vertex pharmaceuticals (vrtx) earnings report: q4 2015 ... · will join us for the q&a portion...

CompanyName:VertexPharmaceuticalsIncCompanyTicker:VRT XSector:HealthCareIndustry:Drugs

EventDescription:Q42015EarningsCallMarketCapasofEventDate:22.66BPriceasofEventDate:87.31

©2014TheStreet,Inc.Al l R ightsReserved Page1of21

VertexPharmaceuticals(VRTX)EarningsReport:Q42015ConferenceCallTranscriptThefollowingVertexPharmaceuticalsconferencecalltookplaceonJanuary27,2016,05:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

MichaelPartridge;VertexPharmaceuticals;VPofIRJeffLeiden;VertexPharmaceuticals;Chairman&CEOIanSmith;VertexPharmaceuticals;CFOStuartArbuckle;VertexPharmaceuticals;ChiefCommercialOfficerJeffChodakewitz;VertexPharmaceuticals;ChiefMedicalOfficer

OtherPart icipants

GeoffMeacham;BarclaysCapital;AnalystMattRoden;UBS;AnalystMatthewHarrison;MorganStanley;AnalystMichaelYee;RBC;AnalystYingHuang;BofAMerrillLynch;AnalystCoryKasimov;JPMorgan;AnalystBrianAbrahams;Jefferies;AnalystAliciaYoung;CreditSuisse;AnalystLiisaBayko;JMP;AnalystPhiNadeau;Cowen;AnalystAdamWalsh;StifelNicolaus;AnalystMarkSchoenebaum;EvercoreISI;AnalystTonyButler;GuggenheimPartners;Analyst

MANAGEMENTDISCUSSIONSECTION

MichaelPartridge (VPofIR):

ThisisMichaelPartridge,VicePresidentofInvestorRelationsforVertex.Welcometoourfourth-quarterandfull-year2015financialresultsconferencecall.

(OperatorInstructions)

Asareminder,thisconferencecallisrecorded.Areplaywillbeavailablefollowingtheconclusionoftonight'scall.

Dr.JeffLeiden,ChairmanandCEO;andIanSmith,ChiefFinancialOfficer,willprovidepreparedremarksthisevening.StuartArbuckle,ChiefCommercialOfficer;andDr.JeffChodakewitz,ChiefMedicalOfficer,willjoinusfortheQ&Aportionoftheconferencecall.

WerecentlypresentedattheannualJPMorganHealthcareConference,whereweprovidedacomprehensiveupdateonourbusinessandhadtheopportunitytomeetwithmanyinvestorsandanalysts.Assuch,ourremarkstonightwillbebrief.Weexpecttoconcludethecallby5.45p.m.




Ontonight'scall,JeffwillreviewkeyprioritiesforourBusinessin2016.Ianwillreviewourfourthcornerandfull-year2015financialresultsanddiscussour2016financialguidance,whichweprovidedalsoearlierthismonth.Asalways,youcanaccessthewebcastslidesonourwebsite.

Iwillremindyouthatwewillmakeforward-lookingstatementsonthisconferencecall.Thesestatementsaresubjecttotherisksanduncertaintiesdiscussedindetailintoday'spressreleaseandour10-K,whichhasbeenfiledwiththeSecuritiesandExchangeCommission.Thesestatements,includingwithoutlimitationthoseregardingtheongoingdevelopmentandpotentialcommercializationofourdrugcandidates,Vertex'sothercysticfibrosisprograms,andVertex'sfuturefinancialperformance,arebasedonManagement'scurrentassumptions.Actualoutcomesandeventscoulddiffermaterially.

InformationregardingouruseofGAAPandnon-GAAPfinancialmeasuresandareconciliationofGAAPtonon-GAAPisavailableintoday'sfinancialresultspressrelease.Pleasealsoseeslide4oftonight'swebcast.

IwillnowturnthecallovertoDr.JeffLeiden.

Jef f Leiden (Chairman&CEO):

Thanks,Michael.Goodevening,everyone.

EarlierthismonthImetwithmanyofourinvestorsandanalystsattheannualJPMorganhealthcareconferenceandtalkedabouttheimportanttransitionhasVertexhasmadeinthelastfewyears.Asweenter2016,Vertexisonapathtowardsustainedearningsandrevenuegrowth,drivenbyanincreasingnumberofpeoplebeingtreatedwithourtwoapprovedmedicinesforcysticfibrosis,KALYDECOandORKAMBI.

WehaveabroadanddeeppipelineofinvestigationalmedicinesforCFthatwebelievemayallowustoreachourgoaloftreatingallpeoplewithCFinthefuture.Additionally,ourpipelineofmedicinesforotherseriousdiseases,includingcancer,painandotherneurologicdiseases,continuestoprogressthroughearlystageclinicaldevelopment.Inshort,weareaverydifferentCompanythanwewerejustfouryearsago.

ThiseveningIwillbrieflyreviewourkeyprioritiesfor2016andprovidesomeinsightintoupcomingmilestonesinCFandotherpartsofourBusiness.OurnumberonepriorityhasbeenandcontinuestobetoincreasethenumberofpeopleeligibleforandtreatedwithKALYDECOandORKAMBIandtodeveloppotentialnewmedicinesthatmayprovideevengreaterbenefitforallpeoplewithCFintheyearsahead.

Atthistimelastyear,justover3,000peoplewereeligiblefortreatmentwithKALYDECO.Todayapproximately25,000peopleareeligibleforKALYDECOorORKAMBI,andweexpectthevastmajorityofthesepeoplewillbegintreatmentwiththesemedicinestotreatthecauseoftheirCF.Wealsoexpecttoincreasethenumberofpeopleeligibleforthesemedicinesin2016throughlabelexpansioneffortsthatcouldincludeyoungerpatientsorpatientswithothermutationsintheCFTRgene.

Oursecondkeypriorityfor2016istocontinuebuildingafinancialprofileofsustainedrevenuesandearningsgrowthandastrongbalancesheet.In2015,thecontinuedexpansionoftheKALYDECOlabelandtheapprovalofORKAMBIresultedinasignificantincreaseinthenumberofpatientsbeingtreatedwithourmedicines,whichledtoasignificantincreaseinrevenues.Ourprogressin2015haspositionedusforcontinuedgrowth,andwebelieveweareontherightpathtoachieveourgoalofbuildingafinancialprofileconsistentwiththatofotherglobalbiotechcompanies.

Andfinally,ourthirdkeypriorityistoinvestinourBusinesstocreatefuturemedicinesforotherseriousdiseases.Continuedinvestmentinourpipelineisessentialforcreatingadditionalbreakthrough




medicinesforpatients.I'llspendjustafewminutesreviewingourrecentprogressandupcomingmilestonesthatreflectthesethreepriorities.

OurfirstCFmedicine,KALYDECO,wasapprovedbythatFDAinJanuary2012andsincethenourgoalhasbeentobringthismedicinetoasmanypeopleaspossiblewhomaybenefit.KALYDECOaddressestheunderlyingcauseofCFandisasignificantmedicaladvanceforpeoplewithcertainmutationsintheCFTRgene.Todayapproximately4,000peopleareeligiblefortreatmentwithKALYDECOinNorthAmerica,EuropeandAustralia.

Wearecommittedtobringingthismedicinetoevenmorepatientswhowebelievemaybenefitintheyearsahead.WeareawaitingadecisionfromtheUSFDAonourapplicationforapprovalofKALYDECOinpeopleagestwoandolderwithCFwhohavecertainresidualfunctionmutations.Thereareapproximately1,500peopleagestwoandolderintheUSwehavetheresidualfunctionmutationsrepresentedinthesupplementalnewdrugapplicationforKALYDECO.

Whileoursubmissionforapprovalinthesemutationsisprimarilybasedonpreclinicaldata,andonaphase2-Aclinicalstudyinonly24patients,webelievethatKALYDECOwouldbebeneficialtothesepatients,giventheunderlyingsciencebehindthisprecisionmedicineapproachofusinggeneticmarkersandpredictiveassaystoidentifypatientswhoarelikelytobenefit.Importantly,wechosetoseekthisapprovalknowingthatthesepatientswouldotherwisehavetopotentiallywaityearsbeforepotentialapprovalbasedonPhase3data.

Withmorethanfouryearsofsafetydata,webelievethatthispathtowardpotentialapprovalisinthebestinterestofpeoplewithCF.However,wealsorecognizethattheapplicationisbaseduponlimitedavailableclinicaldataintheseraremutations.ThePDUFAdateforadecisionfromtheFDAisFebruary7.

WithORKAMBI,weareworkingtobringthismedicinetomorepatientswhowebelievewouldbenefit,specificallychildrenwithtwocopiesoftheFDelta508mutationsimilartotheapproachwetookwithKALYDECO.WiththeapprovalintheEuropeanUnionattheendoflastyear,approximately20,500people,ages12andolder,arenoweligiblefortreatmentwithORKAMBIintheUSandEurope.

TodayweannouncedthataPhase3studyofORKAMBIinchildrenagessixto11metitsprimarysafetyendpointandsupportsourplannedsubmissionofasupplementalnewdrugapplicationinthesecondquarterofthisyearintheUS.Ifapproved,anadditional2,400peopleintheUSwithCFwouldbeeligiblefortreatmentwithORKAMBI.

Whilethiswasprimarilyasafetystudy,wealsosawencouragingimprovementsinsecondaryandexploratoryefficacyendpoints,includingastatisticallysignificantchangeintheexploratoryendpointoflungclearanceindexorLCI.ChangesinLCIarealsotheprimaryendpointofanongoingPhase3studytosupportapprovalofORKAMBIinthisagegroupinEurope.Thereareapproximately3,400children,agessixto11,whohavetwocopiesoftheFdelta508mutationintheEuropeanUnion.Additionalinformationonthesedatawasprovidedintoday'spressrelease.

TodayKALYDECOandORKAMBIareapprovedtotreatapproximately25,000peopleinNorthAmerica,EuropeandAustralia.Webelievethattherearemanymorepeoplewhomaybenefitfromthesemedicinesandwehavetrialsongoingorplannedthatcouldexpandthenumberofpeopleeligiblefortreatmenttoapproximately44,000intheyearsahead.

Beyondourapprovedmedicines,wehaveapipelineofinvestigationalCFmedicinesfromearly-stageresearchprogramssuchasgeneeditingwithCRISPR,tolate-stagedevelopmentprogramsevaluatingcombinationsofourCFTRmodulators.ThispipelinerepresentshopefortheCFcommunityandourgoalistoonedaytreatallpeoplewithCF.WehaveabroadPhase3programunderwayevaluatingthecorrectorVX-661incombinationwithivacaftor.Andwearealsoadvancingthedevelopmentoftwonext-




generationcorrectorsthatwouldbecombinedwiththeVX-661andivacaftoraspartofaPhase2studyoftriplecombinationsplannedforlaterthisyear.

Bothapproachesareaskingthesamefundamentalquestions.First,canweenhancethebenefitforpatientsalreadyreceivingKALYDECOorORKAMBI?Andsecond,canweprovidebenefittonewgroupsofpeoplewithCFnotcurrentlyhelpedbyKALYDECOorORKAMBI,includingaverylargegroupofpatientswithoneFdelta508mutationandasecondmutationknowntoresultinminimalCFTRfunction.

TheVX-661programincludesfourPhase3studiesindifferentgroupsofpeoplewithCFwhohaveatleastonecopyoftheFdelta508mutation.WewillbegintoseethefirstresultsfromtheVX-661programbyearly2017and,importantly,thisprogramisalsomeanttoprovideasignificantamountofsafetydatatosupportevaluationofanext-generationcorrectorwithVX-661andivacaftoraspartofaninvestigationaltriple-combinationregimen.

Attheendof2015,weinitiatedclinicaldevelopmentoftwonext-generationcorrectors;VX-152andVX-440.Phase1studiesofeachcompoundareongoinginhealthyvolunteersandareevaluatingsingleandmultipledosesofVX-152andVX-440,aswellastriplecombinationwithVX-661andivacaftor.TogetherwiththesafetydatafromtheVX-661program,thesestudiesaredesignedtosupporttheplannedinitiationofPhase2studiestoevaluatetriple-combinationregimensinpatientsinthesecondhalfof2016.

Ourbusinessmodelisunique.ThesuccesswehaveachievedinCFallowsustoreinvestinthediscoveryanddevelopmentofnewtransformativemedicines.InparallelwithCF,weareadvancinganumberofadditionaldevelopmentprogramsforcancer,pain,andotherseriousdiseases.Wehavesignificantflexibilityinhowwemayadvancetheseprograms,eitherindependentlyforthesediseaseswebelievearealignedwiththefocusofourBusiness,specificallyspecialtydiseaseswhereG&Aexpensesarelow,orincollaborationwithothercompaniesthatwebelievewouldbebestsuitedtorapidlybringthesepotentialmedicinestopatients.

WebelieveourpipelinerepresentsbothpotentiallytransformativefuturemedicinesforpatientsandsignificantvalueforourBusiness.WehavebeguntoprovidesomeadditionalinsightanddataforourpipelineprogramsandIlookforwardtoprovidingupdatesonourprogressthroughoutthecomingyear.

ImentionedatthestartofmyremarksthatVertexhasundergoneanimportanttransitioninrecentyears.WearenowaglobalbiotechCompanythathasindependentlybroughtforwardtwobreakthroughmedicinestopeoplewithCFworldwideandisonthepathtodeliveringsignificantearningsandcashflow.Ourfinancialperformancein2015andguidancefor2016aremetricsoftheCompanythatwewanttobecome,aCompanythatconsistentlycreatestransformativenewmedicinesforpatients,generatessignificantvalueforshareholders,andreinvestsinscientificopportunitiestocreatefuturemedicines.ThisisourbusinessmodelandIampleasedbyoursuccesstodateandwithouroutlookforthecomingyears.

WiththatI'llturnthecallovertoIan.

IanSmith (CFO):

Thanks,Jeff.Inmyremarkstoday,Iwillreviewourfourthquarterandfull-year2015financialresults,anddiscussour2016financialguidancefortotalKALYDECOnetrevenuesandnon-GAAPoperatingexpenses,excludingcostofrevenues.IwillalsodiscussourexpectationforprovidingORKAMBIguidancein2016.

Financialresultsfirst:our2015netCFproductrevenueswereapproximately$983million.ThisincludesKALYDECOnetrevenuesof$632millionandORKAMBInetrevenuesof$351million.TotalCFproductrevenuesincreasedbymorethan110%comparedto2014.




Inthefourthquarterof2015,wereportedtotalnetCFproductrevenuesofapproximately$401million,includingKALYDECOnetrevenuesof$181millionandORKAMBInetrevenuesof$220million.FourthquarterKALYDECOsalesof$181millionwereup45%versusthefourthquarteroflastyearandup9%versusthethirdquarterof2015.Thisincludedapproximately$6millionininventorystockingthatoccurredattheendofthefourthquarter.

GrowthinKALYDECOwasdrivenbybothlabelexpansionefforts,whichincreasedthenumberofeligiblepatientstoapproximately4,000,andbythecompletionofkeyreimbursementdiscussionsinEurope.WithORKAMBI,morethan1,500patientsstartedinthefourthquarter,resultinginsalesof$220million,up68%versusthirdquarterof2015.

Asexpected,wesawaveryrapiduptakeforORKAMBIintheperiodimmediatelyfollowingtheFDAapprovalwithmorethan3,000peoplestartingtreatmentinthethirdquarter.Demandfrompatientsandphysicianshasbeenstrong.But,asexpected,fewerpatientsstartedtreatmentinthefourthquartercomparedtothethirdquarter,inlinewithourpriorstatementsregardingexpectationsfortherateofuptakeforORKAMBI.Weexpectthistrendtocontinuethroughtheendof2016,bywhichtimeweexpectthevastmajorityofthe8,500eligiblepatientsintheUStohaveinitiatedtreatmentwithORKAMBI.

Grosstonetadjustmentswerelargelyunchangedfromthethirdquarterandwereinthehighsingle-digitsdueprimarilytoagreaterproportionofpatientswithincommercialplansinitiatingtreatmentinthefirstsixmonthsfollowingtheapprovalofORKAMBIascomparedtogovernment-paidplans.Eachofthe50-stateMedicaidprogramshasnowpaidaclaimforORKAMBI,thusweexpectgrosstonetadjustmentswillincreasetothemidteensbytheendof2016toreflectanincreaseinpatientstreatedbeingcoveredbyMedicaid.

Asweenter2016,wearepleasedwiththelaunchofORKAMBItodate,andremainfocusedonworkingtoensurethosewhoneedthemedicinehaveaccesstoit,educatinghealthcareprovidersandsupportingadherencetoORKAMBI.

Nowtooperatingexpenses,ourfourthquarternon-GAAPoperatingexpenseswere$282million,includingR&Dexpensesof$204millionandSG&Aexpensesof$78million.TheincreasedR&Dexpensedinthefourthquarter2015comparedto2014wereprimarilytheresultofincreasedcostsrelatedtothepivotalPhase3programforVX-661incombinationwithivacaftor.

TheincreasedSG&AexpenseswereprimarilytheresultofanincreasedinvestmentinglobalcommercialsupportforthelaunchofORKAMBI.AndtonightIampleasedtoreportthatforthefourthquarter2015werecordedanon-GAAPnetprofitof$43million,or$0.17perdilutedsharecomparedtonon-GAAPnetlossof$132million,or$0.55pershareforthefourthquarterof2014.Our2015non-GAAPnetlosswas$268million,or$1.11pershare,comparedtonon-GAAPnetlossof$511millionor$2.17pershareforthefull-year2014.

Fromabalancesheetperspective,westarted2016withastrongcashpositionof$1.04billion.Vertexalsohas$300millionoutstandingfromacreditagreementthatprovidesforasecuredloanofupto$500million.

Nowlet'sturntothe2016financialguidance,whichwefirstprovidedonJanuary10.Weexpect2016KALYDECOnetrevenuesof$670millionto$690million.OurguidanceforKALYDECOrevenuesreflectsthecontinueduseofKALYDECOaswasseeninthefourthquarterof2015,whichresultedinrevenuesof$181million,andtheexpectationforuptoapproximately200patientswithagatingmutationtoenrollinaPhase3clinicalstudyofVX-661incombinationwithivacaftorwhowouldotherwisehavereceivedKALYDECO,whichwillthusreduce2016KALYDECOrevenues.

Therewasalsoanapproximately$6millioninventorystockingthatoccurredattheendofthefourth




quarter2015.Thatisnotexpectedtorecurinfuturequartersandisthusaccountedforinourguidance.Importantly,ourcurrentguidanceexcludesanypotentialrevenuesfromtheapprovalofKALYDECOforpeoplewithresidualfunctionmutations.WewillupdateourKALYDECOguidanceshouldwereceiveFDAapprovalforresidualfunctionmutations.

WithORKAMBI,morethan4,500peoplehavebeguntreatmentintheUSbytheendof2015.TherearefourprimarypiecesofinformationregardingthelaunchthatwillinformourdecisionregardingORKAMBIguidance.First,sinceallpatientswhoinitiatedtreatmentwithORKAMBIin2015havebeenontreatmentforapproximatelysixmonthsorless,wearewaitingadditionalinformationonthecompliancerateforpatientstakingORKAMBI.

WhilewecontinuetoexpectthatthevastmajorityofeligiblepatientsintheUSwillbegintreatmentwithORKAMBIbytheendof2016,wearewaitingadditionalinformationonthespecificrateofuptakeandonthespecificproportionofthe8,500eligiblepatientswhobegintreatmentwithORKAMBIin2016.Andfinally,additionalinformationonthepersistencerate,definedashowmanypatientsremainontreatmentwillalsobetakenintoaccount.

Thesefourfactors,thecompliancerate,therateatwhichpatientsbegintreatment,thetotalnumberofpatientswhoinitiatetreatment,andthepersistencerate,allareimportantinconsideringourguidanceforORKAMBI.In2016,weexpecttorecognizerevenuesfromsalesofORKAMBIintheUSandGermany.

InGermany,thereareapproximately2,500peoplewithCF,ages12andolder,withtwocopiesofF508delmutation.InEurope,countrytocountryreimbursementdiscussionsareunderway.However,wedonotanticipateanysignificantORKAMBIrevenuesfromcountriesotherthantheUSandGermanyin2016.

Thefinalcomponentofourfinancialguidanceisnon-GAAPoperatingexpenses,whicharecomprisedofR&DandSG&Aexpensesandexcludecostofrevenues.Weexpectourtotal2016non-GAAPoperatingexpensesof$1.18to$1.23billion.Asareminder,ourguidancefor2015operatingexpenseswasfor$1.05billionto$1.1billion,andwereported2015operatingexpensesatthelowendofthisrangeof$1.06billion,largelyasaresultofcostsrelatedtoVX-661thatwillnowoccurin2016asopposedto2015.

Theincreaseinexpectedoperatingexpensesfor2016ascomparedto2015isprimarilyaresultofexpandeddevelopmenteffortsrelatedtothepivotalPhase3developmentprogramforVX-661incombinationwithivacaftorandformultiplePhase1andtwostudiesofVertex'searlystageofmid-stagepipelineofpotentialCFmedicinesandanticipatedSG&AcoststosupportthelaunchofORKAMBIinnewglobalmarkets.

ThecomponentsofVertex'snon-GAAPoperatingexpensesincludenon-GAAPR&Dexpenses,whichweexpecttobeintherangeof$850millionto$880million,andnon-GAAPSG&Aexpenses,whichweexpectwillbeintherangeof$330millionto$350million.Vertex'sexpectednon-GAAPR&DandSG&Aexpensesexcludestock-basedcompensationexpenseandcertainotherexpenses.

Insummary,weareinastrongfinancialpositionasweenter2016.Weremaincommittedtodeliveringafinancialprofilethatissimilartomanyofourlarge-capbiotechpeers,whichincludessustainablerevenueandearningsgrowth,highoperatingmarginsand,mostimportantly,continuedinvestmenttocreatefuturemedicines.


Thankyou.

Operator,wearenowreadytotakequestions.




QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

GeoffMeachamofBarclays.

Geof f Meacham(Analyst-BarclaysCapital):

Hey,guys.Thanksforthequestionandcongratsonprofitability.

IÕvegotacommercialandclinicalquestionforyou.IguessIwillstartwithcommercial.

Iwantedtoknow,Ian,ifyoucangointoalittlebitmoredetailaboutpersistenceratesovertimewithKALYDECOandwhetherthisshouldbearealbenchmarkforORKAMBI?I'mjustcuriousifyouguyshavetrackedpeoplewhohavediscontinuedbutlatercomebacktotherapy?

IanSmith (CFO):

Geoff,maybeStuartwilltakethatquestion.Thanksforthecommentonprofitability(inaudible).

Stuartisgoingtotakethequestion.Hemightalsocommentonsomeoftheotherfeaturesthatareaffectinghowwearethinkingaboutthelaunchaswell.


Yes.

Stuart Arbuckle (ChiefCommercialOfficer):

Geoff,hi.ItÕsStuarthere.LetmejustreiterateacoupleofthingsthatIansaidaboutORKAMBIandthefactorswearetakingintoaccountwhenthinkingaboutthelaunchinthewayoftrackingveryclosely.

Oneisobviouslythepeakpenetration,sothenumberofeligiblepatientsintotalthatgetinitiatedontherapyovertime.Andwecontinuetoexpectthevastmajorityofthe8,500patientswill.Thenthereistherateofuptake,howquicklywegettothatpeakpenetration.Asyouknow,attheendofDecemberwehadabout4,500patientsontherapy,that'sabout55%ofthetotal,andweexpectwewillgettopeakpenetrationduringthecourseof2016.

Andthen,asyousaid,oneoftheotherkeycomponentsispersistence.Thenumberofpatientswhostayontherapy.Andobviouslyitisprettyearlydaysbecausewhilstwe'veonlybeenonthemarketforsixmonths,wereallydon'thavelong-termexperiencewithverymanypatientsyet.

InthePhase3studiesforORKAMBI,atabout24weeksintrafficandtransport,about5%ofpatientshavediscontinued;at48weeksintheopen-labelextensionwithORKAMBI,wewereat15%ofpatientshaddiscontinued.That'sintheORKAMBIclinicaltrialsandtimewilltellwhetherweseeahigherorlowernumber,butprobablyahighernumberwhoarediscontinuingintherealworld.

WithKALYDECO,inthestudieswelookedatitwasabout5%ofpatients,again,discontinuedintheKALYDECOclinicaltrials.Itwasactuallyslightlyhigherthanthatintherealworld.Itgotcloserto10%,sointherealworldovertime.Andlargelythatwasbecauseitwasoveralongerperiodoftime.Wedidseeaslightlyhighernumber,ahigherpercentageofpatientsonKALYDECOdiscontinueversustheclinicaltrials.




Thelastthingwearegoingtobethinkingaboutthenisobviouslycompliance,andthatisthepercentageofpatientswhoactuallytakethepillsthathavebeenprescribedbytheirphysician.Asyouknow,KALYDECOisvery,veryhighat85%.CertainlythehighestI'veeverseenpersonallyforachronicmedication.OtherCFmedicinesarearoundaboutthe60%range.IwouldanticipateORKAMBIisgoingtobeinthatrange,probablytowardsthehigherpartofthatrange,butsomewhereinthatrange.

Theonlyotherquestionwewillhavetolookatveryclosely--and,again,wejustdon'thavedataonit.Wedon'thavedataonitintheclinicalprogram,Geoff,andwewillhavetoseehowitplaysoutintherealworldiswhetherphysiciansandpatientschoosetoreinitiatetherapyiftheyhavediscontinuedforsomereason.Andwejusthavenoinformationfromtheclinicaltrialsbecausetheyjustweren'tsetuptolookatthat.Ifapatientdiscontinued,theywerethenexcludedfromfurthertherapy.Sowejustdon'thavedataonthatrightnow,Geoff.Hopefullythatgivesyousomeperspectiveonwhatwearethinking.


Thatishelpful.Andjustrealquickontheclinicalside,whenyoulookatthe152and440studyinhealthies,hastherebeenanyevidenceofdrug/druginteractionswithKALYDECOor661?I'mtryingtofigureoutwhetheryouguysexpecttotakemultipledosesofthosetwocorrectorsintoCFpatientswhenyoulooktothebackhalfoftheyear?Maybejusthelpuswiththedesignofthat28-daystudyasyouseeitatthisstage.Thankyou.

Jef f Chodakewitz (ChiefMedicalOfficer):

Hi,Geoff,it'sJeffChodakewitz.SointermsofthePhase1studiesforVX-152and440,wearereallyinthemidstofthosestudiesandweobviouslycan'tcommentontheongoingtrials.Maybejustacommenton,though,thenPhase2andweareinearlydaysintermsofthosedesigns.ButIdothinkit'slikelythatwewouldlooktotakemultipledosesofthecompoundsintothosePhase2studiestolearnasmuchaswecan.


Gotyou.Okay,thanksalot,guys.


Thanks.

Operator :

MattRodenofUBS.

MattRoden (Analyst-UBS):

Great,thanksverymuchfortakingthequestion.Ialsowantedtocongratulateyouonthemilestoneofturningbacktoprofitability.

Soregardingthepediatricstudy.IunderstandtheprimaryendpointissafetyandtheLCIdatalookreallygood,whichthelatterpointbeingimportantforwhatisgoingoninEurope.

Justwantedtogetyourperspectiveonthe2.5%improvementinFEV.HaveyoutalkedtoanyexpertsortheFDAaboutthat?Ican'timaginethat'sgoingtobeanykindofissueforyou,butjustwantedtoseeifthereisanythingtoaddonthatside?

Andthenonthecommercialside,wantedtoask,youhavelefttheresidualfunctionmutationsoutoftheKALYDECOguidance,buttryingtogetasenseforifthatweretobeapproved,howshouldwethinkabout




theonboardingofthosepatientsontocommercialdrug?Iwouldimagineyouhaveaconversionofthosethatareontrialtocommercial,butapartfromthat,wouldyoucharacterizethisasahighlymotivatedsubsetofpatientsorbecausetheyhaveamilderphenotype,couldthisbeaslowerrateofpenetration?Thanksverymuch.


Hi,Matt.ItisJeffChodakewitz.MaybeIwillstart.Intermsofthepediatricstudy,wewereverypleasedwiththeresultsofthestudy.ReallymeetingboththeendpointsforexposureforPKandthenforsafety,asyousaid,sothatwasaniceoutcome.TheexpectationwiththeFDAisthatonceyouhaveestablishedefficacyinthesamediseaseinolderchildren,thatasyoumovetoyoungeragegroups,it'sreallyaboutthatexposureandsafetyconsistentwiththedesignofthestudy.

IwillsaythatIthinkwewerealsoquitepleasedwiththeevidenceofefficacyinthepopulationwhereitgetshardertoactuallydemonstratethat.AndIthinkactuallytheFEV1showingthatstrongtrendwasactuallyquitefavorable,rememberingthatthesekidsstartedataprettyhighFEV1percentageofbaseline.

Andasactuallyyounoted,thefactthattheLCImeasure,whichisinitsearlierdays,wasnicelypositiveandthatisourprimaryendpointintheEuropeanstudy.And,lastly,theBMImeasuresaswell.Ithink,overall,wewerequitesatisfiedwiththeresultsofthetrial.


Matt,itisStuarthere.Justtocommentontheresidualfunction.So,asyousaid,residualfunctionisnotincludedwithintheKALYDECOguidancethatwehaveprovided.Thereisabout1,500patientswiththe23mutationsthatwe'veaskedforwithinourfiling.Intermsofpatientstransferringfromclinicaltrials,clearlytheclinicaltrialonwhichtheapplicationisbased,orwhichisincludedintheclinicaltrial,isverysmall.

Soit'snotasifthereisahugebolusofpatientstotransitionfromclinicaltosupplytocommercialsupply.Intermsofrateofuptake,thebestanalog,Ithink,foryoutherewouldbe[arum]17hwhich,bydefinition,isaresidualfunctionmutation.Andsobothintermsofheatpenetrationandrateofuptake,Ithinkthat'sprobablythebestanalogforyoutothinkofintermsoftherateofuptakewemightseeifweareapproved.Andthenjustto(inaudible)whatIansaidinhispreparedremarks,ifweareapprovedinresidualfunctionouranticipationisthatwe'dupdateourKALYDECOguidancetoreflectthat.

MattRoden (Analyst-UBS):

Great;thanksverymuch.

Operator :

TerranceFlynnofGoldmanSachs.

Unidentif iedPart icipant :

Hi,thisisSamironforTerrance.Thanksfortakingthequestion.HaveallORKAMBIclinicaltrialpatientsintheUStransitionedtocommercialdrug?Andifnot,howmanyarelefttotransition?Thankssomuch.

IanSmith (CFO):

I'mnotgoingtocommentonexactlyhowmany,butthevastmajorityofthepatientswhowereonclinicaltrialsupplyhavenowtransitionedtocommercialdrug.Justtoorientyou,therewasapproximately500intotalofthepatientsintrafficandtransportwereintheUS.




Unidentif iedPart icipant :

Okay,great;thankyou.

Operator :

MatthewHarrisonofMorganStanley.

MatthewHarrison (Analyst-MorganStanley):

Great.Thanksfortakingthequestion.Ijusthadtwoquickones.One,Ian,canyougobacktotheKALYDECOstockingcommentthatyoumadeandjusttellusifyouthinkweshouldseesomeofthatinventorycomeoutofthechannelthisyearandhowthatisinyourguidance?

Andthenseparately,justontheEUpediatricstudy,howwilldatafromthatinfluencemaybeFDAperceptionofthefilingthatyouguyshave?AndalsohowistimingofthatrelatedtowhenyouwouldexpecttohaveaPDUFAdateforthelabelexpansionintheUS?Thanks.

IanSmith (CFO):

Yes.SoIwilltakethefirstoneandthenJeffChodakewitzcantakethesecondquestion.Sofirstly,thestockingquestionyouaskis,firstofall,[delorean]people,wehadestimatedtherewasapproximately$6millionofinventorystockinginthefourthquarterforKALYDECO.WhatwemeanbythatistheinventorywashigheratDecember31comparedtoSeptember30by$6million.Thatwillthenselloutofthechannel,soitdoesimpactfuturesalesbecauseitwasininventory.Wehaveremovedthatfromourguidance,sowhenwemadeanestimateforour2016KALYDECOguidance,weremovedthat.

Infact,whenweallmetinJPMorganinSanFranciscoIgavepeopleasimplecalculationtothinkabouthowwegottoourguidancefor2016,andIwillrefertotheagain,whichisinthefourthquarterof2015,wedidapproximately$180millionworthofKALYDECOrevenues.$181milliontobeprecise,butapproximately$18million.

Ifyoutake$6millionoutofthatandyouget$174millionworthoffourth-quarterrun-raterevenuesandthenmultiplythatbyfour.Youthenactuallydeductthepatientsfromthatannualizednumberandyougettoapproximaterangeoftheguidancethatweprovidedwhichwas$670millionto$690millionforKALYDECO.Wedidtakeaccountforthatstocking.


Great.AndthisisJeff.Intermsofyourquestionsaroundpediatrics,maybestartingwiththeUS,aswesaid,weexpecttosubmitourfileinthesecondquarterofthisyear.Wehaven'tyethadthosediscussionswiththeFDA,ofcourse,butweareoperatingundertheassumptionofasix-monthreviewtime.TheEuropeanstudyisstillongoing,itisenrolling.AndIdon'treallyseetherebeingmuchinteractionintermsofthoseprocesses.


Operator,we'rereadyforthenextquestion.

Operator :

MichaelYeeofRBCCapitalMarkets.

MichaelYee (Analyst-RBC):

Hi,thanks.Goodafternoon.Asitrelates--guidanceforIan.Iknowthereisnoformalguidancefor




ORKAMBI,butisthekeymessagehere--whenIlookattheconsensusof$1.6billion,isthekeymessagetothinkaboutthediscontinuationisalittlebithigherandcompliancealittlebitlowerbasedonthecommentsthatStuartmadeintheUS?

AndthenonOUS,Ian,doIneedtobeclearthatGermanyistheonlycountrybeinglaunched?ArethereotherthingsIneedtothinkaboutwhenIlookattheconsensusof$345million?Maybeyoucanmakeacommentaboutthatandhowconsensusismodeling,justsoI'mclearonthat.

Andthenthesecondquestionisjustaquickclinicalquestionon152and440.InthePhaseI,eventhoughitishealthy,isthereanything(inaudible)oranyotherbiomarkersyou'relookingatthatyouwilldisclosethatcouldgiveanyhintsofefficacy?Thanks.

IanSmith (CFO):

Thanksforthequestions,Mike.JeffChodakewitzactuallyjuststeppedoutwhileyouaskedthatsecondquestion.


Mightbeabletotell,Jeffhasaprettybadcold.(Multiplespeakers).

IanSmith (CFO):

Ijustwanttomakesureheheardyourquestion.IwilltakethefirstquestionsoJeffwilltakethesecondquestion.

Firstofall,actually,no,wearenottryingtosaydiscontinuationsisabiggerissuethancompliance.Iactuallyappreciateaskingthequestionsowecanclarifythat.Thatisnotwhatwearetryingtosayanditisnotactuallywhatweareseeing,evenearlyoninthislaunch.ButIappreciatetheopportunitytocommentonhowpeoplearethinkingabouttheORKAMBIlaunchandhowweareseeingitreflectedinsell-sidemodels,andspecificallythe2016,let'ssay,forecaststhatareinthesell-sidemodels.

Soobviouslywhenyoulookatconsensus,thereanumberofdifferentmodelsthatareoutthere,anumberofdifferentnumbers.Andsothere'ssomeextremenumbersandthenthere'ssomethataremoretowardsthenormal.WhatIwouldsay,Idon'tknowtheassumptionsthatarebeingputintootherpeople'smodels,butIwouldaskyoutolistencarefullytoStuart'scomments,wherewetouchonwhendowebelievewearegoingtogettopeakpenetration,therateofuptakeofORKAMBI?

Andthenimportantlythepersistenceandcompliance,becausespecificallycompliance,ifpeopletakesixpillsoutofeveryten,it'sstraightforward.Youget$6outofevery$10ofyourgrossprice.AndthenobviouslythereisagrosstonetdiscountbasedonwhetheryouhavegotMedicaidpatientsversusprivatepayerpatients.AndsoIjust--theopportunitytocommentonthiscalltoallpeoplethatwantit,Iwanttomakesurethatpeoplearegivingthoroughconsiderationtoalltheaspectsofthelaunch.Andwe'dbehappytotalktoyouafterthecallaswell.


AsfarasyourquestionregardingGermany,GermanyistheonlycountrythatweexpectanysignificantrevenuesfromoutsideoftheUS.AndjusttogiveyouthebackgroundofGermany,Germanyhasanestimated2,500patients.Webelieveitcouldtake12to18monthstoreachthepeakpenetrationinthosepatientsandweprovidedpeoplewithapriceinGermany.

Anditisoneaspectofthesell-sidemodelthatIdostrugglewith,becausewhenIlookatanex-USconsensusofthesell-sidemodel,anumberthatiscloseto$300million,Ifinditverychallengingforusto




accruethatmuchrevenuefromGermanyalone.Idoappreciateyoucallingthatout.AndsoIjusthopethatpeoplearegivingconsiderationtoallthesefeatureswhenmodelingtheORKAMBIlaunch.Andthen--

IanSmith (CFO):

Justverybrieflyabout152and440,Ireallycan'tgointothedetailsoftheongoingstudiesbutasyouknow,themainfocusforPhase1studieshasgottobeexposureandsafetyandwelearnedalotfromthoseongoingstudies.

MichaelYee (Analyst-RBC):

Okay,thankyou.

Operator :

YingHuangofBankofAmerica.

YingHuang (Analyst-BofAMerrillLynch):

Hi,goodafternoon.Thanksfortakingmyquestions.MaybefirstoneisforStu.SoORKAMBI,you'regoingtolookatamuchlargereligiblepatientpopulationhere.Iknowyouguyshavethisclinical[alcom]basereimbursementagreementwithAustraliangovernmentforKALYDECO.DoyouexpectgovernmentpayerstoaskforsomesimilararrangementforORKAMBIbesidesAustralia?

AndsecondoneisonclinicalsideismaybeforJeff.Talkingaboutthepreclinicaldatayouhave,what'sthemetabolismandalsosecretionrouteforthetwosetsofnextgenerationCFTRcorrectors?Doyouexpectanydrug/druginteractionatallbasedonthewaythedrugsaremetabolizedandsecretedwithORKAMBI?Thankyou.


Stuarthere.I'lltakeyourfirstquestion.Thanksforthequestiononreimbursement.Andtocuttothechase,Ireallycan'tspeculateonexactlywhatourarrangementsaregoingtolooklikewithgovernmentsaroundtheworld,becausewereallyarejustatthebeginningofthatprocess.Andjusttoremindpeople,inmostcountriesitisreallyathree-stepprocess.Therewillbeaclinicalassessmentoftherisksandbenefitsoftheagent.Thenthereisapharmacoeconomicassessmentandthatreallythenisthestartingpointforthenthepriceandcontractingnegotiations.Anduntilweworkourwaythroughthatprocess,itisreallyimpossibletospeculateonexactlywhatthenatureofanyrelationshipthatwemightcometowiththevariousgovernmentsaroundtheworld.Andfortheclinicalquestion,IwillhandthatovertoJeff.


Brieflyyouwereaskingaboutmetabolismandsoforth.Andasyouknow,it'sveryhardfrompreclinicaldatatospeculate,especiallyuntilyoureallyunderstandexposuresandsoforth.WearegoingtounderstandthatmuchbetterfromourPhase1study.IwouldpointbacktowhatwehavesaidallalongaboutourNexGenmolecules,thatwewantedtogetmoleculesthatweren'tjust--lookgoodintheinvitro,butactuallycouldbemedicines.Andthat'sthewaywe'veapproachedit.

YingHuang (Analyst-BofAMerrillLynch):

Allright,thanks.

Operator :




CoryKasimovofJPMorgan.

CoryKasimov(Analyst-JPMorgan):

Hey,thanks.Goodafternoon,guys.IwantedtogobacktothetopicofORKAMBIoutsideoftheUS.Andobviouslythere'salotoftalkaboutreimbursementandtimetorolloutinEurope.ButwantedtogotootherregionssuchasCanada.AndyoujustmentionedAustralia,butfollowingtheapprovalinCanadaandIknowthere's1,500patientstherethatmeetthelabelcriteria.CanyouremindusofthemarketsizeinAustraliaaswell?

Onceyoudohavethereimbursementinplace,whatwouldyouexpecttheanticipatedpaceofuptakeandreallyjusttheoverallrelevanceofthesemarketstobefromacommercialstandpoint?Thanks.


Cory,Stuarthere.Asyousaid,theeligiblepatientpopulationofF508delhomozygotesinCanadaisabout1,500patientsandthatisoutofabout4,000totalCFpatientsthatweestimateinCanada.Nowthatwe'vegottheregulatoryapproval,wecannowbegintoseekpublicreimbursementforORKAMBIinCanada.Andasyouknow,asI'vejustdescribed,theprocessthereis,again,aclinicalassessment.Therewillbeapharmacoeconomicassessmentandthentherewillbeapricenegotiation,probablythroughthePanCanadianpricingallianceprocessthatwewentthroughwithKALYDECO.

Intermsofrateofuptake,muchasweareseeinghereintheUS,IwouldanticipatethattherelativerateofuptakewillbeslowerforORKAMBIthanitwaswithKALYDECOinCanadaor,indeed,othermarketsoutsideoftheUSforthesamereason.It'sjustthesheervolumeofpatientsismuchlargerthanitisforKALYDECOandit'sjustmoreofanadministrativeburdentoinitiatepatients.SomuchlikeweareseeinghereintheUS.I'dexpecttherelativerateofuptakeforORKAMBItobelessthanitisfor--lessrapidthanitwasforKALYDECOinCanadaand,indeed,othermarketsoutsideoftheUS.


ThisisJeffLeiden.Maybejusttoaddonecomment.ObviouslywehaveheardalotfromIanandStuartinsomeofthequestionsaboutthekeneticsofthelaunchandsomeoftheshort-termmodeling.Idothinkit'simportanttostandbackaswellandrememberwhatthetotalopportunityis,whichIthinkiswhereyourquestionisgoing.

Ifyouthinkaboutwherewearetodayversuswherewewereevensixmonthsago,todaywehaveapprovalfor8,500patientsintheUSandwehavealaunchthatwearereallypleasedwithwithmorethan4,500or55%ofthepatientsalreadyondrugintheUS,whichIthinkisremarkable.WehavereimbursementintheUSthat'sgoneactuallybetterthanweevenexpected,meaningeverystateMedicaidisnowreimbursingthedrugandthemajorityoftheprivateinsurersare.

WehaveapprovalinEuropeandarestartingalaunchinGermany,asyouheardinthepressrelease,andATUinFrance.NowwehaveapprovalinCanada,whichgivesusaccessto1,500privatepatientsandtheabilitytonegotiatereimbursement,asStuartsaid,toanadditional,Ithink,2,500patientsorso.Andsowhenyoulookatthetotalopportunity,it'sactuallyeverybitofwhatwethoughtbeforeandwehavemadesignificantprogressandnothingofthathaschanged.

It'simpossibletopredicttheexactkinetics,what'sgoingtohappeninthefirstquarterversussecondquarter.Butatleastthewaywelookatitaswelookoutoverthenextcoupleofyears,weseethatopportunityintactandprogressingreallynicely.AndIthinkit'simportanttoseethatinthebigpictureaswellastheshorttermmodel.Ihopethathelps.

CoryKasimov(Analyst-JPMorgan):




Yes,helpfulprospectus.Thanks.

Operator :

BrianAbrahamsofJefferies.

BrianAbrahams (Analyst-Jefferies):

Hi,thanksfortakingmyquestions.Twoquestions.Firstontheclinicalsideonthesix-to11-year-oldpopulation.Iwaswonderingifyoucouldtalkalittlebitaboutthenaturalhistoryofuntreatedpatientsonthelungclearanceindexendpoints.Wheredoesittypicallygooverasix-monthperiodinchildrenofthisage,balancingdiseaseprogressionversusnormalgrowth.Doesittypicallyworsenorstayflat?

Andthenontheclinical/commercialside,canyougiveusanymoregranularityontheongoingPhase3bstudyinlowFEV1patients,thedoses,timeline,andpotentialimpactthatdatamighthavetohelpthesepatientsmanagethroughtheinitialsideeffectsandstayontherapy?


ItisJeffChodakewitz.Let'smaybestartwiththeLCIandaswetalkedaboutalittlebit,thisactuallyisanearlymeasure.SotheinformationthatIcangiveyouissomewhatimperfect,justsoyouknow.Anditsadvantage,wethink,isbeingable,inchildrenwhohaverelativelynormalFEV1s,but,asyouknow,theyhavesignificantunderlyingdisease.Theirpulmonaryfunctionreallyisfarfromnormal.Itallowsyoutomeasurethat.

Andoverreasonablyshortperiodsoftime,likeasix-monthperiodaswegoinourclinicalstudies,therecouldbesmalldecreases,butwethinkoverallthatthatshouldberelativelystable.Theremaybemodestshiftovertime,butwethinkwewouldbeabletohaveareasonablebaselineforassessingit.Soactuallythatispartofwhythedatathatwehadcomingoutofourpediatricstudy,evenwithoutthecontrolarm,wasencouragingtous.

MaybeIwilltakeacommentonthestudyinpatientswhoseFEV1sarelessthan40.Wearestillactuallyintheprocessofcollectingallthatdata.Wearestillenrolling,butwethinkthereissomeusefulinformationtherejustintermsoftheexperiencethatwehaveaccrued.Wedid--toyourspecificquestion,didgive--partwaythrough,didgiveinvestigatorstheopportunitytostartwithalowerdoseandthenstepuptofulldose.

Thatwouldbe--it'snotaperfectevaluationofthat,butwewerereallytryingtodowhatyousaid,whichistohelpexplorewhatcouldhelppatientsgetthroughthoseearlyweeksofdosing.Wearegoingtosummarizeallthatdataandpresentitanduseitfromaneducationperspectiveaswell.

BrianAbrahams (Analyst-Jefferies):

Great;thanksverymuch.

Operator :

AliciaYoungofCreditSuisse.

AliciaYoung (Analyst-CreditSuisse):

Thanks,guys,fortakingmyquestionandsqueezingmeinandcongratsonthe[9grap]intheGreen.Maybejustacouple.One,ifsomethinghappenswiththeresidualwheretheFDAmayrequestinformation,doyouguyshaveastrategyonhowyoumightpursuethatpopulationgoingforward?




Andthenalsowiththepotentialchesttightnessthatsometimeshappens,ourcheckssuggestedthatthathappenedearlierratherthenlater,likeinthefirstcoupleofweeks.Butisthereadynamicwhereitcouldhappenlater?Anddidyouseesimilaritiesanddifferencesthoughyouprobablytitratedinthesafetiesintheyoungerpopulation?


ItisJeffLeiden.MaybeI'lltakethefirstone,sinceit'sabitofascienceandapolicyquestion,strategyquestion,Ithink.AndthenJeffC.cantakethesecondquestiononthechesttightness.

Togiveyoulittlebackground.Iknowyouareawareofthis,buttheRFapplicationisalittlebitunusualcomparedtotheotherapplicationsthatVertexhassubmittedonKALYDECOandORKAMBI,whicharealwaysbasedonlargePhase3studies.Thisone'sdifferent.Itisbasicallyaimedatabout1,500patientswith23differentmutationsresultinginresidualfunction.

Anditisbasedpredominantlyonpreclinicaldata.Thatiscell-baseddatafromcellsthathavebeenengineeredtohavethose23differentmutations,supportedbyaverysmallPhase2astudyofabout24patientsthatcomprisedeightornineofthose23mutations.AndsowhatwearereallyaskingtheFDAtolookatisboththescienceandthemedicinethatwearesubmitting.Butalsothereisapolicyquestionhere,whichishowdoyouextendthelabelofadruglikeKALYDECOtoveryrarepopulationsofmutations?

SomeofthesemutationsonlyhavefourpatientsintheUSortenpatientsintheUS.Andthat'saveryimportantpolicyquestioninprecisionmedicinethat,asyouknow,theFDAisconsideringmuchmorebroadlythanjustinCF.Andsopartofthereasonwhyit'salittlemoredifficulttohandicapthisoneisbecauseit'sthiscombinationofclinicalandpolicysortsofthings.

Wefeelverystronglyitistherightthingtodoforpatients,that'swhywedidit.Thereare1,500patientsintheUSthattodaydon'thaveanyCFTRcorrectiontherapyofanysort.AnditwouldbeyearsbeforetheycouldgetthembasedonlargePhase3trials.Andso,forus,thisisdefinitelytherightthingtodoforpatients.

Andwebelieveinthesciencestrongly,andintheclinicalsportwehave.ButhandicappingwhattheFDA'sgoingtodo,obviouslyisabitmoredifficult.WewillknowbyFebruary7.Andthenbaseduponwhatwedo,wehaveobviouslycomeupwithastrategy.But,again,ourgoalwastotrytogetthismedicinethathasfouryearsofsafetydatatothesepatientsassoonaspossible.


Great.AndJeffChodakewitz.Justtocommentonyourquestionaboutthechesttightness.MaybefirststepbacktoourPhase3results,whichIthinkarethemostfinitiveinformation.Asyounoted,thoseadverseeventsdidoccurveryearly.Theyweremanageableinthevastmajorityofpeopleandtheydiddecreaseovertime.Usuallytheaveragedurationwasapproximatelytwoweeks.

SoIthinkallofthatreallycomesoutofourPhase3dataandsuggeststhatitisanearlyevent.Andtheexperienceinourpediatricstudywasactuallycompletelyconsistentwiththat.Itwasasmallnumber,ithappenedearlyand,infact,nobodydiscontinuedbecauseofthat.

AliciaYoung (Analyst-CreditSuisse):

Great,thanks.

Operator :




LisaBaykoofJMPSecurities.

LiisaBayko (Analyst-JMP):

Hi.Thanksfortakingthequestion.IwantedtobetterunderstandwhatyouweredescribingwithCanadaintermsoftheprivatepayers.Iknowthereare1,500patientsthatwouldbeeligibleforORKAMBI.Canyoubreakthatdownintohowmanyofthosewouldbeprivate?


Yes,Lisa,itisStuarthere.Thereis1,500patientsintotalwhoare12andoverwhoarehomozygouslyF508delmutation.Andweestimatethere'sabout30%ofthosewouldbecoveredbysomeformofprivateinsurance.PrivateinsurancemaytakesometimetokickininCanada.Itisnotnecessarilyquiteasrapidforthemtocometoadecision.CertainlythatwasourexperiencewithKALYDECO.Butapproximately30%ofthe1,500patients,weestimate,willhavesomeformofprivateinsurance.


Okaythanks.That'shelpful.Andthenthedataonthekidslookreallyimpressive.WiththeLCI,canyoumaybecommentontheclinicalmeaningfulnessofthatnumber?ObviouslywearenotasusedtoseeingthatnumberaswearewithFEV.Iwouldbecuriousifyoucouldputsomecontextaroundthat?Thanks.


Sure.ItisJeffChodakewitz.Iwillsaythatintermsofthatvalidationofsayingwhattheminimallyclinicallyimportantdifference,itdoesn'texistforthattool.Iwillsay,basedonourdiscussionswithpeoplewhoareexpertsinthemethodology,wewere--wetargeteda0.7decrease.

Rememberinthismeasure,actuallyanegativenumberisanimprovementbecauseofthewaythetestisdone.SoIcan'tgiveyouanexactnumber,buthopefullythatgivesyousomecontextinwhywewerepleasedwiththeresults.


Lisa,thisisJeff.MaybetoreiterateonethingthatJeffC.saidbeforebecauseIthinkit'simportant.AndIrememberyouandItalkingaboutthisatonepoint,thatweareveryinterestedinsomeofthesealternativeendpointsforacoupleofreasons.

One,asJeffsaid,thesemaybemuchmoreapplicabletopopulationsinwhichitisdifficulttomeasureFEV1,likethekids,particularlyastheygetyounger.Butalsobecause,asyouknow,FEV1,whichisameasureofmidsizeairwayresistance,isquiteabitdownstreamorupstream,ifyouwill,fromtheprobleminCF,whichisreallyadistalairwaygasexchangeproblem.

AndactuallyLCIisprobablyamuchmoresensitivemeasureclosertotheactualphysiologyofwhatisgoingoninCF.AndsowehavebeenveryeagertostarttoseeresultsfromthesekindsofstudiestotellwhetherLCIcouldactuallyturnouttobeasgoodorbetteranendpointthanFEV1.Andobviouslyweneedtoprovideagencieswithclinicaldatatosupportthat,andthisisthefirststepinthatprocess.


Okay,thanksalot.

Operator :

PhilNadeauofCowenandCompany.




PhiNadeau (Analyst-Cowen):

Thanksfortakingmyquestions.Justto--aswebegintomodeltheyoungerkids--penetrationofORKAMBItothekidsagesixto11,arethereanyissueswithcompliancepersistenceoruptakeinthatpopulationthatyouwanttopointoutordoyouexpectsimilarratesofthoseelementsintheyoungerkidsasintheolder?

Andthensecond,onthepipeline,IthinkweareexpectingtheENaCmonotherapydatamidyear.Canyougiveussomeideaofwhereyouarelookingforinthatdatasetandwhatwouldbeproofofconcept?Thankyou.

IanSmith (CFO):

Intermsofmodelingthekids,wereweluckyenoughtogetanapprovalthisyear,I'dcertainlyrecommendthatpeopletakeintoaccountthesameconsiderations.That'sthepeakpenetration,timetopeak,persistencerateandcompliance,andmodelthoseeachindividually.

IntermsofwhatwehaveseenwithKALYDECO,wehaveseenthattheworstcomplianceweseetendstobeinthatteenagetoyoungadults-ville.Andsobecausekids--ourassumptionbecausekidsareverycloselymonitoredbytheirparents,particularlyinthatsix-to11-yearagegroup,perhapsnotsurprisingly,weseehighlevelsofcompliancewiththatparticularpatientgroup.Wetendtoseeabitofadip,perhapsunsurprisingly,intheteenagetoyoungadultsgroup.Sowemightanticipateinthesixto11groupthatthatwouldbeourbestcomplyingpatientpopulationandthatiscertainlywhatwehaveseenwithKALYDECO.


ItisJeffChodakewitz.JustmaybeacoupleofcommentsontheENaCprogram.Firstofall,thereisanongoingPhase2studythat[Perrion]hastheleadon.Thatstudyisacrossalldifferenttypesofgenotypesintermsofthepatientpopulationandsowearegoingtobereallylookingforearlyevidenceofactivityinthatstudy.Andnotjustlookingoverall,butwearegoingtobetryingtolearnlookingamongthedifferentsubpopulationsandwestillexpecttheresultsofthattocomeoutaroundmidyear.

Atthesametime,wearegoingtobestartingourstudy,whichisverycomplementarytothestudythatisongoingthisquarter,andthatstudyisgoingtobein508homozygouspatientswhoalreadyaregoingtobereceivingORKAMBI.AndthenlookingtoseewhethertheENaCinhibitorcanaddtotheefficacyforthatpopulation.Andactuallythepreclinicaldatainourhandsactuallysuggeststhatthatmaybethebestwaytogetactivityandbenefitforpatientsfromthatmechanism.Andsoultimatelyitisgoingtobelearningfrombothofthosetrialsaswebetterunderstandwhatthepotentialforthatmechanismmaybe.

PhiNadeau (Analyst-Cowen):

Thatisveryhelpful.Thankyou.

Operator :

AdamWalshofStifelNicolaus.


Adam,areyouthere?

AdamWalsh (Analyst-StifelNicolaus):

Yes,I'mhere.Hi.Thanksalotfortakingmyquestion.Ireallyappreciateit.IguessIhavetwoquestions.




ThefirstoneisforJeffLeiden.Wehavebeenouttalkingtodocsand,accordingtothem,yourGPSreimbursementsupportprogramisreallyterrific.Iwillstartwiththat.Someofthesedocsalsonotethatthetotalout-of-pocketcostburdenforalotofCFpatientsisreallyquitehigh,evenbeforetheytrytogetonORKAMBIorKALYDECO.

AndIamjustcuriousintermsof--withthatinmind,howdoyouthinkabouthowfaryoucangotosupportpatients,giventhefactthatifaco-payis,say,20%,andthataddsquiteabitofout-of-pocketexpense,whereis--howfarcanyougoinsupportingthepatientstherebothwithyourownmedicinesandthinkingaboutthisinthecontextoftheportfoliomedicinestheymayalreadybeon?

That'sone.AndthenIhaveaquestionforJeffChodakewitzaswell.ItmentionedinthepressreleasethattwopatientsdiscontinuedtreatmentintheORKAMBIsix-to-1studybecauseofadverseevents.Ifyoucouldcommentbrieflyonthosetwopatients,thatwouldbegreat.Thankyou.


Thanksforthequestions.ThisisJeffLeiden.I'mactuallygoingtoturnthatoneovertoStuart,becauseheisreallyresponsiblefortheGPSprogramandhewillalsobeabletodescribethepatientassistanceprogramthathasallowedustohelppatientswhodohavehighco-pays.


Yes,Adam,thanksforthequestionandthanksforthepositivefeedback.TheGPSprogram,justsoeverybodyisawareofit,isaservicewhichistheretohelppatientsandhelpthemnavigatethereimbursementprocessandtheretoprovidethemwithongoingeducationiftheychoosetooptin.Itisgreattogetthefeedbackonthat.

Nowdealingwiththequestionyouraisedaboutout-of-pocketcosts.ForbothKALYDECOandORKAMBIwehavecomprehensivepatientassistanceprogramsintermsofco-payassistanceforeligiblepatients.Theprogramissuchthatnopatientwhohasaco-paywhoiseligiblefortheprogramwouldhaveamonthlyco-payforeitherKALYDECOorORKAMBIabout$15permonth.Andthenforthosepatientswhohavecoinsurance,wewillcovercoinsuranceupto30%ofthepriceofthemedicines.Andtheprogramistokeepthingssimpleforpeople,identicalforbothKALYDECOandORKAMBI.


Andit'sJeffChodakewitz.Intermsofthepediatricstudy,aswepointedout,theoverallprofilewasactuallyquitefavorable.Ifthereweretwopatientswhodiscontinued,oneofthemwasbecauseofabnormalliverfunctiontestsandoneofthemwasbecauseofarash.

AdamWalsh (Analyst-StifelNicolaus):

Great,thanksalot.


Operator,wehavetimefortwomorequestions.

Operator :

MarkSchoenebaumofEvercoreISI.

MarkSchoenebaum(Analyst-EvercoreISI):

Hey,guys,firstquestionisonguidance.Shouldweassumeyourfinancialguidanceismoreorless




conservativethanPartridge'sstatementthatthiscallwouldendby5:45?Becauseyoumissedthatprettybadly,soI'malittleconcernedhere.

Anyway,justreallyquickones.Iknowit'sgettinglate.Numberone,canyoujusttelluswhentoexpectdatafromthePhase2triplecombothatyouaregoingtostartthisyear?Iassumethatisamid-2017event?LetmeknowifI'mwrongonthat.

Andthen,numbertwo,Iapologizeifyouaddressedthis.IfyoudidImissedit.Butcanyouconfirmthetimingandyourdisclosureintentionsaroundthe--whatIbelieveisthefutilityanalysisinthe[hetmin]trial?

IanSmith (CFO):

It'sIan.I'lltakebothofthosequestions.


IwantananswertothePartridgequestion,please.(Laughter).

IanSmith (CFO):

Inhispreparedremarkshesaidthecallwouldbebriefaswell.Sohewaswrongthereaswell.


Prettyembarrassing.


Luckilyhedoesn'tgivefinancialguidanceforus.(Laughter).

IanSmith (CFO):

Soyourfirstquestionwasregardingthetriple.So,firstofall,thetimingofgettingdatafromthetripleordisclosingthedatafromthetripleisreallysubjecttohowfastwemovethroughthePhase1.Andwe'vementionedthisbefore.ThelongerourPhase1takes,actuallythebetteritisbecauseitmeansweareescalatingthedoseandwe'regettinggreaterexposureofthedrugintothehealthyvolunteers.

Andbasedonwhereweexpectthistogo,weanticipateinthesecondhalfoftheyearwewillbeintheproof-of-concepttriplestudies,whichwillprobablypushusintoearly2017togetthatdata.That'showwearetryingtosetatimingexpectation.Andthenyoursecondquestionwasonthedisclosureregardingwhich?Futility.

The[hatman]termsofrecruitmenttothattrialisactuallygoingverynicely,asyoumightanticipate,giventhatthesepatientshavenootheralternativemedicine.Andsoweanticipatethatwewillbecompletedenrollmentaroundthemiddleoftheyear.And,therefore,wedoexpectthefutilitystudytobedoneinthesecondhalfoftheyear.Obviouslywewon'tbedisclosingthatunlesswehavetocurtailthestudy.Sononewswouldbegoodnewsonthatassessment.


Okay.Thanksalot.AndcongratsonthePats'loss.


Nowyou'rehurtingus.




Operator :

TonyButlerofGuggenheimSecurities.

T onyButler (Analyst-GuggenheimPartners):

Thanksverymuchforallowingmetosqueezeonein.TherearenumberofrespiratoryarticlesthatactuallysupporttheuseofLCIasanendpointbecauseitdoesdemonstrategreatersensitivity.IguessthequestionisreallywhatisthecorrelationbetweenLCIandFEV,giventhatLCIapparentlybecomesabnormalearlierthanspirometryandyet,inthelaterstagedisease,itseemstocorrelate.Andthen,therefore,canyouonlyuseLCIinchildren?

Mylastquestion--Iguessthat'sforJeffC.AndmylastquestionreallyforJeffL.Areyougoingtopublishthekineticsandfunctionalityof152and440soon?OrIguessever,inapeer-reviewedjournal?Thankyou.


Iwillquicklysaywewillmaketheappropriatestepsintermsofwherewepublishdataregardingourmoleculesaswemoveforward.Obviouslyyou'veseenalotofpublicationsatNACF,whichisinthefallandthenoverseastheECFSconference,soyou'llprobablyexpecttoseemoredataatthoseconferences.Andthentoyourotherquestion,Jeff.


AcouplemorecommentsonLCI.Andasyoupointout,theydohaveoverlappingbutsomewhatdifferentsweetspots,ifyouwill,intermsofthebestwaytousethem.AndIdothink,asafield,thislinksbacktoJeffLeiden'scommentsthatwearecontinuingtolearnthebestwaytouseeachofthem.ObviouslyLCIhasthatpotentialsensitivityadvantagesinchildren.Butrightnowthereareonlysomecentersthatactuallyhavetheexpertisetodothatwell.And,ofcourse,agreattoolusedpoorlydoesn'treallyhelpanybody.SoIthinktherearestill--thereisstillalotofworktobedone.

Andthenthereistheotherpartofyourquestionaboutregulatoryrecognition.AndIcan'tspeakfortheregulators,butIthinkitwasencouragingthatinEurope,LCIwasacceptedasourprimaryendpointinourstudy.SoIthinkthereis,ingeneralanopennesstocontinuetoadvancethefieldandhopefullywecancontributetothat.

T onyButler (Analyst-GuggenheimPartners):

Thankyouboth.


Great.Well,thankyouagainforjoiningustonight.Apologiesforrunningover;itwasallMichael'sfault.Attheriskofrunningforoneortwomoreminutes,Ididwanttomakeacoupleofconcludingremarks.

And,again,IalwaysliketodothissortofinretrospectandsaywherearewetodayasaCompanyascomparedtowhereweweresixor12monthsago.AndImustsay,fromapersonalstandpointandfromthestandpointofCFpatients,Iamvery,veryencouragedwiththeprogressthatwe'vemade.Ithinkit'snowclearthatKALYDECOandORKAMBItogetherareapprovedforabout25,000patientsoralmostone-thirdofallpatients,CFpatients,intheworld.

AswediscussedwithJPMorgan,thereisafairlystraightforwardstrategythroughlabelexpansionintheyoungerpopulationsandotherstotakethatnumberfrom25,000to44,000patientsinthenextcoupleofyears.Andthenwehaveaclearstrategywithmultipleprongs,actually,togettothevastofmajority




patients.AndtheyincludetheENaCinhibitorswhichareinPhase2,sotheycanmoveveryrapidlyifweseepositiveresultsthereincombinationwithORKAMBI.

TheyincludetheNextGencorrectors,whicharemovingalonginPhase1,andwhichwehopetohaveinpatientsinthesecondhalfofthisyear.Andwethinkthosehavethepotentialtobothincreasetheefficacyforthepatientswearetreatingtoday,butalsotoletusgettothatlargesubsetofhetminpatientsthatdon'thaveanythingtoday.

Andthenfinallytheprogresswehavemadewithsomeofourdeals,particularlytheCRISPRdealhere.Andalthoughthat'stheHolyGrail,10or15yearsdowntheroad,wedohaveavisionofpotentiallycorrectingtheunderlyingmutationandcuringpatientswithCF.AndsoasIlookattheworldfromourperspective,obviously,I'mtremendouslyencouragedaboutthefutureopportunity,particularlythefutureopportunityforpatients.

AndIampleasedwiththeprogresswearemakingandwe'lllookforwardtoupdatingyouoverthenextyearaswecontinuethat.


Thanksverymuch,everybody.Thatconcludestonight'scall.TheIRteamwillbeavailableinourofficesforadditionalquestionsifyouhavethem.Thankyou.

Operator :

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