Michael Partridge - Vice President of Investor Relations Jeffrey M. Leiden - Chairman, Chief Executive Officer and President Stuart A. Arbuckle - Chief Commercial Officer and Executive Vice President Ian F. Smith - Chief Financial Officer and Executive Vice President Jeffrey A.

Chodakewitz - Chief Medical Officer and Senior Vice President of Global Medicines Development & Medical Affairs.

Terence C. Flynn - Goldman Sachs Group Inc., Research Division John Chung - RBC Capital Markets, LLC, Research Division Andrew R. Peters - UBS Investment Bank, Research Division Wen Shi Robyn S. Karnauskas - Deutsche Bank AG, Research Division Liisa A.

Bayko - JMP Securities LLC, Research Division Catherine Hu - BofA Merrill Lynch, Research Division Shin Kang - Wells Fargo Securities, LLC, Research Division Kumaraguru Raja Yu Xu - William Blair & Company L.L.C., Research Division Matthew Kelsey Harrison - Morgan Stanley, Research Division Yigal D. Nochomovitz - Oppenheimer & Co.

Inc., Research Division.

Good day, ladies and gentlemen, and welcome to the Vertex Pharmaceuticals Incorporated Third Quarter 2014 Financial Results. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Michael Partridge, Head of Investor Relations. Please go ahead..

Thank you, operator, and good evening, everyone. Joining me on the call tonight are Dr. Jeff Leiden, Chairman and CEO; Stuart Arbuckle, Chief Commercial Officer; and Ian Smith, Chief Financial Officer. Dr. Jeff Chodakewitz, Chief Medical Officer, will join us for Q&A. Our agenda tonight is as follows.

Jeff will review the progress with our cystic fibrosis medicines in the context of our broader corporate vision. Stuart will review the third quarter performance of KALYDECO and will also discuss preparations for the launch of the lumacaftor/ivacaftor combination.

And to close, Ian will review the third quarter financial results and provide commentary on our expected financial profile moving forward. We will then open the call for your questions. We expect the call to run for no more than 45 minutes.

You can access the webcast slides by going to the Events section of the Investor Relations page on our website, vrtx.com. I will remind you that we will make forward-looking statements on this conference call.

These statements are subject to the risks and uncertainties discussed in detail in today's press release and our 10-K and 10-Q, which have been filed with the Securities and Exchange Commission.

These statements, including, without limitation, those regarding the ongoing development and potential commercialization of lumacaftor in combination with ivacaftor and those about Vertex's other cystic fibrosis programs 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 our third quarter 2014 financial results press release. I would also refer you to Slide 4 of tonight's webcast. I will now turn the call over to Jeff Leiden..

Thanks, Michael, and good evening, everyone. Our vision is to be a leader in discovering and developing therapies for cystic fibrosis and other serious diseases. We outlined the clear strategy over 2 years ago designed to establish a foundation for sustainable growth. And I'm happy to say, we are well along that path.

Specifically, and more recently, clinical data presented at the North American CF Conference earlier this month showed just how far Vertex has come and supports our confidence in delivering more medicines to more CF patients.

Our goal in CF is to reach the vast majority of people with CF and to continue to enhance the benefit for the patients that we treat. Let me summarize our recent progress.

First, data presented at NACF in early October from the roll over study of lumacaftor in combination with ivacaftor showed sustained clinical benefits through 48 weeks of treatment and no new safety concerns, supporting the longer-term treatment for CF patients.

We are on track to submit the NDA and MAA in the fourth quarter of this year for patients 12 and older with 2 copies of the Delta 508 mutation. Second, and also in early October, we provided an update to our VX-661 development plans.

We now expect to initiate a pivotal Phase III program for VX-661 in combination with ivacaftor in the first half of 2015, pending regulatory discussions and data from the ongoing 12-week study in people with 2 copies of the Delta F508 mutation.

We believe that VX-661 ivacaftor combination has the potential to benefit multiple patient populations and achieve a broad label. Third, last week, the FDA's Pulmonary Advisory Committee voted 13 to 2 to recommend approval of KALYDECO in people ages 6 and older who have the R117H mutation.

This is an important step toward making ivacaftor available to the approximately 500 people in the U.S. ages 6 and older who have this mutation. And lastly, during the third quarter, we've strengthened our financial position by adding $300 million to our balance sheet through a new credit agreement.

With approximately $1.5 billion in cash and the successful progression of our CF medicines, we are well-positioned for future growth. Our financial strength gives us the flexibility as we work to further enhance the treatment of cystic fibrosis and develop innovative new medicines to treat other serious diseases.

In summary, we are transforming the treatment of cystic fibrosis with medicines that address the underlying cause of the disease. We are advancing our earlier stage science and pipeline, and we are positioning the company for sustainable revenue and earnings growth. I'll now hand the call over to Stuart..

Thanks, Jeff, and hello, everyone. Tonight, I'll review the third quarter sales of KALYDECO that continued to reflect strong underlying demand driven by label and geographic expansion. I will also discuss how the commercial organization is preparing for the approval and launch of the lumacaftor/ivacaftor combination.

KALYDECO generated $127 million in product sales, including U.S. sales of approximately $74 million and x U.S. sales of approximately $53 million. Underlying demand and adherence in G551D patients continue to be strong, both in the U.S. and internationally. U.S.

sales reflect continued uptake in the 8 additional mutations approved earlier this year, and $7 million of buying accelerated into the third quarter from the fourth quarter due to a change in our distribution model, which went into effect on October 1. This change provides scalability in anticipation of the larger F508del patient population.

Due to this stocking in the third quarter, reported sales for the fourth quarter will be impacted. We expect to end this year with approximately 2,600 patients eligible for KALYDECO and momentum with multiple growth drivers going forward based on further geographic and label expansions.

In Europe, we are working closely with national authorities to achieve reimbursement to make KALYDECO available to the approximately 200 people ages 6 and older who have 1 of 8 non-G551D gating mutations. In Canada, 6 provinces and territories have added KALYDECO to their public drug programs, and patients are beginning to initiate therapy.

These provinces and territories account for approximately 80% of the 60 G551D patients who have public insurance in Canada. In Australia, the government recently announced that KALYDECO is expected to be listed on the Pharmaceutical Benefits Scheme as of December 1.

There are approximately 250 people with CF aged 6 years and older who are expected to be eligible for treatment with KALYDECO in Australia. In the U.S., the FDA Advisory Committee voted 13 to 2 in favor approval for KALYDECO in people with the R117H mutation ages 6 and older.

The FDA is expected to make a decision on our application by December 30, 2014. We have also filed an MAA in the EU during the quarter. There are approximately 1,100 patients ages 6 and older with the R117H mutation around the world. And lastly, we submitted an NDA in the U.S.

and an MAA in the EU for the approval of ivacaftor in children with CF ages 2 to 5 who have gating mutations. There are approximately 300 of these children with CF around the world. As we move through 2015, we expect that the number of patients eligible for KALYDECO will increase from 2,600 to nearly 4,000 by the end of 2015.

Although, all eligible patients will not be on treatment next year, we expect significant growth in 2015. Now to the combination of lumacaftor and ivacaftor. We are on track to submit the NDA and MAA in the fourth quarter, and we will be requesting priority review in the U.S.

If granted priority review by the FDA, the submission would qualify for an 8-month review and a potential mid-2015 launch in the U.S.

There are approximately 22,000 people ages 12 and older who have 2 copies of the F508del mutation in North America, Europe and Australia, including approximately 8,500 in the United States and approximately 12,000 in Europe.

We are expanding our infrastructure in anticipation of the launch and working to understand how CF centers plan to manage the increased volume of patients eligible for a CF modulator. In the U.S.

we are in the process of hiring additional case managers who help providers and patients navigate the reimbursement process and help with patient education and compliance. Internationally, we have a plan in place to build out the required infrastructure in new markets to support the lumacaftor/ivacaftor combination launch.

In summary, we're pleased with the progress we are making with KALYDECO as it continues to be made available to more patients globally. Also, our launch preparations for the lumacaftor/ivacaftor combination are well underway, and we look forward to bringing this transformational medicine to CF patients once approved.

I'll now hand the call over to Ian..

Thanks, Stuart, and good evening everyone. In my remarks tonight, I will review our financial results, update our guidance for the rest of the year and give some thoughts about our financial profile as we move into 2015. First to the financials.

This quarter, we generated $165 million in total GAAP revenues that include KALYDECO revenues of $127 million. The KALYDECO revenues increased compared to third quarter 2013 as we continued to expand the number of patients we treat.

Also, this quarter, we recognized $30 million in revenue from our recent out licensing of VX-787, our novel flu medicine, to Janssen. Our third quarter non-GAAP total operating expenses were $212 million, a decrease of $62 million compared to the third quarter of last year.

This reflects our prioritization towards CF medicines and cost reductions relating to prior investments in HCV and other areas. More specifically, our non-GAAP R&D expenses were $157 million for the third quarter of 2014, a reduction of $43 million compared to the third quarter of 2013.

Our non-GAAP SG&A expenses were $55 million for the third quarter of 2014 compared to $74 million in the same quarter of last year. We will continue to focus on cost control and prioritization of our investments, consistent with the growth and value drivers of our business.

The non-GAAP loss was $86 million or $0.37 per share compared to the prior year loss of $74 million. This increased loss was the result of significantly reduced and now excluded HCV revenues in 2014. Now to update our 2014 financial guidance.

Earlier this year, we provided guidance that non-GAAP total revenues were forecast at $520 million to $550 million for the full year. We are now narrowing that range to $525 million to $535 million.

We also provided KALYDECO revenue guidance of $470 million to $500 million based on expected timing of approvals for label expansion and reimbursement in certain countries. We now expect KALYDECO revenues to be approximately $460 million for the full year, which translates to a fourth quarter revenue of approximately $120 million.

This reduction in the KALYDECO revenue range is principally due to the delayed access to patients in Australia, which has now been resolved. With recent regulatory submissions and approvals for reimbursement, we are in a strong position to see continued growth in KALYDECO revenues in 2015.

Specifically, we could see eligible patients increase from 2,600 today to nearly 4,000 by the end of 2015, although we don't expect all eligible patients to be on treatment by the end of next year. Now to the operating expenses.

We're also narrowing our non-GAAP operating expenses to $910 million to $920 million from the previously guided $890 million to $930 million. This narrowed guidance includes accelerated investments as we prepare for VX-661 pivotal program to begin in the first half of 2015. Now to our outlook for 2015.

In CF, we expect to treat significantly more patients in 2015, which will require investment in supporting the ivacaftor/lumacaftor combination launch, building inventory and establishing a larger international presence. We therefore anticipate an increased SG&A investment compared to 2014.

And from an R&D expense perspective, we will increase the investment as we begin pivotal development of VX-661 in combination with ivacaftor while still maintaining investment in lumacaftor/ivacaftor combination for patients who remain on long-term extension study through 2015.

Overall, we expect the total operating expenses will be higher in 2015 compared to 2014. However, we will continue to control our operating expenses in future years as we make progress towards being a steady-state fully resourced company.

I'll close by stating we are focused on delivering a financial profile consistent with our large-cap biotech peers that includes significant revenue and earnings growth and high operating margins. With that, I'll ask the operator to please open the line for questions..

[Operator Instructions] And our first question comes from Terence Flynn from Goldman Sachs..

First, just on -- sorry, I jumped on a little bit late, but KALYDECO for R117H in Europe, can you just tell us what age range you filed for approval there for that indication? And then another question, the same question was with respect to the 661 in KALYDECO Phase III trial.

Have you guys selected a dose there for 661 yet? And if not, what's going to drive that decision?.

It's Jeff Chodakewitz. So on your questions, for R117H, we did file for greater than 18. As you may know, the -- there are differences in how regulatory agencies in the EU and the U.S. think about data for pediatrics. We now have been gone through the AC and we can engage in a little bit in that conversation with them, but that was the filing.

In terms of the 661 ivacaftor program, we do choose a dose and the dose is 100 milligrams of 661 and the standard 150 twice daily for ivacaftor..

Okay. And then just to follow up on Europe.

Does that mean you guys might have the opportunity to go back to them and ask them for a lower age range on R117H?.

No, I think that the expectation is that it's going to focus on greater than 18. But, of course, we're going to have the discussion because of the need for patients as we spoke about with the U.S. Advisory Committee. I really can't predict more than that..

And our next question comes from Michael Yee from RBC Capital Markets..

This is John on behalf of Michael Yee.

As we look forward to the 12-week Phase IIb data for VX-661 combo we expect in early 2015, is there a minimum threshold you're looking for in terms of efficacy, such as FEV1 or sweat chloride that would give you confidence that in fact 661 is leading to better efficacy and thus reasonable to invest and go ahead with the extensive Phase III trial as planned for the combo?.

It's Jeff Chodakewitz again. So I think really what we're looking forward to there is 2 things. One is to get confirmation in what we've been seeing already in 4-week data, and the other, of course, is that this is the longest period of time that we'll have studied the combination.

So we'll also be confirming that the favorable safety profile continues. I don't think there's any one number..

Our next question comes from Matt Roden from UBS..

This is Andrew Peters in for Matt. I was just curious, as you prepare for the approval or potential approval on launch of the combination next year, I'm curious as to what you've learned with -- from KALYDECO in terms of reimbursement and pricing x U.S. that you can apply hopefully to kind of speed up the reimbursement process.

Just thinking of delays that you saw with the NI -- with -- in the U.K. as well as places like Australia..

Yes, thanks for the question. Yes, the first thing I would say is, actually, we were able to secure reimbursement for KALYDECO in Europe, I think really very quickly indeed.

The U.K., although it's 5 separate countries, England we managed to secure reimbursement in about 7 months, which I would say is remarkably fast for an ultra-orphan product like KALYDECO, which I think is a testament to a couple of things, which I think do form the foundation of our learnings as we think about the lumacaftor/ivacaftor combination.

And the first one is this is a really serious illness with few treatment options. The second thing is that these are breakthrough medicines that treat the underlying cause of the disease and really work incredibly well in children and adults with CF.

And so the combination of those 2 things, I think, is what has led us to be able to have very productive, challenging at times, but productive and ultimately successful reimbursement discussions..

And our next question comes from Geoffrey Porges from Bernstein..

This is Wen Shi here for Geoff. Some questions about the 661 Phase III study.

[indiscernible] so what are some of the gating factors for the start of these studies or is -- are you waiting for the 12-week data in-hand before you kind of sort of finalize the Phase III plan? Are you looking for FDA meetings and those kind of things? And also a related one, right, so for the gating mutation patients, are you looking to conduct head-to-head studies versus KALYDECO with the combination in the potential to replace KALYDECO in those patient population?.

It's Jeff Chodakewitz. I think maybe a couple of comments. I think, in terms of factors or -- that we're looking for information from, I think you hit on the 2 main ones. Of course, we're going to -- as we were just talking about, get the data from our 12-week study. And then importantly, we need to speak about our plans with regulatory agencies.

So I think that, that's really -- those are going to be the big drivers, and we think that, that will be consistent with our first half start, as Jeff Leiden has said. I think in terms of the patients who have already KALYDECO use indicated for them, I think what we're really doing is building off the observation that we had in our Phase II study.

And you may remember that where we had patients who had a G551D mutation on 1 allele, and we're already taking KALYDECO, but also had a F508del mutation on the other allele. And in that study, we're able to show by randomizing patients to 661 or placebo that those patients got incremental benefit, which we think was an important observation.

I think the details of the study really still, of course, needs to be worked through, as I said, with regulatory agencies..

And our next question comes from Mark Schoenebaum from ISI Group..

This is Mr. Robyn Karnauskas [ph] sitting in for Mark. The question I had -- I have has to do with the third-generation -- or I guess, the next-generation corrector that potentially form the triplet [ph] therapy.

I'm just curious, I know that when it comes to the clinic next year, sort of trying to predict a time frame is very difficult, to be given the number of drugs in the mix. I was wondering if you -- maybe there's a way to appreciate.

So -- maybe how quickly -- so maybe not how long it would take but maybe how quickly theoretically it actually could come to the market? So maybe frame the other end of that..

I think what we've said before -- this is Jeff Leiden, sorry, what we said before is we plan to have at least one and hopefully, more than one of those next generation, third-generation correctors in the clinic next year and, obviously, the development path for those will be Phase I study single-dose and multi ascending dose first to ensure safety then followed by combination studies.

And so I think, you can sort of do the math, as well as we can in terms of how long these studies take, they'll look a lot like our initial studies of KALYDECO and 809. And obviously, our goal is to get to the combination trials in Phase II where we've been able to demonstrate efficacy with our other drugs as quickly as possible..

And our next question comes from Robyn Karnauskas from Deutsche Bank..

Just coming off of NACF, I was just curious, I guess we also had heard some of the centers were just very busy with patients. Just sort of concerns around the flow of patients into the NACF or into the cystic fibrosis centers. I was just wondering about that flow. You were talking about concerns around launching into a bigger CF population.

And given it seem like there was flow problems already, what are you doing now to sort of prep for the number of patients that are going to have to be treated with the new regimen?.

It's Stuart. Yes, it's a great question, and it is a topic that we've been discussing with CF centers recently, both here in the U.S. and internationally because it is a concern for them. And the reason why it's a concern for them is not because they're going to be seeing more patients than they currently are looking after.

It's more to do with the fact that when you're initiating a new therapy, obviously there's a number of steps that you need to go through to initiate that new therapy. There'll be things you need to do in terms of working up the patient.

There is -- probably one of their primary concerns is the administration associated with securing reimbursement and access and going through the approval process with whatever plan or reimbursement or authority might be covering that patient's prescription.

So that's why one of the things that we're doing in terms of expanding our footprint is expanding, in the U.S. for instance, in our case management team. That case management team's primary role in life is helping providers and patients navigate the reimbursement and access kind of maze and also providing education and compliance support.

And so that's one of the things that we're doing, and obviously we're going to be trying to do other things to really try and help smooth that administrative burden for the CF centers so that they can triage their patients onto a therapy as quickly as they want to..

And our next question comes from Liisa Bayko from JPM Securities (sic) [JMP Securities]..

First of all, can you just tell us if you're expecting an Ad Com for the upcoming combination for the homozygous patients?.

It's Jeff. I think, we really just don't know yet. That's a determination that the FDA will make during the review process..

Okay. And then just, again, coming off of the NACFC conference, there was quite a bit of discussion about reimbursement. How are you thinking about pricing from the combination relative to ivacaftor, both domestically and other territories? If you can just provide us a framework..

Yes, Liisa, obviously, it's premature to make any very specific comments about pricing the combination. I can tell you the sorts of factors that we're taking into account. The first one is how well the medicine works for children and adults with CF.

As you know, it's a breakthrough medicine, which treats the underlying cause of the disease and as a result has kind of multiple benefits across a range of different dimensions, obviously, things like FEV1.

But important aspects like exacerbations, hospitalizations, time in hospital, things that we know are of great concern and high value to patients, payers and to patients. So the first determiner really is how well the medicine works. The second one is the size of the population that we're hoping to benefit.

The third area is really reflecting the time and expense that have taken us to develop the combination.

And then lastly, is our ability to continue on our mission, which is to continue to bring transformative medicines to patients who need them in cystic fibrosis and also in other conditions where they are equally serious where there's very few treatment options.

So really, those are the 3 or 4 things that we'll be taking into account as we think about the price of the lumacaftor/ivacaftor combination..

Okay, great. And then, just a final question about your guidance. It looks like when we take out some of the one-time kind of events, it's flat... [Technical Difficulty].

We lost her. And our next question comes from Ying Huang from Bank of America Merrill Lynch..

This is actually Catherine for Ying. Just a couple.

What are your reasoning behind skipping a Phase II trial for VX-661 in the heterozygous patient population and kind of heading straight into the Phase III? And then secondly, are there any restrictions on the reimbursement in Australia? And is payment contingent on achieving outcomes, such as FEV1 improvement?.

It's Jeff. I'll take the first part and then turn it over to Stuart. I think that the reasons for going directly as we've talked about to the [indiscernible] population are a couple. One is that the -- there are some characteristics about 661 that are somewhat different than 809, which we think could convey a benefit.

Secondly, that in some of the clinical studies that we perform to date in Phase II, there are some signals that there's some potential advantages for 661. And then the third part is really the medical need for those patients.

So it really is we've recognized a higher risk group of patients, but it's a group of patients that don't have access right now to a therapy that's directed at the underlying cause of the disease. And so we think it's valuable to find out whether 661 with ivacaftor can offer a benefit.

The last thing I would just note is that the way we're restructuring the program is that there really are 4 different studies. And so even if we're hoping that, that study will work for patients, but if it doesn't, there's still then multiple pivotal trials to support filing and approval..

And on the reimbursement in Australia. The specific terms of our agreement in Australia are obviously confidential.

What I can tell you is that we've reached an agreement where all eligible patients will have access to KALYDECO and that no patient types are going to be excluded from reimbursement and also no patients are going to have their access for therapy interrupted as a result of stopping rules.

And that's really consistent with our belief that patients should only be discontinuing treatment if they and their physician think that's the best clinical decision for them..

And our next question comes from Brian Abrahams from Wells Fargo..

This is Shin calling in for Brian. Related to the FDA panels, favorable vote on 117H for broader population of patients. It was quite apparent that if the questions were posed to the panel, if they were segmented by age, perhaps the votes might have reflected some reservations among the panel members.

I was curious to hear your thoughts on the way the questions were constructed and what that might suggest about FDA's thinking in terms of approving the drug in children, given the study didn't meet the endpoint in that population..

one, the results of the trial, which we thought were quite clear; and two, I think a real understanding among the panel members that there -- our populations of patients at all ages, in other words all ages greater than 6, who are sick with CF and who can benefit from the drug.

And we think that discussion was a very good and lively one and that the conclusion of the vote represented really those 2 factors..

And our next question comes from Liisa Bayko from JMP Securities..

I just wanted to understand the guidance. On a quarter-over-quarter basis, it looks a little flattish when we take out some of the one-time events. And so I'm wondering if we could -- if you could just comment on that.

And then maybe in the context of that, are you seeing any sort of discontinuations? I heard anecdotally that patients feel so good that sometimes they don't need to take their medications. I just wanted to ask if you've kind of -- if there is some sort of discontinuation rate or lack of compliance..

Liisa, thanks for the question. I'll take the first one and Stuart may take -- I think what you're referring to, rather than discontinuation, is more likely adherence and compliance and Stuart can take that. When you talk about the guidance, I assume you're referring to the KALYDECO revenues, which yes, you are correct.

When they -- there is an anomaly in the third quarter number we reported, which we reported $127 million. Within that $127 million, there is $7 million of let's call it accelerated stocking. We changed that distribution channel as of September 30, and there were some buy in by the distributors prior to 1st of October.

What that did is it brought $7 million of medicines, let's say, into the third quarter. Without that, we would've reported $120 million and would expect the fourth quarter to be $127 million. So that's the only item.

So as you can see, the natural demand for KALYDECO and the usage by patients continues to grow quarter-on-quarter if you see it this year, which is what we expect. Then the other comment I made earlier was as we look into 2015, we're currently eligible for around 2,600 patients.

But with the approvals and the approvals for reimbursement that we've got recently, we can see by the end of 2015, that we should be eligible to treat approximately 4,000 patients. So there's a nice growth curve there for KALYDECO through this year and then on to next year.

And Stuart?.

Yes. In terms of persistence and compliance with KALYDECO, Liisa, not entirely sure what you've heard anecdotally. But if I look at it kind of holistically, across all of the markets where we've introduced KALYDECO, there is a very, very low level of discontinuation.

Certainly, discontinuations for efficacy being too good and also, we see very, very high compliance rates up in the 80%, which for a chronic medication is as high as I've ever seen personally.

So whilst you might have heard some of these things anecdotally, I think big picture, when you look at it on a population basis, persistence and compliance are both very, very high with KALYDECO..

And our next question comes from Yaron Werber from Citigroup..

This is Kumara in for Yaron. There were lot of data presented at NACFC on the long-term benefits of KALYDECO.

Are you able to discuss with [indiscernible] and probably get like reimbursed in a better manner? Or what are you guys doing about that?.

There was some data presented at NACFC, and we are able to talk with some of that -- about some of that data to insurers and reimbursement authorities and have been talking with them about the data that we have on KALYDECO and its long-term benefits for some time.

So yes, we have, and I think that data is always appreciated by them as, obviously, this is a chronic medication for a chronic condition.

So that information is certainly of some value to them as they can see the consistency and durability of responses that we see and also the ability that KALYDECO has demonstrated to be able to change the natural course of the disease..

And any update on licensing VX-509 out?.

No, there's no update at this point..

And our next question comes from Katherine Xu from William Blair..

I'm just wondering, Stuart, can you just quantify a little bit the increase of SG&A next year as you launch the double combo? And also another question, probably for Jeff, from a theoretical perspective, I'm sure you're conducting a lot of experiments with other compounds as well.

Is the combination of the 1 potentiator plus 2 corrector potentially versus 1 corrector and 1 potentiator plus another one with some kind of other means of action, do you see, so far, any differences? And do you think that your methodology would come out a strong one next year?.

Katherine, I'll take both of those questions, thanks. So as I mentioned earlier on the call, we're not really in a position to quantify the incremental investment in SG&A for 2015. Although I have to make comments as in -- and it's difficult without giving a number to say whether it's significant or insignificant as you may view it.

But the way we look at this is that we're launching a very important medicine in the U.S. in the middle of next year, we hope. And therefore, we want to support that through awareness and also getting fast access to the drug. That's principally where the investment is.

As you know, given the already high awareness for this combination medicine and the -- both from patients and physicians, the challenge for us in reaching patients as fast as possible is actually helping them with access. That's where the principal investment will be. This is not a typical drug launch where you've got consumer brand advertising.

It's more about helping access to patients. And so we look at it as a spot launch. And as I said on earlier, we also look, as we go forward in future years, that we want to hold operating costs, those our R&D and SG&A expenses, to really get leverage off of growing revenue line, which creates the growing earnings and cash flow.

And then the second question regarding, let's say, more of a broader business development strategy and how we think about combination medicines of those next generations that we have within Vertex. We are looking at the full field. It's the #1 priority in our business development efforts at this point in time.

We do see opportunity, both internal, and we have multiple next-generation compounds that act in different ways that we may be able to combine with lumacaftor and ivacaftor or with 661. And so we have great opportunity there within Vertex.

When we go outside the walls of Vertex, we also see opportunities and whether it's directly on target of how we think about CFTR modulation or whether it's with other complementary mechanisms, we see a couple of opportunities there as well.

They tend to be earlier stage, but we do see opportunities, and I think hopefully, the other side of this is the other companies see opportunities of working with us given our advanced nature of our medicines to date..

Our next question comes from Matthew Harrison from Morgan Stanley..

I just want to ask a question about pricing and reimbursement.

When you think about Europe, as you try to expand the label with some additional gating mutations, would that require you to go back and renegotiate pricing? Or only when you have a substantial change like the combo?.

Yes, thanks. I think it's important when thinking about gating to put a few things into context. So the first one is that the additional gating mutations account for somewhere around 400 patients worldwide, about 250 of which are in the EU. So it's a relatively small number of patients.

The other thing to know about the patients with additional gating mutations is that some of them are in markets where KALYDECO has already been reviewed by their health technology assessment agencies like, for instance, England. But many of those patients are in new markets where KALYDECO really hasn't gone through a full reimbursement assessment.

That's because they have such a small number of G551D patients. A good example there would be Italy. So it really is going to be negotiated on a country-by-country basis. The last thing I would say is that we do know that KALYDECO in these additional gating mutations performs pretty much identically to how it performs in G551D patients.

And so the value proposition, if you want to describe it that way, is really the same in gating patients as it is in the G551D population..

Our last question comes from Yigal Nochomovitz from Oppenheimer..

I just want on the cash balance and your strategic strategy going forward, with some of the next-generation correctors. You suggested at the NACFC event that you could see some deals and collaborations with some of the smaller next-generation corrector players in the coming months.

So I just wondered if you could elaborate a bit on your strategy there and whether you'd be open to a strategy where you could test internally developed correctors and the externally sourced correctors in a parallel fashion..

So yes. So that was actually the answer I gave on the prior question, which is, yes, we -- I start, first of all, inside Vertex, which is we have multiple next-generation correctors. And as you know, we have a great belief in our HBE assays. And so we're doing all the usual work there. They've tended to translate right into clinical results.

And then as we go outside of Vertex, there are a number of companies that have, a couple of companies have a similar approach to ourselves and those could be interesting. And we need to compare those opportunities with what we have internally in terms of adding next-generation type molecules to the portfolio.

And then I would say there are other mechanisms that would be complementary to our approach that may provide additive benefit. And so we give consideration to those as well. I appreciate you pointing out the strong balance sheet. That gives us our opportunity to participate in these opportunities.

And we hope to bring more information to you in the future on this..

Great. And just one quick question on the guidance. If you net out the KALYDECO guidance revision, it seems that you're raising the non-KALYDECO guidance from $50 million to $65 million to $75 million.

Could you just clarify exactly what's going on there? What's driving that?.

So I haven't specifically done that math. But if there is something that's driving the non-KALYDECO, the only thing I would start with the only non-KALYDECO revenue items are collaborative revenues and royalties. And the significant transaction this year that's contributing to that line is the outlicensing of VX-787, the flu molecule, to J&J..

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