福泰製藥 (VRTX) 2017 Q4 法說會逐字稿

Good evening. This is Michael Partridge, Vice President of Investor Relations for Vertex. We're pleased to be able to talk with you tonight about our fourth quarter and full year financial results for 2017 and about our continued progress to build long-term leadership in the treatment of cystic fibrosis. Dr. Jeff Leiden, Chairman and CEO; Dr. Jeff Chodakewitz, Chief Medical Officer; and Ian Smith, Chief Operating Officer, will provide prepared remarks this evening. Stuart Arbuckle, Chief Commercial Officer, will join us for Q&A.

We recommend that you access the webcast live as a supplement to the information from today's press releases. These slides are available for download on the Investor Relations page on our website. This conference call is being recorded, and a replay will be available on our website.

I will remind you that we will make forward-looking statements on this call. These statements are subject to the risks and uncertainties discussed in detail in today's press release and our filings with the Securities and Exchange Commission. These statements, including, without limitation, those regarding the ongoing development and potential commercialization of any triple-combination regimen for cystic fibrosis, Vertex' other cystic fibrosis programs and Vertex' future financial performance, are based on management's current assumptions. Actual outcomes and events could differ materially.

I will now turn the call over to Dr. Jeff Leiden.

Thanks, Michael. Good evening, everyone. Today is a special day for everyone at Vertex and for the CF community as it marks the sixth anniversary of the FDA approval of our first CF medicine, KALYDECO. When KALYDECO was first approved in 2012, only 1,200 people worldwide were eligible for a medicine to treat the underlying cause of their disease. Today, the number of people eligible for one of our CF medicines has grown to 34,000 worldwide, and we will continue to expand the number of eligible patients in 2018 and beyond.

In the past few years, and especially in 2017, we've made remarkable scientific progress that has moved us closer to achieving our ultimate goal in CF, to develop highly effective medicines for all people with the disease. And with today's announcement that we have selected 2 next-generation correctors to advance into Phase III development as part of 2 different triple-combination regimens, we've taken a significant step toward achieving that goal.

I'd like to begin by acknowledging everyone who has helped to bring us to this important milestone in our more than 15-year journey to develop new CF medicines. I'd especially like to thank the patients, families and CF caregivers for their unwavering support as well as the employees at Vertex for their commitment to this program. The data announced today are remarkable and demonstrate the potential for significant and consistent clinical benefits in patients with one F508del mutation and a minimal function mutation when treated with a triple-combination regimen containing either VX-659 or VX-445. We remain focused on bringing forward the best triple-combination regimen to patients as quickly as possible.

Based upon the totality of the data collected today from 4 different triple-combination regimens in more than 200 people with CF, we believe that both the VX-659 and VX-445 regimens have highly compelling profiles for late-stage development. Therefore, we have decided to advance both regimens into Phase III, one of which we plan to evaluate as a once-daily regimen. We're having productive discussions with the FDA regarding Phase III programs for both triple-combination regimens. We look forward to finalizing the design of these programs and remain on track to begin the first Phase III studies of a triple-combination regimen in the first half of this year.

As I look back over the past year, we've made tremendous progress across all parts of our business and have positioned the company for further success. We continue to increase the number of patients eligible for and treated with our approved medicines, which is driving significant revenue growth. We expect this revenue growth to continue, which will, in turn, also drive significant earnings growth. We reported positive Phase III data for the combination of tezacaftor and ivacaftor and are awaiting FDA approval for this important new treatment option, which will be a significant contributor to revenue growth beginning this year.

Today, we've provided further hope for those still awaiting a new medicine for the cause of their CF with a selection of 2 next-generation correctors to move into Phase III development as part of triple-combination regimens.

And beyond CF, we are preparing to begin clinical development of CTX001 in 2 devastating diseases, beta-thalassemia and sickle cell disease, with our partner, CRISPR Therapeutics. We also expect to move one or more potential medicines from our internal research programs into clinical development in other diseases this year.

I look forward to updating you on our continued progress over the coming year and will now turn the call over to Dr. Jeff Chodakewitz to review today's announcement in more detail.

Thanks, Jeff, and good evening. I'm very pleased to share the initial results from the ongoing Phase II studies of the VX-659 and VX-445 triple-combination regimens and to review our plans to advance these 2 different triple-combination regimens into Phase III development.

The initial Phase II data reported today are extraordinary from both an efficacy and safety perspective. Collectively, our Phase II studies in more than 200 CF patients provide compelling evidence of the significant clinical benefits that triple combinations may provide to CF patients.

All 4 of our next-generation correctors were advanced into development out of our own labs based not only on their in vitro efficacy profile, but also on their drug-like properties, including PK profiles, minimal drug-drug interaction potential, ability to be coformulated with tezacaftor and ivacaftor and others. All of the Phase II data generated to date has validated the rigorous selection criteria we used.

We are today reporting top line safety and tolerability data as well as efficacy information as measured by mean absolute within group change in percent-predicted FEV1, sweat chloride and CFQ-R data for the patients with a minimal function mutation from each study.

First to the Phase II data for the VX-659 triple regimen. This study evaluated VX-659 in combination with tezacaftor and ivacaftor or triple placebo for 4 weeks. 53 patients received one of 3 doses of VX-659 in combination with tezacaftor and ivacaftor. Across the study, the combination was generally well-tolerated and the overall safety profile was favorable. The majority of adverse events were considered mild or moderate. There were no discontinuations due to adverse events. One patient interrupted triple-combination dosing due to a rash, which resolved following interruption of treatment. The patient restarted and completed triple-combination dosing without any further rash.

In the patients who received this triple combination, we observed significant improvements in lung function of 10.2, 11.6 and 13.3 percentage points across the 3 dose groups that were evident by the second week of the treatment period and sustained through the 4-week dosing period. These data are shown on Slide 10.

With sweat chloride, we saw significant decreases of 45.8, 43.7 and 51.4 millimole per liter for the triple-combination dose groups. These were the largest decreases in sweat chloride observed for any of our triple-combination regimens to date. These data are shown on Slide 11.

We also observed significant improvements in patient-reported respiratory symptoms of 24.6, 19.8 and 21.8 points for those on the triple-combination regimens as reported in the CFQ-R respiratory domain score. These data are shown on Slide 12.

I will now turn to the Phase II data for the VX-445 triple regimen. This study evaluated VX-445 in combination with tezacaftor and ivacaftor or triple placebo for 4 weeks. 53 patients received one of 3 doses of VX-445 in combination with tezacaftor and ivacaftor. Across the study, the combination was generally well-tolerated and the overall safety profile was favorable.

The majority of adverse events were considered mild or moderate. There were 2 discontinuations from the treatment groups due to adverse events and none in the placebo group. The treatment discontinuations occurred in the VX-445 100-milligram dose group. One of the treatment discontinuations was due to increased bilirubin without concomitant transaminase elevation, which was observed on the final day of dosing. The patient's bilirubin levels returned to baseline during the safety follow-up period after discontinuation of treatment. The second discontinuation was due to rash, and following discontinuation of treatment, the rash resolved.

In those who received the VX-445 triple-combination regimen, we observed significant improvements in lung function of 11.1, 7.8 and 13.8 percentage points that were evident by the second week of the treatment period and sustained through the 4-week dosing period. These data are shown on Slide 15.

With sweat chloride, we saw significant decreases of 38.2, 33.2 and 39.1 millimole per liter for the triple-combination dose groups. These data are shown on Slide 16.

We also observed significant improvements in patient-reported respiratory symptoms of 20.8, 15.4 and 25.7 points for those on the triple-combination regimens as reported in the CFQ-R respiratory domain score. These data are shown on Slide 17.

I would also note that we conducted post-dose spirometry evaluations for both of the triple-combination regimens in these studies and saw no evidence of bronchoconstriction.

The Phase II studies of the VX-659 and VX-445 triple-combination regimens are currently ongoing in patients with 2 F508del mutations. An additional part of each study is evaluating a potential once-daily regimen that contains the once-daily potentiator, VX-561, in place of twice-daily ivacaftor in patients with one F508del mutation and one minimal function mutation. These parts of the studies are fully enrolled, and the remaining data from each of the Phase II studies are expected in the first half of 2018.

Data from across our portfolio of next-generation correctors received to date show that the potential benefits of treating the cause of CF with triple-combination regimens are clear and support the rapid advancement of the VX-659 and VX-445 triple-combination regimens into Phase III development.

Our strategy of advancing both VX-659 and VX-445 into Phase III gives us the opportunity to generate data from 2 different triple-combination regimens, including one that may be dosed once daily and pick the best regimen to bring to patients as quickly as possible.

Our discussions with the FDA regarding our Phase III program for triple-combination regimens have been productive, and we have already shared with the FDA the available data for the VX-659 and VX-445 triple-combination regimen. We are now focused on finalizing the design of the Phase III programs, and we remain on track to initiate the first Phase III program in the first half of 2018 upon completion of these discussions.

We plan to conduct 2 separate studies for each triple-combination regimen, a study of each regimen in people with CF who have one F508del mutation and one minimal function mutation and a study in those with 2 F508del mutations.

Following the initiation of the Phase III studies for the VX-659 triple-combination regimen in the first half of 2018, we plan to initiate the Phase III studies for the VX-445 triple regimen in the middle of the year. We plan to evaluate VX-445 in combination with tezacaftor and the once-daily potentiator, VX-561, as a potential once-daily triple-combination regimen pending the Phase II data for this regimen and also the completion of a long-term nonclinical toxicology study for VX-445.

In addition to evaluating each triple-combination regimen in the studies I just discussed, we also plan to evaluate each of these triple-combination regimens in patients who have one F508del mutation and a second gating or residual function mutation. These studies are planned to begin in the second half of 2018.

Once our FDA discussions are complete, we look forward to updating you with more details regarding the specific designs of the studies. Before I close, I'd like to thank everyone who took part in these studies for their commitment to helping us advance the treatment of CF.

I'll now turn the call to Ian.

Thanks, Jeff, and good evening to everyone. 2017 was an outstanding year for Vertex, and tonight, I'm pleased to review our fourth quarter 2017 financials and our 2018 full year financial guidance for combined non-GAAP R&D and SG&A expenses.

Revenues first. Total CF product revenues of $621 million in the fourth quarter of 2017 represent a 37% increase compared to $454 million we recorded in the fourth quarter of 2016. Our product revenues grew each quarter throughout 2017 as we increased the number of patients treated with our approved medicines. Today, we estimate we have initiated therapy in over 17,000 of the 34,000 patients eligible for our medicines. We expect eligibility and the number of patients we treat to continue to grow throughout 2018.

For ORKAMBI, we reported fourth quarter 2017 product revenues of $365 million, a 32% increase compared to the fourth quarter of 2016.

The growth in 2017 was driven by the continued uptake of the medicine globally, particularly in children ages 6 to 11 in the U.S.

Fourth quarter 2017 KALYDECO revenues were $256 million, a 44% increase compared to the fourth quarter of 2016. This significant growth in 2017 was driven by the rapid uptake of the medicine by patients in the U.S. with residual function mutations following the label expansion of these patients in mid-2017.

Our fourth quarter 2017 non-GAAP-combined R&D and SG&A expenses were $355 million compared to $295 million in the fourth quarter of 2016. This increase was primarily due to the continued acceleration and advancement of our portfolio of triple-combination regimens for CF and the investments to support the treatment of patients with our medicines globally.

Non-GAAP net profit for the fourth quarter 2017 was $158 million compared to non-GAAP net profit of $88 million for the fourth quarter 2016. The increase in non-GAAP net profit was largely driven by the strong growth in total CF product revenues.

Our financial performance in 2017 has resulted in a full year non-GAAP operating margins of 26% compared to 17% for the full year of 2016. And as we continue to increase the number of patients that we treat with our medicines, we expect our operating margins to continue to expand in the future.

We also strengthened our balance sheet during the year as we ended 2017 with approximately $2.1 billion of cash, cash equivalents and marketable securities compared to $1.4 billion at the beginning of the year. This increased cash position was after we paid down $300 million in the first quarter 2017 that was outstanding under our revolving credit facility.

Now turning to guidance. We, today, provided financial guidance for combined non-GAAP R&D and SG&A expenses. As we have stated previously, we expect to provide 2018 revenue guidance when we receive FDA approval for the tezacaftor/ivacaftor combination. The FDA action date is February 28, 2018. When we provide revenue guidance, it will be for total CF product revenues and will not include guidance for individual products. We do expect significant CF product revenue growth in 2018, driven by the launch of tezacaftor/ivacaftor in the U.S. for eligible patients 12 and older and through treating more patients with ORKAMBI in countries outside the U.S.

As we think about the first quarter of 2018, we anticipate revenues will be impacted by higher gross-to-net revenue adjustments that we experienced in the first quarter of each year and by channel inventory build that occurred in the fourth quarter of 2017.

Now to operating expenses. In 2018, we expect combined non-GAAP R&D and SG&A expenses of $1.5 billion to $1.55 billion. The key investment drivers are the execution of pivotal studies, the 2 triple-combination regimens, supply chain investment for the potential commercial success of the triple-combination regimen and incremental investment to support the planned launch of tezacaftor/ivacaftor. As we anticipate, our revenue growth will significantly exceed the increase in our operating expenses. We do expect operating margins and earnings to continue to expand in 2018.

2017 was a transformative year for Vertex, and the continued execution across all parts of our business has positioned us to deliver sustainable revenue and earnings growth as we significantly increase the number of patients we treat with our medicines.

With that, I will now open the line to questions.

(Operator Instructions) Our first question comes from the line of Geoffrey Porges from Leerink.

I was particularly struck by one number, which was the 51% sweat chloride response, which was quite remarkable. Perhaps, Jeff, could you comment a little bit about what appears to be the difference between 51% and 39% sweat chloride response? And is that suggesting to you that 659 might be a little bit more active and potent? And then could you also comment on why no 561 plan with 659 since it looks as though 659 is a little bit cleaner, a little bit more active? Why wouldn't you want to be planning on doing a 561 combination?

Yes, Geoff. This is Jeff Leiden. Thanks for both questions. Let me answer the second one first. Actually, it's really a strategic portfolio question. And I'll just remind you that our approach here is to make sure that we get the best regimen to these patients as quickly as possible and that's one reason we're taking 2 regimens forward into Phase III because as you pointed out, both of them look really quite good. Both of them, in fact, all 4 of our regimens we feel were -- showed results that were certainly significant enough to take into Phase III. But we're taking 2 forward because that's one way of modifying one risk, and that's the risk of some rare-off target toxicity due to the next-gen corrector in one of these regimens, and obviously, by taking 2 forward, we mitigate that risk. And then to your question, what -- why take one forward with iva, one forward potentially with d-iva, and I say potentially because we still need to confirm that with our VX-561 results. And that is our plan, to take 659 forward with iva, and if it's supported by the data, 445 with d-iva. And the reason is the same, it's a way of mitigating risk, right? D-iva, although it's obviously very similar to iva, is a different chemical compound. We've only seen it in tens or less than 100 patients. And so I would hate to put all my eggs in that basket and find out there's some very rare tolerability or safety issue with d-iva that would set both programs back. So it mitigates that risk. And the way we feel better about that is let's assume that, at the end of the day, we decide VX-659 and iva is the best regimen, that's the one we're going to take forward and commercialize, we have the opportunity, we believe, to quickly bridge over to VX-561 into a once-a-day regimen simply with some bioequivalence type of data. And so I think we're just trying to use a portfolio approach to hedge both of those risks, and we have a strategy for eventually getting to that once-a-day regimen, whether it's 659 or 445 that turns out to be the winner at the end of the day.

And anything in the difference between the sweat chloride and the FEV1?

Yes. So thanks for playing the sweat chloride out. We always talk about FEV1, and so sometimes, we ignore sweat chloride. One of the things that's really impressive to me about the next-gen data in general is the sweat chloride drops we're seeing. Remember, this is in men patients, the most difficult-to-treat patients with only one 508 allele, and we're seeing 40 to 50, and north of 50 even, millimole or drops in sweat chloride, which is truly remarkable. And I think it suggests that we are really very effectively getting at the underlying cause of this disease, which is what's so reassuring about the consistency of all this data. I don't think there are differences, honestly, between 40 and 50 millimoler in these number of patients that we would put our hat on because they're both really profound. And I would just remind you, with respect to picking regimens, it's really not any one value, it's not just sweat chloride, it's not just the FEV1 response, it's the totality of the profiles. The good news is they all look very, very good. So we are picking a bit between sirloin steak and filet mignon here, but we'll pick these -- in the end, pick the winner based upon the totality of the profile, both efficacy and safety and tolerability.

Our next question comes from the line of Michael Yee from Jefferies.

A 2-part question. First was maybe just comment on the dose response and the tolerability profile of the 2 programs. It seems like there's sort of a dose response, but also maybe not really clinically meaningful. And then the second part of that is maybe just comment on the bilirubin case. And then as it relates to the Phase III design, rather than ask about the duration of efficacy of Phase III, maybe just remind us what the precedent is for filing on duration of safety and how much safety you would need to file these types of things or win these types of things.

Thanks, Mike. I'll answer the first part on the tolerability of dose response. Maybe Jeff can talk to the bilirubin. And then I'll come back and talk about the safety and timing and the question there. First of all, with respect to dose response, again, one of the things that's very impressive to me is we've looked at 4 regimens, we've looked at multiple doses, and when you look at that totality across those 4 regimens, they are remarkably well-behaved considering we're talking about 20-, 22-, 40-, 50-patient studies. I mean, in every case, but one that we'll come back to, there's a pretty clear dose response, whether you're looking at sweat chloride or whether you're looking at FEV1. So the compounds are quite well-behaved in that way. The one outlier, which I think you're pointing out, is the 100-milligram dose of the 445 in which the FEV1 response and sweat chloride response, looked pretty similar to the 50-milligram dose. And then when you go up to 200, you see the jump again. And so we were interested in that, trying to understand it. And of course, what we're really interested in the end is the exposure response, right, not just the dose response. And so we went back and we looked at exposures in that -- in all the studies, but in -- particularly in that one, and what you see is interesting. If you look at the 50- and the 100-milligram doses of 445, the exposures are quite overlapping. And the FEV1 and sweat chlorides are quite overlapping, if you look at those confidence intervals. When you move up to 200, you see a clear differentiation, a jump in exposure, and you see a clear jump in FEV1 and sweat chloride. And so, actually, 445 turns out to be well behaved too as long as you're looking at the relevancy, which is exposure versus response. And with respect to tolerability, I'm going to let Jeff talk about bilirubin in a second. One of the things here that is very reassuring is that across all the doses, we're seeing excellent tolerability. There's really no evidence of a dose or exposure tolerability pattern or problem here with any one of these compounds, which is what makes us feel good about the therapeutic index or window. It's going to make it, I think, easier for us to go in and look at these doses and pick the best doses for each compound, which we will, which we're in the process of doing. And then maybe, Jeff, you want to talk about bilirubin?

Sure. I do think that consistency across the dose range is really very, very telling. Mike, in terms of your specific question on bilirubin, I think the really key point here is that this was an isolated finding. There were no evidence of transaminase elevations or any other findings about the liver. As you heard, actually with interruption that rapidly resolved and the -- and one patient actually restarted and continued on without any further elevation, so that's really a pattern that just isn't clinically concerning. So we don't see it as an issue.

And then finally, your duration of safety data question, as you know, we don't really speculate. That's an FDA or European regulator decision at the end of the day. I can point you to our -- to some of our historical data, where you know we've been between 6 months and a year of safety data in most of these studies, but these are discussions we're having. I think the important point is this is a medicine -- these medicines will be things we're asking children to take for the rest of their lives, and so we do want to make sure that we have a complete safety data set that we're comfortable with and that regulators are comfortable with and it will be that -- the ratio, of course, of efficacy and safety, that at the end of the day, it will be the decision-making.

Our next question comes from the line of Geoff Meacham from Barclays.

I'll just ask the other 2 questions a little bit different way. I know the goal here ultimately is to maximize FEV1, but it's also obviously to get to a positive risk benefit as quickly as possible. So how do you guys balance those 2? And what do you think the upper end of an FEV1 could be? I'm just trying to think down the road competitively when you have, perhaps, gene therapy or other combinations available or in development.

Yes, let me answer those separately because they are a bit related, Geoff. So first of all, just to be clear, while FEV1 is an important indicator of acute benefit, our goal is actually bigger than that. And we measure efficacy in this disease not only by FEV1, but by long-term efficacy results that we've been seeing very clearly with both KALYDECO and ORKAMBI, and that includes decreases in the slope of the decline of the lung function curve, it includes hospitalizations, pulmonary exacerbations, IV, antibiotic use -- all of which are very favorably impacted by both KALYDECO and ORKAMBI. And at the end of the day, it's really the combination of what the acute response you can get, plus all of those chronic things that we would grade as a success in CF. And that's particularly true as you move back to the younger-age patients. Remember, there may be, and likely will be, a ceiling on acute FEV1. In a 30-year-old patient, it starts with an FEV1 of 50 because they have a fair amount of structural lung disease and you're not going to be able to reverse that. It's a very different story in a young 2-year old or 1-year-old who's starting with an FEV1 of 95 or 100. And you're really trying to do something different there. You're trying to prevent the disease or modify the course of the disease, and that, of course, is our ultimate goal. So acute FEV1 is one measurement. It depends a little bit on who you're treating as to what the ceiling will be. I don't think we have explored yet fully that ceiling. It's one of the things we want to do. But I do want to be really clear that the long-term goal is much more than acute FEV1. It's really modifying the course of the disease long-term as measured by all the things that I just told you about. One of the reasons we want to look at that with the triples is this may be the last time that anyone can do a placebo-controlled trial of a CFTR-modulating therapy, and obviously, those longer-term endpoints are going to be very, very useful and very interesting and important, I think, for us to measure.

And Jeff, just as a follow-up to that, since you guys have great technology looking at cellular assays and pulmonary assays, I mean, what's the -- once you get into the clinic with these Phase IIIs, what is the interest or focus level in getting some proof of concept data in things like IPF or COPD or something pulmonary but not quite CF? Or have you guys not gone down that path yet?

Yes, yes. I thought you were going to actually ask me a different question. I thought you were going to ask me, are you still going to work on getting better correctors. So let me answer that question. The answer is yes, and the reason is because we know from sort of an experiment of nature, that if you're a carrier, and which means you have a one mutation but a normal allele, you have a chloride transport in your cells of about 80% of normal, somewhere right around there. And we know you don't get the disease. And so if we can drive everybody to carrier status with a triple regimen, and we are getting pretty close with some of these regimens now, we believe, and treat early, that we can actually turn patients into carriers, which, of course, is the ultimate goal. So we are going to continue to work on better and better next-gen correctors because we're seeing that we can still up the efficacy. With respect to IPF and COPD, we are totally focused here on finishing the journey in CF right now. We want to get these triples to everybody who has one 508 or 2 508 alleles. That's going to be plenty of work over the next couple of years. And when we finish that journey, of course, we'll consider other things that we might use these medicines for. But right now, we're pretty focused on CF.

Our next question comes from the line of Phil Nadeau from Cowen and Company.

First, a scientific one and then a financial one. On the scientific side, you mentioned that the compounds are well tolerated, but you did note some pulmonary-type side effects in the adverse events. Can you talk a little bit about the characteristic of those pulmonary side effects? Were those kind of like what you've seen with KALYDECO, where it's clear that the lungs are getting cleared and that's what gives rise to the sputum and coughing? Or are they of a different characterization?

So thanks. It's Jeff Chodakewitz. No, I think you have it exactly right. The impact, it was things like cough and sputum clearance that, really, they're reported as adverse events, but we actually think of them almost as a marker of potential effects of the underlying pharmacology that we're trying to get. So that's really the way it is. I would say just one other comment, that we look very specifically, as we mentioned in the prepared remarks, right from the beginning in these studies to be -- to look for any kind of post-dosing decreases in FEV1. We got all that data, and there is nothing there. So it's -- the pattern is exactly what you're describing.

Okay. Then second one on the side effects. You mentioned that there's really nothing concerning about the bilirubin or rash. Was there anything confounding in those patients that could have given rise to those side effects that was not trigger-related?

No. And I mean, you have to remember, we're talking about, which is a good thing, very small numbers of people with any of these adverse events we're talking about. I think to say were there any other confounders, I think it's really too early to tell. But again, the important thing is that they were generally mild to moderate, they resolved quickly, and as we told you, the safety profile, very favorable.

Great. And Ian, one last question for you on finances. I know you're not going to give guidance until tez/iva's approved, hopefully, next month. But can you give us some general sense about how you feel about the current consensus estimates for 2018. Based on my math, they seem to assume about 9% year-over-year growth versus Q4's run rate. Does that seem kind of reasonable? Can you discuss maybe what the drivers of growth will be for the franchise in 2018?

Sure. Thanks for the question, Phil. We did look at consensus coming into the call. Given that we won't be giving guidance, we thought that question may come up. And so, firstly, I would say that the number that we see in the consensus for 2018 does reflect growth, which is consistent with how we think about 2018. Obviously, we're waiting on the approval of tez/iva. That will be the major growth factor of the 2018 revenue line. And so as we look at that consensus number, we like where it is. It's consistent with how we're thinking about it. We'll give you greater clarity once we get the approval with tez/iva. I would take this opportunity to remind those on the call that it is our intent to give 2018 revenue guidance, but it would be a total CF revenue guidance. With the approval of tez/iva, we should see switches from ORKAMBI onto tez/iva. We should see going from KALYDECO to tez/iva. So for us, the guidance will be total CF revenues. And then also consistent with some of my remarks I made on the prepared remarks, I would just ask people to work with our IR group after the call to think about the models through the year. Q1, we do anticipate being affected by the inventory build that were -- occurred in Q4 of 2017, although we're still committed to a growth year driven by the approval of tez/iva.

But could you give us a sense of the size of that inventory build?

Yes. It wasn't very big, but I'll give you a comment of the nature of it. So in the U.S., given how the new year felt, there was some inventory stocking in the U.S. And overseas, there was some forward-buying around Europe that would normally have occurred in Q1 that was actually pulled forward into Q4. The size of it, it's around $10 million to $15 million. So if you think about how that gets pulled into Q4, it has a double impact in terms of helping Q4, but offsetting in Q1. Obviously, we still have a great Q4 number. So the demand is strong, more and more patients are going on drug, and compliance is good.

Our next question comes from the line of Alethia Young from Crédit Suisse.

Maybe we'll have the triple. Just when you talk about European reimbursement and the portfolio of deals, do you think the long-term data that you're kind of generating over time in real-world experience will drive those combinations? Or is it a combination -- or it's a kind of the combination of all things? And then the second question is just as far as the sickle cell program with CRISPR, what additional steps need to be taken in the U.S. for an IND filing? And can you give us any updated thoughts around design things?

Yes, Alethia. It's Stuart here. I'll take the first question, and then Jeff Leiden will take the question on sickle cell. So yes, I think one of the driving factors between -- behind governments being interested in these portfolio arrangements is the rapid progress they can see that we're making in developing treatments that treat the underlying cause of the disease in up to 90% of patients. And so yes, that's been one of the most compelling things to governments around the world and why they have been interested because they can see the rate of progress we're making and just how good the results are that we're seeing in these patients. So that's been certainly a very strong drive to them wanting to talk about portfolio-type arrangements.

And it's Jeff Chodakewitz. Just a quick follow-up on the sickle cell. As you know, we've commented, we filed the, with CRISPR, the CTA for beta-thalassemia at the very end of '17. We're in the process with CRISPR of putting together that IND. And we expect to file that IND during this year, and then we'll be looking to initiate those studies in people with both sickle cell and beta-thal. Exactly when that will happen and the timing, we're going to have to be further along in that process and then we'll be able to give you a better sense.

Just a follow-up on that. I mean, is there any kind of different conversation around breaking these programs into the clients between U.S. and Europe?

The beta-thal program will be done in Europe, and the sickle cell program will be done primarily in the U.S.

Our next question comes from the line of Ying Huang from Bank of America Merrill Lynch.

Maybe can I ask you a little bit differently on the FDA requirement on the Phase III? Given the data you have seen so far, including today's efficacy in Phase II as well as the Breakthrough Designation, do you guys think the FDA will require the same amount of safety data as well as the same duration for efficacy analysis in the Phase III? And then also, on rash and bilirubin, did that happen in the lower dose or higher dose of those 2 trials?

Yes. It's Jeff Leiden. I'll answer your first question. I think we've learned a lot about doing these CF trials as has the FDA as we've worked together over the last 6 or 7 years through a number of different medicines. As you know, as an example, we tend to see the full FEV1 effects within 4 to 8 weeks, and everything that we're seeing here suggests that, that is going to be true as well. So I think that, in general, the efficacy time-points can be on the shorter side, in other words, you don't need 6 months on your data. On the other hand, safety is obviously very important here as well, and you don't get a read on safety data in 4 weeks or 8 weeks, so it's likely going to be longer. And that's exactly what we're discussing now, which is what is the length of each one of those endpoints and in particular, that safety database, how big should it be and how long should it be. And as soon as we know that, we'll let you know.

And it's Jeff Chodakewitz. In terms of your question about dose, actually, it was mixed across doses. And so -- and exposure. There was no real linkage.

Our next question comes from the line of Terence Flynn from Goldman Sachs.

Maybe 2 for me. Just was wondering, at a high level, if you can just give us some framework for how to think about tez/iva pricing, what are some of the key inputs. And then as we see the data today, again, does this change that discussion at all as you guys think about potential pricing? And then on the triple-combo Phase III program in homozygous patients, is -- will it definitively include a control arm? And what will that control arm be? Can you tell us at this point?

Terence, on tez/iva pricing, obviously, I'm not going to comment specifically on it. We'll do that at the point that we get approval from the regulators. But in terms of the considerations we're taking into account, they really are the same as we've taken into account consistently for KALYDECO and ORKAMBI, and that is the magnitude of the clinical benefit that we're able to deliver. And as you know, we believe we've got a very strong profile with tezacaftor/ivacaftor. And then the other consideration is the size of the patient populations that were going to be able to benefit, and we'll be taking those same considerations into account when we come to making the pricing decision on tez/iva pending regulatory approval.

With respect to the homozygous trial, we're still discussing that, but will it be a control arm, almost certainly yes. And at that point, remember, most of these homozygous patients will be on either ORKAMBI or tezacaftor/ivacaftor, and so it will likely not be a placebo control arm.

Our next question comes from the line of Brian Abrahams from RBC Capital Markets.

On the triple, I guess I'm wondering, broadly speaking, what primarily drove your selection of these next-generation correctors over 440 and 152? What did you see with the additional dosing of 152? And could 152 and 440 still serve as backups? And then on the Phase III plans, I know these are still under discussion, but I'm just wondering if the right way to think about this is for the het/min group to -- for het/mins potentially coming through first just given the unmet need and possibly different regulatory barb versus the homozygous, or should we expect those to sort of follow through concurrently?

Yes, so with respect -- this is Jeff again, Jeff Leiden again. With respect to choosing between the 4 different regimens, it was really the totality of the data, and that means the acute FEV1, the sweat chloride on the efficacy side, certainly, the tolerability and safety profiles on the other side. But some additional factors as well, coformulatability, the dose that we need to give and "could we get that in one pill" manufacturability. All those went into the decision. As I said, it was a little bit of a hard decision because they were all quite good. We could have taken any of them into Phase III, and that's obviously a good problem to have. But there were some differences. I'd give you one just as an example. 659 and 445 have the potential to be once-a-day, whereas 152 and 440 were clearly going to be twice-a-day. Well, once-a-day in our mind is an advantage. You sort of put a check in that box. 440, in its preclinical data, as you know, had some teratogenicity. 659 and 445 didn't. So you can put a check in that box on the side of 659 and 445. So as we went down the whole list of benefits from an efficacy standpoint, safety and tolerability, coformulatability and manufacturability, these 2 won out. It was a little bit of a horse race. They didn't win out by 10 lengths, but we feel that they have the best overall profile from an efficacy, safety and formulation standpoint. And then your other question was about het/mins versus homozygous. I just want to step back and remind you again that we believe the data that we have strongly supports the notion that these triples should be used in anyone who has one 508 or 2 508 alleles, meaning het/mins or homozygous. And our plan is to pursue a clinical course to make sure that we get that done as quickly as possible. You're absolutely right, that the het/mins have the biggest unmet need because today, they don't have any CFTR modulation. But I would also remind you that when we looked at the triples in the homozygous patients, there was a very, very significant incremental effect on FEV1 when you add a next-gen corrector to tezacaftor/ivacaftor. And so while the acute need may not be as great, we feel that the benefit may be every bit as great in those patients. And so we don't want to leave any patients behind or slowdown in one of these populations, and we're just talking with regulators about how do we get that done most effectively and most quickly.

Our next question comes from the line of Matthew Harrison from Morgan Stanley.

I guess I just wanted to ask one follow-up on safety and tolerability here. So you saw some rash across both studies. You've commented before about some GI tox. I guess what I was wondering is can you just talk to us a little bit about some of the clinical side effects you've seen versus what you've seen preclinically with these compounds, and do they match up at all. And I guess the basis for the question here is, preclinically, you saw some of the chest tightness before with ORKAMBI, and then it was unclear, where you didn't see it at a high frequency in some of the initial studies, so I'm just trying to understand your comfort around some of these issues.

Hey, it's Jeff Chodakewitz. Maybe a couple of comments, one at a big picture level. I think that the adverse events profile that we've talked about tonight, I hope it's come through to you, that no matter how you look at it, whether you look at SAEs, clinical AEs, labs, all those things, that the profile for both of these regimens is actually very favorable. And that's great, combining with the efficacy, we're really excited about moving them forward. There's really nothing that particularly stands out. We've tried to give you a sense of the information. I do want to go to your question and your comment about bronchoconstriction. That was actually something that we saw clinically in ORKAMBI, and that's why I wanted to be sure we highlighted that. Even though we had no expectations about it, we think we don't see it in tezacaftor/ivacaftor. We did look for it very specifically in our Phase I and Phase II studies, and there was no evidence of that. So we feel very good.

Our next question comes from the line of Cory Kasimov from JPMorgan.

I guess I'd want to ask the question regarding potential duration of the Phase III studies another way. I'm curious if it's possible if they could be different durations from the standpoint of the tez/iva safety data you've already amassed relative to tez-561. So might the first one be shorter from that standpoint? And then my second question, I apologize if I missed this already on today's call, but how should we be thinking about the company's tax rate in 2018 and beyond given the tax reform?

Yes. With respect to your first question, Cory, in terms of tez/iva and how does that influence the duration here, the clean findings that we've seen with tez/iva are certainly major de-riskers of the safety profile of the triple, but as in any combination, when you add a new agent, the key is what about the new agent. That's what drives the length and the size of the safety database, and that won't be affected by the fact that tez/iva turns out to have a very good -- a very favorable safety and tolerability profile. So the discussion is really about we have a new combination with a completely new agent, actually, 2 of them, 659 and 445, what's the appropriate safety database, timing and duration to look at that new combination.

And Cory, on the taxes, I'll kind of just walk you through this. First of all, I'd remind you that we do have operating losses within the U.S., so as we create profits right now, those operating losses offset those profits. So we have minimal tax liability, minimal cash tax liability, and at this point, we're not recording an effective tax liability either. As we work through those NOLs and we get -- and the accounting allows for, we will start recording a tax rate and pay taxes. And we've set up our tax structure within the company that matches our global operations, and that actually results in us having a tax rate that would be in the low 20s once we start to pay. And so we have been benefited like many other companies in the -- that have a U.S. presence with the tax reform and the lowering of the U.S. domestic tax rate, but that benefit is small because we also accumulate profits outside of the U.S. as well.

Our next question comes from the line of Brian Skorney from Robert Baird.

Just based on your commentary around plans to start pivotal programs for 440 and 152, should we take it as an understanding that you've now completed chronic tox at this point? And is there anything to speak of there? And can you comment on what species and duration you've seen and what, if any, end-organ tox there is?

Brian, could we just clarify the question? You asked about 440 and 152? Could you -- so could you just reask the question again?

Yes, yes. So on the 2 new ones, I was wondering your chronic tox, is it now complete? Is there anything in terms of what you're seeing in preclinical studies? How long have you gone out, and what end-organ tox are you seeing for those 2 outputs?

So the chronic tox is complete for 659, and there was nothing there that in any way affected our plans to take it forward into Phase III. The chronic tox for 445 is not yet complete, but it will be very shortly.

And then I just also wanted to confirm, on the go-forward strategy of combining 659 with ORKAMBI, this is a risk-mitigation strategy for 561, right? There's no concern about it at qd? Is it -- are you looking at it as a qd drug on top of tez/iva in Phase III?

Yes, correct. So this is all about KALYDECO being twice-a-day. Both 659 and 445 have clear once-a-day PK profiles.

Our next question comes from the line of Robyn Karnauskas from Citigroup.

So a big picture question for you. It's like you've been waiting for this data, I'm sure, for like a long time, and this is really remarkable. It's so exciting. When you think about your company big picture now, knowing this data, knowing likely that Phase III could replicate this, you have 2 shots on goals. How do you run the company differently? Does it change your -- you just gave the guide, doing M&A at $1 million to go out and find something new. And secondly, how do you start planning for converting results? Do you everyone is going to go on this sort of eventually? What can you do now to make that conversion fast once those trials are done?

Yes. Great questions. So these are the questions -- good questions that we ask ourselves and we've been working on for a little while now, certainly as we see this data. They become quite relevant as you point out. And so I'll give you my impression and how I think about it, Robyn, and I hope the rest of the management team agrees. First of all, we need to finish this journey in CF, and as you point out, that is largely an execution task where we need to move as quickly as possible to get these Phase IIIs up and running, fully enrolled, get the data out there and really finish this journey for 90% of CF patients. And that's a very -- a responsibility we take very seriously for this community. As I said, we continue to work on even better next-gen correctors, and at some point, we need to make a decision about whether we're going to take those into the clinic to try to get carrier-like effects for everybody. And as we've said before, there's still 10% of patients with CF who won't be amenable to CFTR modulatory therapies because they have minimal -- they don't have any protein. And those patients are going to need a genetic approach, and we are working on that as well, although we feel that, that is considerably further out. So the first mission is finish the journey in CF, see if we can get some genetic therapies for the 10% of patients and really just change the course of this disease or prevent this disease. The second part of the journey is what's beyond CF. Can we do this again? And as I said at JPMorgan, I sometimes get asked the question, well, why do you think you can do this in another disease, you're a CF company, and sort of why should we trust you to invest in other diseases. And my answer is we have already done it before, many times, in this company. So starting with HIV, going to HCV, oncology, flu, you may have seen some of the news about the flu compound in the release today. It's -- and obviously, now with CF multiple times. So this is a company that has a very special innovation engine and create -- and can create these kinds of breakthrough drugs. And although we haven't talked about it, as you know, we've been working on that in 4 or 5 diseases, including sickle cell and AAT, [8 or more ones], some others that we've been talking -- starting to talk about. And those are moving along very nicely. So we want to use some of the revenue we have here to reinvest in our internal research programs. And then also, we want to use it because, as you pointed, we'll have a lot of financial firepower to supplement our innovation through external BD kinds of programs of many flavors. You've seen us do CRISPR, you've seen us do Moderna. You'll see more of those deals. And you could see some bigger ones, but still focused around the same strategy, making transformative drugs for serious diseases in specialty markets, expanding our therapeutic modality, capabilities into things like gene editing and gene therapy and other kinds of modalities and supplementing our early-stage pipeline. And so that's really the plan. In many ways, the strategy has gotten simpler. It's gotten to be more execution. We're really pleased with the way the team executes, and it's why we feel so confident about the future of the company.

Our next question comes from the line of Adam Walsh from Stifel.

This is Neil on for Adam. Just wondering about what kind of preparations you guys are doing to ensure a successful launch of tez/iva. And then if you guys can just talk for a minute about how you expect the launch curve to play out and what you expect as far as uptake.

Yes. Thanks, Neil. The commercial team, I would say, here is pretty good at launching products. We've had the benefit of, as Jeff just described, an incredibly productive research and development engine here, which is in CF, has generated new products, new indications, new age groups time and time again. So the team is, I would say, pretty much a well-oiled machine when it comes to executing these launches. So they're ready to go. The teams are trained. We've scaled up here in the U.S. in our case management group because one of the most important things we can do is ensure patients are onboarded effectively. That group has been trained and expanded to account for the additional patients we are anticipating seeing. So we are as ready as we can be, and we're eagerly anticipating the approval in the near future. In terms of a launch trajectory, really difficult to say exactly how that's going to play out. It's going to depend on the, obviously, the timing of the approval. It's going to depend on us being able to secure access and reimbursement, which I'm confident we will do here in the U.S., as we have done for KALYDECO and ORKAMBI. And then we'll have to see how some of those launch dynamics play out in the real world in terms of persistence and compliance. Certainly, everything we know about KALYDECO and ORKAMBI would tell us we should expect to see great uptake, great persistence and great compliance, and that's what we're anticipating.

All right. And just one other one. For tez/iva in the EU, how do you think the agreement is going to work out there with those countries that already have agreements on ORKAMBI? How should we think about that?

Well, I think that really goes to the kind of the different processes of different countries. It's hard to give you one answer for kind of Europe as a whole, in countries where we have an individual pricing reimbursement agreement around ORKAMBI, there's really going to be 2 parts, either kind of the standard sort of sequential approach, where you apply product-by-product, and obviously, we're preparing to do that in line with getting our regulatory approval for tez/iva in the second half of this year, which is what we're planning for in the EU. In some markets, for instance, like in Ireland where we have a portfolio agreement, there we are anticipating, in line with that agreement, that we will get access for those patients at the time we get the regulatory approval for tez/iva. And that to me is one of the great benefits for patients and physicians of these portfolio agreements. And I think, as I mentioned earlier, in answer to somebody else's question, I think the tez/iva data and now the triple combination data is only going to further interest in these kinds of portfolio agreements.

Our next question comes from the line of Carter Gould from UBS.

First on the pivotal triple-combo studies, can you maybe just talk about your level of comfort that U.S. and EU regulators will be aligned on the safety duration you need to see? And then just on the internal non-CF pipeline, beyond the VX-150 data and acute pain, are there any other internal clinical data we should expect to come out over the course of 2018?

Yes. This is Jeff Leiden. So we're talking with both European regulators and U.S. regulators about all the same issues that we've discussed on the call. And of course, our goal is to align those studies as much as possible between those. And when we get agreement with both of them, we'll let you know exactly how they look. And with respect to the non-CF pipeline, as you know, we have said that we expect to start Phase I studies in our sickle cell and beta-thal program. This year, those will be in patients. We expect one or more other programs from our internal research group to also enter the clinic this year. It's a little early to predict exactly when we'll start to see the first clinical data.

Our final question then comes from the line of Navin Jacob from Deutsche Bank.

Navin Jacob, Deutsche Bank. Maybe 2 quick questions here, if I may. The first is which doses of 659 and 445 are you taking into Phase III? And then I have a follow-up commercial question.

Yes. We haven't yet finalized the doses. That's one of the things that we're discussing with regulators. One of the reasons that we did the studies the way we did, and that we're actually very pleased with the results, is we do feel we have a very nice dose and exposure response set of curves for both of these compounds that will make it easier for us to pick the best dose.

And then, very quickly, on commercial, if I may, apologies. But how do you think about the value that you're going to be generating here for het/min patients? Oftentimes, people think that as you expand populations in orphan disease, you have to cut price, but yet, at the same time, you -- Vertex has spent a significant amount of capital investing in brand-new drugs for these severe diseases. And so I guess the question is how should we be thinking about the economic value that you're providing, especially given the actual efficacy that you're showing here? Should our base case assumption be flat pricing versus KALYDECO or even a discount? Or is there -- do you actually see the value that you're providing here to patients?

Well, having just released the Phase II data and announced that we're moving forward into clinical development, we're not about to start speculating on those, specifically about pricing. Obviously, the data we've released today demonstrates that we think these triple combinations have the opportunity to provide tremendous value, certainly for patients in the first instance based on the efficacy and safety profile that we've shown. In terms of economic value for them, clearly, that's something that's going to be considered way down the line. We'll take into account the same considerations that I've said we always have, which is the magnitude of the benefit that we're providing and the number of patients that we are able to benefit, and those are the 2 considerations that we will continue to take into consideration as we move forward. The most important thing is, with the data we've released today, is it gives us a clear path to be able to provide CFTR modulators for up to 90% of patients. And that's our primary goal.

Thank you, and this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Michael Partridge for any further remarks.

Thanks, I'll actually turn it back over to Jeff Leiden.

Yes. Thanks, Michael. Maybe just 2 remarks, one an internal remark and one an external remark, and I'll start with the external one. I do want to come back and just remind you that in CF, we have been working with this community of patients and caregivers and the foundation for almost 20 years now. It's been an incredible journey. And to me, this is a special day because it's one more important step forward towards finishing that journey, which we are absolutely committed to. And I just want to thank again all the people, parents and families and caregivers and Vertex employees who stuck with it for 20 years to get to where we are today. It's a very special thing, and you don't see that often in one disease. And then from an internal standpoint, maybe just to echo what I said before, I do think -- and I'm pleased with the fact that we're seeing the strategy really play out nicely here, meaning the investment in scientific innovation leading to further understanding of disease, leading to breakthrough products that get better and better and then being able to reinvest the revenues that we make from those breakthrough products into more medicines in different diseases. And that's a model that all of us had as a dream, 6, 7 years ago when we started this strategy. We're certainly not done with that, but I think you can see the progress, and we're very pleased because we think it bodes very well for the future in other diseases.

Thank you, Jeff. This concludes tonight's call. I'd like to thank everybody for joining us and for your questions. The Investor Relations team is in the office tonight to answer any additional questions that you have. Have a good evening.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.