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

Michael J. Yee - RBC Capital Markets LLC Geoffrey Meacham - Barclays Capital, Inc. Matthew M. Roden - UBS Securities LLC Geoffrey Craig Porges - Sanford C. Bernstein & Co. LLC Terence C. Flynn - Goldman Sachs & Co. Cory W. Kasimov - JPMorgan Chase & Co. Ying Huang - Bank of America Merrill Lynch Matthew K. Harrison - Morgan Stanley & Co. LLC Odysseas D.

Kostas - Evercore ISI Institutional Equities Robyn Karnauskas - Deutsche Bank Securities, Inc. Phil M. Nadeau - Cowen & Co. LLC Tony Butler - Guggenheim Securities LLC Brian P. Skorney - Robert W. Baird & Co., Inc. (Broker) Liisa A. Bayko - JMP Securities LLC.

Good evening, everyone. This is Michael Partridge, Head of Investor Relations for Vertex Pharmaceuticals. Welcome to our Second Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will open the line for questions.

As a reminder, this conference call is being recorded and a replay will be available following the conclusion of tonight's call on our website. Earlier in July, we announced the approval of ORKAMBI and many of you joined for that call. Tonight, we will be focused on second quarter performance and our execution against our corporate strategy.

Joining me on tonight's call are Dr. Jeff Leiden, Chairman and CEO; Stuart Arbuckle, Chief Commercial Officer; and Ian Smith, Chief Financial Officer. Jeff Chodakewitz, our Chief Medical Officer is travelling and is not with us tonight. Our agenda tonight is as follows. Jeff will begin by discussing key priorities for our business.

Stuart will review the second quarter performance of KALYDECO and make a few comments on the ORKAMBI launch. And to close, Ian will review the second quarter 2015 financial results and update our 2015 guidance. You can access the webcast slides by going to the Events section of the Investor Relations page on our website.

I will remind you that we will make forward-looking statements on this conference call.

These statements are subject to the risks and uncertainties discussed in detail in today's press release and our 10-K, which has been (1:32) without limitation, those regarding the ongoing development and potential commercialization of ORKAMBI, those about Vertex's other cystic fibrosis programs, and Vertex's future financial performance are based on management's current assumptions.

Actual outcomes and events could differ materially. Information regarding our use of GAAP and non-GAAP financial measures and a reconciliation of GAAP to non-GAAP is available on our second quarter 2015 financial results press release. I would also refer you to slide four of tonight's webcast. I will now turn the call over to Dr. Jeff Leiden..

Thanks, Michael. Good evening, everyone. The approval of ORKAMBI on July 2 was an important milestone in our shared journey with the cystic fibrosis community. ORKAMBI is the first FDA approved medicine to treat the underlying cause of CF for the approximately 8,500 people in the U.S., 12 years and older, with two copies of the F508del mutation.

This is a big step forward toward our long-term vision of helping more people with CF. We feel very fortunate to be part of the CF community and we appreciate all of the positive feedback we have received and continue to receive from patients, caregivers, healthcare providers and the broader CF community.

At the beginning of this year, we outlined three strategic priorities that will allow Vertex to continue to deliver on our vision to make new transformative medicines available to patients globally. Let me briefly review our progress toward meeting those goals.

First, through both geographic and label expansion, we have continued to grow the number of patients treated with KALYDECO, resulting in strong revenue growth. With the ORKAMBI approval and launch in the U.S., we have an even greater opportunity to treat more patients, resulting in additional revenue growth.

Second, we know that there is still much more to do. We continue to make significant investment into multiple programs to create more CF medicines that may enable us to treat even more patients and to improve the benefit for the patients we treat.

All four studies included in the VX-661 plus ivacaftor pivotal Phase 3 development program are initiated and we also remain on track to bring a next generation CFTR corrector into the clinic by the end of 2015.

And third, we have expanded and diversified our pipeline through our collaboration with Parion to develop and commercialize investigational Epithelial Sodium Channel or ENaC inhibitors for CF and other pulmonary diseases.

We also continue to advance early-stage development programs outside of CF, including clinical programs in oncology and research programs focused on other areas. We look forward to updating you on these programs later this year. The continued execution on our strategy has fundamentally changed the outlook for our business.

Specifically moving forward, we expect to deliver a financial profile of growing revenues, earnings and cash flows, while also continuing to invest to create new medicines to treat more patients with CF and other serious diseases. With that, I'll hand it over to Stuart..

Thanks, Jeff, and hello everyone. I'll review KALYDECO performance in the second quarter and also make a few comments regarding our progress in making ORKAMBI available to eligible patients in the U.S. Global sales of KALYDECO this quarter were $155 million comprised of U.S. sales of approximately $93 million and ex-U.S.

sales of approximately $62 million. This represents a 37% increase compared to $113 million in the same quarter last year. The strong growth of KALYDECO is a result of both geographic and label expansion. We have seen good uptick in patients with the R117H mutation following approval in the U.S.

in late 2014 and in children ages two-year-old to five-year-old with eligible mutations following U.S. approval at the end of March 2015. Internationally, there has also been rapid uptick of KALYDECO by eligible patients in Australia, following the reimbursement agreement reached in late 2014.

Also during the second quarter, we achieved reimbursement approval for non-G551D gating mutations in several European countries, where these mutations are prevalent, including Italy, France, England and the Netherlands. As a result, today more than 85% of eligible gating patients in Europe now have access to KALYDECO.

Further growth in patients receiving in KALYDECO will be tempered by enrollment in the VX-661 pivotal program as previously described. And this is reflected in our KALYDECO revenue guidance. Now, turning to ORKAMBI.

Since the FDA approval of ORKAMBI on July 2, we have been working to get the medicine to the approximately 8,500 eligible patients as rapidly as possible. Our field teams around the country have been educating healthcare providers on the ORKAMBI prescribing information.

Since approval, they have visited the vast majority of the 275 CF centers in the U.S. As we anticipated, interest in the medicine is very high. We believe that all eligible patients with CF should have access to ORKAMBI.

Our public and private payer interactions to-date have been productive and our patient support team has begun to help patients navigate the reimbursement process. Thanks to these efforts and the commitment of healthcare providers at CF centers across the country, I'm happy to report that the first patients are already receiving ORKAMBI in the U.S.

In summary, geographic and label expansion continue to drive significant growth in the number of patients we treat with KALYDECO. And with the launch of ORKAMBI, we are significantly expanding the number of eligible CF patients we treat. I'll now hand the call over to Ian..

Thanks, Stuart, and good evening everyone. Tonight, I would like to discuss our second quarter 2015 financial results and then update our 2015 financial guidance. Firstly, to the financials. KALYDECO revenues were $155 million this quarter and were up 37% from the second quarter of 2014, and up 18% sequentially compared to our first quarter this year.

We continue to nicely expand the number of eligible patients we treat with KALYDECO. Our second quarter non-GAAP R&D and SG&A expenses were $254 million, an increase of $17 million compared to last year, mainly due to an increase in SG&A expenses, supporting the launch of ORKAMBI.

Our non-GAAP net loss was $131 million compared to prior year non-GAAP net loss of $142 million. From a balance sheet perspective, we've maintained a strong position with approximately $1 billion of cash at the end of the quarter. Let's now turn to the 2015 financial guidance and specifically KALYDECO revenues and combined R&D and SG&A expenses.

Earlier this year, we anticipated 2015 KALYDECO revenues to be between $560 million and $580 million. And based on an increased uptake due to label and geographic expansions, as Stuart previously mentioned, we now expect KALYDECO net revenues to be between $575 million and $590 million for the full year 2015.

For the non-GAAP operating expenses, we continue to expect the combined non-GAAP R&D and SG&A expense to be between $1.05 billion and $1.1 billion for the full year.

I'd just note that we expect our operating expenses to be higher in the second half of this year compared to the first half, mainly as a result of the anticipated progress with the VX-661 pivotal program and the investment to support the launch of ORKAMBI. I will close by stating that we are in a strong financial position today.

We are growing our revenues and we expect to show additional growth from ORKAMBI. We'll continue to invest to create even more medicines and support access to those medicines already approved. With that, I'll ask the operator to please open the line for questions..

Our first question is from Michael Yee with RBC Capital Markets. Your line is open..

Hey, great. Thank you. Congrats on the progress. A question for Stuart and then a question for Ian. I guess, Stuart, appreciate the comments on the launch. Maybe if you could just comment more specifically on reimbursement and the process for reimbursement that you're seeing.

Are payers quickly getting people on drug? Maybe walk us through that process, and how long it takes to get people on drug, what you're seeing out there? And then for Ian, I know you maintained the guidance for expenses, it's fantastic. I know people are thinking bigger picture as you transform into a very profitable company.

Maybe you can comment about how R&D expenses – how you're thinking about that, given you now have an ENaC inhibitor, all these Phase 3s, how you're thinking about controlling some of that, or making sure you're going to be very profitable? Thanks..

Hi, Mike. It's Stuart. Thanks for the question. So in terms of the process for reimbursement, essentially payers fall into a couple of different camps. Some come to making formal decisions very quickly, and we've seen some of those. Most have a process where they're going to have kind of the equivalent of a P&T Committee and review the product.

And those will often then put in sort of interim policies, as it were, where they'll evaluate, on a case-by-case basis, whether a patient can be initiated on ORKAMBI.

And so as a result of those interim policies and some initial policy decisions, that's why we have already seen patients start on ORKAMBI in the first few weeks following launch, and then over the next few months, more and more payers will come to their final determinations on their coverage policies for ORKAMBI.

As I say, based on the discussions we've had so far, we do continue to anticipate that we are going to have broadened and positive reimbursement for ORKAMBI. And I'll pass it over to Ian to handle the expenses question..

Mike, hi. Thanks for the question. I'm going to take it a little broader if you don't mind, and really comment on what is our goals with, let's say, the Vertex financial profile. And it starts with a growing revenue stream, which we are very confident around, given the recent approval of ORKAMBI.

We looked at growing that rapidly, providing access to the medicines that are already approved, and basically holding the steady state, our operating expenses in the company. The primary driver within our operating expense structure is R&D.

That's a function of our commercial model, as we get – provide access to the medicines around the world, which is highly leveraged, with small investment required to provide access to these medicines, actually providing access to the medicines is more about education than it is about selling a drug.

So that allows us as a business to reinvest in R&D, yet still aim to have high operating margins.

And as we see out over the next three years, four years, we do see ourselves as a business that if we can drive our medicines to patients and hold our operating expense, which is exactly what we expect, that we generate high operating margins and operating margins that are consistent with our, let's say, larger cap biotech peers..

Perfect. Thank you very much..

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

Hey, guys. Thanks for taking the question, and good quarter.

Couple more clinical questions, I'm hoping somebody there can answer it, but I noticed in the press release today, one of the endpoints for the younger population in Europe, the six-year-old to 11-year-old, was absolute change in lung clearance, and I wasn't sure if you guys were sort of rethinking some of the endpoints overall for development, beyond FEV1? Or is this just a special case, just given the age of the population? I have a couple other pipeline questions as follow-up..

Hey, Geoff. This is Jeff Leiden. Jeff Chodakewitz is travelling today, so he's not here, so I'm going to take the R&D questions. And thanks for asking that question.

We've been talking for some time, both with Wall Street and with regulators, about the notion that we are eager to explore additional endpoints to FEV1, particularly for younger populations where it's more difficult to consistently blow a good FEV1 if you're two-years-old or three-years-old.

And as part of that, we've explored three or four different endpoints, including lung clearance index.

And this was a very nice opportunity, in talking with European regulators about this younger population, to begin to use lung clearance index, which is much less effort-dependent and much more consistent, particularly in young patients, as an efficacy endpoint.

So it'll be interesting to see the result on this study which we think will be highly predictive using this endpoint. And we also plan to use those kinds of results to begin to discuss with other regulators, whether these other endpoints might be useful, particularly in the very young patients..

Okay. That's helpful, Jeff.

And another question just on the ENaC inhibitor, does this change the priorities for you guys for your next-gen corrector? Or is this – would you view this as kind of complementary to what you already have? And then are we still on track to identify the third corrector, I guess, by year-end or early part of next year? Thanks..

Let me – maybe I'll take those in a reverse order, Geoff. So yes, we're absolutely on track to identify the third corrector. And just remind you, I know you know this that our strategy here has been to bring multiple next-gen correctors into the clinic.

And our goal is the first one by the end of this year with a several others following directly behind it, and that's progressing nicely and we are on track. With respect to the ENaC inhibitors, yeah, we do view them very much as complimentary.

And they could be complimentary in a couple of ways, right, because they fall outside of the classic CFTR correction. They may have activity as monotherapy, particularly in populations like het-mins that don't have anything and frankly in other lung diseases as well.

But we're particularly eager to study them on top of our current regimens like ORKAMBI because they may amplify the signal that we're seeing here. So I wouldn't view them as one or the other, I would definitely view them as complimentary.

And I guess, your question is sort of getting at do they in anyway slowdown or deprioritize our next-gen correctors? And the answer is, no, we're full speed ahead on next-gen correctors..

Okay, great. Really helpful. Thanks..

Our next question is from Matt Roden with UBS. Your line is open..

Great. Thanks very much for taking the question. First, Stuart, I wonder if you could elaborate on some launch metrics that you're seeing.

I know it's early days here, but is there any sense for the sort of numbers of centers prescribing or any other early indicators from maybe a time from prescription to fill, any other metrics that you can share so we can get a sense of what's happening out there? And then, I think this might be for Ian, if you could help us square the sales and the increase in guidance against your prior comments regarding the impact of enrollment of VX-661 trials on KALYDECO use.

Do you have a same-store sales metric that enables you to see that that impact is happening but that the geographic expansion and label expansion is compensating for that, or is it just that it's actually not happening to the extent that you previously got, that is the impact of VX-661 trials? Thanks very much..

Matt, hi. It's Stuart here. Just in terms of launch metrics, I mean, we're less than four weeks in since the approval. So I'm really not going to comment on specific launch metrics and how predictive those are, the kind of the trajectory that we're seeing overall.

As we said before, because of the interest in the product, the unmet need and the fact that it treats the underlying cause, we're certainly expecting the overall penetration of ORKAMBI in the eligible patient population to be high.

And we've said it all along that we do think though it will take longer for ORKAMBI to reach peak penetration compared to KALYDECO for a number of factors that we've gone into previously like the volume of patients and the time it's going to take to educate patients and get them through the reimbursement approval process.

But yeah, it's really much too really to be kind of throwing around specific launch metrics right now. And then on the guidance in KALYDECO revenue question, I'll throw that over to Ian..

Yeah. Hi, Matt. Thanks for the question. First off, I'd say, we're very pleased with the expansion of KALYDECO and, let's say, treating more patients through geographic and label expansion.

As far as the guidance we've provided for the full year, we do actually now anticipate patients that would be available for the medicine mainly in Europe actually, to go into VX-661 trial. Remember as ORKAMBI was approved in the U.S., we switch the recruitment of the VX-661 pivotal studies to Europe.

Europe is where we're starting to continue to recruit new patients, potentially based on the label expansion of KALYDECO. And instead of going onto KALYDECO, we're starting to recruit those into our VX-661 studies.

So we have built that into our guidance and hence why we come out with something that is between $575 million and $590 million, therefore reflecting a lower growth rate than where we currently are between Q1 and Q2. We do think it will flatten out..

Okay, great. Thanks for taking the question..

Thank you. Our next question is from Geoffrey Porges with Bernstein. Your line is open..

Thanks very much and congratulations on the progress and the good numbers. A question first related to the extension study for the patients that were on ORKAMBI coming into the approval.

Could you give us a sense of, first, how many of the patients who were eligible were actually enrolled and stayed on treatment and then what number of them have rolled over to commercial drug? And then, I just wanted a quick follow-up on VX-371.

Jeff, perhaps you could address why do the study with ORKAMBI rather than with VX-661?.

So Geoff, it's Stuart here. In terms of the number of patients who rolled over from TRAFFIC and TRANSPORT into the extension study, that number was very high, it was north of 90%.

And Jeff Chodakewitz, if he were here, would have the exact numbers, but it was north of 90% of patients rolled over from TRAFFIC and TRANSPORT into the open-label extension.

About half of those were in the United States and the process of informing those centers and those patients, the commercial product is now available and beginning to roll those patients over to commercial product is just beginning. But it's about 500 or so of the 1,000 who rolled over into the 105 study, were here in the United States.

And on the VX-371, I'll pitch back to Jeff Leiden..

Great. Thanks..

Yeah, Geoff. In terms of VX-371 and why we're going with ORKAMBI, it's really a matter of how do we get the medicine potentially to patients the fastest.

So since ORKAMBI has already approved, simply adding one unapproved drug and getting the result will let us – assuming that we have success, will let us get that new drug, VX-371, to patients the quickest then. And our goal all along has been improving therapy as quickly as we could..

Okay. Thanks very much..

Thank you. Our next question is from Terence Flynn with Goldman Sachs. Your line is open..

Hi. Thanks for taking the question. Maybe just two for me. Can you just remind us about the anticipated timing of the Medicaid coverage for ORKAMBI? And then, regarding the VX-661 KALYDECO trial on het-min, now that you started that trial, can you just maybe remind us of expectations for when that interim analysis might occur? Thank you..

Yeah. Terence, it's Stuart here. In terms of the Medicaid coverage, there really isn't one answer, there's really 50 answers because obviously Medicaid managed state-by-state. So I really can't give you one answer to the Medicaid question. What I can share is that we've already seen patients initiated on therapy in the first four weeks.

And within that number of the patients, we have patients who have commercial insurance as their primary insurance, we also have patients who have government insurance in the number of the people who've already been initiated.

But to give one specific number for Medicaid is just impractical because there's really 50 answers to that particular question. And for the second part of the second, I'll hand it over to Jeff..

Yeah. In terms of the het-min trial, just to remind you, Terence, we actually just announced that that trial is open for enrollment. So it's essentially starting now, if you want to think about it that way. And to remind you the design of that trial, it actually has two parts.

We enrolled around a 150 patients plus or minus, we then have a DSMB that will do a futility analysis. We won't actually see the numbers at that point. They'll simply tell us to stop if it's futile or to continue. If they tell us to continue, we then enroll another approximately 150 patients.

Because of the shorter study than the 24-week homozygous study, we would still have visibility to that data by the time we had visibility to the homozygous study. We expect that to be sometime in 2016 depending on how quickly the enrollment goes.

Does that answer your question?.

Yeah. Thank you. And maybe, Stuart, just one follow-up on Medicaid.

Can you just remind us in terms of KALYDECO, what the benchmark was there in terms of the – I understand it's the state level, but just what was the range in terms of how long the process took from first day to the last day?.

Well, I mean, we're splitting hairs a little bit there, Terence. And then the uptake with KALYDECO was so rapid, as you know, we got to 90% plus of patients – we were up 90% of peak in six months. And so it was really incredibly rapid across both commercial payers and Medicaid. So there really wasn't much of a range that I could give you there.

It was incredibly rapid for KALYDECO across all patient populations and all insurers..

Okay. Thanks..

Thank you. Our next question is from Cory Kasimov with JPMorgan Chase. Your line is open..

Hey, guys. Thanks for taking the questions.

I guess, just to follow-up on that, just based on your early discussions with payers on ORKAMBI, is there any change to your expectations for gross-to-net? Or maybe in other way has reaction to the price been about what you expected when you announced it earlier this month? And then secondly on the new ENaC product you have, does the ongoing Phase 2 trial in patients with any CFTR mutation include heterozygous patients? Thanks..

So Cory, on the reaction to the price, I would say, has been very balanced. Indeed, the focus of our discussions has really been less around the price and more around the clinical profile of ORKAMBI. And in terms of whether it changes our view on the gross-to-net, it really doesn't. The gross-to-net is almost exclusively driven by the payer mix.

And as we explained previously, we are expecting the Medicaid payer mix to be a higher percentage for ORKAMBI than it was for KALYDECO. And it's likely to be in around that sort of 35% to 40% of eligible patients we predict will be covered by Medicaid. The vast majority of the rest will be covered by commercial insurance.

But our view on that gross-to-net hasn't been changed by anything we've seen in the first four weeks..

Okay, great..

And then in terms of the ENaC trial, just to remind you, there actually we're planning two trials, the first one's already underway. And that trial is basically monotherapy in any mutation. I assume, you're referring to het-mins and so the answer is, yes, het-mins would be there..

Yeah..

With the obvious exception that KALYDECO-treated patients and, now going forward, ORKAMBI-treated patients, wouldn't be included in that study. The second study is going to be the ENaC inhibitor on top of ORKAMBI in patients who are treated with ORKAMBI..

Okay. Perfect. Thank you..

Our next question is from Ying Huang with Bank of America Merrill Lynch. Your line is open..

Thanks for taking my questions as well. First one maybe for Stu. It was reported that Harvard Pilgrim in Boston is actually discussing with you guys about pricing scheme based on pulmonary function in patients taking ORKAMBI.

I was wondering if that's a single isolated case, or have you seen that among the other payers or not? And then secondly, on the R&D front, I noticed that in the press release you guys are adding one arm in the Phase 3 trial for VX-661 for patients who have one allele of F508 and the other allele with residual CFTR function.

You're adding one monotherapy KALYDECO arm. Is that due to request from FDA or – and also, are you going add monotherapy arm in the other Phase 3 trials or not, in VX-661 trial? Thanks..

Yeah, Ying, so I'm really not comment on what discussions that we're having with individual payers and plans. I'll say what we've said all along. Our belief is that all eligible patients deserve to have access to ORKAMBI, and for it to be a decision for the physician and patient, whether they want to initiate those patients on ORKAMBI.

And on the VX-661 program, I'll hand that off to Jeff..

Yeah, just to be clear, the design of the VX-661 program has not changed, we haven't added any new arms. The residual function arm always had in it, both the placebo and ivacaftor monotherapy compared with VX-661 plus ivacaftor. So nothing has changed there..

Okay. Thanks..

Our next question is from Matthew Harrison with Morgan Stanley. Your line is open..

Great. Thanks for taking the question. So I just wanted to go back to the ENaC, just for a second.

I think you talked a little bit about the rationale, but maybe if you could expand upon the rationale for combining with ORKAMBI? And then secondly, what specifically might you hope to see? Should we be looking for increased lung function? Should we be looking for a lowering of the exacerbation rate? I mean, what would you be hoping to see with that combination? And then separately, just on KALYDECO, I just want to make sure I understood your comments correctly, are you saying that all of the growth came from increased penetration across the new gating mutations? Thanks..

So maybe I'll take the R&D question first, the ENaC inhibitors. Ian described this in terms of the ocean and seaweed, but I can't be nearly that eloquent. So I'll take it from a more scientific standpoint, maybe.

The way we think about ENaC, and the way the ENaC inhibitors work, as you know, is that ENaC is a separate channel; it's a sodium channel that is also involved in hydrating the secretions in the mucus in the lung. And so, you could think about it as – and is actually even an interaction with CFTR.

So CFTR is a chloride channel that helps hydrate the mucus; ENaC the sodium channel, it helps hydrate the mucus.

And so the rationale, based upon preclinical studies, is that if you combine an ENaC inhibitor with a potentiator, for example, or corrector potentiator, you'll get even better hydration of the mucus, which then should lead to better lung function.

So what we're doing with the ENaC inhibitor program is, we're asking the question, does the ENaC inhibitor alone have activity to help hydrate the mucus and improve lung function in all mutations? And then, if we take the ENaC inhibitor and add it to KALYDECO or ORKAMBI, can we get better hydration than we get with the single agent alone? And the rationale is really based upon the work we've done in our human bronchial epithelial cell assays that say, when you add an ENaC inhibitor to a CFTR corrector or to a corrector plus potentiator, you actually get even better hydration.

So the question is, does that translate into the clinic in improvements in FEV1, and we definitely are going to be looking at hard end points like FEV1..

And then, in terms of the KALYDECO growth, it really is a combination of both label expansion and geographic expansion. For instance, in the U.S., we've had label expansions where the R117H patient population was added to the label at the back-end of 2014.

And then in March, we were also approved for use in children between two years and five years with eligible mutation. So there's label expansion here in the United States.

And then outside of the U.S., it really has been geographic expansion, such as G551D patients in Australia, where the uptake has been very rapid, and then also additional gating patients in a number of countries in the EU. So there really isn't one answer to what's been driving the KALYDECO revenue growth.

It really has been that combination of label expansions into new populations and geographic expansion into new markets..

Operator....

Our next question is from Mark Schoenebaum with Evercore ISI. Your line open..

Hello, hi. This is Odysseas sitting in for Mark. Congratulations, and thanks for taking my questions.

But just a few questions, one around the het-min trial, wondering about potential disclosure, or lack of disclosure, at the interim if it doesn't hit and there – an expansion is required for an additional 150 patients? The second question had to do with this lung clearance index.

I'm just wondering whether Vertex is previously used at endpoint any of these trials that have any data from of any these drugs? And if so or if not in terms of thinking about how Vertex thought about the powering and design of the study based on that? And then the last question in terms of the next-generation corrector and one coming by year-end, but as I understand, there'll be additional probably next-generation correctors – next-generation potentiators, but next-generation correctors that may follow.

Just wondering if Vertex is perhaps eyeing or if Vertex could quantify how many of those they're maybe eyeing to bring to the clinic in 2016? Thank you..

Sure. This is Jeff. Let me take the last two questions and I'll turn it over to Ian on the disclosure question. Starting with the next-gen program, we've said previously that we have multiple next-gen correctors in lead optimization, which as you know is sort of the study of the drug-like properties and tox (34:20) data from those molecules.

And as I said, we're on track to bring the first of those into the clinic this year, and our goal is to bring at least two or three additional behind that following completion of lead optimization for those additional molecules and to compare several different next-generation correctors.

And then your question about lung clearance index, yeah, lung clearance index is actually a fairly widely used measure of the ability to empty the lungs or the air effectively.

And there is data from a number of studies showing, for instance, that when G551D patients were treated with KALYDECO, there's a significant improvement in lung clearance index and we're happy to send you some of those studies. So it is an end point that's pharmacologically validated, if you want to think about it that way..

Thanks..

And, Odysseas, thanks for the question. Just to refer to an earlier comment Jeff Leiden made, which was the initial thought – the initial cohort of patients that enters the het-min study with VX-661. And the idea of that is there is a futility assessment.

That futility assessment, if an independent advisory board deems that it is worth progressing forward, we will just continue to recruit patients and the study will be ongoing. We will not be at a disclosure point to that point, we'll just continue to recruit into the study and wait for the complete and final results of that study.

If the board deems that it is futile, effectively futile in dosing those patients, they will advise us so and we will curtail the study on stopping that study and working the patients off-drug. We will provide a disclosure to let you know that that study is no longer going forward.

So I think the way to think about this is if there is no news, it is because the study will progress and they will continue to recruit het-min patients. And if there is an early closure of that study, we'll advise you at that point in time..

Thanks.

Just to clarify, so there won't be, let's say, an increase in the number of patients on ClinicalTrials.gov or anything of that sort?.

No, there won't be any disclosures, no..

Thank you very much for all the questions..

Our next question is from Robyn Karnauskas with Deutsche Bank. Your line is open..

Hello. Hi, guys. Thank you for taking my questions. Can you hear me okay because I'm kind of in a noisy area outside..

We can hear you..

Very clearly, Robyn..

Great. All right. Excellent. There are two questions, one for Stuart and one for Ian. So you guys have talked a lot about in CF centers there could be a backlog with the processing within the CF centers and there may not be a lot to do about that.

Can you just talk a little bit about what you're seeing or any design to (37:06) help that process as patients move through, and if it's better or in line with your expectations? And then for Ian a lot of your competitors or comps are diversifying and you still are really a CF company and what are your thoughts on importance of diversification over the next year? Thanks..

Robyn, hi, it's Stuart here. So yeah, I think, whilst its early days, I think our experience in the first four weeks is the sort of factors that we were anticipating, are really playing out as we anticipate if they would.

And those factors, just to remind you is, the volume of patients is obviously much greater than it was, when KALYDECO was initially approved, just the G551D patients. So there's a volume of patient that centers need to get in.

Then obviously, when a physician is making the decision to start a patient on a new drug, then obviously there's fair amount of discussion, education is going to want to go on there, explaining the product, the mechanism of action, how to take it, all those sorts of things. And then obviously, we move onto the sort of reimbursement approval process.

And so all those factors that we anticipated prior to launch being involved in how the launch is going to go have certainly been playing out exactly as we thought they would.

In terms of what we're doing to support centers, we're doing a number of things, clearly providing education materials to support their discussions with their patients, we're providing them with help in terms of the sort of materials they need to submit to the various payers, be it prior authorization, documentation and stuff like that, providing them help with the documentation they're going to need, where the right place to send it is.

And then from a patient support point of view, obviously our Patient Services group is there to support individual patients navigate the reimbursement process as well. And so we're as compliantly as possible, we are providing as much support as we can to help patients get access to the medicine. On the second point, I'll pass it over to Ian..

Robyn, thanks for that question regarding we're focused on CF, very pleased about that.

But also I would say that we still need to continue to be focused on CF and part of our, let's say, corporate or business development strategy as well as our investments into research at Vertex is about strengthening our position and creating even better combination medicines to treat more patients in CF.

So that is one tactic and so we continue in CF and I think it is – it behooves company to continue to raise the bar in terms of the benefit we provide patients with our medicines and that's why we reinvest.

We also reinvest in other areas within the company and I hope that later this year and early next year we can tell you a little bit more about those other disease areas that we're in as well as our other business development efforts which are looking to expand our scientific footprint and then also just to consider other products that may diversify and stage our pipeline.

It tends to be earlier-stage ideas. I think that's appropriate for a company our stage as we progress forward and our priority is still cystic fibrosis.

I'll throw it over to Jeff Leiden though because I think there's just much more of a kind of a strategic comment that's worth making here which is while we're successful in CF, we've not taken our eye off that we want to go into other disease areas.

And maybe, Jeff, you have a comment?.

Yeah. I mean, I think Ian said it well. If I were to say it in a simple way, I think of this as sort of three strategic objectives. Number one, no doubt about it is CF, and not only increasing the number of patients that we can treat with new medicines, but actually increasing the benefit for all the patients we're treating.

And we've said many times our goal is to get to the majority, more than 90% of patients with medicines that have KALYDECO like or better effects. And I think we're executing well on that and we're well on track. At the same time, obviously, we are investing in areas outside of CF.

As I've said, we'll bring more new compounds into the clinic this year at Vertex than we ever have in the history of the company. We're not talking a lot about that yet, but you'll start to hear more news as we begin to get clinical results, I think, later this year and certainly the next year.

And then the third part, as Ian said, is that we're going to have the financial resources to also invest in innovation outside the company. And we're spending significantly more time, effort and money on our BD activities.

You've heard about a couple of deals, but I think you can anticipate more again typically focused on earlier-stage scientific platforms or assets. So it's really a three-legged stool, and I think with the launch of ORKAMBI, we'll now have the financial wherewithal to invest in all three parts of the stool..

Thank you. Our next question is from Phil Nadeau with Cowen & Co. Your line is open..

Good afternoon. Thanks for taking my questions. Just two, one scientific, or, I guess, actually both on clinical development. First on VX-661 Phase 3, have you ever disclosed what the futility analysis hurdle is or, if not, would you care to disclose it now? And then second, on the new – the second generation correctors.

Can you give us some idea of what the clinical development path is likely for those, specifically how quickly could they get into combination therapy regimens within FEV1 endpoint? Thank you..

Yeah. Thanks for both questions. So we haven't disclosed the hurdle and we won't be disclosing it today. As Ian said, I think the first news that you would get on that is if we didn't meet the hurdle and the study was stopped, we would disclose at that point what's going on.

With respect to the second generation correctors, we really see them following a fairly straightforward development path we've sort of pioneered the way here with our previous medicines. They go into a Phase 1 in normal single-ascending dose, multi-ascending dose.

And following hopefully successful safety results from those studies, we would put them both as monotherapy and as combination therapy into patients. And I think we've figured out – we've learned a lot over the last few years about how to do those studies very quickly, very efficiently with small numbers of patients.

And so I think we can get pretty definitive data using FEV1 as well as other endpoints on how they fare both by themselves and within combination..

Great. Thank you..

Thank you. And our next question is from Tony Butler with Guggenheim Partners. Your line is open..

Thanks very much, Jeff. Two brief questions. One is eliminating the sodium channel compounds for the moment.

Is there a rationale for a next-gen corrector to actually be QD or BID, such that it's more easily formulated with either ivacaftor and/or VX-661? And the second question is, is there any rationale from HBE experiments that actually suggest to you that there may be the need for three correctors in addition to a potentiator? Thanks..

Yeah. Thanks for both questions. So with respect to the formulation question, our goal always has been to make it as easy as possible for these patients to take their medicines, because they do take very large numbers of pills every day.

And so we continue to push for co-formulated products, that's certainly our goal, into one pill or small number of pills, and either QD or BID, both of those seem pretty acceptable to patients. And that's certainly our target product profile with the next-gen correctors and combinations.

Your other question was, could we need three correctors? The answer is, we don't yet fully know, but certainly our goal is to try to keep this to as few medicines as possible, simply from drug-drug interaction standpoint, from a co-formulation standpoint.

So again, if you ask me what our target product profile was today, it would be a first-gen corrector, a second-gen corrector and a potentiator..

Thank you. That's helpful..

Operator, we have time for two more questions..

All right. Our next question is going to be from Brian Skorney with Baird. Your line is open..

Hey. Good afternoon, guys. Thanks for taking the question. I guess I just wanted to kind of get your temperature on how we should be thinking about pricing of the VX-661 combination in the context of ORKAMBI and KALYDECO's price. They're obviously at different print points, but they're in different patient populations right now.

Based on the VX-661 combo studies, there's probably going to wind up being significant overlap between KALYDECO and ORKAMBI patients. I guess about 80% of KALYDECO responders have probably shown improvement on VX-661 plus ivacaftor, based on the Phase 2 data.

And it doesn't look like there'd be a meaningful amount of clinical efficacy above and beyond ORKAMBI for the combo.

So I guess, is it more important to you guys to maintain price per patient for KALYDECO responders, or to try to get ORKAMBI patients to switch to the VX-661 combo, because it doesn't seem like you could really do both?.

Yeah. Brian, I think, the most important things to us overall are to increase the number of patients that we're able to bring a benefit to, and continue to increase the benefit we deliver for the patients that we are able to treat. That's our overall strategy. And KALYDECO combined with VX-661 is a part of that overall strategy.

But to really be commenting on price right now is way too early. As you know, we've got this broad Phase 3 program studying it across multiple patient populations.

And until we see the results, both safety and efficacy, across those different patient populations, it would really be inappropriate to be speculating on how we might price that combination..

And I guess is, would you perceive any benefit, outside of a double corrector potentiator combination, to have patients on a VX-661 ivacaftor combo as opposed to ORKAMBI, if kind of the Phase 2 data winds up holding up and they look pretty similar efficacy-wise?.

I'm not sure I understand your question.

Can you ask that again, a double corrector combination -?.

So basically what I'm getting at is, would there be a reason to try to get patients on ORKAMBI switched to VX-661, in your view, if the efficacy profiles are relatively similar?.

I think it will really depend on the totality of the profile, and whilst efficacy is one part of the equation, obviously there's safety as well. So it's really going to depend on what the physician and patients think is the overall profile of the medicine, if it's successful in that population, compared to their experience with ORKAMBI.

So at this stage, it's really a very hypothetical discussion, Brian. We'll wait and see how the Phase 3 program plays out. And when we've got the results in hand, we'll be able to have a much more informed discussion about which patient populations may be eligible for VX-661 and ivacaftor..

Okay. Fair enough. Thanks, guys..

Thank you. And our last question is from Liisa Bayko with JMP Securities. Your line is open..

Hi. I guess you saved the best for last. Thank you very much..

Absolutely..

Okay. First question, I just wanted to better understand the guidance. So if we extrapolate the results this quarter and just assume it's flat for the remainder of the year, we actually get to a number that's slightly above your guidance.

So I'm just wondering if there was any stocking or if there's some FX kind of considerations or greater gross-to-net in the future, what – and help us better understand the guidance you provided for KALYDECO..

So Liisa, thanks, and you certainly did save the best for last. So congratulations, your math is correct.

If you take the first six months of this year and then take this quarter and multiply it by two, which is a way of just saying the last three quarters are the same as the second and the first quarter is already done, you do get to slightly above the $590 million, that's correct.

I made comments earlier on the call, though, which is, we do anticipate patients that we expected to come onto KALYDECO treatment will now go towards the VX-661 Phase 3 studies. And clearly, we're trying to estimate that, but we have taken a conservative approach and we anticipate that will affect the growth of KALYDECO specifically in Europe.

And therefore, we're not anticipating a significant growth in the second half of this year with KALYDECO..

Okay. That makes sense. Thank you. I didn't totally put that together. Thanks. And then just a final question, again, I know a lot of people have asked, but on this lung clearance index.

Can you maybe give us what kind of assumptions you made in this population or how you powered it, and kind of like what clinical difference you expect to see or make sense just because we're not as familiar with it and we haven't seen as much of the data? That would be very helpful. Thank you..

Yeah. Thanks for the question. This is Jeff. We haven't disclosed the numbers there and probably won't until we get towards the end of the study. There is a fair amount of literature out there that we can send you on what kind of numbers one might see, as I said, the KALYDECO as an example.

The study is 200 patients, so it's appropriately powered to see the kinds of the differences that we think would be important to see clinically and statistically..

Okay. Thanks a lot..

Okay. That's going to conclude the call. We appreciate everybody joining us tonight. The IR team is available in the office tonight if anyone has additional follow-up questions. I'll also mention that we will be presenting at a few investor conferences in the coming months.

And in early October, we will plan to host analysts and investors at the North American CF Conference in Phoenix, so stay tuned for details on that. Thanks 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..