Vertex Pharmaceuticals Incorporated (VRTX) Q2 2017 Earnings Report, Transcript and Summary

Good evening. This is Michael Partridge, Vice President of Investor Relations for Vertex. Welcome to our Second Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will open the lines for questions. This call is recorded and a replay will be available later on our website. Dr. Jeff Leiden, Chairman and CEO, and Ian Smith, Chief Operating Officer and Chief Financial Officer, will provide prepared remarks this evening. Stuart Arbuckle, Chief Commercial Officer, will join us for Q&A. 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, our 10-K and other filings with the Securities and Exchange Commission. These statements, including those regarding the ongoing development and commercialization of KALYDECO and ORKAMBI, 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 regarding our use of GAAP and non-GAAP financial measures and a reconciliation of GAAP to non-GAAP is available in the financial results press release. I would also refer you to slide 3 of tonight's webcast. I will now turn the call over to Dr. Jeff Leiden.

Thanks, Michael. Good evening (01:26). 2017 is an important year for Vertex and we've made significant progress towards achieving our long-term vision of treating all people with CF. As we enter this year, we were focused on continuing to increase the number of people eligible for and being treated with our approved medicines, as well as generating important data from multiple combination medicines across our CF pipeline. Let me briefly review our recent progress in meeting these objectives. First, the FDA recently approved KALYDECO for more than 900 people with CF, ages 2 and older who have 1 of 23 residual function mutations. And we continue to work closely with the FDA to obtain approval for more than 600 additional people who have other residual function mutations responsive to KALYDECO. KALYDECO continues to be a transformative medicine and has now labeled to treat approximately 5,000 people with CF globally. Tonight, we are reiterating our KALYDECO revenue guidance. Second, we've now reached reimbursement agreements in Ireland and Italy for ORKAMBI in people ages 12 and older with two copies of the F508del mutation. We continue to discuss reimbursement with other countries, including France, the Netherlands and the United Kingdom and remain committed to expanding the eligibility for and access to ORKAMBI globally. Tonight, we also reiterated our guidance for ORKAMBI. Third, based on the positive Phase 3 data we announced earlier this year, we recently submitted an NDA to the FDA and an MAA to the European Medicines Agency for the tezacaftor/ivacaftor combination in people with CF ages 12 and older. We anticipate acceptance of the NDA and the MAA later this year. Fourth, we recently shared positive Phase 1 and Phase 2 results from three of our triple combination regimens in people with CF who have at least one F508del mutation. These results included the first data to demonstrate the potential to treat the underlying cause of CF and had many patients who have a severe and difficult to treat type of this disease. We also demonstrated that the addition of a next-generation corrector to tezacaftor and ivacaftor significantly increases FEV1 and F508del homozygous patients. Throughout the rest of this year, we will be evaluating additional data from these and other studies and I look forward to updating you on our plans for pivotal development of our triple combination regimens that may have the potential to treat up to 90% of CF patients. We expect to begin pivotal development in the first half of 2018 for one or two of our four next-generation correctors. And lastly, earlier this week we added CTP-656 to our pipeline of CF medicines through completing our asset purchase agreement with Concert Pharmaceuticals. CTP-656 has the potential to be used as part of future once-daily combination regimens that treat the underlying cause of CF and we are already working to integrate the potentiator into one of our triple combination regimens. Based on our significant progress this year, we are well-positioned to achieve our longstanding goal to create medicines that fundamentally alter the progression of CF for all patients, and in doing so, meet our financial goal of delivering sustainable long-term revenue and earnings growth for Vertex. With that, I'll now turn the call over to Ian to discuss our financials.

Thanks, Jeff, and good evening to everyone. Tonight, I will discuss the key aspects of our second quarter 2017 financials and I will also review our 2017 full-year financial guidance, revenues first. Total CF product revenues of $514 million in the second quarter of 2017 represent a 21% increase compared to the $426 million we recorded in the second quarter of 2016 and a $33 million increase compared to the $481 million we recorded in the first quarter of 2017. We continue to see revenue growth as we treat more patients with our approved medicines. For ORKAMBI, we reported second quarter 2017 product revenues of approximately $324 million, an increase of $29 million compared to the first quarter of 2017. This increase was driven by continued uptake of the medicine globally as well as the timing of both patients and pharmacy orders of approximately $10 million in advance of the 4th of July holiday. These shipments will likely impact revenues in the third quarter of 2017. Second quarter KALYDECO sales were $190 million compared to $186 million for the first quarter of 2017. We estimate there was approximately $5 million of inventory stocking at quarter end in advance of July 4 holiday. Our second quarter 2017 non-GAAP combined R&D and SG&A expenses were $333 million, compared to $306 million in the second quarter of 2016 and compared to $313 million in the first quarter of 2017. These increases are primarily due to the continued acceleration and broad advancement of our CF medicines in development, and in particular, our portfolio of triple combination regimens. This revenue expense profile resulted in a non-GAAP net profit for the second quarter of 2017 of $99 million or $0.39 per diluted share, compared to non-GAAP net profit of $58 million or $0.24 per diluted share for the second quarter of 2016, and compared to a $101 million or $0.41 per diluted share for the first quarter of 2017. The significant growth year-over-year in net profit was largely driven by the strong growth in the total CF product revenues. During the second quarter of 2017, the company generated significant cash flow and ended the quarter with approximately $1.67 billion in cash, cash equivalents and marketable securities. Now, turning to our full-year financial guidance. We continue to expect total CF product revenues of $1.84 billion to $2.07 billion in 2017. For ORKAMBI, we continue to expect $1.1 billion to $1.3 billion in net product revenues. Our actual revenues will be determined by the continued uptake of ORKAMBI in the markets where it's reimbursed, as well as the completion of additional reimbursement agreements throughout Europe. If we are successful in gaining reimbursements in France by the end of 2017, it would be a large contributor to our revenue growth. There continues to be uncertainty after the timing on when these discussions will be completed. As to KALYDECO, we continue to expect $740 million to $770 million in net product revenues, which includes the recent approval in patients with residual function mutations. We continue to have productive discussions with the FDA to obtain approval for more than 600 people who have other residual function mutations responsive to KALYDECO. Now, to operating expenses. We have made significant investments and generated compelling data across our CF pipeline this year, and we now expect combined non-GAAP R&D and SG&A expenses of $1.33 billion to $1.36 billion for 2017. This updated guidance reflects the progression of our CF portfolio, including the acceleration of Phase 2 studies for VX-659 and VX-445. Preparation for pivotal studies for our portfolio of triple combination regimens and investment to develop CTP-656 as part of future triple combination regimens. With our continued revenue growth, the management of our operating expenses, we are well on track to deliver a financial profile that includes high operating margins and sustainable earnings growth. With that, I will open up the line to questions.

And our first question comes from the line of Matthew Harrison with Morgan Stanley. Your line is now open. Matthew K. Harrison - Morgan Stanley & Co. LLC: Great. Thanks very much for taking the question. I guess I'd just like to ask about the progression of pricing and reimbursement in Europe. You've obviously made some progress with some countries and yet, some of the large ones, including France, seem to be taking longer. Can you just talk about to the extent you are willing – what items are still needing to be discussed and I guess what we should think about in terms of that and broadly, I guess the nature of the question here is, you've obviously got ORKAMBI now but there's visibility towards tez/iva and then triple combos, and does that influence any of the conversation and perhaps, take longer to complete? Thanks.

Great. Thanks, Matt. It's Stu here. I'll try and address your question. It's got a number of different elements to it. As you said, we have made good progress in the first half of this year reaching pricing and reimbursement agreements in Germany, Ireland, Italy, Austria, Luxemburg and Denmark. And as you said, we're in active negotiations with other countries, including France, the UK and the Netherlands. And where we are in those discussions, I'll refer you back to the comments we've made previously, these discussions tend to have three phases. There's a clinical benefit assessment, the pharmacoeconomic assessment, and then, you're into the pricing discussions, and we're through those first two. There's really no debate in those markets in Europe about the clinical benefits of ORKAMBI. We're really in the pricing and reimbursement discussions. And as Ian mentioned in his prepared remarks, unfortunately, the exact timing of when those are going to conclude is uncertain just because they're not directly within our control. As to the potential impact of newer agents in development on those discussions, what I'd say to you is that we're very pleased that in Ireland and Italy, where we reached agreements in May after the tez/iva data was available, those countries still saw fit to do what we think is the right thing, make a transformative medicine like ORKAMBI available to patients as soon as possible because it treats the underlying cause of the disease, and we know, therefore, that it's important for patients to be treated as early as possible. And we're certainly going to be continuing to make that case to the existing authorities who are still not providing access for patients in their countries.

Thank you. And our next question comes from the line of Geoff Meacham with Barclays. Your line is now open.

Hey, guys. A couple of questions for you. Obviously, with the data thus far in the triple, you can expand the addressable population, but I wanted to ask you about the nonsense mutation and some of the splicing mutations. I know clearly, you guys have the alliance here with CRISPR and to look at some of those, but maybe just talk a little bit about what the strategy is there. Do you have technologies in-house to look at more nonsense mutation patients or is it just going to focus on delta-F single and double. And then, I have a follow-up.

Yeah. Thanks, Geoff. This is Jeff Leiden. I'll take two parts for your questions. We actually view splice and nonsense quite differently. So as you know, and as Ian said, I think we're in very productive discussions with the FDA around the splice mutations. Most of those produce normal fee of care (13:11) but much lower amounts. And our in vitro data and our clinical data has clearly shown that they respond to KALYDECO, and by the way, also to tez/iva. And so, the imperative there is to get KALYDECO monotherapy approved for those patients as soon as possible, and then, follow that with tez/iva and we're confident that we will be able to that. So, that's splice. Nonsense mutations, as you point out, are quite different. They are obviously not going to respond to CFTR modulators because there is no protein there. And we have several approaches there, the first of which is the ENaC inhibitor. So, one of the reasons we're interested in studying the ENaC inhibitors, that's VX-371, is because they, as you know, function by a different mechanism that doesn't require functional CFTR protein. And so, we'll have a look at the first data, as you know, in the second half of this year but that's sort of mechanism number one, to get at the nonsense mutations. And as you point out, mechanisms two are genetic approaches, such as CRISPR and Moderna, we're making some nice progress in cell lines. We do have cell assays that allow us to look at those in both HBE cells and other cells, and the key issue there is going to be delivery. I actually think the gene editing and the ability for RNA to make CFTR is a relatively straightforward problem. The tough problem here is delivery and we're working on that in parallel and as we've said, we do think that's going to take a number of years to bring forward into the clinic.

Okay. And a follow-up question more on the commercial side, and I have asked you guys this a couple of times before but I just want to see if there's any update. Clearly, the market is U.S., Western Europe and Australia but I wanted to see, I think at one point, you guys have talked about opening an office down in Latin America or other countries that maybe have a founder effect, where you have populations that are well beyond the 70,000 that everyone puts up as the number. So, is there – maybe just help us with kind of where you are with that kind of more of the global piece.

Yeah, Geoff. You're correct. We have established an office in São Paulo in Brazil as a potential sort of regional hub for Latin America, and you're right, there are numbers of patients in there. The level of newborn screening and the maturity of registries there is perhaps, as you might expect, not quite as advanced than it is here in the U.S. and in parts of Western Europe. And so, the exact numbers of patients, and indeed, their specific genotypes which we would anticipate being different in terms of distribution than it is in the U.S. and Europe, is not as well defined. And so, much of our efforts over the last year or so has been working with the various CF societies and physicians in those markets to try and better understand the size of the potential patient population there and the specific genotypes that they have so that we can work out which of our medicines is best placed to help those patients out. So, that's kind of the phase that we're at there and I would say stay posted. We'll kind of update you as we make more progress from a commercial point of view there.

And from a regulatory point of view, Geoff, it is our intention to go ahead and get these products registered there. There's a very formal way to do that and we're well into that process.

Got you. Okay. Thanks, guys.

Thank you. And our next question comes from the line of Terence Flynn with Goldman Sachs. Your line is now open. Terence Flynn, Ph.D. - Goldman Sachs & Co. LLC: Hi, thanks for taking the question. I was just wondering if you guys could comment on thoughts on uptake of tez/iva into the F508del homozygous patients with low baseline function. I know that is been an area where there are some concern around use of ORKAMBI. Do you think tez/iva will be used there or do you think those patients would most likely wait until the triple combo is available? Thanks a lot.

Terence, hi. It's Stu here. Thanks for the question. Let me first talk a little bit more broadly about how we see tez/iva fitting in. We think tez/iva, because of the benefit risk profile that it has, really has a great opportunity to allow us and physicians to treat more patients with CF, and that's because we think given the benefit risk profile where we know the efficacy is very good but also the safety and tolerability are also very good, we think it will be applicable to a number of populations. Firstly, those who have discontinued ORKAMBI, many of whom discontinued for adverse events. We think that's a population that physicians and the patients themselves will be very keen to be retreated with a CFTR modulator. We also know those patients who have never been treated with ORKAMBI, some of whom because the patient and/or physician were concerned about the benefit risk profile of ORKAMBI. And then, thirdly, outside the U.S., in particular, the residual function population where we don't have KALYDECO monotherapy approved is another population where based on the Phase 3 data that we showed in March with tezacaftor/ivacaftor, we believe we'll also be able to get additional patients on a CFTR modulator. So overall, for tez/iva, we see the biggest benefit for patients and physicians, is being able to offer CFTR modulator to more people with the disease. In terms of exactly how it might be considered for those with low FEV1s, clearly, one of the major concerns physicians and patients have there was the bronchoconstriction side effect that we see from lumacaftor. We've known about that with lumacaftor for a while and the result we've been very diligently and looking at whether tezacaftor has that same property. We know from all of our Phase 2 data, from our Phase 3 data from looking at both adverse events post-dose spirometry, the tez/iva does not have that same adverse events, and therefore, I think it's going to be a very popular option for patients with a low FEV1. Terence Flynn, Ph.D. - Goldman Sachs & Co. LLC: Great. Thanks a lot.

Thank you. And our next question comes from the line of Geoff Porges with Leerink Partners. Your line is now open.

Thanks very much and thanks for the questions. A couple of strategy questions. First, Stuart, could you just talk about what success you're having with the full portfolio contracts and more or less fixed pricing? As you look ahead to now multiple generations potentially five different product offerings over time, is that a model that you think that you can deploy globally or is it just in very selected markets and what sort of reaction are we getting? And then, secondly, Ian, your balance sheet is shaping up nicely and we expect it to continue to improve, and you are diversifying your portfolio across products. Is there a possibility that you might be able to take on some leverage and sort of free up additional capital from your balance sheet in that way? Thanks.

So Geoff, I'll take your first question. So just for everybody's clarity on the call, the approach that Geoff's referring to is an agreement that we reached earlier this year in Ireland where essentially we have an agreement which is a long-term agreement covers populations of patients, in this case, those who are homozygous for the F508del mutation, all those who are one of the approved KALYDECO mutations and essentially looks at that patient population all the way down to the age zero, and essentially includes in the agreement both the currently approved medicines, KALYDECO and ORKAMBI, will include patients for ORKAMBI when the indications extended the lower age groups but will also include new Vertex medicines in those specific patient population. I would say to you, Geoff, that since that agreement was put in place, and in particular, since both the tez/iva data, and now, the next-gen data which makes it very clear to everybody how close we are to being able to develop medicines that treat the underlying cause of disease in 90% of patients, there's been a lot of interest in discussing similar type of patient and/or portfolio contracts. So, we're certainly very keen to be flexible, if that's what countries want to do. We're certainly, as we've demonstrated in Ireland, very open to doing that. I personally believe it's a real win, win, win, that arrangement. It's a win for the Irish government. It's a win for Vertex. And most importantly, it's a win for patients in Ireland. And so, we're certainly very open to doing that kind of agreement in any country. We're in, obviously, early stages of discussions with newer countries along those lines and certainly that there's a lot of interest there, whether we'll actually be able to get turn that interest into an agreement, time will tell. And I think Ian will handle the question on balance sheet.

Thank you.

Yeah. So hi, Geoff. How you doing? So first of all, to the cash, just to give you a couple of points of where we are currently on our financial position. We have cash of close to $1.7 billion and we are cash flow positive each quarter now, and so, that balance continues to increase. I'd also point out that we actually do already have a revolver facility, and so, we have access to up to $800 million. It currently stands at $500 million but we can expand it to $800 million. So, when you have the $800 million debt capacity at the moment on the balance sheet that we have not yet drawn down on, plus the $1.7 billion of cash and a positive cash flow, we're in a very nice position to think about how we allocate that cash and how we apply it. Obviously, we're already making choices of our revenue stream as it grows to allocate internally and that is going into R&D and it goes beyond to CF these days. It goes into other disease areas, and I'm sure before we finish this call, there will be a number of questions about how are we progressing beyond CF. And then, as I've said on call previously, that cash can now – that's on the balance sheet and also the leverage and the increasing leverage and the increasing availability of cash, we can apply outside the company and we have three basic strategies there and we're very active, as shown actually by the announcement yesterday. So, one of those strategies and the priority is still, let's take a look at everything that's complementary in cystic fibrosis to our approach and we actually just closed on the acquisition of CTP-656 yesterday. Another strategy is for us to look at other scientific footprints or scientific platforms or modalities and how they may allow us to treat diseases in different ways than just through small molecule approaches, and we've done both Moderna and the CRISPR collaboration in the last year or so that have advanced our approaches in those areas. And then, what is also emerging is how we may just broaden our pipeline beyond CF with earlier stage type deals that relate to asset acquisitions or targets in IP acquisitions and knowledge and assays and small M&A-type ideas that we look at as well. We're very sensitive to looking at the capital structure of the company. We're still progressing and I think our focus is on earlier stage assets of high science in disease areas that are consistent with cystic fibrosis.

Great. Thanks very much. That's very helpful, Ian.

Thank you. Our next question comes from the line of Michael Yee with Jefferies. Your line is now open.

Great. Thanks for the question. My question was on the Concert molecule which, of course, you just closed on yesterday. What are the next steps? How are you thinking about developing that? Could that be ready for one of the triples to start next year or what are the things you need to do there in discussions with the FDA? And the other question was in terms of your ongoing triples you have now in Phase 2, how good you feel about the therapeutic window in terms of going up and seeing higher efficacy without the risk of any undue side effects? Thanks.

Yeah. Hi, Michael. It's Jeff. Welcome back by the way.

Thanks.

Nice to hear your voice again on the call. So, I'll take both of those questions. So CTP-656, as you'll remember, is deuterated ivacaftor and the rationale there was to potentially get to a once-a-day regimen – triple regimen because both VX-659 and VX-445 are consistent with once-daily dosing from what we know now about their PK. And of course, tezacaftor is consistent with once-daily dosing. Whereas ivacaftor, KALYDECO, is not. It's a twice-a-day regimen. And so, we're very pleased to have closed the transaction. We've already been actually working very hard on incorporating this molecule into a triple. It's a little early for me to give you a precise date but if you ask me, could we come up with a triple regimen containing CTP-656 that was once a day and begin a pivotal trial in 2018, I'd say the answer from what I know today is likely yes. I want to emphasize that we're not going to wait for that certainly. It is our intention to get the best regimen to patients as quickly as possible, and so, the first regimen almost certainly will use ivacaftor, KALYDECO, and be a twice-a-day regimen and we'll follow that likely with a once-a-day regimen, and we also have the opportunity to bridge back later to substitute in the ivacaftor. All of that as you say requires some discussion with regulators and it also requires a little more data on our part. We're certainly not going to jump into a Phase 3 trial of the ivacaftor until we have enough efficacy, safety, tolerability and PK data to make sure that we know the dose and we know how to put it together with the other agents. But again, we think that's a relatively short journey and that we could have such a regimen in pivotals next year. And then, your second question...

And then, the triple – yeah.

Yeah, the triple. And really, your question was about therapeutic window, and as we said last week, one of the things that was the most important for us to see in all four regimens actually was the very favorable safety and tolerability profile, and what that meant to us is that we could begin to expand dosing upwards, and so, we're doing that, as you know, in at least three of the regimens. So in VX-152, the initial data was at a 100 milligram and 200 milligram dose. We are already expanding that up to 300 milligrams and those patients are being dosed. And so, we'll see whether we can essentially wring more efficacy out of VX-152 with that same safety and tolerability profile. Some suggestion we may be able to because if you look back at that data, there does seem to be a clear dose response in FEV1 between 100 milligrams and 200 milligrams. With VX-659, you'll remember we're at 120 BID, and so, the Phase 2 trial of VX-659, which is just beginning, will incorporate higher doses up to 400 milligrams a day, and the VX-445 dosing will also go up. So with those three molecules, we are going to try to increase dose looking for maximum benefit with a very favorable safety and tolerability profile. And as we said last week, we hope to have all that data converge towards the end of this year and early next year and that will allow us to pick not only the best regimen or regimens but the best doses.

Thanks.

Sure.

Thank you. And our next question comes from the line of Phil Nadeau with Cowen & Company. Your line is now open. Phil Nadeau, Ph.D. - Cowen & Co. LLC: Good afternoon. Thanks for taking my question. And it's actually kind of a follow-up to the last one that's on data disclosure. I think Concert had guided to you getting a monotherapy data for CTP-656 out by the end of this year. Is that still likely now that's in your hands? And then, second, Jeff, your answer to the question that you just gave, it sounds like there'll be more disclosures on VX-152, VX-659 and VX-445 either late this year or early next. Is that a correct interpretation? Is that when we'll see the next data or are there interim releases that are possible?

Yeah. Thanks, Phil. I'll take the first part and Ian, I think, can take the disclosure question. So with respect to CTP-656 for monotherapy, we're actually not planning to develop CTP-656 for monotherapy, given that we believe that 90% of the patients will go on to a triple regimen. So, we're really interested in as part of a once-a-day triple regimen. We will get some interesting, I think, PK data potentially from that study but for us now, it's all about incorporating it into triple therapy and figuring out how to do that, which dose, making sure there's efficacy in the safety tolerability profile. It doesn't require a lot of patients but we will be doing that before we jump into pivotal trials. So, I wouldn't focus on the monotherapy trial because I don't think that's where we're headed. Ian, may be you talk about the disclosure?

And Phil, as we disclosed a couple of weeks ago, we're looking at our next-generation triple combination as a portfolio of medicines and given we are choosing to complete each one of the Phase 2 studies of each molecule, we see our next disclosure is when we've completed that – all the studies in Phase 2. So when we completed the Phase 2 for VX-440, VX-152, VX-659 and VX-445, we anticipate that being early 2018. We'll be able to not only give you the data, we'll be also – also be able to tell you how we're thinking about which molecule we're taking into Phase 3 in the first half of 2018. So, we continue to view it as a portfolio so we'd like to keep it to a portfolio disclosure and we anticipate that being early 2018. Phil Nadeau, Ph.D. - Cowen & Co. LLC: Thanks. That's very helpful and congratulations again on the progress.

Thank you, Phil.

Thank you. Our next question comes from the line of Cory Kasimov with JPMorgan. Your line is now open.

Hey, good afternoon, guys. Thanks for taking the question. So Ian, you alluded to more questions on BD and I do, in fact, want to follow-up now the bigger picture question on this front. So recognizing this is all still quite fresh but there's the recent progress in substantial de-risking on the triple front, impact how the company thinks about business development going forward in terms of investing outside of CF. In other words, do you have more confidence or perhaps change the approach to building outside of your core franchise, given what's likely more predictable future – the future track of CF revenues or these kind of topics that are mutually exclusive? Thanks.

Yeah. Cory, this is Jeff. It's a great question. I'd certainly give you two different types of responses. Let me step back. We've actually been working on what's next after CF, which is one part of your question, for quite hard now for a couple of years and we sort of view it as a two-part approach. First of all, what's beyond CF in terms of trying to find disease areas really is, we've been consistent with what we've learned in CF. That is we're really only interested in transformative medicines and serious diseases that we can sell into the specialty areas with relatively low SG&A, which will then allow us to recycle most of our OpEx back into R&D. That's the model and we're going to stick to that model as we move beyond CF. And then, we view internal research and BD as essentially complementary, often even looking at the same diseases using some internal programs and some external programs. And so, for instance, we've talked about sickle cell disease as a program that we're interested in because it does fit that profile. We have an internal small molecule program or several of them, actually, in sickle cell disease. We have our collaboration with CRISPR in sickle cell disease and we may even look at additional outside programs. So, this hybrid combination of inside investment and outside investment is the way we're going to go at this for the majority of diseases. Now, with respect to your question about the strengthening financial position and how does that change our perspective, I think the key word that you said, which is the word we use, is confidence. As this financial position strengthens, we have more confidence not only in our balance sheet today but importantly, in our balance sheet tomorrow, and so, that's going to let us, I do believe, give us a lot more financial firepower, let us do more deals and potentially larger. As Ian said, we're not in the business of buying revenue in 2019 or 2020. We're not going to go out and buy marketed products but we are very interested in diversifying our earlier stage pipeline with these kinds of transformative medicines and I think you can expect more of that as our confidence is growing significantly.

Great. That's helpful. Thank you.

Thank you. And our next question comes from the line of Carter Gould with UBS. Your line is now open.

Hi, guys, good afternoon. Thanks for taking the question and congrats again on all the progress. I guess, the segue to beyond CF – a question for Jeff or David. ClinicalTrials.gov says the VX-150 Phase 2 study supposed to read out in 4Q. I guess, one, is that the right timeline, and two, how should we be thinking about what you want to see to advance into a Phase 3 in acute pain? Thank you.

Yeah. So, thanks for asking. Let me again just take a step back for those who aren't familiar with VX-150. This is our NaV 1.8 inhibitor. This a novel mechanism – pain mechanism, as you know. We recently reported positive Phase 2 data in osteoarthritis which was really the first proof-of-concept for this mechanism, frankly, in pain. And what's important here and what we said before is we don't view pain as one disease mechanistically. We actually view it as several different diseases. So, there is the inflammatory pain that we saw in osteoarthritis, there's acute pain, there's neuropathic pain, in particular. And what we'd like to – what we are doing at this point, I think, we'd like to do is to explore this molecule in all three of those. So, we have the positive readout in OA. We're currently involved in an acute pain study which is a bunionectomy study, and we do hope that'll readout later this year, next year. And then, the third study will be a neuropathic pain study, which will start I hope later this year. That takes a little longer so it'll likely be 12 months to 14 months more once it starts before we read that out, again, depending on enrollment. Once we have the profile of molecule, then I think we're in a position to really decide, A, how do we best bring it to patients, which patients, do we need a partner for some of these. Obviously, community acquired pain is not something we're going to do and how to best monetize it as well for Vertex. And so, as we accumulate the profile of the compound, we'll keep you informed with each of these trails and that'll lead to the decision about how to take it forward, which is really your question.

Thank you.

Thank you. And our next question comes from the line of Robyn Karnauskas with Citi. Your line is now open.

Hi, guys. Thank you. So given that you've spend almost a $1 billion on R&D and I know you said a majority of that is CF, can you quantify right now what percentage is non-CF? And if you're thinking about – you're starting to think about expanding beyond CF, when do you think the CF spend might begin to taper, given that even clinical trials are running are a little smaller than before? So, can you help us understand how you expect the R&D spend to evolve a little bit and could you see an expansion in the non-CF sooner than what we anticipate? Thanks.

Yeah. Thanks for the question, Robyn. Some of the – let's say, the number that I'm about to give you might surprise you a little. So first of all, if you take R&D, let's split it up into R and let's split it up into D. So firstly, R, we have three research sites. One of those sites is focused on cystic fibrosis there. It is focused on other targets as well but it is primarily our cystic fibrosis site and they've done excellent work, as you know, out in San Diego. There are two others sites that are not focused on CF. So already, we're spending well beyond 50% of our research investment beyond CF and on disease areas that, again, we've touched down on this call, that are similar to CF but we have a research strategy that goes beyond CF already and we've been doing that now for a couple of years and we hope to start seeing some productive results in taking molecules into the clinics of diseases that you may be familiar with, and they should start to see that maybe later this year and certainly, into early part of next year coming out of research. So, we're already – if you wanted me to put a percentage on it because it's fungible but it's probably around 60% that's beyond CF, given how we carve up our research activities. For development, it is a little bit of a different story. Oh, and by the way on the research, we're committed to maintaining that kind of approach. I don't think that's going to change in the near term, given we continue to invest in CF. And I'd also say in research, we start to supplement it with external relationships such as CRISPR and Moderna and we have an investment there as well. When we look at development, development is principally an investment in cystic fibrosis right now. As you may imagine, we have a full pipeline ranging from Phase 2s all the way through to Phase 3s. And so, the principal investment in development is actually towards CF and it goes well beyond just clinical trials as well. There is a heavy support in terms of formulation, manufacturing, medical affairs and regulatory. And so, I would say probably 80% of our development spend is towards cystic fibrosis. And again, I don't see that the investment in cystic fibrosis tailing off significantly for another three, four, maybe five years. You have to understand as we get approval for medicines in 12 and older, we immediately are thinking about how we get approval for medicines in 6 through 11, we're thinking about 2 through 5, we're thinking about how we gather longer term data and build our registry data to support the long-term outcome of our medicines of treating this disease long term. So, we need to maintain that support for the medicines we're creating to treat CF. I do see the investment starting to increase beyond CF but that would be a function of those creating opportunity. And Jeff just talked you through the pain opportunity. We have to see how that plays out, but you will start to see new ideas coming to the clinic and we'll start investing in those. But it'll be earlier stage so it won't be a significant spend in the next two or three years. It would grow if they progress down the pipeline.

Great. Thank you.

Operator, we have time for two more questions.

Certainly. And our next question comes from the line of Ying Huang with Bank of America Merrill Lynch. Your line is now open.

Hi (40:41). Thanks for taking the question. Maybe a follow-up on the QD KALYDECO you got from Concert. It doesn't sound like it's ready for Phase 3 when you start the triple combo next year, but once that compound is ready, do you think you have to run a head-to-head study versus the BID KALYDECO? You have to show the comparability. And also, do you think FDA would want to see that data or you think it's just completely different separate study just to get that QD of KALYDECO through? And then, secondly, maybe for Ian, if I add the Q1 ORKAMBI and then Q2 ORKAMBI revenue, just flat line for the rest of the year. We're already at high end of your guidance. Does that mean this is still very conservative for the $1.1 billion to $1.3 billion guidance for ORKAMBI? Thank you.

Yeah. Maybe I'll take the first one and Ian will take the second one. Yeah, with respect to CTP-656, I would think about it as two stages. Stage 1 is really more us accumulating sufficient internal data to be confident both about the efficacy, tolerability, safety and dose. That's a small set of studies that supplements what Concert has already provided so that we can feel comfortable before we go into Phase 3 that we know the profile of the drug and we know the appropriate dose as part of a triple. So, we're planning to do those kinds of studies over the next months, as I said, and once we accumulate that data, we'll make a decision about taking that triple with the – with CTP-656 forward. And as I said, I think it's doable. Well, I'm not promising it because we're just learning about the compound to get that done to be in pivotals next year. Then, your question about the FDA is a different question. So, I would think about that quite simply as are we going to need a Phase 3 trial there with the iva and is it our intention to do that. If we incorporate it into a new triple, we would then run pivotal trials there to get that approved by the FDA. If we already have a triple approved and later on, we want to substitute it back, that's a different story. That's probably more of a bioequivalent story. But regardless, we're going to need data, both efficacy and some safety tolerability data, dosing data before we dive into Phase 3.

And Ying, thanks for the question. So as you saw, we are continuing to reiterate our guidance at $1.1 billion to $1.3 billion for ORKAMBI. But you're correct, if you do the math, we've had a strong first half of the year and if you double up that revenue rate without growth, it does put you in the mid to slightly in the upper part of our range. And so, I can confirm that we do not anticipate being in the low part of our range. But where we fall in the mid up to higher part of the range is a function of a number of things. I would point out that firstly more acutely in short term, we did note in the prepared remarks that Q2 was benefited by some inventory stocking pre-July for holiday. And on ORKAMBI, in particular, it was $10 million and I know you know how that works but that means you're taking $10 million out of Q3 adding it to Q2, but that does mean a $20 million difference between Q2 and Q3. And so, these things do matter when you're trying to pro rata quarters to try and get a full-year run rate. And one of the other things that we need to see how it plays out. We did see a little bit of a summer slowdown last year and it was more around compliance of medicines, and there was lower compliance which resulted in less revenues. So, we need to see how that plays out. We have a number of programs in place that we're trying to help patients be more compliant this year and – but we do need to see how that plays out. And obviously, something that's really important in terms of where we fall in the range is our launches in the new markets of Ireland and Italy, but also whether we gain reimbursement in countries like France. So where we fall in the range, yeah, we don't anticipate being in the low end. Be in the mid end and how we climb up from the mid end is really a function of performance, and that's why we're maintaining our guidance.

Thank you.

Thank you. And our last question comes from the line of Adam Walsh with Stifel. Your line is now open. Adam Walsh, Ph.D. - Stifel, Nicolaus & Co., Inc.: Hi, thanks so much for fitting me in. I got a couple of quick ones. First for Ian, just for our modeling purposes, can you breakout the ORKAMBI U.S. and EU revenues? And then, one quickly for Jeff on slide – I believe, it's 5, you talked about obtaining worldwide rights to CTP-656, but then you also mentioned other assets related to the treatment of CF. If you could just elaborate on the other assets part. If you are referring to something specifically, let us know. Thank you.

Adam, it's Stuart here. On the ORKAMBI geographic split, it's approximately 90/10. So of the $324 million globally, we recognized $288 million of that within the U.S. The balance, $36 million, was international.

And then, on the CTP-656 on the slide, what we're really about is there was some additional IP, and of course, knowledge about CTP-656, some additional IP around CF and we acquired all of it as part of this transaction. Adam Walsh, Ph.D. - Stifel, Nicolaus & Co., Inc.: Excellent. Thanks so much.

Thanks.

Okay.

Thank you. And I would now like to turn the call back to Michael Partridge, Vice President of Investor Relations, for any closing remarks.

Thank you for joining us on the call. Second time in eight days, we've spoken to you. We appreciate it. The Investor Relations team is in the office tonight, if you have any additional questions. Thank you and have a good night.

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