Vertex Pharmaceuticals Incorporated (VRTX) Q1 2015 Earnings Report, Transcript and Summary

Good evening ladies and gentlemen, and thank you for joining Vertex Pharmaceuticals' First Quarter 2015 Financial Results Conference Call. I would now like to turn the call over to your host, Vice President of Investor Relations, Mr. Michael Partridge. Sir, you may begin.

Thank you operator and good evening everyone. Joining me on the call tonight are Dr. Jeff Leiden, Chairman and CEO; Stuart Arbuckle, Chief Commercial Officer; and Ian Smith, Chief Financial Officer. Our agenda tonight is as follows. Jeff will begin by discussing key priorities for our business and reviewing the progress with our cystic fibrosis medicines. Stuart will review the first quarter performance of KALYDECO and will also discuss preparations for the anticipated launch of ORKAMBI, which we announced today as the proposed trade name of the lumacaftor-ivacaftor combination. To close, Ian will review the first quarter 2015 financial results and reiterate our 2015 guidance. We will then open the call for your questions. Dr. Jeff Chodakewitz, Chief Medical Officer, will not be on the call today as he is attending a scheduled meeting with the FDA. We expect today's call to run for approximately 45 minutes. You can access the webcast slides by going to the Events section of the Investor Relations page on our website. I will remind you that we will make forward-looking statements on this conference call. These statements are subject to the risks and uncertainties discussed in detail in today's press release and our 10-K, which have been filed with the Securities and Exchange Commission. These statements, including without limitation those regarding the ongoing development and potential commercialization of ORKAMBI, those about Vertex's other cystic fibrosis programs, and Vertex's future financial performance, are based on management's current assumptions. Actual outcomes and events could differ materially. Information about our use of GAAP and non-GAAP financial measures and a reconciliation of GAAP to non-GAAP is available in our first quarter 2015 financial results press release, and I would also refer you to slide four of tonight's webcast. I will now turn the call over to Jeff Leiden. Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Thanks Michael, and good evening everyone. 2015 is a very important year for Vertex. Vertex is the leader in the development of cystic fibrosis medicines that address the underlying cause of the disease. Our goal in CF is to treat as many people as possible, and to enhance the benefits for those we treat. I want to start by acknowledging all the CF patients and families who continue to reach out to us. We and they are eagerly awaiting the availability of ORKAMBI. I want to thank them for their support and encouragement as we seek to improve the lives of more people with CF. There are three strategic priorities that we believe will allow Vertex to continue delivering on our vision to make new transformative medicines available to patients globally. We're focused on delivering on those priorities. First, we're focused on gaining approval and successfully launching ORKAMBI while continuing to grow KALYDECO, enabling us to treat even more people with CF. KALYDECO continues to treat more patients through both geographic and label expansion, and we anticipate approximately 3,900 patients to be eligible for KALYDECO by the end of this year. In addition, we are ready to bring ORKAMBI to the approximately 8,500 patients ages 12 and older in the US who have two copies of the F508del mutation. We look forward to our meeting with the FDA advisory committee on May 12 to discuss ORKAMBI for the F508del homozygous population who currently don't have any treatment options that target the underlying cause of their disease. Also we have just completed enrollment in the Phase 3 safety study evaluating this combination medicine in children ages six through 11 who have two copies of F508del mutation, which if successful, positions us to provide ORKAMBI to these younger patients in the US. Our second priority, we're advancing our CF development pipeline with novel medicines with the potential to create regimens that may increase the benefit for CF patients. We believe that VX-661 could play an important role in the treating of CF as a key component of a two or three drug combination. We're now enrolling two of the four studies included in the broad VX-661 with ivacaftor pivotal Phase 3 development program. And the third study will start in early May. And our third priority is expanding and diversifying our early stage pipeline. We continue to expect a next generation CFTR corrector as well as multiple programs outside of CF to enter the clinic by the end of 2015. In summary, we continue to make significant progress in realizing our long-term vision to treat more people with cystic fibrosis and to enhance with benefit for those we treat. The continued execution on our strategy gives us the confidence that we will achieve sustainable growth in revenues, earnings and cash flows and create new medicines that treat other serious diseases beyond CF. With that, I'll hand it over to Stuart.

Thanks Jeff, and hello everyone. I'll begin by reviewing KALYDECO performance in the first quarter, which reflects strong underlying demand as well as the impact of label and geographic expansion. I will also discuss our progress in preparing for the anticipated approval and launch of ORKAMBI in the middle of this year in the United States. KALYDECO revenues increased 31% over the same quarter last year. Global sales this quarter were $130 million, comprised of US sales of approximately $72 million and ex-US sales of approximately $58 million. There has been rapid uptake of KALYDECO by eligible patients in Australia following the completion of reimbursement discussion in late 2014. There are more than 200 adults and children with CF in Australia who are eligible for treatment, and the vast majority of those have already started to take KALYDECO. Late last year, KALYDECO was approved in the US for use in children and adults ages six and older with the R117H mutation. More than 150 of these patients have already initiated treatment. And in March, the KALYDECO label was expanded in the US to include children with CF ages two to five with one of 10 different CF mutations. The first children under the age of five have already begun treatment. We are delighted that so many new children and adults with CF now have access to KALYDECO, and later in 2015, we expect to make further progress as we achieve reimbursement approval for gating mutations in the major European countries where these mutations are prevalent. In summary, multiple growth drivers are in place for KALYDECO this year, as we continue to deliver on our geographic and label expansion plans. Now turning to ORKAMBI. Our PDUFA date in the US is July 5, and our team is ready to bring this medicine to the many patients who are eagerly awaiting its approval. Our patient services team, who help patients navigate the reimbursement process and also help with patient education and compliance is fully staffed and trained. We are having ongoing and productive discussions with payers. One of the main areas of focus is disease education, to help payers understand cystic fibrosis as a disease, its impact on patients and caregivers, and also to estimate the number of eligible patients they may have in their plans. And from a supply chain perspective, our launch supply is ready to be shipped shortly after approval, and we have sufficient supply to meet what we anticipate to be strong demand. In summary, geographic and label expansion continue to drive significant growth in the number of patients we treat with KALYDECO and we are well positioned for additional long-term revenue growth with the launch of ORKAMBI for F508del homozygous patients. I'll now hand the call over to Ian.

Thanks, Stuart, and good evening to everyone. Tonight, I'd like to discuss our first quarter 2015 financial results, and then our 2015 financial guidance. Firstly, to the financials. KALYDECO revenues were $130 million this quarter and are up 31% versus the first quarter of 2014 as we continue to expand the number of patients we treat. Our first quarter non-GAAP R&D and SG&A expenses were $246 million, an increase of $13 million compared to last year, this increase mainly being attributable to an increase in SG&A expenses as we prepare for the potential launch of ORKAMBI. And our non-GAAP net loss was $148 million similar to prior year non-GAAP net loss of $151 million. From a balance sheet perspective, we've maintained a strong position with approximately $1.2 billion of cash and equivalents at the end of the quarter. Let's turn to our 2015 financial guidance, specifically the reiteration of KALYDECO revenues and combined R&D and SG&A expenses. KALYDECO revenues are on track and we continue to expect 2015 revenues to be between $560 million to $580 million and we also continue to expect the combined non-GAAP R&D and SG&A expense to be between $1.05 billion and $1.1 billion for the full year. I would just note before closing that we expect our operating expenses will be higher in the second half of this year compared to the first half, mainly as a result of anticipated progress with the VX-661 pivotal program and the investment to support the potential launch of ORKAMBI. I will close by stating that we are in a strong financial position today and focused on delivering a future financial profile consistent with our large cap biotech peers, and we look forward to updating you on the continued execution of our strategy throughout this year. With that, I'll ask the operator to please open the line for questions.

Thank you.

Operator, this is Michael Partridge. We've received several messages that the webcast for some participants was cutting in and out and what we'd like to do for those webcast participants is offer them just a few minutes opportunity to dial into the phone which we understand did not cut out. And I'll repeat the numbers so people can dial in; within the US it's 866-501-1537, the international is 720-545-0001. I'll repeat the US and international numbers. That's 866-501-1537 for the US; 720-545-0001. And we'll pause for just a minute to allow people to dial in.

Thank you, sir. And please let me know when you're ready to take questions.

So operator, this is Michael Partridge again. We understand there are still a few people dialing in. We'll wait for them to dial in and we'll be right back.

Certainly.

All right, operator, we're back. We're ready to start the Q&A. And one thing I'll say also is that we will post the transcript of tonight's call on our website when it becomes available for anybody who missed our prepared remarks earlier.

Thank you. Our first question for this evening comes from the line of Geoff Meacham from Barclays.

Afternoon, guys. Thanks for taking the question. I just have a couple here. I know Jeff isn't around for clinical questions, but just curious what you guys would be thinking in terms of the pace that you can go from initial data on the second corrector to a proof of concept with that corrector plus 661 KALYDECO. And I have a commercial question for Stuart. Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Yes, this is Jeff Leiden. Thanks for the question, Geoff. It's a little difficult to give you a precise number, so maybe instead I'll just sort of outline how we're thinking about these second gen correctors. As you'll remember, we have several of these molecules which are in late stage preclinical development. Our goal is to get the first of those into the clinic this year and then follow with several others rapidly after that. And these will likely go through the typical development process, which means a typical Phase 1, a single ascending – a single dose and then multiple ascending dose, looking predominantly of course at safety. And once we have that data, we'll be able to go on to patients. And I think the question you're asking is, can we go into patients just with singles or with combinations and that's something we'll obviously have to discuss with the regulators.

Okay. That makes sense. And then just for Stuart, when you think about the reimbursement for ORKAMBI across Europe, what are some of the factors that affect the speed of reimbursement? Do you think – certainly, it's not a patient education question, but it obviously has a lot to do with the size of the market and the number of patients. And do you also think that budgets will play a role just given the greater number of patients for delta-F? Thanks.

Yes, thanks for the question, Geoff. In Europe, I think there are really two different buckets of things which are going to affect the pace of reimbursement. The first one is kind of systemic if you like. It's the process that each country has, and some have a very formalized process with very well laid out and rigid timeliness, and others are much more fluid. So I think there is always that, which affects not just us. It affects every product which is trying to secure reimbursement. And then specifically as it relates to us, it really is going to be discussions around the severity of the disease, level of unmet need, the nature of the product and then the patient population. And as you say, one of the big considerations in Europe you alluded to is the budget impact and that's where discussions around the patient population and making sure that payers understand the size of the patient population, that this is an orphan disease and that the initial indication hopefully for ORKAMBI will be for a subset of the F508 homozygous population. So they really have a good sense of the size of the patient population and how relatively small it is, is obviously a really important consideration for them as they are thinking through the budget impact. So, those I think are the two types of considerations. One systemic around the process, and then the others which are very specific to us and ORKAMBI.

Got you. Okay. Thank you.

Thank you. And our next question comes from the line of Michael Yee from RBC Capital Markets.

Hey, thanks. On the second corrector, which you made some comments about, maybe you could talk about within those different compounds that you've been working on, what is the gating factor to getting an IND underway? And have you ever actually shown monotherapies where chloride, or I guess just a chloride transport assay date on those? Are those actually quite active as a single? And then the second question, I guess for Ian. You did mention that you are thinking about profitability and cash flows like large cap peers, so maybe you could expand a bit on that. And over the next few years, what is the philosophy of Vertex on how profitable you guys think you can be? How important is it? I know there has been some discussion and maybe some nervousness about what you can do versus what's been in the past. Thanks. Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Michael, this is Jeff Leiden. Let me take the first question, then I'll turn it over to Ian for the second. In terms of the second gen correctors, again let me just sort of remind you not from my view, but for some who may not be as familiar. The idea here is that we have shown data that by adding a second generation corrector a first gen corrector like 809 or 661 plus KALYDECO, we can get very significant enhancement of chloride transport, both in delta-508 homozygous cells and then delta-508 het min cells, which is obviously important. And so this is really a sort of two-edged approach. One is to, we think it has a high likelihood of allowing us to treat the het min patients, which we know are so difficult with a two drug combination. And the other one is it enhances the benefit of the homozygous patients and frankly anybody who has a delta-F508, a single delta-F508 allele. So that's the idea. And when we started the project, there were really two challenges. One was really a biologic challenge, that is was that hypothesis correct. Could you actually identify molecules that would synergize with first generation correctors and increase chloride transport, and we've now definitively answered that question. We have multiple molecules that do that and provide very significant synergy. To me that was actually the more challenging or worrisome question. The second part of course is once you have such molecules turning them into drugs and that's really a matter of lead optimization around parameters of PK and drug metabolism and pharmacokinetics. And that's the stage we're in now with multiple of these molecules. We're on track for what our goal was this year, which is to get the first of those molecules in the clinic this year with multiple other molecules following thereafter. And we have shown, your second part of the question was have we shown data to demonstrate that synergy and we have shown that data. I'd refer you back to NACF even a year and a half ago or so I believe, where we showed several pieces of data on the synergy that we can produce with those second gen correctors.

Yes, but even as mono? Are they even active as mono? I don't know if they actually have a difference in that. Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Yes, we haven't shown data as monotherapy, but we're looking at all the different combinations to produce the best, the most optimal regimen we can produce.

Okay. Great.

Mike, thanks for the questions, especially thanks that I get chance to reiterate the comments of what we target financially for the company a few years from now. And it is to be a company similar to our larger cap peers and that's one of high operating margins. I think we have the opportunity to do that as a business given the disease areas that we're in, specifically with the KALYDECO revenue growth that we're starting to see, and we anticipate it should increase with the label expansion and the geographic expansion. And then later this year, following the potential approval of ORKAMBI, we should see an acceleration of that revenue growth and that should accumulate to a significant revenue line. And if we continue to control our operating expenses, what that means is that growing revenue line cascades over an operating base that allows us to achieve high operating margins as a business. I would also point out that in that financial profile, because of the scale of the revenue growth, we're still able to reinvest in R&D, which is a core principle of the company, still able to reinvest in R&D while maintaining those high operating margins. So, as we look out to three, four years from now, we do see that we're in a very strong position financially.

Thanks.

Thank you. And our next question comes from the line of Geoffrey Porges from Bernstein. Geoffrey C. Porges - Sanford C. Bernstein & Co. LLC: Thank you very much for taking the question. A couple just on upcoming events. First on the AdCom, you must be in the final stretches of preparation and I know Jeff's not there, but perhaps Jeff Leiden could comment on, what are the issues and what additional analyses or areas of focus we should anticipate at that AdCom? And then, one for sure on the same kind of thing, you must be engaged in discussions with payers both in the US and outside the US now. And how are they coming back to you in terms of their perceptions of the value of ORKAMBI compared to KALYDECO and how they're going to work with you to manage that? Because obviously it's a significant step up in their patient volume and revenue exposure in this category. Thanks. Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Yes, Geoff. This is Jeff Leiden. Thanks for the questions. I'll answer the AdCom question then turn it over to Stuart. Just to put it in context, I think as you are aware these AdComs are fairly routine with new chemical entities and this is certainly a new chemical entity. And they typically focus on two questions, what is the strength of the efficacy data versus the unmet need and what's the safety profile. And at the end of the day, is there a favorable benefit risk profile and those are the questions that we expect to be discussed at the AdCom. Based on the data that you've already seen, we're very confident and in answers to all of those questions because we feel that there is very significant clinical benefit. The drug was well tolerated from a safety perspective and when you put those together you get a favorable benefit risk in patients who today don't have any underlying therapy that treats the underlying cause of the disease. And that's consistent with what we're also hearing as feedback from KOLs and from the community. So we're looking forward to the discussion. We think it will be pretty much the typical AdCom discussion around those issues. Geoffrey C. Porges - Sanford C. Bernstein & Co. LLC: Great. Thank you.

Yes, Geoff, on our discussions with payers, you're absolutely right. We have had and are continuing to have ongoing and very productive discussions with payers. One of the main areas of focus for us is obviously educating them on the disease and the seriousness of the disease, CF being an orphan disease is not necessarily something that they've spent a lot of time focusing on. So talking about the disease, the impact it has on patients and caregivers, making sure they really understand the disease and the level of unmet need has clearly been a very important part of our early discussions with them. The other critical point of the discussion has really been around helping them understand the patient population. And as you know, one of the things that payers are very keen on understanding is having a high level of certainty and that's certainly one of the things that we can offer them in cystic fibrosis. This is an incredibly well-defined orphan population. So helping them understand the size of the population in total and specifically the size of the eligible patient population likely to be in their plans or in their geographies has been really important. And then when we've been talking about the science behind the product that treats the underlying cause of the disease, where there really isn't anything that does that in the market today. When you put all those factors together. I think the general impression we've been getting is that this is the sort of innovation that they like to see and that they want to reimburse. Geoffrey C. Porges - Sanford C. Bernstein & Co. LLC: Great. Thanks very much.

Thank you. And our next question comes from the line of Mark Schoenebaum from Evercore ISI.

Hi. Thanks for taking the question. This is actually Odysseas sitting in for Mark. The question I had has to do with sort of I'm thinking about the triple combination and optimizing each of the parts. I guess I just wanted to, as much as CF development has progressed over the last five or 10 years, sort of getting an understanding as to your confidence that were this first generation, second generation corrector target, the site, the sort of confidence in that synergy over perhaps a combination of correctors that target different sites on the CFTR? Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Yes. This is Jeff Leiden. Maybe just to clarify, we do believe that the first generation and second generation corrector target different sites, different parts of the folding mechanism or folding pathway, and we have direct evidence that shows that. And so the idea here is that the delta-508 mutant CFTR actually has multiple defects at different points in the folding pathway that the first generation correctors like 809 or 661 target one of those, which is actually relatively early on in the folding pathway. But then we then search for second generation correctors that could target a second one that's further downstream in the pathway, the theory or the idea being that those two should be added if they're synergistic. And as I said before, we've been able to show that I think very definitively we can identify multiple molecules like that. They do add or synergize with the first generation correctors and our confidence in those is really based upon the totality of all the HBE cell data that we have, which in each case has translated into the clinic. And so we've shown you data that of first generation corrector, second generation corrector, KALYDECO can produce significantly more chloride transport in those cells than just a first gen corrector and KALYDECO, and that's why we're so confident that will translate into more benefit in the clinic in anyone who basically has one or more delta-F508 alleles. Does that answer your question?

So my question more just had to do with whether for instance if there are multiple defects or multiple sites, let's say A through E, and we know that the first generation corrector targets A, with a combination of A plus, but any of the others is perhaps is necessarily better than let's say C and another site? I guess that's all. I mean just sort of the multiplicity of the...? Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Yes. I understand. You're sort of asking what's the best combination?

Right. Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: That's a good question, and we are trying to produce exactly that, the best combination. But another way of thinking about it might be how much chloride transport relative to normal can you produce with two different correctors plus KALYDECO. And we've shown some of that data before. We can produce quite a bit more at least equivalent to what we see with KALYDECO on a 551D cell. And so the goal is to optimize those with HPEs, because we're very confident that that translates into the clinic. And so we do have multiple correctors against multiple target sites just as you say and the goal is to produce the best combination and put it in the clinic.

Thanks.

Thank you. And our next question comes from the line of Terence Flynn from Goldman Sachs. Terence C. Flynn - Goldman Sachs & Co.: Hi. Thanks for taking the questions. Maybe first just one for Stuart. I know you guys were gathering data on the cost of hospitalization due to exacerbations. Can you maybe give us an update on where that data stands, how important has that been or will that be in your discussions with payers both in the US and ex-US? And then just with respect to uptake of KALYDECO in the R117H patients, I think I heard you correctly about 150 patients currently on drug. I think you guys have said about 500 in the US before. Maybe anything you're seeing in terms of uptake across a certain age or is there anything specific about those, that first group of patients that's come on the drug? Thanks.

Yes, Terence, let me take those in reverse order. So the R117H launch is going well. You're right, we do have at least 150, more than 150 patients we know have initiated therapy. And without breaking them down into all sorts of different age groups, we are seeing use across the range of ages from as you know our approved indication is for patients six and older and we are seeing patients from the younger age groups into the older age groups as well. So it's distributed across the age groups. In terms of the exacerbation data, yes, you're absolutely right. We have been gathering data on a number of different elements on exacerbations, things like the number and frequency of them, the severity of them, the impact it has on patients and caregivers and also the cost to the overall healthcare system. And that data is all going to be very important as we're putting together the dossiers that we will need to submit for reimbursement. And so, making sure that we have a really very up-to-date set of information on those exacerbation rate by the major countries has been an important part of the work that our health economics team has been doing in preparation for the launch. Terence C. Flynn - Goldman Sachs & Co.: Can you share any findings from that in terms of the cost to the system?

Well, it can be expensive. I mean it depends on the type of exacerbation and the severity and does it lead to hospitalizations and we know that hospitalizations can be up to two weeks at a time and things like that. So there's a range of costs if you like and it varies by country and things like that. And we will be getting around to publishing that data and when that data is publicly available, that's when you'll be able to see the kind of costs that we think these events have for the healthcare system. Terence C. Flynn - Goldman Sachs & Co.: Okay. Thank you.

Thank you. And our next question comes from the line of Matt Roden from UBS.

Great. Thanks very much for taking the question. I wondered if we could go back to the VX-661 Phase 2b data. I thought maybe you could add a little bit of perspective on that, because I have gotten a lot of questions on it. So, the FEV1 at four weeks was 4% and 4.4% higher than baseline. But the final through 12-week result on a repeated measures basis was 3%. And because that statistical method is a little bit different than what you're – it's kind of apples and oranges between the four and 12-week. I wondered if you could talk about why you use the repeated measures method for the 12-week endpoint? And then maybe if you could give us a better sense of the progression of FEV1 throughout the 12-week trial, and at what time point did you have the high watermark in the FEV1? Thanks. Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Yes, Matt, this is Jeff. Thanks for asking, giving us a chance to sort of clarify this because I know both have had some questions about it. I think it's perhaps more straightforward than people imagine. First, let me just remind you about this trial. The idea here was we needed more safety data than we had had to move into Phase 3. And so this trial was really designed predominantly as a safety trial to get us 12 weeks of safety data that would cover us, so we could accelerate into Phase 3. And the first finding that I would emphasize that we were particularly pleased with was the fact that we didn't see any new safety concerns and that allowed us to accelerate the pivotal program as you know, which is enrolling now. The other, though they were efficacy endpoints as you said, predominantly FEV1, and what you're really asking is what was the sort of pattern that we saw. I would characterize it this way. First of all, the changes in FEV1 that we saw were consistent with what we've seen before in that 4% range in multiple studies. The pattern was very similar to what we've seen before with all CFTR correctors, which means that the changes were rapid. You saw them within two weeks and they were sustained through the 12 weeks of the study. It was a small study, so there was some bouncing around of those, but none of those were statistically significant. This thing went up by two weeks, went out to 12 weeks and it was consistent through the 12 weeks of the trial. And that's consistent with the biology. We know that when you get underlying CFTR correction, that has been something that we've seen that's stable and is sustained. In terms of making a point estimate about what the effect is, we're certainly not going be able to do that from these small Phase 2 trials. That's really going wait for the Phase 3 trial, which is going to be much larger obviously and allow us to directly make the accurate point estimate. But there was nothing here in terms of FEV1 that was in any way inconsistent with what we've seen with 661, or frankly, with the other CFTR correctors in terms of the pattern. Does that answer your question generally?

It does, but just to clarify, you're not describing a downward trend on the FEV1 benefit from baseline from four weeks to 12 weeks, is that correct? Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: That's correct. There was some bouncing around at different time points, but the at 12-week time point looked a lot like the at 4-week time point. And so, while there was some bouncing around, there was no statistical or consistent downward trend, if that's what you're asking.

Okay. Great. And then if I could just sneak in a quick commercial question. Wanted to check in on the expanded access program. Is this happening? If yes, in what geographies and how many patients on program? Thanks. Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Yes, this is Jeff. I'll take that one quickly. So, we do have an expanded access program in the US. It has sort of two parts. There's an initial enrollment of about 50 patients who have FEV1s of less than 40. So that's something that actually falls outside the official boundaries of the Phase 3 trial. We'd like to see more data on that population. We'll collect an initial set of patients and then analyze that and based on that, we'll expand the access program as we go.

Thanks very much. Congrats on the progress. Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: That trial is enrolling as we speak.

Thank you. And our next question comes from the line of Liisa Bayko from JMP Securities.

Hi. This is Masha for Liisa. Thank you for letting us ask question. I have three, one is commercial. How do you think about the adoption curve for ORKAMBI in the US and maybe more specifically, like what are the factors that you envision will be at play that are different from the KALYDECO launch, just aside from just the volume of patients. And in Europe as a follow-up question, it took some time in that geography to negotiate price and the reimbursement for KALYDECO. Now given your presence there, do you think the process will be faster? One quick housekeeping question is what was the FX impact this quarter on top line. Thank you.

Masha, this is Michael. Just in consideration of other analysts who will be asking questions, could we ask you to just focus on one question and then we are happy to address other questions you have after the call during follow up.

Sure. Thank you. First question is fine.

So which question would you like us to answer?

Yes. First question is fine, on the adoption in the US and various factors that will be different from KALYDECO launch. Thank you.

Yes, great. Masha, it's Stuart here. So thanks for the question. I mean broadly speaking, we're anticipating the demand from patients and physicians to be very high for ORKAMBI given the seriousness of the disease, the level of unmet need given that there is no currently available treatments that address the underlying cause of the disease and the community's positive reaction to the clinical profile. So generally speaking, we are expecting there to be significant demand and quick uptake. Specifically to address your question about what might be different around the uptake, the biggest difference I think is going to be around the patient volume. And if you think about it, there's about 275 CF centers in the US. So for KALYDECO in G551D, they were seeing about three to four patients. For the F508del homozygous population 12 and over, we've got about 8,500 patients. So they're going to be seeing 30 plus patients in the average CF center if there is such a thing. And whilst the initial decision to initiate therapy may be made very quickly by the physician in consultation with the patient, just that sheer volume of patients and the level of administrative burden that goes along with initiating a patient going through the reimbursement process, prior authorizations and that sort of thing, I think is likely to lead to a slower relative rate of uptake relative to KALYDECO. The one last thing I do want to say though, relative to KALYDECO is the important phrase there. I mean the KALYDECO uptake was virtually vertical. I mean, we were at 90% of peak penetration in six months, the fastest launch personally I've ever been involved in. And so whilst we're saying the relative rate of uptake with ORKAMBI maybe slightly slower as a result of some of these increased patient volume factors, as I say, we're still expecting the demand to be very significant from both patients and physicians.

Next question please.

Thank you. And our next question comes from the line of Yaron Werber from Citi. Your line is open, sir.

Thanks for taking my question. Ian, it's a question for you. I think it's a follow-up to some of your earlier comment, just talking about profitability and expenses obviously ramping up a little bit second half. Can you give us a sense where are you sort of on your commercial preparation now? How much more do you need to prepare since the sales force is already in place? And just maybe a little bit understanding, just maybe just not in the script, not in concrete terms, but just broadly is R&D broadly going to go up in line with revenues over time or less than revenues? I'm just trying to get a sense what profitability could be, because that's the key question I'm getting all the time. Thank you.

Thanks, Yaron. I'll actually – Stuart can follow my answer, but Stuart can, because I heard of two questions there. Stuart can also help you understand where we are in commercial preparation as well for the launch of ORKAMBI. The way we look at this is profitability should come with the launch of ORKAMBI and we continue to drive the revenue line with KALYDECO with geographic and label expansion as we stated earlier on this call. Clearly, the revenue growth is accelerated by the potential approval of ORKAMBI. Therefore as we look towards the end of this year and maybe beginning of next year, we start to see the company turn cash flow positive and profitable. As far as the operating expense is concerned and the future operating expense is concerned, as you're asking, in the short-term we've committed to financial guidance of $1 billion, $1.05 billion to $1.1 billion and we've reiterated that on the call tonight. So it helps you understand how we think about this year. And then as we think about the out years, I made some comments earlier that we continue to control that operating expense, but with the revenue growth that we have, we see the opportunity to make significant operating margins. To use what you just said in the question, we do not see the company taking a proportion of its revenues and allocating those to R&D. The R&D investment in the company is based on our commitment to a research function that has been highly productive over the years. We like where we are with that. And then the development spend and development investment is a function of the opportunity of the products that we may create. And so we don't look at it as a financial metric to spend away the revenue line. It is more a function of controlling and having efficient R&D, having a control and efficient operating expense, but controlling that to allow the revenues to generate significant operating margins. And Stuart, do you want to comment on ORKAMBI's?

Sure. Yes, in terms of the launch preparations, in the US, we're launch ready. The additional commercial infrastructure that we need here in the US, which was largely in our patient services team, this is the team that supports patients through the reimbursement process and helps with education and compliance. That team has been scaled up to reflect the larger patient population we hope to serve when ORKAMBI is approved later this year. So in the US, we're fully scaled up and launch ready. And ex-US, essentially we'll be using largely the same infrastructure that we've used for KALYDECO in those markets where we commercialized KALYDECO. The real growth in our ex-US markets is driven by us needing to build infrastructure in markets where we don't currently have a presence, because there isn't really a large bolus of KALYDECO-eligible patients in those markets. And so that expansion is really happening in the second half of the year as we get ready for the approval and then subsequent reimbursement submissions in Europe towards the back end of this year.

Thank you. And our next question comes from the line of Cory Kasimov from JPMorgan.

Hey, guys. Thanks for taking the question. I wanted to stay on this topic of profitability and cash flow for a second. But from a BD standpoint, I'm wondering if you anticipate that you'll have the capacity to drive the bottom line while simultaneously being opportunistic with acquisitions, whether inside or outside of CF. And then I guess as it specifically relates to CF, what's your view on the most value-add timing of a potential deal? In other words, how much proof of concept do you need to see before trying to go after an asset? Thanks.

Cory, thanks for the question. I think I've mentioned this on a number of earlier calls. So we have a very firm and committed corporate and business development strategy. And I'll just go over that once again and then comment on your last part of the question, which is timing. The priority within business and corporate development for us today is cystic fibrosis. And so we continue to evaluate opportunities of other technologies or medicines that may enhance our approach to creating the best combination medicines for our patients as well as thinking about other modalities of how we may treat patients many years away from now. We're committed to the space. And so we continue to evaluate different technology and different medicines that are at various different points of research and development to give them consideration of whether they would be better in combination with our base therapy. Second priority for us in the area is scientific footprint. Vertex has been highly successful in small molecule drug development and looking at molecular targets. It's time for us to continue and consider other things. And so we're looking at other modalities of science and there is a lot of very exciting stuff out there and we're working very hard on evaluating those as well. And then third, there is this consideration of being more opportunistic with in-licensing. I would say it's smaller scale. I don't want you to take away from this call that Vertex is trying to buy revenue. We have a lot of internal growth with our own compounds. We've got a lot to execute on in the CF space alone. So we don't need at this point to go out and take on risk of M&A to buy revenue, but we would consider balancing our pipeline opportunistically. And then to your point of a question of how do we think about the timing, the ideal timing for bringing in potential CF assets. We look at it by looking at our HBE assays to be honest. If we have an opportunity to study an external asset with our own assets and evaluate the combination therapies or even that the standalone therapy through our HBE cells, we take a lot of confidence from that. And if we can at least do those kind of lab experiments, it gives us confidence there to move forward where then potentially the risk in the clinic is one mainly focused on safety. So for us, the ideal time is around this pre-clinical or translational time of medicines to look to do the combinations.

Great. Thank you.

Thank you. And our next question comes from the line of Robyn Karnauskas from Deutsche Bank.

Great, thanks. This is Mohit Bansal for Robyn. Thanks for taking our question. So maybe like diverting a little bit from cystic fibrosis, and can you please talk a little bit about your BioAxone collaboration which you did in October last year, and the asset in particular VX-210 for spinal cord injury? And then should it be taken as an indication for the types of deal you are looking for outside the CF space? Thank you. Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Yes, this is Jeff Leiden. Thanks for the question, and I'll tell you a little about the deal and then answer the second part of it. So just as a reminder, this was a licensing deal for a Phase 2b-ready row inhibitor for a spinal cord injury. Strategically obviously it's the kind of disease we're interested in. That means a serious disease with very large unmet medical need where even small improvements in neurologic function make huge improvements for patients. It's a market that's of the right size, which is clearly a specialty market, very consistent in size with markets like CF and other specialty markets, so not requiring large commercial infrastructure. And there was preclinical and early clinical data that was suggestive of an effect and it was I think economically also a very good deal for Vertex in terms of acquiring an option for what could be a very valuable asset to patients and us. The plan with that program as we've said is to begin the Phase 2b study later this year, and it's a study that's we were designing to be large enough to really give us a clear answer on the effects of this particular molecule. Your second question, is this the kind of deal that we would do, there is no one answer to that. But because of all the things I just told you, yes, it fits strategically. It's the right size. It's the right stage. It's the right kind of asset and it's potentially transformational for patients.

Great. Thanks.

Thank you. And our next question comes from the line of Tony Butler from Guggenheim Partners.

Thanks very much. Jeff, I'm respectful of your comments around chloride transport in HBE cells for the triple combination or the addition of the second corrector. But the question is, as it begins to fold, why don't you get steric hindrance, because you've got three molecules there? And more importantly, how do you actually know from the in-vitro assays that you – let's just say will not or may not generate exhaustion when you move that in-vivo? Or can you know that? Thanks very much. Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Yes, two great questions actually, and we're thinking a lot about them. The first one's really interesting because it points to what I think is a fundamental property of these correctors in particular, but also the potentiators, which is that they don't stay bound to the target. In fact that's important, that they help with the folding and they likely come off the target, at least everything that we've seen says that that happens, which also gives you some interesting insights into the kinds of potency that you might really want to look at. I think that's one of the reasons we don't get steric hindrance, and another reason of course is the size of these small molecules compared to the size of these proteins is quite small. But I actually think it's the first reason more than anything else. These are binders which tend to come off I think during the folding process. And your second question is about exhaustion. In a way, that would be a nice problem to have in terms of driving chloride transfer, driving CFTR trafficking and chloride transport up so high that you get exhaustion. But in fact what we're seeing so far anyway is that you can drive this up very significantly with these three drug combinations and that the CFTR that's on the cell surface is functional. That's of course the most important thing and we're not seeing what you might worry about, which is increased recycling of the CFTR or abnormal function of the CFTR when it's folded by these three molecules. That's really not what we're seeing.

Thanks very much. Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Sure.

Thank you. And our next question comes from the line of Katherine Xu from William Blair. Katherine Xu - William Blair & Co. LLC: Hi, good afternoon. Just a very quick question on the strategy for ORKAMBI in children ages six to 11. Do you have a safety study plan, any, what other studies you're going to do for the eventual approval? Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Yes, so it's a little bit – thanks for the question. It's a little bit different in the US than Europe and so it's important I think that we clarify that. In the US, the safety PK study, which is fully enrolled now, we believe and we know is the only study that we're going to need, assuming of course it's successful, to apply for approval in the US. In Europe, it's a little bit less certain, and in fact our assumption is typically in Europe that one would need both an efficacy endpoint and a safety endpoint. And so at the current time, although we're still discussing it with European regulators, we're planning a second study in Europe that would have both the efficacy and safety endpoints, about the same size, to apply for approval in Europe in this patient population. And we would assume that that would likely start sort of mid-year.

Operator, we have time for two more questions.

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

Hey, thanks for taking my questions. First of all, the results you just released last month from the 12 weeks Phase 2b for VX-661 in homozygous patients, based on that 2% absolute change between placebo and drug, does that change your view of the likelihood of success for this combo in heterozygous, or you called the het min patients? And then secondly, philosophically, how high do you think the barrier to entry for your competition is? It seems that everyone else is also developing drugs using your HP assay. So, I was wondering what your view is for the competition that's coming on the way? Thanks. Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Yes, let me answer the second one first. Of course there is now increasing competition. That typically is what happens when you show the kinds of success that we've shown. I think the strategy that we're taking is to as quickly as possible find the maximal regimens and get the most patients we can on them. We do think we have a pretty considerable head start. Most of these other assets are preclinical or just entering the clinic. And so as I told you, for the reasons I've told you, we're confident that for instance a three drug regimen will allow us to address 80% to 90% of the patients and get essentially maximal effects. And that does of course provide a barrier to entry, both in terms of even enrolling clinical trials and certainly in terms of commercially once you're already there. So that's really the competitive strategy. And it's supplemented by our business development strategy as Ian said. So if some of those assets come from externally and we can put them together into even better combinations, all the better for patients and of course for us. On the first question is really, what's our confidence around 661. And as I said, the FEV1 response that we saw in that study and in the delta-F508 homozygous patients was pretty comparable to what we've seen in the other Phase 2 studies. So if anything, that increased our confidence in the effects we're seeing since it went through 12 weeks. I'd also remind you that there is a lot of other Phase 2 data out there. For example, adding 661 to patients who are on KALYDECO who have a gating mutation, in which in a Phase 2 study we showed I think about a 4.6% further increase in their FEV1, and of course that's become a part of our Phase 3 program. I think one of the key questions that we have and that others have is, what is the likelihood of success with the two drug combination, 661 plus KALYDECO in the heterozygous min population, the really most difficult population to treat. And as we've said before, we think that has a lower probability. We haven't actually tested the drug yet there. But on the other hand, those patients have nothing today. So the way we're managing that in the Phase 3 program is there is a separate study in that population, but it looks quite different. And we're going to enroll a reasonably small number of patients, about 120, and then we're going to do a futility analysis based on those 120 to decide whether to continue and enroll another 150, which would give us the full pivotal trial. So it allows us to manage the risk there, if you will, while we're also bringing forward of course the next generation correctors that we think have a higher likelihood of success in that population.

Thank you very much for the color.

Thank you. And our final question for today comes from the line of Matthew Harrison from Morgan Stanley. Matthew K. Harrison - Morgan Stanley & Co. LLC: Great. Thanks for fitting me in. So if I could just ask again on the next generation corrector, I think earlier you suggested that it's – you obviously know the targets and you know the sites you want to target. It sounded like you were still doing some work to get the molecule ready. I was wondering if you could maybe be more specific. Is this formulation work that's still necessary, tox work? Is it that you have a few compounds and you're trying to pick which one you actually want to move forward and put in the clinic? So maybe if you could just be a little bit more specific there. And then separately, Ian, could you just talk about FX for 2015? Thanks. Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Yes. This is Jeff again. I'll answer the first part and then I'll let Ian answer on the FX. So what we've said here is, and where we are here is, that we have multiple second generation correctors, which do add to KALYDECO plus a first gen corrector like 661 and we are basically at the stage of lead optimization. And as you know, what that involves is optimizing around several parameters, PK, drug-drug interaction and toxicity. And so these molecules are at various stages there of optimizing PK, tox and drug-drug interaction. And when we get the first one, which we expect to do this year, optimize for those. We'll take that into the clinic, but our plan is not to just pick one and take it into the clinic. Our plan is actually to pick multiple versions here. They have different flavors. They bind to different sites, we believe. And so we will test multiple versions in multiple combinations in the clinic, and as I said starting this year and then certainly going into next year. Does that answer your question about the second gens? Matthew K. Harrison - Morgan Stanley & Co. LLC: That does. Thank you. Jeffrey M. Leiden - Chairman, President & Chief Executive Officer: Thanks.

And to the FX question, I know it's been a popular discussion through Q1 results. We also have ex-U.S. revenues. In fact in the first quarter, approximately 45% of the KALYDECO revenues do come from ex-US, and so we suffered the same headwinds as the other companies have suffered. However as you can see, we've recorded $130 million worth of revenues in the first quarter. The launch is going very well. To the broader story of the full year, we anticipate that FX does have an impact on our revenue line. However, we've taken appropriate measures in terms of hedging against those revenues. And then when you look at the bottom line for the company, we have a natural hedge because we have overseas operations where we're benefiting from a reduction in expense, because we're getting favorable benefit there on the expense line. So we've managed the FX and for the rest of the year, we believe we're in good shape. We continue to be committed to our revenue guidance of $560 million to $580 million for KALYDECO and we're happy with our position.

Thanks. That will conclude tonight's call. We thank everybody for tuning in. We apologize for the transmission problems that occurred on the webcast earlier. We do plan as we mentioned to post the transcript on our website and in addition, when the replay of the webcast is available, it should be complete and free of breaks and interruptions. The IR team is available in the office tonight if you have any additional questions. Thanks and have a good night.

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