Vertex Pharmaceuticals Incorporated (VRTX) Q3 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Vertex Pharmaceuticals Inc. Third Quarter 2011 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Michael Partridge. You may begin.

Thank you. Good evening, and welcome to Vertex's Third Quarter 2011 Conference Call. Our commercial team has had great success with the launch of INCIVEK combination treatment for people with genotype 1 chronic hepatitis C. After only 5 months into the launch, we have seen rapid adoption of INCIVEK and increasing penetration into the prescriber base. Matt Emmens will kick things off for us today with comments on the importance of the introduction of INCIVEK, what it means for the future of the company and how we are positioned to just maybe develop and commercialize more new medicines like INCIVEK that can cure or significantly improve the treatment of other serious diseases. Ian will review the financial statement with a particular focus on the revenue stream being generated by INCIVEK, which allows for reinvestment into the business and also creates the potential for significant earnings and cash flows. Nancy will discuss how she and her team are progressing in the early launch and particularly, how the increasing penetration of the prescriber base is important to the adoption of INCIVEK. Nancy will also comment on how we are positioning ourselves to continue to play a major role in the hepatitis C market as it evolves. Dr. Peter Mueller will end the call with a review of the significant progress with the development of our other hepatitis C regimen including the INCIVEK VX-222 combination regimen and the pipeline of other medicines including the recent NDA and MAA submissions of KALYDECO, also known as the VX-770. KALYDECO is Vertex's second breakthrough oral medicine and is for cystic fibrosis, a genetic disease that affects children and adults. He will also review the recent progression of the VX-509 in rheumatoid arthritis. I will comment that in the weeks ahead, we have data from 3 disease franchises being presented at major medical meetings. First, the North American Cystic Fibrosis Conference in Anaheim on November 3 through 5, where we will have Phase III data presented for KALYDECO in the G551D population. We will also have there Phase II data for the KALYDECO VX-809combination in F508 patients. Then, AASLD, the major liver meeting taking place in San Francisco from November 5 to 8. We will have data there for INCIVEK in patients who are co-infected with HCV and HIV. And also data for our short-duration quad regimen of INCIVEK VX-222, pegylated-interferon and ribavirin. Finally in Chicago, the American College of Rheumatology Conference, or ACR, taking place from November 5 to 9, will feature the first presentation of data for our selected JAK3 compound, VX-509. We are looking forward to highlighting our robust and diverse pipeline of medicines at these prominent conferences. After our prepared remarks today, we will be joined by Dr. Bob Kauffman, and we will be happy take your questions. We expect today's call to conclude at 6 p.m. Finally, let me note that information discussed on this conference call includes forward-looking statements, which are subject to the risks and uncertainties discussed in detail in our reports filed with the Securities and Exchange Commission, including our 10-K. These statements, including those regarding the market launch of INCIVEK, are based on management's current assumptions and are subject to risks and uncertainties that could cause actual outcomes and events to differ materially. GAAP and non-GAAP financial measures will be discussed on this call. Information regarding our use of non-GAAP financial measures and a reconciliation of those measures to GAAP is available in our third quarter 2011 financial press release, which is on our website. Thank you. I will now turn the call over to Matt Emmens.

Thank you, Michael, and good evening, everyone. There are 3 key themes that we want to convey in today's call that we believe are defining our company. First, early INCIVEK revenues are already impressive and we have only just begun to treat the many people living with hepatitis C. Second, Vertex is more than just INCIVEK. We have a diverse and robust pipeline of 8 different medicines in development. And third, we are well along in establishing Vertex as a global health sciences company. Vertex is fulfilling its mission of bringing transformative medicines to people with serious diseases worldwide. An INCIVEK combination therapy for hepatitis C is now available for patients in multiple countries, including the U.S. and Canada, where we are commercializing the medicine ourselves; 4 countries in Europe, where it is marketed as INCIVO by the Janssen; and Japan, where we'll be sold by Mitsubishi Tanabe under the brand name TELAVIC. INCIVEK has a compelling profile and many groups across our company have done an outstanding job of understanding the needs of patients and physicians in this market. We believe that we are delivering real solutions for the hepatitis C community. With INCIVEK, we believe we have set a high bar in the treatment of hepatitis C. Our goal is to sustain leadership in this disease. That means continuing the very successful launch of INCIVEK, continuing our efforts to explore new ways of achieving high viral cure rates and further shortening treatment duration, and continuing to improve treatment options and outcomes for people living with hepatitis C. We are expanding our commercial portfolio rapidly. Just 5 months after the approval of INCIVEK, we have new drug applications under review but global revelatory agents for KALYDECO, our second potential breakthrough medicine. If approved, KALYDECO would be the first medicine to address the underlying cost of cystic fibrosis or CF, a major step for Vertex and the cystic fibrosis community. I want to recognize the many people at Vertex who have been dedicated to this program for so many years. I also want to thank the CF Foundation, who provided us with early financial support to help advance our research programs. We were able to move forward quickly, thanks to the efforts of many doctors and nurses at CF Centers in the U.S., Europe, Canada and Australia, the families who are touched by this disease every day and most importantly, the children and adults living with cystic fibrosis, who remain ever hopeful that new medicines are just around the corner. The CF program set the stage for Vertex to become a global company. We're focused on ensuring a successful global launch of KALYDECO. We are putting significant effort into hiring exceptional commercial leaders and therapeutic specialists with experience in CF or other orphan disorders. The CF program is at the sweet spot of Vertex's mission and vision and exemplifies who we are. That as a company committed to taking on the biggest challenges in areas with the greatest need for new, more efficient medicines. Data from our pivotal studies for KALYDECO validated this scientific hypothesis that the CFTR protein is the right target. This validation makes us optimistic that with continued investment, we will have a good chance of improving the lives of many more people living with this very difficult disease. Breakthrough science is the common thread that leads us to innovative, transformative medicines that can have significant impact on patients' lives. Our broad and diverse pipeline also includes mid-stage opportunities in rheumatoid arthritis, epilepsy and flu. These are areas where we hope to repeat our successes in hepatitis C and CF. Heading into 2012, we have significant momentum in our business, in commercial development and research, and we will keep investing in areas where we believe we can make important advances in treatments. Thank you for your time. And I would like to now turn the call over to Ian who will review our third quarter financial results.

Thanks, Matt, and good evening to everyone. Our financial performance in the third quarter was principally driven by the successful introduction and launch of INCIVEK. We have significant revenues from the sale of INCIVEK and that enabled us to record profitability and cash flow in just our first 4 quarters since the INCIVEK launch. With the continued strong INCIVEK revenues, we can create a financial platform and value creation by reinvesting in our pipeline, as well as generate significant earnings and cash flows. Let's now turn to the third quarter results. First, total revenues for our third quarter of 2011 were approximately $659 million compared to approximately $24 million in the same quarter last year. The higher revenue in third quarter this year was primarily due to approximately $420 million of net product revenues from INCIVEK, and $200 million of revenues for the achievement of approval and launch milestones for INCIVO in European geographies. Our third quarter net product revenues of approximately $420 million were derived from gross product revenues of approximately $466 million. In the third quarter, our gross and net adjustment was approximately 10%, similar to what we saw in the second quarter earlier this year. And we expect that the gross to net will widen further as our contracts are signed and as our payor [ph] mix continues to evolve. The INCIVEK net revenues of $420 million for this quarter includes 2.5 weeks of INCIVEK in the distribution channel at September 30, 2011. As of today's call, this product in the channel has already been sold through. We continue to see and expect to see an average of 2 to 3 weeks of INCIVEK in the distribution channel going forward. Now to the GAAP and the non-GAAP net income. In the third quarter, due to significant INCIVEK revenues, we achieved profitability on both a GAAP and non-GAAP basis. Specifically, the GAAP net income attributable to Vertex for the third quarter was approximately $221 million or $1.02 per diluted share, compared to a GAAP net loss of approximately $209 million or $1.04 per share for the third quarter of 2010. The GAAP net income includes an intangible asset impairment charge, stock compensation charges and revenues related to INCIVO European milestones. Although we sell future rights to these milestones in 2009, according to GAAP reporting, these payments pass through our income statement and appear as revenues on the collaborative revenues line. In connection with realization of these milestones, we have to record a noncash expense of approximately $11 million and we expect to record an expense in the fourth quarter for approximately $7 million for the closure of this transaction. We recorded all other expenses related to this transaction in prior periods. Our non-GAAP income attributable to Vertex for the third quarter of 2011 was approximately $151 million or $0.70 per diluted share, compared to a non-GAAP loss of approximately $175 million or $0.87 per share for the third quarter 2010. The non-GAAP financials exclude stock compensation and intangible asset impairment charge and the revenue from INCIVO European milestones. With respect to the detail of our operating expenses, the increase compared to 2010 was principally driven by the support to launch INCIVEK, EU commercial build for CF and the expansion of the development portfolio. For more information, please refer to our income statement, which can be found in our third quarter press release. The successful launch of INCIVEK has made us cash flow positive for the third quarter and we ended the quarter with approximately $660 million of cash, cash equivalents and marketable securities. Looking now to the remainder of 2011 and 2012, we expect to benefit from the significant INCIVEK revenues and manage total operating expenses for the company with a view to a financial profile to support the planned launch of KALYDECO in 2012 and maintain reinvestments into R& D, while creating future significant earnings. Thank you. And over to you, Nancy.

Thanks again and good evening, everyone. For the next few minutes, I'd like to review with you certain aspects about the launch of INCIVEK, as well as provide some insight into our thoughts in the evolution of hepatitis C treatment. Let's start first with the launch. I'd like to thank the hundreds of people at Vertex who contributed to the development, distribution and launch of INCIVEK. It's amazing that a group could produce such a phenomenal launch having never worked together in this capacity before. Physicians have been able to prescribe INCIVEK combination therapy to more than 17,000 patients during the first 5 months following approval. The rapid acceptance by physicians and patients is evidenced in the high market share of INCIVEK. INCIVEK profile is compelling for both people with hepatitis C and their doctors. People initiating treatment with INCIVEK include those new to treatment, as well as those previously treated with pegylated-interferon and ribavirin. Our research indicates that 60% to 70% of INCIVEK prescriptions written today represent patients who are new to treatments and many are also fairly early in the course of their disease. Consistent with the specialist-driven nature of the hepatitis C market, adoption of INCIVEK is highest among gastroenterologists, hepatologist and infectious disease specialists, and the nurse practitioners and physician assistants who work within these practices. However, I would point out that we're also seeing a number of additional prescribers who had not recently been prescribing pegylated-interferon and ribavirin. This is another encouraging sign of acceptance and broadening of the prescriber base. In terms of payors, we're in the process of contracting with various commercial and government plans and we're pleased with the progress so far. Through recent favorable formulary decisions, our co-pay assistance in 3 drug programs, we continue to ensure broad patient access to INCIVEK. To date, INCIVEK is available on formulary in healthcare plans that represent more than 180 million covered lives in the U.S., following formal drug utilization reviews. That means that more than half the population in the U.S. now has approved access to INCIVEK post-formulary review. Most other patients also have access to INCIVEK but their plans have not yet reviewed the protease inhibitor class of medicines. Now allow me to dig into some of the specifics of the launch. First, I'd like to briefly describe for you our way of thinking about the hepatitis C market. A common way of understanding treatment behavior is by grouping physicians into deciles or 10 groups based upon how many prescriptions they write. Since the highest prescribers write many more prescriptions, there are far fewer of them in this top decile. For example, historically, there were less than 100 physicians in the top decile who were producing 10% of all hepatitis C prescriptions. On the other hand in the lowest decile, there were more than 2,500 physicians, who wrote the same number of hepatitis C-related prescriptions as those 100 prescribers at the top. Key opinion leaders, many of whom are also involved in clinical trials, typically see the greatest number of people with hepatitis C and are well represented within the top few deciles. Naturally, these physicians possess high awareness of medicines before they launch and this was no different with INCIVEK. Through their understanding of INCIVEK, bolstered by our commercial support after launch, this group of physicians rapidly accept the therapy at a level that has been unprecedented in the treatment of hepatitis C. INCIVEK, therefore, achieved significant penetration in this segment and have built a strong base of prescriptions moving forward. Based on our research, we believe the high adoption rates and market share in this segment could result in greater acceptance by the other prescribers. As physician behavior in the top decile tend to influence the broader prescribing base. At this time, there are thousands of doctors in the mid to lower deciles who have not yet prescribed any direct acting antiviral and represent future opportunity. Our goal is to continue to educate and engage healthcare providers, who are already prescribing INCIVEK, as well as those in deeper decile. We already have a solid base as INCIVEK performs more strongly than any other PI in each of the 10 deciles. In fact, based on the most recent data, INCIVEK commands more than 70% market share in any decile of prescribers. Now I'd like to make a comment on how we've seen the launch of INCIVEK progressed from a sales perspective over the past few months using some of our internally-derived data and metrics. I'll refer you to the graph on Slide #24 in our webcast slide deck, which plots our monthly ex-factory sales of INCIVEK through September, together with data that describes wholesale inventory level. I'll make the comment that we've seen continued strong demand so far in October. Following our launch, we saw an extremely rapid take of uptake -- sorry, a rapid uptake of INCIVEK. In fact, for the first few months, it is not only faster than any other medicine launched within the hepatitis C market, it may be one of the strongest launches within pharma in this time frame. In addition, wholesale inventory levels have remained fairly constant at 2.5 weeks since the start of the third quarter. This slide is not intended as a forecast or guidance, and we won't necessarily be providing this level of detail in future quarterly calls. But we thought it was important for you to appreciate some of the key metrics we see at this early stage in the launch. Now, some thoughts on how we believe hepatitis C treatment will evolve with different combinations of medicines and new regimens. We believe the advancement of hepatitis C treatment will occur in waves, and we intend to continue to provide new options for patients and physicians as treatment evolve. This will be visible in a number of clinical studies that you'll hear more about at this year's AASLD. The initial wave will be built on expanded indications for interferon-based regimens. A second wave will likely feature more powerful direct acting antiviral combination regimens that still include interferon. And a third wave will hopefully offer all oral or interferon-free regimens. We're excited to be developing medicines that may contribute to these future waves of treatment. Each year, during AASLD and other scientific conferences, we get a glimpse into investigational approaches that may benefit patients in the future and this year is no different. Building upon the strong foundation that the label for INCIVEK already offers, you'll begin to see our plans in the first wave to address patient groups that are considered the most difficult to treat through large, well-controlled randomized trial. One such potential group includes people co-infected with HCV and HIV. Another group is those with recurring hepatitis C, following liver transplantation. Peter will tell you more about this in just a few moments. Relevant to the second wave at this year's double AASLD, we'll show SVR data from the ZENITH trial, investigating our quad regimens. ZENITH explores the use of INCIVEK VX-222 and pegylated-interferon with ribavirin to shorten the duration of therapy for patients even further. In addition to helping people who are new to treatment, this quad regimen could also help patients whose hepatitis C is considered difficult to treat, including null and cirrhotics. You'll also hear about our trial with the INCIVEK, pegylated-interferon and ribavirin in patients with the CC genotype, known as IL28B, who may have the potential for total treatment duration of 12 weeks. These individuals represent approximately 1/3 of the treatment naïve group. But we're not stopping there. As we look further into the future, our strategy is to develop all oral, interferon-free regimens for the third wave in the second half of this decade. Soon, we'll see results from an all-oral regimen of INCIVEK with VX-222 and ribavirin, as well as steps we're making to add our elionukes [ph] into the mix and again, Peter will address this in a moment. Now I'd like to turn your attention to our next commercial program, which is in cystic fibrosis. This is an orphan disease affecting approximately 70,000 children and adults in North America and Europe. Earlier this year, we began building the global infrastructure to prepare for the launch of KALYDECO, previously known as VX-770, including the establishment of our European headquarters in Geneva, Switzerland. We carefully built the commercial team when we launched INCIVEK, focusing on the needs of healthcare providers and people with hepatitis C. Now, we're refining this model to support the launch of KALYDECO, taking into account the unique needs of people with cystic fibrosis. This model will focus on building a long-term relationship with the cystic fibrosis community. In Phase III registration studies, KALYDECO showed rapid, significant and sustained improvements across a variety of disease measures, including lung function in people aged 6 and older with the G551D mutation. KALYDECO was intended to provide patients with a twice daily oral medicine to be used with their current medications. It's the first medicine of its kind to target the underlying cause of CF. Physicians have made great strides over the years in treating CF with the current medicines and they have improved treatment and care for people living with cystic fibrosis. However, these therapies treat only the symptoms of the disease and its complication. We're hopeful that KALYDECO, if approved, will build upon the treatment regimen that physicians are already using to offer a significant benefit for the people with cystic fibrosis. So let's look for a moment at the CF market that we hope to address with KALYDECO. There are approximately 1,000 people in the U.S. and Canada who have the G551D mutation on at least one allele and who are also 6 years old or older. In Europe, we estimate approximately 1,000 people with the G551D or other dating mutation who are 6 years old or older, consistent with our MAA submission. Assuming KALYDECO is approved, we'll be providing financial and other support services in order to help patients and their caregivers before and during treatments. The Vertex team who will lead these efforts will make information about CF as a disease, KALYDECO, reimbursement and support services available to the CF community. I'll share more about these programs following approval. We're in a unique position and feel a great sense of responsibility in launching KALYDECO. There are several areas where we're focusing our attention today to ensure that we get it right. This includes understanding and establishing the value of KALYDECO, as well as focusing on educating the community on the importance of each person knowing their genotype. In this way, we can be sure that KALYDECO can be prescribed for the right patient. We have a lot to do and we'll be ready. Thank you. And I'd now like to turn the call over to Peter.

Thank you Nancy, and hello to everyone listening to today's call. Vertex’s approach to serious diseases had yielded to a transformative medicine in 2 distinct disease areas, hepatitis C and cystic fibrosis and a pipeline of opportunities. Our pipeline is a direct consequence of the innovative approach we take in R&D. Mainly, we have the willingness and passion to tackle the toughest diseases and we don't and we won't develop mutual medicines. We seek to understand the complexity of disease pathology first and then let the signs lead the way. I think this is pretty unique and it makes me optimistic about what we can do beyond INCIVEK and KALYDECO to transform the treatment of serious diseases. I'll start today with a review of our hepatitis C program. INCIVEK combination therapy, as Matt noted, is now available in multiple countries. With INCIVEK entering the markets so successfully, it's obvious that we are now looking to expand the label of INCIVEK combination therapy and, therefore, broaden the patient population that may have the opportunity for INCIVEK. We have several trials on the way and planned. These trials include: First, the concise trial which a Phase IIIb study that will evaluate the potential of INCIVEK combination therapy to be shortened to a total of 12 weeks in some patients. The concise trial will enroll approximately 350 genotype 1 hepatitis C patients, who have the CC variation near the IL28B gene. This study began this week and is evaluating twice daily dosing of INCIVEK. Second, our Phase II HCV HIV co-infection study. Data from this study will be presented at AASLD next week. We will use what we learned from the study to inform the design of a pivotal co-infection study plan for later this year in approximately 150 people with HCV, HIV co-infection, and certainly, a Phase IIb study evaluating approximately 80 genotype 1 patients with recurring hepatitis C following a liver transplant. We expect to begin this study also by the end of 2011. As you might expect, to sustain our leadership role in hepatitis C beyond our INCIVEK combination medicine, we do intently continue to explore additional new and improved treatment regimens allowing potentially for higher cure rates, shorter treatment durations, improved tolerability, higher compliance, increased convenience and eventually, be all oral. In this context, I want to focus your attention to the ZENITH study. This study is investigating the potential of two 4-drug or quad arms of VX-222 and INCIVEK with pegylated-interferon and ribavirin to raise SVR rates and shortened treatment duration to as few as 12 and no more than 24 weeks for people with genotype 1 hepatitis C. This study also includes 2 arms evaluating on all oral 3-drug regimen of VX-222, INCIVEK and ribavirin. During the third quarter, I'm pleased to announce that we completed enrollment of the 2 all oral arms and we are nearing the point where all patients will reach the week 12 oral treatment end point of the study. The study is progressing well and to date, neither arm has met stopping criteria with respect to safety of our breakthrough. We expect to have end of treatment data from these arms early next year. Beyond the ZENITH trial, we are planning additional studies, aimed at creating an all oral short-duration regimen with high viral cure rate. As part of this strategy, earlier this year, we licensed 2 nuclear site compounds, ALS-2200 and ALS-2158 from Alios BioPharma. Based on impressive in vitro data, we have an opportunity here with these medicines in combination with INCIVEK and/or VX-222 to explore and develop several highly-potent all oral combination regimen for hepatitis C. We continue to work with Alios to initiate first in human trials later this year with ALS-2200, followed up by a study of ALS-2151 (sic) [ALS-2158] in early 2012. Turning now to our second disease area, our CF program. We are fully committed to driving forward this program with the goal of treating many patients with this life threatening disease. As you know, we submitted the NDA for KALYDECO last week, seeking approval for this medicine in the U.S. for a subset of people aged 6 and older with the G551D mutation. The MAA has also been submitted in Europe. The MAA was submitted for approval of people with the G551D mutation, as well as those with other dating mutation. Data from our Phase III program that supported our global regulatory submission will be presented by leading CF physicians at the North American CF Conference next week. Early treatment of people with cystic fibrosis is of utmost importance and we have designed a Phase II study to evaluate KALYDECO dose as mild therapy in young children with the G551D mutation, ages 2 to 5 years old. We have developed the pediatric formulation for this age group and are looking forward to initiating this study in 2012. The next stage of development for KALYDECO monotherapy is to initiate studies in people with CFTR mutations other than G551D, for which literature or our own research show the potential to significantly increase CFTR function with KALYDECO. We are in discussions with global regulatory agencies about innovative clinical strategies to move forward. We anticipate that these studies will also explore biomarkers that correlate this clinical benefit. We will have more to say about these studies as our discussions evolved with regulators and the studies get under way, which is expected in 2012. Everyone working on behalf of Vertex has a shared vision in what we are trying to do here. For us, it is not about simply making another medicine. It's something we feel deeply committed to, personally and professionally. We see the same passion in the healthcare providers in the areas where we specialize. As such, KALYDECO is just the start and we feel a real sense of responsibility to develop medicines that can treat many more patients with cystic fibrosis. From the beginning of our cystic fibrosis program, we have focused on ways to improve the lives of people with the most common CFTR mutation, the F508 Delta mutation. These patients have minimal CFTR function and we believe the best approach is based on a therapy called the corrector. We have 2 correctors in development: VX-809 and VX-661. Today, we announced that we have initiated Part II of our Phase II study of VX-809 in combination with KALYDECO. Our trial will be geared towards identifying the right dose range for the corrector potential combination and we'll evaluate higher doses of VX-809 monotherapy for 4 weeks, followed by KALYDECO dose in combination with VX-809 for another 4 weeks. This study will measure sweat chloride, APB1 [ph] and safety, as well as other markers of clinical activity in about 100 patients with cystic fibrosis with either 1 or 2 copies of the F508 Delta mutation. For VX-661, we are currently working with regulators on the design of our Phase II study to evaluate monotherapy followed by dosing of VX-661 in combination. Our goal of the Phase II study of VX-809 combination therapy and the Phase II study with VX-661 is to generate sufficient data by the second half of 2012 to better inform us how to best -- to move forward in later stage clinical trials. Turning now to our third and emerging disease area of inflammatory disorders. Specifically, our selective oral JAK3 inhibitor VX-509. In September, we announced top line clinical data from our Phase II proof of concept study in rheumatoid arthritis in which VX-509 showed significant clinical benefit in people with rheumatoid arthritis as measured by ACR20, ACR50 and ACR70 scores. We are also encouraged by the DAF scores, which showed that 35% of people in the 100-milligram treatment arm and 37% of people in the 150-milligram treatment arm experienced a clinical remission. This data have been accepted as a late-breaker poster at the upcoming ACR conference in Chicago next week. Based on these data, in the first quarter of 2012, we expect to begin a 6-month Phase IIb study of the VX-509 in combination with methotrexate that will enroll about 350 people with moderate to severe rheumatoid arthritis despite stable methotrexate therapy. All together, we have 8 medicines in development including those that I have already covered. And I will close therefore, on a brief update on VX-765 for epilepsy and VX-787 for flu. VX-765 is on track to begin a Phase IIb study in approximately 400 patients with treatment-resistant epilepsy by the end of this year. VX-765 is an anti-inflammatory medicine that works by modifying interleukin mediated immune responses and is designed to keep people who do not respond to standard treatments for epilepsy and who are often severely debilitated by frequent seizures daily. We are looking forward to get into Phase IIb study under way and learning more about the potential of this medicine in the course of next year. For VX-787, in the third quarter, we initiated a Phase I trial in healthy volunteers and we plan to start a proof of concept Phase II trials by mid-2012. As you have just heard, we have a lot going on in R&D. We are confident in our approach to tackling diseases that have historically been considered among the most difficult to treat and look forward to keeping you updated on the progress in our pipeline. We hope to bring more medicines like INCIVEK to people living with serious diseases. And I want to thank you now and pass it to Michael.

Thank you, Peter. This now concludes our prepared remarks and we'd now like to open the call up to Q&A.

[Operator Instructions] And our first question comes from Geoff Porges from Sanford Bernstein. Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division: I just want to ask a couple of questions. First, on gross margin, you've got just the royalty showing in the gross margin now. How long before that goes up to a more normalized level and what might it look like? And then the patient number looks as though it was flat in October versus September. Can you tell us what you're seeing as the month has progressed? Is the genuine close to in-patients? And then lastly for Nancy, there are a lot of papers we saw on the sidelines here, or are we seeing some sort of a slowing down of the accumulation of patients, and what proportion do you think we're really tackling in terms of the addressable market right now?

Jeff, I'll take the first one, which is, you're asking about the gross to net adjustment, which this quarter was approximately 10% and that's consistent with the second quarter. As we start to put up contracts and the formal registrations are made and that channel comes online, we do expect that gross to net adjustment to start to widen. We don't anticipate a significant change in the fourth quarter, although they should start to widen. But as we get into 2012 and probably a bit 2012, we expect it to be starting to get towards a more normal state. Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division: Ian, I'm sorry. I don't know whether that was my accent or your accent but I meant gross margin not gross to net.

You mean as far as -- well, let's just be capital on the definition. Gross margin in terms of revenues, cost of products and... Geoffrey C. Porges - Sanford C. Bernstein & Co., LLC., Research Division: Yes, the cost of products. You're right now only reflecting royalties. But presumably at some point, you're actually going to reflect through manufacturing costs. When might that be and what it will look like?

Yes. We expect to get to a more normal gross margin, probably about 18 months following launch, given the amount of inventory we built to be ready for launch. The more normal gross margin would be close to normal pharmaceutical margins of around 90%. You would then have to add on to the product royalties.

So, Jeff, to your question. I wasn't exactly crisp on what the first piece of it was. I think talking about patients, we continue to see new patients coming into therapy every week as we stated. We're above 17,000 now. And in terms of prescribers, at this point, we're seeing between 100 and 150 new physicians prescribing INCIVEK for the first time each week. And that's more than double rate for any of the other compounds that are competing out there. So I think you'll agree that, that uptake rate is ahead of any of the other launches in this market. Only thing I'd say is you look at that and you add in a constant wholesale inventory fairly constant between 2 and 2.5 weeks for the last 6 or 7 weeks, and you can come to your own conclusion.

Our next question comes from Rachel McMinn from Bank of America.

I guess, I wanted to ask a little bit more about that one slide, but I think it's going to be the focus of everyone's attention, the 40 million to 45 million in weekly sales. Is that -- I guess, how are we supposed to look at that? I guess, first question is, is that a growth sales or net sales number? And then, I guess, as we think about that for 4Q, I mean, are we talking about $560 million in revenues if we just kind of use that as a 13-week number? Do we think about $2.3 billion in 2012 sales? I'm just trying to understand what -- I guess, first question and then the next the last question on this is there was -- it was pretty flat between September and October, so what do you think the barriers are to increased growth beyond what you're seeing in October?

Rachel, thanks for the questions. A lot of questions in there. First of all, let me give you the basis of the data in the chart and then you can use the data as you wish. It is actually net revenues that we record. And to develop it that way, you'll actually be able to do is take the quarters with the revenues and you'll be able to actually calculate back and you'll get approximately $420 million of net revenues. It is calculated as taking the months with the net revenues and then averaging out weekly net revenue for that month. So you will find that it does equate back to our net revenue line in our income statement appropriately so. Now, as far as, should you then take the number that's between 40 million and 45 million in September and October and translate that through to both November and December? I'll leave that for you to do a forecast. It's not intended as a forecast. The reason we put this slide up was to get people -- to help people get an understanding of the high volume of patients that are actually being treated. The high volume of scripts that are being written by prescribers. Our feeling has been that this is not always been tracked the way that we're tracking it internally. And we believe that we have the most accurate internal metrics of how this launch is going, and we believe that, that's revenues and looking at the inventory and the channel because we monitor that on a daily basis. And so we wanted to put -- give people an idea of where this launch currently stands. And I think the best way to do that is on the revenues, and Nancy will make a comment as to how we look at the future from that.

In response to the chart, Rachel, I think you're noticing that the rate of growth has changed. But I think that's more a reflection of the exceptionally quick ramp early in the launch. There are further opportunities for penetration into this market. There are many more patients to treat, and we are going to continue to do everything we're doing with a highly effective sales team to target those prescribers in that patient base.

Our next question comes from Terence Flynn from Goldman Sachs.

I was just wondering if you guys think you have the appropriate size sales force to maybe target the rest of the prescriber base as you kind of broaden your reach. And then just had one question on this cystic fibrosis program as well. Was wondering, I know in the first part of the combo trial of 508 and going after 508 patients, you're looking homozygous patients. But I noticed in part 2, you're going after both homozygous at heterozygous patients. I'm just wondering for the reason and the change there?

Terence, maybe I'll go first. This is Nancy. In the question about the sales force. I think our commercial strategy right out of the gate was absolutely the right one and that was that we had an appropriately sized sales force and let's remind everyone, we are up against 2 companies, not 1. We focused on the KOL and the top prescribers. And we know that those behaviors, that they generate, influence people who are prescribing into deeper deciles. We also know that the top half of physicians generate 90% of the prescriptions. And those are the physicians we're targeting on from the very top of that list and down. Now, in response to what we saw as additional prescribers who I mentioned that hadn't been in the market in the recent past in the last year or 2 and in response to the fact that now we're starting to really get into some pull through that we've got half of those covered lives past the formulary decision, we are likely to make a minor adjustment and add a few people here and there as we find where we could use a little more backup.

This is Bob. I'll take the second part of the question about CF. So yes you're right. We studied homozygous patients first in the 509 -- in the 809 study, I'm sorry, because it was a homogenous population and because all the CFTR in that case is of the same type, carries all the same mutant protein. Obviously, that's 40% of the population. However, there's a large group of patients out there who are heterozygotes. They're a little bit more heterogenous because they have another gene on the other allele. And it's important as we think about Phase III and what populations we would want to study to get an understanding of what the effect of the combination treatment in heterozygous is and that's why it was added into the second cohort kind of looking ahead to where we will ultimately want to be obviously in the market and also for the studies, of course.

And will 551D patients be excluded, patients who have 551D on the other allele?

Yes. Of course, they would because they would obviously respond to 77D [ph] and, of course, and many of those patients are already in our trial. The addressable populations are already in our trials, so there aren't too many of those out there.

Our next question comes from Jeff Meacham from JP Morgan. Geoffrey C Meacham - JP Morgan Chase & Co, Research Division: I have a couple of questions for you guys on CF. So you're studying in Delta F. Different doses and durations for the combo, but how do you think a larger study will be designed and as response to that is something that you think they said is really feasible for registration type of study? And I have one follow up.

In terms of how we go forward, we obviously have to see the results of the current trial before we can design the next one and that's obviously what we're trying to do. I think the issue of response guided therapy will depend on our analysis of the data that we're getting. Part of our goal is to collect information to allow us to decide whether there are response markers that we can use to identify responsive patients. And that's the goal of the next trial. It wouldn't speculate as to whether it would -- whether there's regulatory utility would be until we actually see the strength of the data and make a determination of that. Geoffrey C Meacham - JP Morgan Chase & Co, Research Division: Got you. And just from a reimbursement perspective, is -- one of your initial discussions revealed for the core G551D patients and do you get the sense there's a worry from insurance companies about all possible use in Delta F or getting new patients or is there more flexibility given the orphan disease?

Orphan diseases and ultra orphan diseases particularly as we will initially be entering command prices in the range of rare diseases. And I would think because of that, the managed care community is going to be a little bit careful about what they will reimburse for. But you have to balance that with the fact that these are kids who are really, really suffering from a debilitating disease, and we've got really profound data to show what it can do to change their lives.

Our next question comes from Mark Schoenebaum from ISI Group.

I have a couple of questions, maybe for Nancy. Number one, are you surprised that, I think, unless I -- please correct me if I miss -- if I heard incorrectly any things, but are you surprised that the majority of patients coming on to INCIVEK are naives? And then related to that, if we could drill on to the refractory population -- I remember prelaunch for many years, there was a lot of discussion around the size of a quote refractory warehouse of patients. I sort of figure between 100,000 and 300,000 patients are out there that had been treated before and had failed. And you're telling us only 17,000 patients so far have been treated with INCIVEK. So A, why wouldn't there just be a massive acceleration into that warehouse? And B, the deciles that you talked about, are they the same when you look at the naive population versus that warehoused population? Or is -- are the doctors the same or would those deciles look different?

Okay. Well, first of all, thank you, Mark, and everyone who's already said congratulations. We really appreciate that. It feels good. Let me see if I can get all of those questions you had. I'll start with the last one first. And that is although perhaps the top decile physicians might be likely to see a group of patients who are a little more skewed toward the difficult to treat. And, therefore, they may be seeing more of the retreat patients or I think where you're going with the warehousing, the more difficult to treat patients. You might make that assumption, but it's really a guess because to my knowledge, we have never measured that and there are no data sources for that. That would require a proprietary one-off study. On to the naives. I think the right of patient uptake is reflective of a balance that, yes, goes a little bit more towards naives than we had originally thought. And so it isn't that the retreated or more serious patients aren't there in the mix. It's just that this is such great news that not only patients but physicians who hadn't been treating or rejoining. And we hear physicians telling us that patients are just showing up. So what that means in terms of your other questions about massive acceleration into that warehouse, it's not quite that plan full a process. Each office comes up with their own approach, and I've really only heard of one, yes, one academic practice in the entire United States that went through a very formal thought-provoking process to call patients back. Otherwise, it's sort of a mix of who happens to be on recall, which patients are aggressive about calling in and I think the patients who know they've got a great shot at being cured with new therapy are likely to put more pressure and come in early and that's likely what we're seeing.

May I ask one follow up?

Sure.

Do you have -- updated the estimates as to [indiscernible] of that refractory warehouse? And within that group, how many are addressable, meaning accessible?

I do not have an updated size of the warehouse, but I can tell you that the patients are coming in fast and furious. And there -- more and more physicians are stepping up to treat them. And we can't keep up with new patient kits.

Our next question comes from Yaron Werber from Citi.

So I have a couple of questions sort of to follow on Mark's questions. So help us understand maybe just a little bit. What are you seeing in terms of we've been hearing a lot on whether practices actually have enough capacity to treat these patients? And what are you seeing maybe in your top deciles versus sort of the lower deciles in terms of their capacity? And then I have a follow-up also.

Thanks. That's a great question, and we actually have done a little mini survey to look at that. And as you might imagine, the people who are most known for being the really experienced treaters where we went first to get their support, their practices in some cases are filling up. Now, it's less than half but I would think that it skewed a little bit towards the highest prescribers because they're known hepatology centers. There is still capacity. I would remind you again in the other offices and in deeper deciles and in those new physician offices who are coming back to prescribe again or deciding to prescribe for the first time. And a lot of offices who are feeling the crush of that demand from the patient side are adding new staff, et cetera. So each practice adjusts it a little differently, and I would say that's a great challenge to have.

And then let me ask you, in terms of -- and that's very useful. About 8 years ago, it was taught that about 100,000 patients or 120,000 patients came on therapy, and let's say, about 75% of those have genotype 1. I mean, do you think that this time around, we're going to get to the same patient number? Is there going to be higher or maybe perhaps it's going to be lower this time since your drugs are a little bit more difficult to use and it's going to take longer to treat them? Do you have any thoughts about that?

Yaron, I think that if you laid out either the number of prescribers and how fast they're coming online to use INCIVEK -- and, by the way, there's another drug so they're adding some more effort here, right? But just INCIVEK alone, and/or you look at the rate of uptake of INCIVEK, it far outpaces what we saw when the pegylated interferons were launched. So I have no reason to be concerned about that.

And as far as the difficulty to use this regimen, that has not been an issue whatsoever in the physician selections at the rates that you're seeing. I don't understand the question.

The question really has to do with what -- it's not just the ramp. It's sort of the amplitude of how many patients are going to come on therapy, and they're going to be treated at any one time.

There's no survey of patients. You really don't -- we know how many patients are infected. And we took a guess at how many patients are out there. And you can see by the sales that a heck of a lot of patients are showing up. And yes, some of the tough prescribers, they're at a flow rate that they want to be after we have a whole bunch of physicians to go, so we're going to go after that business.

I just add to your point about usage of the drug in the physician's office. One thing that comes back constantly from the field is bio cure. It came back to our clinical trial at the importance of maintaining a high viral cure. So we can’t comment on the use of the drug, viral cure in potentially 80% of patients to go on therapy, have a chance of a cure. That drives the rapid uptake of INCIVEK.

You mentioned there's another drug out there? I didn't hear about it.

Okay, never mind.

Our next question comes from Phil Nadeau from Cowen and Company.

Actually, just a follow-up to Yaron's question. Nancy, when you're answering his question, you mentioned that some of the high prescribers are undertaking efforts to hire new staff. Can you talk a little bit about what you guys do to facilitate that process? And is there a pharmacoeconomic case that can maybe made of -- maybe more specifically, the economic case that can be made for the physicians where adding that staff is actually possible for their practices?

I think that's an economic situation that each physician have to look at. It probably becomes more relevant when you look at all of the specialties, a center offers and they want to be seen as a liver center and they, therefore, want to be able to really give great effective treatment for the HCV patients along with other issues. Your other question was about bringing staff on. They used to do things like that years ago. It's really not allowed anymore. It is no longer considered a compliance practice. And that is not a strategy that we're pursuing.

Okay. And just one clarification. When you're answering Yaron's question, you said about half of physicians are seeing a capacity issue. I wasn't clear if those half of the top decile physicians or half of physicians overall?

No, no, no. What I said was it's less than half of the physicians that have any kind of complaints or issue about capacity constraints. But that one might logically go to the next step where the largest practices that are best known had an aggressive flow of patients, and I think those are oftentimes the physicians we all go to for opinions. So there is plenty of capacity left. There are plenty of patients lining up. And as I said, I think this is a great challenge for us to continue to face with our sales force who's done a great job to this point.

Our next question comes from Howard Liang with Leerink Swann.

Two questions. First, make sure I heard it correctly. Did Peter say that in Europe, KALYDECO was filed for G551D and other activating mutations?

Yes, Howard, that's true. The submission in Europe based on discussions we had over there with several regulatory agencies and arbiters was basically sent in by covering 551D and the other gating mutations.

Okay, great. And, Nancy -- I think it was Nancy who mentioned Wave II. Can you talk about when you might be able to start Phase III for your quad and what data you need to make that decision?

So -- oh, I'm sorry.

Yes. So obviously, we're going to be looking at the results of the current study, the results of which are going to be presented at the AASLD Meeting next week. We're really considering that and we'll be formulating a plan and going to the regulatory agencies likely within the next couple of months and hope to have a registration strategy within that timeframe.

On top of that, Howard, there is also something we have to consider at the [indiscernible] that comes in the mix and to when we have beginning of next year data that might actually also influence how we develop the entire thing forward. We really want to keep your attention on [indiscernible], too, because so far, as I said, it's going nicely and well, and we will have patients at the 12th retreatment point in a couple of weeks from now. And this is something you should not forget.

Our next question comes from Ted Tenthoff from Piper Jaffray.

Just one kind of a quick question, if I may. Have you heard of cases of either death from anemia in [indiscernible] patients or any cases of Steven Johnson syndrome that have popped up?

So -- this is Bob, I'll take that one. We obviously can't -- we can't really comment on specific cases. I'll just say that, obviously, we appreciated our responsibilities for monitoring safety very aggressively during the launch, and we have a very intensive post-marketing surveillance system. We're looking at that very carefully. At this point, all I can say is that the safety profile we're seeing post launch is consistent with the profile that's in our label. And beyond that, I'm just not able to comment on any specific cases.

Okay, great, I appreciate that. And I have heard the feedbacks of the training programs are going well, so I do appreciate the effort that you guys are making there.

Our next question comes from Dave Friedman from Morgan Stanley.

The question is about the average weekly INCIVEK revenue chart, and the first question is it seems like the chart includes stocking revenue. Are there figures on average weekly that you could give x inventory? And then the other question is, as you look week to week with your data that you guys have access to that we don't, how does that compare to what you see in IMS? Is there a consistent delta between the 2? Or is it more variable?

So let me just -- a number of questions there, Dave. And maybe Nancy will help me out as well with a final piece of IMS as well. But as far as the chart is concerned, the key numbers that I think you're focusing on is both Q3 and then October. Through that period, the inventory in the channel stayed at 2.5 weeks. So it's not really affecting our net revenues that we're reporting. There is some slight growth, but it's really not having a significant effect given that the inventory and the channel is spinning very quickly as -- in 2.5 weeks, it sits there and then it gets out to the pharmacist and to the patients. So the inventory holding period, because of the gravity of the holding period, really isn't having an effect. So what we tried to show in this chart was a couple of things, and this maybe when this went up so take up from as well. But it is that the inventory holding period is flat through the Q3 where we've recorded these significant revenues. It remained flat into October as well, the inventory holding period. And then we're still recording this significant level of revenues on an average weekly basis, which for September and October, was between $40 million and $45 million. So it helps you understand the, to use a financial term, run rate of the revenues that we're recording at this point and which is the measure of the number of patients we're treating. The reason we did put this chart up is that all of our internal metrics of measuring this launch, including our financial statement, suggest that we are treating many more patients than might be tracked on some other sources. And we felt it was appropriate to address that. I don't know whether Nancy has a...

Yes. So, David, I really don't want to talk specifically to IMS. That's not what I'm here for. I think you should refer to the 3 product bulletins that they have issued within the last 3 weeks. And I would also remind you that most of the data that many of you are using are the NPA data and they only represent retail sales.

Okay. I guess, just back sort of to -- in your comments, if I could quickly, if you look from 1Q -- or sorry, sorry, the first true-up sale. So 2Q, the inventory build was $37.5 million and you said that's sort of 2 to 3 weeks. And so that was about $15 million a week implied. So it would seem like there would be sort of a onetime buildup to get to a higher run rate that would have been captured in 3Q. Is that not correct or?

We can talk about this offline, David. The second quarter inventory build is all about filling the channel, so you can get the product to the patient as quickly as possible. That's all about launch, and that's very typical as I'm sure you're aware. The key part of this graph is more about the third quarter and then into current day as recently as just the end of last week, where we've seen the inventory levels start to stabilize as our wholesalers get a very good understanding of how to send the product to the pharmacy. So the fact that the wholesaler is understanding now that how to stop the inventory and that maintaining 2 to 3 weeks of inventory is the key part of this chart. It's less about that initial piece at the beginning, which is atypical for stocking.

Our next question comes from Brian Abrahams from Wells Fargo Securities.

This is Matthew Andrews calling in for Brian. Thanks for taking the questions. Can you give us any sort of sense on what you're seeing in terms of the first and second refills for INCIVEK? Is it consistent with the compliance rate you've seen in the Phase III studies?

That's a great question, Matthew, and it's a little early. We're just starting to get early samplings of those data. It's small, but what we've seen suggests that it's consistent with what occurred in our clinical trials.

Our next question comes from Jason Kantor from RBC Capital Markets.

I'm a little confused by these lower decile prescribers. Are they, in fact, still prescribing 2 drug regimens? Or are they just not treating anyone at this point? And I think you said you are adding 100 to 152 -- 200 to 250 new docs per week. I think where do you think that trajectory maxes out? And over what period of time do you think you're going to be penetrating some of the lower decile prescribers?

Yes. So let me say if, again, I can be more clear about that. There are about -- and every company cuts this a little differently, but we believe there are about 8,000 prescribers out there who, historically looking at pegylated interferon and ribavirin, were using some amount. If you took those 8,000 prescribers and cut it in half, the top 4,000 wrote 80-some percent of the prescriptions, 85% approximately, okay? So, I guess, the point I'm trying to make on that one, Jason, is just the people say, well -- some people here, well, you haven't called on this doctor, that doctor, well, that's a good thing because you want to start with the most prolific writers up in that top decile where you can get a huge stream of prescriptions going, and they will also influence the people deeper in those deciles. So I'm just trying to encourage people to think about that it's not a straight run rate. This isn't a doctor for a doctor. Sometimes we're comparing your kitchen faucet in a stream of water that comes out of that at the bottom with what you see when a fire hydrant is flushed in the top decile.

Right, but you're suggesting that these top decile, at least not nearly at the top 4,000 but something about that, are -- had a lot of built-up demand. We're expecting it and, in some cases, are running it at full capacity whereas perhaps some of these others haven't come online yet. So in terms of the incremental growth, it seems that a lot of that is in these new docs that you're targeting.

Okay. Let me give you a couple more numbers that should help with that. Of those 4,000 prescriptions -- I'm sorry, 4,000 physicians who write 85% of the prescriptions, right? At least -- or we're approaching just about half of them have now written at least one prescription for INCIVEK. That's the hardest thing as getting somebody to try the drug the first time, right? So that's pretty aggressive penetration 4, 4.5 months into a launch. The other way that we look at this -- so is there more opportunity? Yes. But the other way we look at this is we look at how many physicians in each of those deciles have written for your drug at least one prescription. And I can tell you that when we do that, the number for the top decile is the highest percentage. And literally, it goes down like you couldn't have planned it anymore beautifully to in the 20% range at the bottom, and it's up in the mid-to-high 80s at the top. That's exactly the way you want to do it. So we've gotten the biggest bang for the buck out of the gate, but there is more usage out there yet that we'll be continuing to pursue throughout the coming months.

Okay, but one last question. So the people who aren't prescribing either your drug or Merck's drug, are there -- are people actually starting patients without [indiscernible] at this point? I mean, that seems almost crazy.

Yes, that's a great question, Jason. And yes, there are because we don't have indications for the co-infected patients yet for liver transplant, so they're always going to be imminent, so we get additional expanded labels. There are always going to be some physicians who are prescribing that. And it's also hard to tell how much of the total prescription usage that is still in that -- the old standard of care. It's just the patients who started earlier, and they're just still finishing out because it takes some year to get through the therapy.

It's also a phenomenon and is kind of interesting in that when you -- even if you're a teaching physicians or an influencer or one of these top prescribers as many of them will try a drug for a wide and see how to response it until they put more patients on it. That phenomenon is probably -- has not happened yet. That's generally 6 months -- that's 6 months to a year out when you see that happened. That's in most markets -- I'm not predicting this one, but most -- if you talk to physicians, they'll often say I want to give it a try in so many patients [indiscernible] clinical trial so to speak.

And our next question comes from Matt Roden from UBS.

So, Nancy, you mentioned that you're seeing prescribers new to hepatitis C, and can you say what proportion of INCIVEK volumes are being written by those physicians new to hep C? And then, Bob, when you think about this 770, 809 trial, the Part 2 of this trial, are you confident that the treatment duration is sufficient enough to see a difference in bone function secondary endpoint? Feedback we've heard from docs is that maybe 2 months treatment might give a better shot of seeing an FEV1, but is that -- do you think that that's right? And is that something to take issue with?

Let me get the easy question out of the way. When I talk about prescribers who haven't been historically prescribing, they're not necessarily new to this. They might just not have written for the last couple of years. Sometimes that's because they know there are new therapies coming. So they're not brand-new to HCV. They just hadn't written in the last year or 2. And there -- I can tell you there are about 500 of them. And they write a low volume of prescriptions. So they're people who are just sort of dabbling and coming back in because they -- I'm assuming because they see advances and a new opportunity, and now I'll turn it over to Peter.

So the question about response and the length of treatment in combinations, I would say when you go back, I think what you normally see is -- for a single regiment corrector, I think we have data for 809 that shows that in the course of 4 weeks, you basically can see a sophisticated significant difference in FEV but also in some of those, let's say, response markets that [indiscernible] come to investigate as sweat chloride is one of them and maybe LCI is another one and so on. So I think this is practically driven by our earlier 809s that is very conceited. In terms of the potentiation, when you go in the combination mix, I think potentiation is a shorter-term type of a response because you basically potentiate with this already out there on the surface. And I think we believe that you also there, in a 4 weeks period, will see a substantial difference if it is really working out. It's all driven by the right exposure levels that you have to have for both compounds in the right target organs, and I think that the reason why we do those range filing is to figure out how the load works.

Did you expect the results of the studies to essentially give you a proof of concept because it sounds like it's a relatively short duration without necessarily having optimized dose?

[Indiscernible] at least, I would say that. A proof of concept is more linked to a therapeutic long-term value. It could come out that right, but I think it needs to be seen.

And our last question comes from Katherine Xu from William Blair. Y. Katherine Xu - William Blair & Company L.L.C., Research Division: Just curious, Peter or Bob, can you describe the profile differences between 809 and the 661?

Yes, I can. So that's -- so both of them are basically molecules, number one, that are in the same class of correctors and defined basically to the same side of CFTR. So I think from that point of view, they are identical. The difference is patient penetration on the one hand, so 661 has a higher patient penetration in animals, into tissues of relevance [ph], like lung, and you have -- potentially, if that holds through with patients, which we don't know yet, a [indiscernible] higher chance of penetration, which could impact the therapeutic benefit if it ever comes to that point. That's one of the things we've included [ph] to go on the other side, which will lower dose regimen, which will basically make the pulse [ph] more and the compliant of the provisions of the entire thing better. That's the one thing. The other thing is half-life of 661 is substantially different from 809. It has a longer half-life, and that gives at least an option for once a day if you ever want to go for that. That is probably the 2 biggest distinctions, and then there are some small ones in terms of how to take the component and manufacture it. There's been all those type of things, which are excellent for relevant [ph] because they are sort of in the same price class. Y. Katherine Xu - William Blair & Company L.L.C., Research Division: Great, and then finally, what do you know so far about the pricing of the INCIVO in each European country? So far, I think, we know. In U.K., it's 35,000. There's a negotiated pricing with French government, but it's being launched right now country by country. Any information there?

We can tell you it's available in the U.K. and Germany and Sweden and France. The only price that we know of that's available publicly is in the U.K. There will be a range of prices in Europe depending on local factors. Y. Katherine Xu - William Blair & Company L.L.C., Research Division: Right. Sorry, one last question, if you don't mind. Just wondering about your RA program strategy going forward. Phase IIIs will be very large and involves a lot of investment. Just curious, what are the thoughts there, into the partnering or taken all the way yourself?

Well, Katherine, for the first step for that program, as Peter said in his comments, is that we're planning to do it in a 6-month study under-which we have a Phase IIb study that we'd expect to start at the end of this year. That's the next step. So when you talk about Phase III, progress to Phase III, we'd like to see good data from that Phase IIb before we'd commit to a breadth of the Phase III program, which, as you know, in this disease would be thousands of patients. But that would be much further out. That would be 2014, '13, around there. We'll make an adjustment to that time. But I would stay consistent to my comments financially, which is, if we continue to perform well with INCIVEK and following on with the launch of our CF opportunity, I think we're going to have plenty of financial capacity to still reinvest in the company and still have significant earnings. And I think the JAK3 compound gives the company a significant growth opportunity for the 2015 plus period, which I think is very important when you look at the company long term.

And at this time, I would like to turn the call back over to Michael Partridge for any closing remarks.

Thank you. We will now conclude the call. We certainly appreciate you taking the time to tune in. Tonight, the IR team, joined by Ian and Nancy and Bob and Peter, will be available in the office to answer any additional questions you have. Thank you.

Ladies and gentlemen, this does conclude your conference. You may all disconnect and have a wonderful day.