnings growth will follow.

Today there are approximately 27,000 people eligible for treatment with ORKAMBI or KALYDECO; however we're only treating approximately 9,000 or one-third of these patients. The first and most significant near-term step to increase the number of eligible patients being treated with our medicines is to gain reimbursement ORKAMBI in key European and other countries. Progress with reimbursement for ORKAMBI would enable the vast majority of currently eligible patients be treated with one of our CF medicines.

The second step to treat more people with CF is to further expand the labels for both ORKAMBI and KALYDECO, which could increase the total number of eligible patients from 27,000 to approximately 44,000. And the third step is to potentially treat all people with CF with new combinations of CFTR modulators, as well as other approaches to treatment, such as in ENaC inhibition, gene editing, and mRNA therapies.

First, to reimbursement for ORKAMBI. Outside the US, the reimbursement process is ongoing, and these discussions are progressing as anticipated across Europe, Canada, and Australia. We are encouraged that many reimbursement authorities have acknowledged the significant clinical benefits that ORKAMBI provides. We believe that we will achieve reimbursement from European and other government payers, just as we've seen in the US. We look forward to updating you as we obtain reimbursement in key countries going forward.

Second, to our label expansion efforts for both ORKAMBI and KALYDECO. Specifically, there's some 12,000 additional patients younger than age 12 with two copies of the delta F508 mutation, who we believe could be helped ORKAMBI. In the second quarter, the FDA accepted for review our supplement new drug applications for the use of ORKAMBI in children ages 6 to 11, and granted our request for priority review, setting a target review date or PDUFA date of September 30, 2016. If approved, we expect to be ready to bring ORKAMBI to these patients immediately following approval.

In parallel, we also progressing with our efforts to bring ORKAMBI to children ages 6 to 11 in Europe, where we plan to submit our application for approval in the first half of next year, following the conclusion of our fully enrolled Phase III efficacy and safety study in this group of patients. We estimate that there are approximately 2,400 children ages 6 to 11 in the US, and 3,400 in Europe, who would be eligible for ORKAMBI.

There are approximately 5,000 additional patients in North America, Europe, and Australia, largely those with residual function mutations, who could be helped by KALYDECO. While we received a complete response letter from the FDA earlier this year regarding our application for approval of KALYDECO in people with CF ages 2 and older, who have one of 23 residual function mutations, our belief that KALYDECO would be beneficial to these patients is unchanged, and we continue to pursue FDA approval for these patients, as soon as possible. There are approximately 1,500 people with CF in the US who have the mutations included in our residual function SNDA.

And third to our expanding pipeline of investigational CF medicine. The most advanced pipeline program in CF is our broad Phase III program for VX-661, in combination with ivacaftor. VX-661 plus ivacaftor may have an improved benefit risk profile compared to ORKAMBI in people with two copies of the delta F508 mutation, and may provide enhanced clinical benefits over ivacaftor monotherapy for other patients with gating mutations.

Enrollment in the study of VX-661 plus ivacaftor in people ages 12 and older with two copies of the delta F508 mutation is expected to complete in August. Data from this six-month study are expected in the first half of 2017. The other three Phase III studies of VX-661 are also progressing as planned.

We plan to submit a new drug application to the US FDA for VX-661 in combination with ivacaftor in the second half of 2017. Importantly, VX-661 is also positioned to play a key role in the triple combination regimen with the next-generation corrector and ivacaftor. We believe that this triple combination approach may allow us to treat an additional large group of patients, specifically those with one delta F508 mutation and one mutation that results in minimal CFTR function. These patients do not currently have a medicine to treat the cause of their disease.

Our two next-generation correctors, VX-152 and VX-440 are being evaluated in Phase I studies in healthy volunteers. Pending data from these studies, we expect to move into Phase II clinical development in the second half of 2016 in people with CF. These studies would evaluate one or both of our next-generation correctors with VX-661 and ivacaftor.

Beyond our CFTR modulators, we have entered into multiple strategic collaborations that broaden our ability to evaluate additional approaches to CF treatment that maybe complementary to CFTR modulation in the future. While the underlying technology and science of each approach differs, the collaborations have a shared goal, to develop the best possible future treatments for all people with CF.

Earlier this month, we entered into a collaboration with Moderna Therapeutics aimed at using messenger RNA to potentially enable cells in the lungs of people with CF to produce functional CFTR protein. This is the second platform technology collaboration we have entered into, following our agreement with CRISPR Therapeutics, focused on use of CRISPR-Cas9 for gene editing, that we began in late 2015. These platform technologies add to our development stage collaboration with Parion Sciences, focused on the use of ENaC inhibition to treat CF.

As we enter the second half of 2016, I'm pleased with both the near and long-term growth opportunities for our business. Our goal is to consistently discover and deliver transformative new medicines for patients, and to reinvest in scientific opportunities to create future medicine. We believe our business model, which is focused on significant investment to create value through innovation, research and development will position us to achieve this goal over the coming years. With that, I'll turn the call over to Ian.

Thanks Jeff, and hello, everyone. Through the second quarter of the year, we have created a growing revenue base with ORKAMBI and KALYDECO, which we expect to drive future earnings growth. Tonight, I'll discuss our second-quarter revenues for ORKAMBI and KALYDECO, review our 2016 financial guidance, and discuss our anticipated financial trajectory for the coming years.

In the second quarter of 2016, we reported total CF product revenues of approximately $426 million, a significant increase compared to $155 million for the second quarter of last year. Turning to the revenues for each of our CF medicines, global sales of ORKAMBI in the second quarter were $245 million, comprised of US Sales of approximately $229 million, and ex-US sales of approximately $16 million, which were mainly from Germany. As of June 30, approximately 6,000 patients have initiated treatment with ORKAMBI in the US.

Outside the US, ORKAMBI is already available commercially in Germany and also through early access programs in France. In Germany, uptake continues to be slower than we observed in the US. As of June 30, approximately 380 of 2,500 eligible patients in Germany had initiated treatment.

In contrast, in France, we have continued to see strong and rapid uptake. Approximately 700 of 1,500 eligible patients in France have already initiated treatment with ORKAMBI as of June 30, as part of the country's early access programs. These programs provided the opportunity for physicians in France to begin treating patients prior to their formal reimbursement approval.

We are pleased the ORKAMBI launch has continued to progress, consistent with what we discussed on our first-quarter call. And today, we are reiterating our expectations for 2016 ORKAMBI revenues of $1 billion to $1.1 billion. Given the slower than expected launch in Germany, and that we're approaching peak penetration for ORKAMBI in patients aged 12 and older in the US, we expect the further revenue growth for ORKAMBI will occur primarily in the fourth quarter, following the potential approval and launch of ORKAMBI for children ages 6 to 11.

Now to KALYDECO. Second-quarter KALYDECO sales were $180 million, up $25 million compared to the second quarter of last year. We continue to see a small number of additional eligible patients beginning treatment in US and Europe.

As with ORKAMBI, we are reiterating our 2016 revenue guidance for KALYDECO of $685 million to $705 million. Our 2016 guidance excludes any potential revenues for the approval of KALYDECO in residual function mutations, where we continue to pursue the FDA approval for patients ages 2 and older in US.

Now to the operating expenses. Our second-quarter non-GAAP operating expenses were $306 million, compared to non-GAAP operating expenses of $254 million in 2015. The increased operating expenses were mainly due to increased costs related to the progression of our CF pipeline, and to increased investment in global commercial support for the launch of ORKAMBI. Our non-GAAP net profit for the second quarter of 2016 was $58 million or $0.24 per diluted share, as compared to a non-GAAP net loss of $131 million or $0.54 per share for 2015.

From a balance sheet perspective, we ended the second quarter with approximately $1.07 billion in cash, cash equivalents, and marketable securities. Vertex also has $300 million outstanding from a credit agreement, repayable by the end of the third quarter 2017.

I will conclude tonight's call with a few brief comments on financial trends, including revenue and earnings growth. Our goal is to discover and develop new medicines for all people with CF.

As Jeff has discussed, there are three important phases to support these efforts. Obtaining reimbursement for ORKAMBI outside the US, expanding labels for both ORKAMBI and KALYDECO, and developing new medicine to treat potentially all people with CF. As we progress towards this goal, significant and sustainable revenue growth will follow.

Importantly, as our revenues grow over future years, we are committed to managing our operating expenses to drive earnings growth. We expect to deliver a financial profile that is similar to many of our large cap biotech peers. With that, I open the line to questions.

(Operator Instructions)

Geoff Meacham, Barclays.

I have a few commercial ones, and one clinical. I wanted to ask you, either Ian or Stuart, any changes to the persistence rates in the US? What are the new strategies to improve it? And then can you just go into a little bit more detail on the EU outlook? From what I understand, being flattish in 3Q from Germany, and then maybe what's driving the fourth quarter bump?

Geoff, it's Stuart here. So on persistence rates, what we're seeing in US is very consistent with what we outlined in our Q1 call. In fact, all of the trends, really in initiations, persistence and compliance, are entirely in line with what we said then.

Just to remind you and others on the phone, for persistence, we said our expectation was it would track towards about 70% to 80%, between 70% and 80% by the end of this year, and the same for compliance. And we continue to believe in those estimates, and those estimates are what underpins our revenue guidance that we reiterated today.

In terms of Europe and as you know, the Germany uptake is relatively slow, Ian mentioned that in his prepared remarks. Incorporated within our guidance, really we're only expecting significant contributions ex-US from Germany. In terms of how we see things playing out in the rest of Europe, really as you know, that's going to be very dependent on us proceeding through the country by country reimbursement negotiation processes, and what I can tell you is that those are progressing as we planned, as expected.

But given our learnings and the analogy to KALYDECO, and the time it took there, we're really not anticipating to conclude many of those reimbursement negotiations until 2017. Having said that, we recently concluded our first formal reimbursement negotiation in Austria, and now we're going to affect from September 1, but we continue to believe that most of the major markets, we're not likely to see any major contributions in terms of revenue growth until 2017 and beyond.

Okay, and just real quick on the clinical side, I know it's less interesting, but the PK for 152 and 440, will we see any of that in any CF, and any more thoughts on what the size and scope of the critical development for the triple could entail? Thanks.

Little difficult to answer that, to be honest, Jeff, to say the size of the triple -- if I comment more broadly on our operating expense for the remainder of the year, and then maybe the trajectory in 2017, that's an easy way for me to comment on it. We always plan and provide guidance based on assuming success, and therefore we are investing behind the programs. So our OpEx guidance for the year is at $1.18 billion to $1.23 billion, and we reiterated that number in the press release tonight. And that's a non-GAAP number by the way, excludes primarily stock compensation.

And then as we look into next year, we actually see, we hope and expect the programs to progress. As we look into next year, as we think about OpEx more broadly, we see the maybe some marginal increases in marketing investments for the launch of ORKAMBI more broadly, and particularly in Europe as we get reimbursement approval. And as we look at development investment, maybe it's more consistent 2015 to 2016, as programs cycle in and out, with the expectation that the 661 Phase III program comes to closure and we are filing next year, and the progression of the triple into a larger Phase II study. So that gives you an understanding of the trajectory of our investment profile through this year and into next year.

Geoff, this is Jeff Leiden, with respect to your question on the PK and what we have said before that will let you know as we conclude the Phase I studies and plan the Phase II studies, for the next-gen correctors, what those Phase II studies will look like, and we'll provide you with some relevant data, so you understand the design of those studies.

Okay.

As I said, are on track for the second half of this year.

Okay, thanks.

Michael Yee, RBC Capital Markets.

Two questions as well. On the commercial side, are you based on the long-term data for ORKAMBI, are you starting to see any patients, perhaps thinking about coming back? Are there discussions out there in the field about bringing some patients back on, and what do you think about that standpoint? And then, a follow-up question on the triple. Is it safe to say that you have gone well into Phase I and the longer the better, and is there something specific in terms of exposure levels that you're looking for, relative to assays? That we could get some comfort in terms of what you want to see exposure decrease?

It's Jeff Chodakewitz. Let me touch on both of those for you. I think from the long-term data perspective, we think that is very meaningful to patients and to prescribers. I think the reasons for that our several-fold.

As you know, that information really has a couple of chunks to it. One is about the long-term safety of the drug, which is very important, and that continues to look very favorable, consistent with what we've seen before. And then we have several more efficacy kind of measures. Some of that came from the study itself, we are following patients for a long time that we saw that their FEV1s were maintained, their PMI continued to improve, and although there's no active comparison there, the event rate in terms of pulmonary excavation really remained low, and consistent with what we saw during the trials. So that was very impactful we think for physicians and for patients.

The other thing we did was take the information from a matched cohort of historical patients, and what that allows you to do over that timeframe is to compare the rate of decline of patients FEV1s who are on our study versus what we think the historical expectation would be. And that really, then, as we did with KALYDECO, helps us understand if we are shifting that curve, and slowing the rate of decline, really modifying the disease. And we were very pleased to see that approximately 40% reduction in the rate of decline. So overall we think that data is very impactful and useful.

In terms of triple combination, really can't give you a lot of details. As Jeff Leiden said actually already, that both drugs do continue in Phase I studies, and our expectation of course, pending data, is that one or both of those will start in patients for the second half of this year.

Okay, thanks.

Geoffrey Porges, Leerink Partners.

Question for Stuart. Perhaps I think about the PDUFA date and the pediatric indication for ORKAMBI. Could you talk about what pace you expect reimbursement to be available to the pediatric patients, the homozygous double deltas? And then secondly, as you are out in community and talking to physicians, do you think that the adoption, compliance, and persistence rates in the pediatric population will be similar to the adult population, or greater or less than you've observed so far? Thanks.

Yes, thanks for the question. So the PDUFA date is September 30, and obviously we're deep into the planning for that launch, it's certainly just a couple of months away. In terms of what we might anticipate for access, to answer the first part of your question, my expectation is that access is going to be very good, just as it was for ORKAMBI when we first introduced it for the 12 and over population, and in some ways, this is a somewhat simpler review for the payers, as it's today a label extension, just extending it down to a younger age. And so my expectation is that we will secure broad access very quickly.

In terms of rate of uptake, similarly, I would anticipate the demand to be robust, just as it was for 12-plus, and in terms of persistence and compliance, again it's difficult to say exactly how it's going to play out in the real world, as opposed what we saw the clinical trial setting, but certainly a couple of things that I think are -- give us some encouragement. We certainly saw in the study that we did that forms the basis of our application that the adverse event rate, in particular the rates of respiratory adverse events was much lower and none of the patients discontinued for adverse events, and as you know, that's been one of the primary reasons for discontinuations on ORKAMBI in the 12 and over population.

And then again one thing that could help us, the 6 to 11 population certainly with KALYDECO, we do tend to see compliance rates being much higher in the younger populations, not surprisingly, as they tend to be very heavily managed by their parents and so while I don't know exactly how it's going to play out in the real world, certainly expect access be very good, to adopt quickly, and I'd also expect the uptake to be very rapid, as well.

Thanks very much.

Geoff, I'll just add onto Stuart to reiterate something I said in my comments, which is that Q4 is where we anticipate to see the growth in ORKAMBI for the remainder of the year, and obviously that is 6 to 11 that Stuart was just discussing.

Great, thanks again.

Brian Abrahams, Jefferies.

As you see more uptake in Germany, and more patient going on treatment in France, I was wondering if you could talk a little bit about persistence and compliance patterns that you're starting to see in Europe? Could you expect to be able to leverage your learnings from the US launch, plus the availability of the long-term data now, to improve that patient retention in the European launches compared to the US? And then separately, just wondering if you could give us a little more granularity on the next steps, and your level of confidence on residual function mutations, where you stand there with the next regulatory steps? Thanks.

Brian, I'll start off on the persistence and compliance and how things are playing out in Europe. One of the benefits of launching in Europe after launching here in the US is clearly we have been able to learn a lot from our experiences here in the US. And I think one of the things that we've been able to do is certainly sensitize people to the fact that some patients may have these respiratory adverse events, and so to be on the lookout, to be counseling patients in advance. And that has certainly has been one of the many learnings that we took from our experiences here in the US to the introduction of the product in Europe.

The data sources are not quite as robust as we have here in the US, in terms of tracking at a non-biased level individual patient data in Europe, and I would say it's relatively early stage. The persistence rates are certainly in line, in the same ballpark as we saw with ORKAMBI here in the US. And as that data matures over time, we will be able to give you more detail on exactly how it's playing out. But at the minute, the data is relatively immature, I'd say it's pretty much in the same ballpark for persistence and compliance.

And Brian, this is Jeff Chodakewitz. Just to comment on residual function, we really can't comment, we have ongoing discussions with regulatory agencies. The only thing I can say is that we do really think all the data, both the preclinical data and the clinical data, really tells us that this drug is beneficial to those patients. And our goal is to figure out a way to get access for those patients.

Thanks very much.

Terence Flynn, Goldman Sachs.

Maybe just two for me. First on ORKAMBI in the US, it looks like new patient adds have moderated somewhat this quarter, and I know you were talking about nearing peak. So is 6,000-ish what you were expecting now, or you think you can get to the rest of the 8,500 total?

And then in Germany versus France, obviously a difference in uptake. Just wondering what you think is driving that, and which other countries you could think about those patterns playing out? Are they going to be more like Germany or more like France? Thank you.

I'll start with the US, so as you said, with ORKAMBI, we've now initiated over 6,000 patients here in the US, which about 70% of the eligible patient population. And as you might expect with a launch we're getting to a steeper part of the curve, adding new patients becomes a little bit more tricky. Having said that, we are continuing to add new patients on a weekly and daily basis, but as Ian said in his prepared remarks, in terms of US growth, obviously the next phase in growth in the US like to be from the approval in 6 to 11, which we hope will come in the next couple of months.

So moving on to how things are panning out in Europe, you're right, there is a contrast in uptake between Germany and France. Germany is slower than we anticipated, and much of that I attribute to the fact that the German market is more fragmented than many of the other markets that we operate in. What I mean by that is there's many more centers treating CF patients, and as a result, they've had less experience with CFTR regulators, and therefore the educational need is higher there. And also we did see a slightly slower uptake for KALYDECO in Germany than we saw in other EU markets.

Contrast that with France where through early access programs, we have -- 700 patients have already been initiated on ORKAMBI and that uptake in six months is much more US-like. So based on that, based on all the other research we've done, we do anticipate that Germany is more likely to be an outlier in terms of rates of uptake, although I continue believe that we will get to the vast majority of patients in Germany over time. In terms of rate of uptake, I would expect to be more like France in the rest of Europe, pending reimbursement, than we've seen in Germany, which I continue to believe is likely to be more of the outlier, based on our previous experience with KALYDECO and current experience with ORKAMBI.

Great, thanks so much.

Mark Schoenebaum, Evercore ISI.

This is John Miller on for Mark, and I just wanted to ask a question about this 6,000 patients that are started on ORKAMBI. You said those are starts, but what's the current number of patients on therapy? I'd love to know that. And my other question, I suppose, would be your thoughts on pricing pressure, especially in an orphan disease like this, where pricing ability has typically been very high. How do you look at that going forward, as that's obviously an issue?

So I'll just reiterate what Ian said. In terms of the actual number of patients being treated, that's clearly a very dynamic number and changes constantly. So what we have said is that we have to date initiated 6,000 patients. We continue to see more initiations, and we continue to believe, as we did at the end of Q1, that the persistence rate of that patient population is going to be somewhere in the 70% to 80% range, as indeed we believe the compliance rate will be somewhere in the 70% to 80% range.

And so that's what we believe at the end of Q1. We continue to perform against those expectations, and that is the 12 and above patients in the US, is what underlies our revenue guidance that we reiterated today. In terms of pricing, clearly that's a very hot topic across the industry.

We continue to believe that we are developing very high quality medicines, medicines that treat the underlying cause of what is a horrible life-shortening disease. It's for a very small patient population, and we believe and I think that's reinforced by the discussions we have had with government through the reimbursement of KALYDECO and the ongoing discussions we're having with ORKAMBI, this is exactly the sort of medicine that they want to be able to provide to their patient population. So whilst there will be pricing pressures because of the overall macroeconomics on every pharma and biotech company, I continue to believe the sort of agents we're bringing to bear are the sorts of products that governments are going to want to pay for.

Thank you very much.

Matthew Harrison, Morgan Stanley.

This is Cyrus on for Matt. Couple of questions. First, are there any efforts to improve the persistence and compliance rates in the United States?

So yes, we have a number of programs, which are provided either through materials that we provide the healthcare providers, to provide to their patients, or where appropriate to provide directly to the patients, to educate them on the product, the mechanism of action, the fact that it treats the underlying nature of the disease. So these programs are ongoing, and I think an understanding and an educated patient is likely to be a more persistent and more compliant patient.

And also we continue to try and build the evidence-base for ORKAMBI, which increases the benefit risk profile, and to the extent that providers and patients continue to believe in the benefit risk profile, then I think they're going to want to try and maintain their time on the product, because of the both short and long-term benefits the treatment with ORKAMBI gives them.

Okay, and then the same question is, when will you would be able to recognize the revenues in France, and will they come as a lump sum, or how will it be dealt with?

Just to help everybody else, what's behind that question, we actually are providing access to ORKAMBI in France through early access programs and other programs, and we are actually being paid for that drug, and in my remarks, I did comment that launch in France is going very well, in that we're accessing a lot of patients. We do get a payment for that drug, that might be similar to how the ultimate price for the drug plays out in France.

However, from a GAAP perspective, we are unable to record those -- access to those medicine as revenue until we have an agreed price in France. So I appreciate the question. We would anticipate that would be a 2017 event.

At the point that we do get approval on the price, which provides us certainty to reporting of those revenues, we actually record the revenue as one big catch-up. So as we've been selling drug since let's say January 1, 2016 all the way through the point of reimbursement approval, we will record that cash that we will have ultimately received as part of revenues in the quarter that we received reimbursement approval. We do think that would be a 2017 event

Okay, great, thank you. And then last question. Is there any update to the 661 futility analysis timing for the heterozygous?

It's Jeff Chodakewitz. I can tell you that as we've talked about previously, that is on track to occur during the third quarter, and then based upon that recommendation from the DMC, and remember we won't be seeing that information, we will either stop the study or restart enrollment and go to completion.

Okay, thank you.

Adam Walsh, Stifel.

My first one is, you talked about a large bolus of discontinuations in the first quarter because 15% of patients, I believe you cited, come off in the first three months. I just wondered if there was any residual bolus tail end into the second quarter. That's my first question, and then my second question is also on discontinuations.

You talk about the 15% in the first three months, and 20% to 30% longer-term. Can you help us, after the 15% dropout in the first three months, help us understand the discontinuation dynamics from that point to the 25% long-term discontinuation rate, which is the midpoint of your guidance?

So yes, thanks for the question. So yes, we did describe this bolus of discontinuations, and that was largely a function of two things. One, the very, very rapid uptake we saw of ORKAMBI post the initial launch, and then we did see about 15% of patients discontinue within the first three months of therapy, largely as the result of respiratory adverse events.

And then what we saw was that the rate adverse, rate of discontinuations ameliorated substantially. It didn't stop, didn't flatten, but it certainly ameliorated substantially. And as a result of that, that's why we gave guidance that we see the discontinuations over the persistence rate, which is the opposite of the discontinuations being in that 70% to 80% range by the end of 2016. And everything we've seen through Q2 continues to reinforce our belief that's where we will end the year, somewhere in that 70% to 80% range. There wasn't really, if I understand your question correctly, there wasn't really a second bolus that negatively impacted Q2.

Great, I guess the question was, was there any tail end residual? You had the large number of patients start in the first nine months, and you said of that in the first quarter, as we moved into this quarter, was the bolus still moving through, in terms of the 15% discontinuations, or did that really end the first quarter?

Maybe a better way to answer this is that somebody asked us on the call earlier was that are we continuing to see the dynamics of the launch, and let's say the compliance rates and persistence rates. Are being maintained? And yes they are.

So when we talk about the profile of compliance with the medicines being between 70% and 80%, we're still seeing that. When we look at the persistence rate ending up at 70% to 80%, we're still seeing that, which means that every time there is a bolus of patients that is initiating therapy, we still continue to see discontinuations early on. However because these is a lower initiation of patients in Q1 or even the beginning of Q2, the impact of discontinuations in Q2 is much less than it has ever been.

Perfect, thank you

Phil Nadeau, Cowen and Company.

Just a couple on the pipeline. So I guess first on VX-661's het-min futility analysis, you never disclosed exactly what the futility hurdle was. I was wondering whether you could give us some sense of the criteria, or at least how you're going to interpret a go signal in particular? And then a similar question on the Phase I for the second-generation correctors. Can you give us some idea of what criteria you are going to look at, to decide which will move forward, and do you have any plans to move other second-generation correctors into the clinic?

It's Jeff Chodakewitz. In terms of 661's futility, I think, first of all, we really can't go into the details of exactly what the decision tree is, but let me help you think about it a little bit perhaps. There's a certain tension as you make a decision based on partial information. We want to try, if the drug is not benefiting patients, to stop the trial.

Conversely, there is uncertainty, and we also want to be careful about not missing a positive result. Therefore there always is a certain overlap, and what we tend to do is then say it's clearly not working, we stop. The consequence of that is even if it goes forward, there is still uncertainty.

It does not mean that it's working, it just means that it may be working. And therefore until we get to these end of the study, we really would not have any confidence in what the result is going to be

Yes, and Jeff, before you go onto the next question, I would just comment from a disclosure perspective, we get asked this question a number of times. I want to be very clear on our disclosure around that, consisted of what Jeff was saying, if there is a discontinuation of the study due to the futility, we'll announce that the study is discontinuing, and that would be an appropriate announcement at the time that we get that information.

If we pass, no guarantees that it's working and therefore this drug, the information is submittable for approval. But the only way we communicate around that is on ClinicalTrials.gov, we will open the recruitment for that study, and we would expand the recruitment into the study, plus there wouldn't be an announcement saying that we passed the futility hurdle.

That's very helpful, thanks.

In terms of your other question, I think what we've always said is that what we want to do is bring these medicines, these compounds forward, but we want them to be medicines. So we try as much as possible to have drugs that we think can have a favorable profile in patients, so that they can continue. We're going to look at all the information, safety, exposure, all the things you would expect. There's really no one thing that I can say we're going to focus in on, it's really the totality of the profile of the drug.

Okay and do you have plans to move in any other second-generation correctors into the clinic, or is it really dependent on what you see in Phase I?

This is Jeff Leiden, thanks for the question. As we said before, this is a large program here. We have discovered a series of second-generation correctors, or next-generation correctors.

They have different flavors, which is interesting, and our strategy here is very straightforward: If we can develop a portfolio of products and bring some of those forward into the clinic and compare them, it gives us the best probability of success. So our plan is to continue that program in the research and pre-clinical phase, and if we see compounds that are interesting, good, better than the ones we have, we certainly will bring them forward into the clinic.

Great, thanks for taking my questions.

Alethia Young, Credit Suisse.

Just want to, 661 and the other study, can give us a flavor around maybe what the project is enrollment, not the homozygous but the other three studies? What sequence we might expect for the timelines? And the second one, just when you look at some of the long-term data that you generate on exacerbations like medical meetings by year, do you think that doctors are receiving that, patients are receiving that, that there is a very profound benefit, just saying ORKAMBI can be even somewhat similar to KALYDECO? Thanks.

Sure, it's Jeff Chodakewitz. Let me first comment on the 661 sequence. First of all, as we indicated for the homozygous study, we have a lot of confidence in that, finishing enrollment in August, in fact, we've actually already stopped screening patients for that study, so it's just having the last patients completing the screening process and if they qualify, going into the trial.

We've already talked about the timing of the study of het-min patients and the futility analysis that's going to be done. We expect that the next trial that's going to be completed will be the study in patients with F508 on one allele and a residual function mutation on the other allele. And as we indicated, we expect that to complete in the second half of this year, very much as we indicated earlier this year, it's really right on track. And then the last study with F508 and gating on the other allele, again as we have indicated previously, we think the second half of this year or early next year, and as we get the data, that will allow us to evaluate our best submission strategy and file pending data in the second half of 2017.

In terms of the long-term data, I want to be sure that I understand your question. We do think that the results from that long-term data are quite compelling. You asked specifically about pulmonary exacerbations, and so we do look at what -- basically we use an assessment of how many events are happening for the patients that we're following, and think about it as an event rate.

And what we do see is that as we have gone out further in time, that remains quite low compared to what we had as our initial comparison. We think that is quite meaningful to patients and physicians, and actually that links up with the other information like body weight, and particularly the change in both FEV1, and evidence of disease modification, we think that is driving considerations like starting therapy earlier, and considering whether patients who have discontinued may want to think about restarting therapy.

Okay, thanks.

Ying Huang, Bank of America.

Can you talk about maybe the ATU pricing you're getting in France, and how does that compare to the German pricing for ORKAMBI? And secondly also again on Europe, what's your thought on Brexit on the UK and also broadly speaking European reimbursement for ORKAMBI? Thanks.

So the ATU pricing in France has not been publicly disclosed, but it is very similar to the list price that we had established in Germany. In terms of the thoughts on the Brexit impact, certainly from a financial point of view in the short-term, the really most tangible impact that you can see is really one around the impact on FX, and because of the nature of our business and the natural hedges we have, we're not expecting that to have a meaningful impact on our business. There is obviously a range of other legal, regulatory, employment and other aspects that could be impacted by the Brexit, as the negotiations are ongoing. We're clearly going to be tracking those very closely, and making all the appropriate moves and responses as the situation becomes a situation becomes clear. But as with many things, Brexit, I think to speculate on too many other aspects of what the impact would be, would be crystal ball gazing at best.

And then maybe another one for Jeff. Could you tell us when might we see CRISPR and also the Moderna program getting to the clinic?

Thanks for the question. I appreciate you acknowledging the two very important collaborations we've actually done in the last year, standing up modalities we're getting from other diseases. But unfortunately, they are early stage, as you are probably aware, and we wouldn't anticipate getting anything to the clinic in the next couple of years. It's probably three years or more from now, and we would love to update you on that, but those have been important transactions for the Company.

Thank you.

Liisa Bayko, JMP Securities.

I thought you had a pretty good KALYDECO quarter. I'm just wondering if you comment on where, what's driving growth there? Is it from a particular region, or rolling out a new mutation?

Liisa, thrilled with the question. It's nice to be able to talk about KALYDECO and thanks for noticing. Yes, KALYDECO had a very strong quarter of $180 million.

Most of the growth over Q2 came from the US, and essentially what we continue to see is increasing new patient initiations in some of the newer indications, like the two five-year-old kids, and also in the R117H mutation. So we continue to see strong patient initiation, and as you know, the persistence rate and the compliance rates with KALYDECO are about as good as I've ever seen. So really, it's that combination of adding new patients and great persistence and compliance rates, particularly here in the US.

Okay, thank you for that. And then in terms of ex-US, is it -- just to make sure we're all on the same page, the only countries you're selling any drug, I mean distributing any drug to patients, I know you're not really selling in France per se, but France, Germany, and the US? Are those the totality of the countries?

So outside of the US, France and Germany are different from any of the other markets in that the way the structure of those markets work is that there are access programs that you can take advantage of, where patients can get access to the products prior to formal reimbursement approval being secured, on a relatively broad basis. And that's happening in both Germany and France, and Ian talked about the fact that within France, we never recognize those patients from a revenue perspective. In Germany, we do.

There are other countries where on a named-patient basis, there are literally handfuls of patients who through exceptional programs are gaining access to the product, where we are getting paid. But the vast majority of our revenues outside of the US are coming from Germany. We expect that to continue in 2016, and we don't expect to get really meaningful revenue contributions from markets outside of Germany and outside of the US until 2017.

Okay. I think that's it for me, thank you.

Brian Skorney, Robert W. Baird.

Two quick ones, I guess. First, can you just go over anything you've said about the differences between 152 and 440? Are they distinct corrective mechanisms?

I know you've always had the intention to move forward with both, but just wonder if there is a potential for these two drugs to actually complementary to each other, like 661 and lumacaftor, they're just overlapping? And then when we think about the peds approval later this year, do you think there is any meaningful numbers of peds patients currently on ORKAMBI off label, or do you think there is really a completely untapped patient pool right now?

Brian, it's Jeff Leiden. I'll take the first part, and then Stuart can take the second part. We haven't actually talked a lot in detail about mechanisms of action or the differences and or similarities between 152 and 440, but they're clearly molecules, and so that's what we have brought them both forward into the clinic.

What we have said is that we, as part of our discovery program, have discovered a portfolio of next-gen correctors which do have distinct mechanisms of action, as well as distinct drug-like properties. And that's why we're excited about the portfolio, and that's why we plan to take multiple molecules into the clinic, because at least in my experience, that's the way to maximize your chance of success.

Brian on the off-label usage in the 6 to 11 population, we don't track off label usage, but my expectation is that it would be very, very low, and the reason why I say that is, the prior authorization for ORKAMBI, which enabled us to get very good access for ORKAMBI are very simple, but very clear, and then they would tend to say the person has to have a CF diagnosis, they have to have the right mutation type, and they check of the date of birth, they check the patient is 12 and above. So my expectation would be that the number of people receiving commercial products off label is going to be very, very low.

Great, thanks.

Operator, we will take two more questions before concluding the call.

Katherine Xu, William Blair.

I'm just wondering with ORKAMBI versus KALYDECO, do you see a little bit lower compliance or persistence for ORKAMBI as compared to KALYDECO, and if that's the case, do you think it's mostly because of safety or lower efficacy or both? Any sense on that, at all?

Katherine, so with KALYDECO, we see very high levels of both persistence and compliance. We have said that our persistence with KALYDECO is 90%-plus, and overall compliance both here in the US and internationally is around 85%. And as we said at Q1 and is baked into our revenue guidance, we expect persistence for ORKAMBI to be between 70% and 80%, then for compliance to be in the same 70% to 80% range so we do see both of those criteria being lower for ORKAMBI than they are for KALYDECO. And to attribute exactly why that is, I'm not sure I would be able to tease that out for you. I'm sure it's got to do with the benefit risk and tolerability profile of ORKAMBI versus KALYDECO, but exactly which factor is weighting it one way or the other, I think would be impossible to differentiate.

And could you give us a quick update on your oncology in teens pipeline candidates?

This is Jeff Chodakewitz, just give you a quick comment, and then maybe Jeff Leiden comment. In terms of our oncology program, I think very much consistent with where we were expecting it previously, that molecule, VX-970 is really in focused critical trials in very specific populations, and non-comparative trials to understand what the potential for that drug really can be, and so those are ongoing. On the pain side, our VX-150 actually just is finishing, has finished enrolling a Phase II POC study in osteoarthritis patients, and we expect to have some information later this year.

So I would just pick up on that and say, because people ask us, are we going to be an oncology company, and I think that's a little early to suggest that, given that we have one lead molecule at the moment in early-stage studies in oncology. We're going to continue to progress our studies, as Jeff Chodakewitz said, and based on that data, we will make a choice at that time as to whether we provide further investment, or we actually look to see whether the mechanism is better served working with other companies, and therefore looking more of a portfolio approach to drive forward our oncology opportunities. We do have other mechanisms, one that is in the clinic, and then a couple that are just late pre-clinical right now. So we have a late pre-clinical couple of compounds, and also early clinical compounds, and that's where, in terms of our oncology portfolio, and we'll make the decision of how to progress that best for greatest value once we receive the data from VX-970, the lead program.

Alan Carr, Needham & Company.

A couple of them here. One of them, it looks like the only program we haven't touched on is 210. Wondering if you can give us an update on that in the spinal cord. And also with respect to your SNDA around residual mutations for KALYDECO, what sort of options do you have available here, in your discussions with FDA?

Jeff Chodakewitz. So Alan, I'd say first of all, in terms of VX-210, that study is up and enrolling. Frankly, we have had enrollment now in the trial, but these are acutely ill, acutely injured people so we have always expected that enrollment will be slow, and so we are really pretty much on track, in terms of residual function as we talked about earlier. There's really just nothing in terms of ongoing discussions with the regulatory agencies that I can talk about further.

Can you comment, I'm wondering if you comment on -- what the outcomes might be here, is this something that might be resolved this year, or does this potentially involve more studies? What can you comment from that perspective?

It's Jeff Leiden. So as you know, we just don't comment on ongoing regulatory discussions, partly because they are not predictable, and they are not totally within our control. I think the important point is we do believe that KALYDECO is active in this set of patients, based on both preclinical and clinical data, and we're having ongoing discussions with the regulator about how to get access to these patients with KALYDECO. When we have an answer, we'll certainly disclose that for you.

Fair enough, thanks very much.

Thank you. I'm showing no further questions at this time. I would like to turn the conference back over to Mr. Michael Partridge for any final remarks.

Okay, thanks operator. We appreciate everyone joining us tonight. We are happy to take additional follow-up questions after the call, and the Investor Relations team will be the office, so please reach out, and have a good night.

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