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

Michael Yee - RBC Capital Markets Terence Flynn - Goldman Sachs & Co. Geoff Meacham - Barclays Capital, Inc.

Mark Schoenebaum - Evercore ISI Geoffrey Porges - Leerink Partners Brian Abrahams - Jefferies Adam Walsh - Stifel Nicolaus Phil Nadeau - Cowen and Company Cory Kasimov - JPMorgan Alicia Young - Credit Suisse Matthew Harrison - Morgan Stanley& Co.

LLC Ying Huang - Bank of America Merrill Lynch Liisa Bayko - JMP Securities Tony Butler - Guggenheim Securities LLC Katherine Xu - William Blair & Company.

Good evening. This is Michael Partridge, Vice President of Investor Relations. Welcome to our First Quarter 2016 Conference Call. At this time, all lines are in listen-only mode. Later the lines will open for questions. You can access the webcast live by going to the events section of the Investor Relations page on our website.

And a replay of tonight’s call will also be available on the website once we have concluded. Dr. Jeff Leiden, Chairman and CEO; Stuart Arbuckle, Chief Commercial Officer; and Ian Smith, Chief Financial Officer, will provide prepared remarks this evening. They will be joined by Dr.

Jeff Chodakewitz, Chief Medical Officer for the Q&A portion of the conference call. We will make forward-looking statements on this 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 filed with the SEC.

These statements, including without limitation those regarding the ongoing development and potential commercialization of our drug candidates, our expectations regarding our improved medicines and Vertex's future financial performance are based on management's current assumptions. Actual outcomes and events could differ materially.

Information regarding our use of GAAP and non-GAAP financial measures and a reconciliation of GAAP to non-GAAP is available in tonight's press release. I would also refer you to Slide 4 of tonight’s webcast. I will now turn the call over to Dr. Jeff Leiden..

First, approximately 12,000 people less than 12 years of age, who have two copies of the F508del mutation and who may be helped by ORKAMBI. And second, approximately 5,000 patients who may be helped by KALYDECO comprised mostly of patients who have residual function mutation.

Treating a substantial portion of this additional group of 17,000 patients would further drive ORKAMBI and KALYDECO growth if we obtain future approvals for these additional groups of patients.

We have ongoing studies, regulatory submissions, and development plans to support these efforts including ongoing discussions with the FDA regarding our application for approval of KALYDECO and approximately 1,500 people ages two and older with one of 23 residual function mutations, as well as our recent sNDA submission to the FDA for approval of ORKAMBI in children ages six to 11 with two copies of the F508del mutation.

While we are focused on getting ORKAMBI and KALYDECO to as many patients as soon as possible, we also recognize that there are many patients who are still waiting for a treatment for the underlying cause of their disease. We hear from these patients often, so I am particularly pleased to report that our CF pipeline is advancing.

This gives us great confidence that we will ultimately be able to treat the vast majority of people with CF and potentially enhance the benefit for those people currently taking our approved medicines. I will start with VX-661, which could play an important role in the treatment of people with CF and it’s currently in Phase III development.

In combination with ivacaftor our Phase II data suggests that VX-661 may have an improved benefit risk profile compared to ORKAMBI in people with two copies of the F508del mutation and may provide enhanced clinical benefits over ivacaftor monotherapy for other patients with gating mutations.

We are on track to obtain the first data from the ongoing Phase III program for VX-661 in early 2017 from the study in people with two copies of the F508del mutation. Additionally, VX-661 is positioned to play a key role in the development of a triple combination with a next-generation corrector and ivacaftor.

We believe that this triple combination approach will be fundamental for two reasons. First, triple combinations may allow us to treat a very large group of patients who are not helped today by either ORKAMBI or KALYDECO, including those with one F508del mutation and a second mutation that causes minimal CFTR function.

And second, these regimens could provide even greater benefit to patients currently eligible for our approved medicines who have at least one F508del mutation. Today, we have two next-gen correctors in clinical development VX-152 and VX-440. These potential medicines are currently being evaluated in Phase I studies in healthy volunteers.

Successful completion of these studies would enable us to move rapidly into Phase II studies in the second half of 2016 to evaluate one or more next-generation correctors with VX-661 and ivacaftor and people with CF.

I’ll now turn to our pipeline of other potential CF medicines that could be complementary to our portfolio of CFTR modulator and it may enable us to treat more patients and provide greater clinical benefit in the years to come. The most advanced example of this is our lead ENaC inhibitor VX-371.

Today, we announced data from our Phase II 14-day study of VX-371 in 142 people with CF, who are not receiving ORKAMBI or KALYDECO. The study met its primary endpoint of safety, 96% of the patients who enrolled in the study completed all treatment and the treatment regimens consisting of VX-371 were generally well tolerated.

There were no statistically significant changes from baseline in FEV1 for those patients who received VX-371 compared to placebo.

The data announced today are consistent with our in vitro data that did not show a meaningful change in cilia beat frequency when VX-371 was used alone in human bronchial epithelial cells with two copies of the F508del mutation.

In contrast, these in vitro data did show a meaningful change in cilia beat frequency when VX-371 was used in combination with ORKAMBI. Together, the in vitro on clinical safety data generated to date provide further support for our ongoing study of VX-371 in combination with ORKAMBI.

This ongoing study began enrolling people with two copies of the F508del mutation ages 12 and older in the first quarter of this year. And the primary endpoints are safety and mean absolute change from baseline in lung function at a 28 of treatment as compared to placebo.

Additional information on these studies can be found in our first quarter press release issued today. Additionally, last year we entered into a collaboration with CRISPR Therapeutics with a longer-term goal of discovering gene editing approaches for the treatment of genetic diseases including CF.

The use of this technology in people with CF maybe many year’s away, but it is strategically important as we think about future advances that could fundamentally change the treatment of this disease in the years to come. Tonight, I have summarized how we think about our opportunity in CF.

An opportunity that is unique both in terms of the potential benefits that ORKAMBI and KALYDECO provides the people with CF today. And also for the long-term potential of our development stage medicines to treat the vast majority of people with CF in the future.

In conclusion, I’ll make just a few comments about the type of company we will become as we achieve the success in CF that I have just outlined. Vertex is on a path toward sustained earnings and revenue growth driven by an increasing number of people being treated with KALYDECO and ORKAMBI.

We believe our business model when focused on significant investment to create value through innovation, research and development positions us to consistently discover and deliver transformative new medicines for patients and to reinvest in scientific opportunities to create future medicines.

With that, I will turn the call over to Stuart to make more specific comments on the ORKAMBI launch..

Thanks, Jeff and hello everyone. Tonight, I will review our progress with the launch of ORKAMBI, the basis of our 2016 guidance for ORKAMBI product revenues and our ongoing efforts to obtain reimbursement outside the U.S. to drive further growth of ORKAMBI in 2017 and beyond.

We are now just over nine months into the launch and we are pleased that approximately 65% of eligible patients in the U.S. have initiated treatment with ORKAMBI to date. Global sales of ORKAMBI in the first quarter were $223 million comprised of U.S. sales of approximately $214 million, and ex-U.S.

sales of approximately $9 million, which were mainly from Germany. At the beginning of the year, our intention was to provide financial guidance for 2016 ORKAMBI revenues, once we had gained sufficient understanding of the dynamics of the launch in the U.S. Today, we have a deeper understanding of how doctors and their patients are using the medicine.

Based on the real world treatment patterns we've observed in more than 4500 patients who initiated treatment in the U.S. in 2015. I'll now share with you our understanding of the launched dynamics that informed our guidance. First, uptake defined as the total proportion of the 8500 eligible patients in the U.S.

who will begin treatment with ORKAMBI by the end of 2016 and also the rate at which these patients initiate treatment. Second the persistence rate, defined as the proportion of patients who start and remain on treatment. And third, the compliance rate which reflects the number of pills actually taken by a patient in a given month.

First to uptake, to date approximately 65% of the 8500 eligible patients in the U.S. have initiated treatment with ORKAMBI comprised of more than 3000 patients who initiated treatment in the third quarter of 2015 more than 1500 in the fourth quarter, and approximately 800 in the first quarter of 2016.

We have seen further initiations in April and expect that patient initiations will continue throughout 2016 albeit the lower rate than in the first three quarters post launch. We continue to expect the vast majority of the eligible patients ages 12 and older in the U.S. will initiate treatment with ORKAMBI by the end of this year.

Second, persistence among patients who have initiated ORKAMBI since launch, we’ve seen that approximately 15% of patients discontinued treatment within three months of starting treatment. Our clinical trial and market research data indicate that these discontinuations are largely related to respiratory adverse events.

After the first three months of treatment, the discontinuation rate then slows considerably. Based on what we've observed to date from all patients taking ORKAMBI including those who have been on commercial drug for up to nine months and those who continue to receive ORKAMBI as part of our Phase III long-term extension study.

We expect that the proportion of all patients who initiate and remain on treatment will stabilize at approximately 70% to 80%. It is also important to point out that the pattern of patient initiations and discontinuations had an offsetting effect on our first quarter ORKAMBI revenues.

Specifically because more than 4,500 patients began treatment with ORKAMBI in 2015 the impact of approximately 15% of these patients discontinuing ORKAMBI was highly evident in the first quarter. Therefore while approximately 800 new patients initiated treatments in the first quarter.

This growth was largely offset by the bolus of patients who discontinued treatment. This bolus of discontinuations began in the fourth quarter, but had a larger impact on the first quarter of 2016, where there were also fewer patient initiations to offset these discontinuations. And finally compliance.

Based on what we've observed to date from the launch we expect the compliance rate with ORKAMBI to be between 70% and 80%. In summary, based on our understanding of the launch dynamics for ORKAMBI and the fact that we have continued to see additional patients initiating treatment with ORKAMBI in April.

We expect to deliver quarter-to-quarter revenue growth for ORKAMBI beginning in the second quarter and continuing through the end of 2016 and into 2017. I will now turn to the use of ORKAMBI to date outside the U.S. We are now well into the reimbursement process in all key European countries Canada and Australia.

Specifically the clinical and cost-effectiveness assessment portions of the reimbursement process. These discussions are going as expected and have been productive. We believe that government payers across Europe recognize both the severity of this disease and the broad clinical benefits of ORKAMBI. These discussions will take time to complete.

However, as Jeff mentioned earlier we believe that we will achieve broad reimbursement from key European and other government payers just as we've seen in the United States. ORKAMBI is already available commercially in Germany and through early access programs in France.

We are only three months into the launch of ORKAMBI in Germany and the uptake has been slower than we observed in the U.S. We attribute this to a number of factors, including that CF care in Germany is not concentrated in large centers as we’ve seen in other countries.

Meaning there are many smaller centers and also many centers and physicians who have not yet had personal experience with CFTR modulators. In Germany, there are approximately 2,500 patients eligible for treatment. As of March 31, 2016 approximately 230 patients had initiated treatment.

However, we expect the number of patients initiating treatment in Germany will grow through 2016 and into 2017. We do not expect what we are seeing in Germany will be representative of the uptake in other European countries.

In fact in France where early access programs provide the opportunity for physicians to begin treating patients with ORKAMBI prior to formal reimbursement approval. We have already seen approximately 400 of the 1,500 eligible patients initiate treatment with ORKAMBI in 2016.

We took all of this information into account when we set 2016 revenue guidance for ORKAMBI of $1.0 billion to $1.1 billion. Our guidance reflects our understanding of the ongoing U.S. launch as I just discussed. As well as expectations that we will receive both approval for ORKAMBI in the U.S.

for patients ages 6 to 11 in the second half of 2016 and certain revenues from sales of ORKAMBI outside the U.S., primarily from Germany. Taking a longer-term view we expect significant further growth for ORKAMBI revenues in 2017 driven primarily by patients initiating treatment following the completion of reimbursement discussions outside the U.S.

And now to KALYDECO. Today we are increasing our financial guidance for 2016 revenues. We now expect KALYDECO net revenues of $685 million to $705 million. The prior guidance provided on January 10, 2016 was for KALYDECO net revenues of $670 million to $690 million.

We increased our KALYDECO guidance based primarily on an increasing number of patients initiating treatment with KALYDECO globally and on expectations of a reduced impact this year from the VX-661 Phase III program. Our guidance for KALYDECO excludes any potential revenues from the approval of KALYDECO for people with residual function mutations.

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

Thank you Stuart and good evening to everyone. With the closing of the first quarter of 2016 and nine months into the launch of ORKAMBI, we are seeing significant progress across our business.

Notably, we are seeing increasing number of patients being treated with our approved medicines resulting in a growing revenue base that we expect to drive earnings growth. I will now review our first quarter financial results and provide some specific comments about the long-term financial trajectory of our business.

Financial results first, in the first quarter of 2016 we reported total CF product revenues of approximately $394 million, a significant increase compared to a $130 million in the first quarter of 2015. With ORKAMBI, we reported sales of $223 million for the first quarter 2016.

We have recorded approximately $574 million of ORKAMBI revenues in the first nine months since the U.S. launch in July 2015. The first quarter KALYDECO sales of $171 million were up $41 million versus the first quarter of last year.

Now to the operating expenses, our first quarter non-GAAP operating expenses were $306 million compared to non-GAAP operating expenses of $246 million for 2015.

The increased operating expenses were primarily due to increased costs related to the progression of our CF pipeline and to increased investments in global commercial support for the launch of ORKAMBI.

Our non-GAAP net profit for the first quarter of 2016 was $22 million or $0.09 per diluted share, compared to a non-GAAP net loss of $148 million or $0.62 per share for 2015. From a balance sheet perspective, we ended the first quarter with approximately $1.03 billion in cash, cash equivalents, and marketable securities.

Vertex also has $300 million outstanding from a credit agreement repayable by the end of the third quarter of 2017. The agreement also allows for the facility to increase to $500 million.

Now to financial trends, Stuart provided 2016 ORKAMBI and KALYDECO revenue guidance and the assumptions that drive our projections and therefore I will focus my comments on the longer-term growth opportunities that may come with treating more patients with our currently approved medicines.

We expect ORKAMBI revenues will continue to grow as we treat more patients in the U.S., achieved reimbursement outside the U.S. and expand the ORKAMBI label to younger patients. KALYDECO’s growth is based on gaining reimbursement for certain groups of patients outside the U.S.

including those with R117H mutation and the people age’s two to five with gating mutations. In summary, as Jeff noted earlier, approximately 27,000 people are eligible for our CF medicines, yet we are only treating approximately one-third of these patients. As additional patients in the U.S.

started treatment, we complete reimbursement discussions outside the U.S., we expect the number of patients treated with our medicines to increase significantly and we expect revenue growth will follow. I will note that in 2015 we reported total CF revenues of $983 million.

Based on 2016 guidance provided for ORKAMBI and KALYDECO, we anticipate the total CF revenues of approximately $1.7 billion to $1.8 billion, an approximate 75% increase over the prior year.

As our revenues grow over future year’s we are committed to managing our operating expenses to drive earnings growth and we expect to deliver financial profile similar to many of our large-cap biotech peers. With that, I open the line to questions..

Thank you. [Operator Instructions] And our first question comes from the line of Michael Yee of RBC Capital Markets. Your line is now open..

Hi, good afternoon. Thanks for all the details, really appreciated. I think it’s very helpful for everyone. Two-part question, one is you gave all these discontinuation and persistent rates and compliance rates, which is in your guidance.

Is there anything out there that you can do to either improve these things, education, getting people to just get patients to take more drug? And can you apply any of this learnings to Europe, are you seeing the same stuff in Germany, are there any ways to improve it there.

And then the second question is a pipeline question on the 661 you mentioned in the press release that you are changing the enrollment to do 200 instead of 300, but is that assuming you actually passed the futility? Can you just verify that a little bit? Why are we talking about changing enrollment if we haven’t passed the futility? Thanks..

Hey Mike, it’s Stuart here. I’ll take the first part of your question around discontinuations and compliance rates and then I’ll have Jeff Chodakewitz to answer the pipeline question.

So on discontinuations and compliance and what might be able to do need to improve those much as we did with KALYDECO, we will be continuing to generate data on the long-term benefits and even broader benefits of ORKAMBI when used in the real world.

And I suspect that data if it’s compelling mainly positions in patients to reconsider, restarting ORKAMBI. So we will continue to develop the overall clinical profile of ORKAMBI as we have more experience in the market.

In terms of compliance, really many of the same things that we did with KALYDECO will be doing with ORKAMBI and that's really providing both providers and physicians with the educational materials to be able to understand how this is a product which is treating the underlying cause of their disease and so is a product that they want to try and stay compliant with as much as they possibly can and we will certainly be leveraging all the learnings we have from KALYDECO with ORKAMBI and those programs are already in place.

And lastly to your point about to Germany, clearly one of the things we are going to be doing is transferring all of the learnings from our launch experience in the U.S.

that all of the other markets that we are launching into and that’s in many ways the benefits of those markets coming on stream a little bit later that they can learn from our experiences here in the U.S. With that I’ll hand over to Jeff to answer the question on the pipeline..

Hi, Mike, this is Jeff. Maybe just to clarify, we did provide some information about the timing of the interim analysis in the admin study, but there has been no other changes for that trial.

The change in sample size comes from one of our other Phase III trials looking at successful [ivacaftor] in patients who have more of a residual function mutation on one [of the earlier]. We did look at that and saw that there was some opportunity to maintain good power, but simplified and reduced the sample size and that's what that was about..

Okay. Still that admin interim in Q3 have changed that, okay..

That’s the interim, that’s correct..

Thank you. And our next question comes from the line of Terence Flynn of Goldman Sachs. Your line is now open..

Hi, thanks for taking the questions, maybe just a follow-up on the discontinuation rate. I know you mentioned it's mainly due to respiratory events, but the 15% I think over three months is significantly higher than what you saw in the trials.

I know you mentioned previously it could be higher, but any more color there on the drivers behind that that you can expand on a little bit.

And then on the ORKAMBI guidance, just wondering if you can provide a little bit more clearly there on the contributions from U.S., rest of world and then the patients 6 to 11 in terms of relative contribution? Thank you..

Sure, Terence.

So on the respiratory events I think what I’d say there is, now what we are reporting today is what we are seeing in the real world usage of ORKAMBI in the broad population, obviously the clinical trial population that we studied in traffic and transported is a very controlled situation, that was patients with and have to be one between 40 and 90.

So really as we try to extrapolate from the clinical trial experience, the real world experience that’s one of the reasons - that uncertainty is one of the reasons why we wanted to make sure we had sufficient time in market before we gave guidance, because we really wanted to see how the product would get used in the real world.

In terms of the contribution of various different parts of the world to ORKAMBI revenue guidance that you might expect the vast majority of the revenues is going to come from here in the U.S.

That will be a contribution ex-US, but it’s going to be relatively small and then incorporate within our guidance as we said is also an expectation that we will see an approval in 6 to 11-year-olds in the latter part of 2016, which would give us access to an eligible population where about 2500 and that’s also incorporate within our guidance, but that approval is not anticipated until the back end of 2016..

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

Hey, guys thanks for taking my question.

I got a couple - I am trying to get sense as to when you guys realize that compliance or persistent or discons were different for ORKAMBI versus KALYDECO or commercial ORKAMBI versus Phase III I mean you guys had a chance you know 3Q call JPM 4Q call to be crystal clear on this and it's 10 months almost into the launch and now we are getting some detail.

And I just have a couple of follow-ups..

So Geoff thanks for the question. So I just want to take us back a few months which as went into JP Morgan and also year-end conference call at the end of January. We are very clear with what we wanted to do regarding ORKAMBI guidance and for us at that point in time it was earlier in the launch.

Yes, we’ve recruited a number of patients onto ORAKMBI but we’re still early in the launch to understand treatment patents. We stated that very clearly what we’ve been able to do now as we sit here as you point out just over nine months into the launch.

We’ve been able to take significant bolus of patients for example 3,000 patients that initiated in the first three months since approval. And we’ve been able to track those six to nine months.

What that allowed us to do was to understand compliance rates and helped us understand discontinuation rates and also the plan of discontinuation, as Stuart mentioned that’s been an important feature for us.

So this was the - we feel as though we’re in this position at this point in time while we’ve been to track a substantial amount of patients over a good period of time to have the confidence to provide guidance for 2016. The comparison to KALYDECO was less relevant for us it was more about the treatment patents for ORKAMBI.

ORKAMBI is a different medicine than KALYDECO based on its clinical data and the patient population, but we now have enough confidence to provide you with the ORKAMBI guidance..

Okay. And just a follow-up to some earlier questions I guess just to ask it in different ways. For patients that are at low FEV1 at baseline and do experience bronchoconstriction, is there a treatment protocol in place? I mean we've obviously heard of things like half dose than uptitrate or dose skipping.

Is there something that you guys can recommend to pulmonologist, a strategy for those that do experience bronchoconstriction? Thank you..

Geoff this is Jeff Chodakewitz, maybe just to give you a couple of comments about that, we don't have anything in terms of very concrete specific guidance that we can give. But we make a couple of observations.

First of all what’s clear from speaking to our investigators and also to physicians in the field, that clearly the support for the patients about setting expectations for the patient and for the physician and helping patients in those early weeks manage any symptoms, we think is very important and something that goes back to some of the education questions that we’ve heard about earlier.

We are also collecting information in our own study for patients whose FEV1s were less than 40 and we’re in the process of summarizing that. We did in that study give patients the option to start on a lower dose and we’ll get that data together and summarize it. But it’s not going to be kind of data that says here's a specific recommendation.

We know that that is being used but it's really still about physicians and their patients working together to manage..

Okay thanks..

Thank you. And our next question comes from the line of Mark Schoenebaum of Evercore. Your line is now open..

Hey guys I really appreciate for taking my question. Number one, I just like to know have you’ve been surprised by the way the launch has unfolded? I’m sure you had some projections a year-ago for persistence.

And have you been surprised? And number two; I know you can’t comment specifically on peak numbers, but the sellside consensus around $4 billion at peak for ORKAMBI. I am just wondering can you just talk about that. And then finally, is there any opportunity for reinitiation in these patients that dropout early? Thank you very much..

We have a list of questions, so we don’t get to all of them..

Sorry about that..

Yes, so we’re all scribbling down. But if we don’t get to them please say them again..

So Mark in terms of how we feel about the launch I would say we are very pleased with the way the launch is progressed here in the U.S.

from how we were able to work with payers to get access and reimbursement from ORKAMBI from early on in the launch to the rate of uptake that we’ve seen I mean to get close to 65% of eligible patients initiated within the first nine months is a fairly steep ramp. So we are pleased with it.

So I think overall, we are pleased and the launch has played out much as we anticipated. In terms of the potential re-initiations, we have heard anecdotally from physicians that they have tried reinitiating patients on ORKAMBI. We don't have much in the way of clinical data to be able to support that.

We are certainly aware that there are physicians who done that successfully for some of their patients, so that’s certainly is something that will continue to watch in the marketplace..

Mark, this is Jeff Leiden. Maybe just to add a little bit more of 10,000 foot view on both KALYDECO and ORKAMBI like you have been involved with many, many drug launches.

And I think it’s worth just putting those in perspective a little bit, from the standpoint an example in ORKAMBI of getting to 65% of the patients in nine months and of course with KALYDECO close to 90%. That’s a fairly unusually fast ramp.

And from the standpoint of persistence the kinds of number Stuart was talking about, let’s say 70% to 80% is the number that we said loud and it’s still a very, very high number compared to most chronic medicines.

And we believe that we represent the correct perception of both physicians and patients have about the value of these medicines in treating the underlying cause of the disease for long period of time.

And that really underlies our - thinking about the pipeline as well because as we develop this next set of medicines including next-gens and hopefully ultimately things like CRISPR. We are talking about progressively increasing the benefit risk profile of our portfolio of drugs that these patients can take.

And that will only of course increase both persistence and compliance rates. So overall very pleased with where we are. We know we have more work to do to get to more patients and improve therapy, but these two drugs have really performed quite well so far..

Thanks, Jeff..

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

Thanks very much. Just a few questions, first could you help us out just give us the breakdown between U.S. and ex-U.S. sales of KALYDECO, so we are all in the same page. And then I just want to go back to Jeff's comments.

Jeff could you really clarify this residual function changing and what has altered in terms of your statistical analysis or your assumptions about the activity as a drug or the combination. And give us a sense of what the hurdle there is for ORKAMBI effect.

And then lastly, on this issue of persistence, is it reasonable to assume that about 50% of patients of the eligible pool are on drug right now, because we keep going round and round about initiations and discontinuations, but surely what's important is the number of patients who remain on drug at the end of the quarter and it’s 50% roughly the right number or perhaps slightly below that 45% to 50% of the eligible.

Is that the right way to think about it? Thanks..

Geoff, it’s Stuart here. I’ll take your first question around KALYDECO revenues then I will hand over to Jeff Chodakewitz. So within the total KALYDECO revenues of a $171 million for the first quarter of 2016, $95 million of that was in the U.S. and the balance of about $76 million was in international..

Thank you..

Geoff, in terms of the residual function study, we really step back and said is there an opportunity to reduce the end of the study somewhat without sacrificing the integrity of the trial. We really looked at that two-ways that we saw opportunity; one is that we really focused our statistical analyses on key parameters.

And that really allows us to take care of that. The other thing is that we also looked at the aligned data and so that the discontinuation rate for the trial was actually lower than what we had left room for and that also was an opportunity to reduce the end..

Great. Thanks very much..

And finally Geoff, to your question on ORKAMBI, your back of envelope math is approximately right at the end of the third quarter. And you are right about 50% of the eligible population were on. Clearly, that’s a moving target because it’s a mix of the discontinuation and the initiation.

The important thing I would add to that number is that moving forward in Q2 and beyond, we do expect patient initiation which we continue to see in April in the U.S., obviously we continue to see internationally in places like Germany, we expect to outpace discontinuations which is why we are predicting quarter-on-quarter growth for the remainder of 2016 and beyond..

Great. Thanks very much..

Thank you. And our next question comes from the line of Brian Abrahams of Jefferies. Your line is now open..

Hey, guys. Thanks very much for all the granularity and appreciate you taking the question. I guess my first question, I’m wondering if you are seeing any trends towards maybe less sick higher FEV1 patients going on to therapy over time with ORKAMBI would theoretically improve persistence and compliance.

And then on 661, if 661 looks better tolerated, but perhaps less efficacious than lumacaftor. I’m just wondering how you weigh which potential backbone to combine for the next generation corrector in two triple combos? Thanks..

So in terms of any trends to where the products being used in either sick of patients or less sick patients, to be honest with you Brian with 65% of eligible patients being initiated is being used across the board, obviously we’ve got a range of different physicians incenses here some started using it in the more severe patients and start using is the less severe patients, but we really are seeing usage across the whole range of FEV1 patients as you'd imagine with 65% of eligible patients having been initiated.

And on the backbone, for the triple combination I’ll pass it over to Jeff Leiden..

Yes, just on the triple combination, obviously we can’t speculate that exactly what will happen, but I would remind you that there were a number of reasons but 661 is the preferable partner, most of those have to do with drug interactions and making it simpler to combine that into a triple regimen.

So I guess what I would say is all things being equal if 661 and lumacaftor had equal efficacy in combination with KALYDECO we are certainly can go with 661, because of those pharmacokinetic. I think that answer the question..

Yes, not exactly.

I guess I was sort of wondering whether I mean we know 661 has less 384 interactions and I guess I was sort of wondering whether some of the real world ORKAMBI side effects that you are seeing are perhaps driven by not only the respiratory, but driven by 384, which we know is going to look better with 661 and sort of how you weigh that if efficacy is perhaps not as good?.

Yes, that’s not the reason just to be clear, so those AEs are not driven by set interaction, we feel as we said before by off target construction is unique to lumacaftor, we don’t see or haven’t seen the 661..

Thanks..

Thank you. Our next question comes from the line of Adam Walsh of Stifel. Your line is now open..

Hey, thanks for taking my question. A few weeks ago, we published 47 physician ORKAMBI survey and if you think jumped out at us I want to [indiscernible].

Most notably our survey showed that a patient discontinue ORKAMBI due to drug related side effects, 70% of doctors encourage these patients to restart the drug and then a very meaningful percentage of those patients not only successfully restart the drug, but also subsequently remain on the drug long-term.

So my questions are as this consistent with your own internal research or patient restarts factored into your guidance and if so to what extent? Thank you..

So Adam, it’s Stuart here. Thanks for the question.

In terms of restarts, yes, your survey is consistent with what we heard - in that we have heard from the physician that they are trying to restart ORKAMBI in some of that patients who they have previously had to discontinue the product largely because as that they are - believe it treating the underline diseases is clearly a good thing for those patients if they can tolerate the medicine.

In terms of the absolute volume of that at the minute that’s hard to quantify, we certainly heard it anecdotally, we heard and even certainly heard success stories.

It’s fair to say that within our guidance we’ve assumed relatively minimal impact for restarts, because at this time we really don't have evidence that it’s happening in quite the numbers that perhaps people have said that they might do it in.

So at the moment within our guidance relatively minimal amount of restarting patient resume to happen in 2016 here in the U.S..

Understood. Thank you..

Thank you. Our next question comes from the line of Phil Nadeau of Cowen and Company. Your line is now open..

Good afternoon. Thanks for taking my questions. Two on commercial then a quick one on the pipeline. On the commercial can you give us some sense of how many lives outside the U.S. could gain reimbursement for ORKAMBI in 2017? Sure you have internal estimates and ranges I am curious what those are.

And then similarly in the younger kids do you expect any different penetration of ORKAMBI into the population than you've seen in the older kids and adults.

Then last on the triple [indiscernible] combined all three drugs in healthy volunteers yet and what your disclosure strategy will be when you move in Phase II? How much data from the Phase I while we get? Thanks..

So, Phil, it’s Stuart here. I will take those two first commercial questions. In terms of the number of why that might be eligible. So the number of patients with the F508del homozygous mutation 12 and above in Europe and somewhere around 12,000.

Within our 2016 guidance the only country that we are assuming, we are going to be able to recognize revenues for us in Germany.

Yes, we’re not in a position to be able to give 2017 guidance at this point and trying to predict exactly when these reimbursement discussions is going to conclude is frankly impossible to do because clearly it’s a negotiation and the vast majority of countries don’t have a formal time clock.

And so at this point we’re really not in a position to be able to speculate on when those might be concluded. In terms of what we would be anticipating in the six to 11 year old population, if we are successful in gaining approval for that here in the U.S.

then our anticipation would be much as we’ve seen with KALYDECO that the uptick there is likely to be similarly robust as we’ve seen in adults although I would remind you that the 2016 perspective that’s likely to come in the second half or in the second half of the second half of 2016..

And Phil I will take the last question. So the Phase I study in healthy volunteers still ongoing so we can’t make a comment on that. But as terms of disclosure and timeline still as we discussed before we expect to be in patients with triple combination in the second half of the year.

The disclosure of the Phase I around that will be relevant information that supports the Phase II study design at this point that is too difficult to describe and we’ll let you know when we have that information and we’re initiating the Phase II study..

Great. Thanks for taking my question..

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

Hey good afternoon guys. Thanks for taking the questions. I have two left for you. So realize it’s early but wanted to ask about the potential impact of payer reauthorizations on ORKAMBI. How common is it and how does it compare with the process you saw with KALYDECO. And then capital allocation question for you.

Now that you are profitable in growing and sitting on a billion dollars in cash on your balance sheet, at what point would you consider buying back some of your stock? Thanks..

So Cory on the payer reauthorizations not all payers have published policies that include that reauthorization criteria. So that’s the first thing I would say. Of the ones you have most have a time clock at six to 12 months.

So we are really only now beginning to get to the point of patients getting to the time point when they are having to go through the reauthorization process.

Having said that, the payers that have published policies or where their reauthorization criteria are known, the vast majority of them either in line with the label or reflect these systemic benefits of ORKAMBI and by that I mean they recognize that this product can have benefits across multiple endpoints and either improvements or stabilization in those endpoints, qualified as a successful outcome.

So whilst we are only now beginning to get into the period of seeing those reauthorizations, I feel good about the reauthorization criteria that we’ve seen today and to your last part of your question, they are not dissimilar at all to what we saw with KALYDECO..

And to the last question we have thought about stock buybacks in terms of capital allocation, but as we think about the priority of capital allocation for our business I will just give you a broader thought, which is we are still in this transitional period of moving into profitability and cash generation and watching the revenue curve.

As we go up the revenue curve and we drive revenue growth and therefore earnings growth, which translates to more cash generation. We look to apply that capital to reinvest back in the business. First, internally into our pipeline, but then potentially outside of the company to diversify and expand our pipeline.

We’ve already done activities in that area, as you know, with CRISPR and ENaC inhibitor. So those continue to be the priorities. It’s the internal investments, it’s the external investment, because we go up that revenue growth curve and have greater capital to allocate.

We will get consideration to capital strategies such as share buyback, but at this point of time, it’s a little early for us. And if we were to move into something in the near future it would be of a smaller scale to stop the shares outstanding creep that occurs each year through option exercises..

All right. Thanks, appreciated..

Thank you. Our next question comes from the line of Alicia Young of Credit Suisse. Your line is now open..

Hey, guys thanks for taking my question. The three of them are kind of around compliance. And I guess when I look at the math that we get over the quarter. It seems like the first two quarters, the compliance was potentially higher like 95%. And maybe in this quarter based on our math it would have gotten to about 80%.

So I guess, one, is that analysis fair? Two, can you give us any color on if the scripts are written in one or three month increment. And then third just when you think about 70% to 80% range on compliance which actually does move the model quite a bit.

What kind of qualitatively do you think about that kind of get you in the 70% versus 80% range? Should we think about like amount of days the people are taking so there's a delta in the days they miss and just kind of adding that up and thinking about or is there some other way we should think about quantifying compliance..

So, yes, let me try and answer those sequentially. In terms of the compliance trend, compliance is the metric that you need the longest period of time to measure, because clearly this is a chronic medicine. And so in the first prescription to get you kind of assumption is that you are a 100% compliant.

You have to wait until they get the second prescription to work out, exactly what it is. So this is the one that really takes the longest period of time for us to get a good handle on.

I don’t know obviously the intricacies of your model and I'll just reiterate that we are based on the trends that we’ve seen to date and the experience we’ve got with the patients who have been treated to date.

Our expectation for the year and the assumption on which our guidance is built is that it will be somewhere between 70% and 80% for ORKAMBI this year. In the terms of the one or three month’s script, the vast majority I’ve written for one month there are some three-month prescriptions written.

But the vast majority of prescriptions are written for - on a monthly basis.

And in terms of kind of qualitatively what would lead you to one end versus the other, to me this is all about education and our ability to help providers to give to their patient information, which educates them on the nature of the disease, the underlying defect, the fact that ORKAMBI is designed to treat those underlying defects into the extent they believe in the science, believe in the long-term benefit that ORKAMBI could provide to them.

Then I think that’s only likely to lead to patients having a higher compliance rate, where we are focused on that. We are certainly taking all the learnings we can from our experience with KALYDECO to support patients to take the prescriptions in line with their physician’s recommendations..

Thanks..

Thank you. Our next question comes from the line of Matthew Harrison of Morgan Stanley. Your line is now open..

Great, thanks for taking the question. I have two which are somewhat follow-ups on Phil’s questions. Just on next-generation correctors and those studies. Can you just tell us if you saw a safety event, what kind of safety event would be discloseable versus not discloseable.

And then is there a point in time that we’re going to see PK data from healthy volunteers which might help us better understand how the drug levels that we saw on the HB data might compare in patients? And then a separate commercial question just in the six to 12 pool for ORKAMBI, are your assumptions for persistence and discontinuation rate the same as what you're seeing now on the overpopulation.

And if they're not the same, can you just explain why? Thanks..

So maybe I’ll take the first couple of questions. So with the next gen disclosure, what would be required to disclosure since Reg FD and if there was a material adverse event we would have to disclose that, if we want to need to give you an example that would be discontinuation of the trial for example, and we would have to disclose that.

Other than that is an ongoing trial, we need to complete the trial, gather the date that will inform as I said earlier for the Phase II trial in patients with triple combination and we will provide relative information in that point in time that supports the design of that trial.

Can you just remind me your second question?.

Yes, I was just wondering where we see PK data so that we can compare sort of the drug levels that you can achieve in healthy volunteers versus the drug levels that you are achieving in the HB assets, so we have some point of comparison on relative drug levels?.

So we will provide you the relative information that obviously understand the design of the Phase II study. However, it is not our practice to provide that kind of detail on a Phase I study.

And there is a number of reasons for that and I would just give you one that there is a specific competitive reason that we would prefer not to provide that information on the Phase I study..

And Matt, in 6 to 11 I mean really the contribution of the 6 to 11 population if we are successful in getting approvable. As I said it’s really going to be - likely to be in the fourth quarter.

So really the contribution there within our overall guidance is more about uptake than it is around persistence and compliance and much as we did with the 12 and above population I think we’ll obviously be watching that very, very closely just as we have done since the launch in July and that'll give us an ability to learn how the product performance with those patients in the real world again.

One of the things that we have seen with the younger population with KALYDECO they tend to be slightly more compliance and the average is not surprisingly because they have got a lot of [indiscernible] and care giver supervision, but really those assumptions that we have given you really much more likely to the 12 and above population, we’ll see how this 6 to 11 patients plan in the real world in the course of the time after the approval..

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

Hey, guys. Thanks for taking the question. Number one, I want to know if you guys have seen an uptick in discontinuation due to lack of efficacy or I thought due to the - I guess the chest tightness. And then secondly for the ATU price that you get in France, how does that compare to the German pricing of €159,000 per year per patient.

And lastly I have a question on your growth net, is that consistent would you guys have guided before which is like mid-teens in 1Q 2016? Thank you..

So Ying, in terms of discontinuations the - based on our clinical trial experience and also what we are seeing in the market, the vast majority of those discontinuations are for adverse events and most commonly that’s the chest tightness.

In terms of the ATU, we haven’t disclosed the price within the ATU program and in terms of the gross to net, the gross to net that we’ve seen and our predating is potentially slightly lower than we originally thought that’s largely due to the fact that the Medicaid for the patient population that we’re seeing is slightly lower that we anticipated.

This is really as a result of many of those Medicaid patients, so we thought would be covered by Medicaid are actually qualifying for disability benefit under Medicare, as a result of that we are seeing a lower Medicaid population and the result we are seeing we are predicting a slightly lower growth to net of somewhere around 12% for the year..

Yes, I might just add to that which is coming into 2016 and 2015 was the gross to net was closed to 7% as we moved into the Q1 of 2016 is increased to 9%.

So it is moving up slightly as we expected, but as we plan out and we look at the patients that are coming on to drug, we anticipate that it could end the year around 12% and sequentially creeps on to that 12% level and that’s also placed into our guidance..

Thanks for the color..

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

Hi. Just a couple of technical questions.

Were there any inventory changes in the quarter?.

No..

Okay..

ORKAMBI inventory at the end of March was, to all intents and purposes, identical to that which it was at December 31, so there were really no inventory change for ORKAMBI at all..

Okay, great.

And then can you comment on gross to net, sort of where were you for the quarter and you know would that be relatively consistent for the rest of the year? Will it change in some way?.

Are you referring to ORKAMBI Liisa?.

Yes, sorry thank you..

So as you just mentioned - that’s in Q1 we were approximately 9% gross to net discount. In Q4 of last year we were at 7% we actually expect the Q1 level of 9% to trend up to be something closer to 12% by the end of the year..

Okay. Great that’s helpful. Thank you.

And then when you say 15% of 65% have discontinued that’s like a 10% discontinuation rate roughly? Is that the right way to think about that?.

No Liisa so and it’s really important so thanks for asking the question. It is of the patients you’ve initiated 15% of them have discontinued ORKAMBI within approximately the first three months.

And so if you think about 4,500 patients who initiated between July and December, 15% of those patients would have discontinued within the first three months and then that rate of discontinuations that slows considerably the 65% is the number of patients who initiated therapy by the end of March.

So the 15% you need to apply to all of the patients who initiated some - it’s not 15% of 65% it’s 10%, it’s 15% of the 65% who have initiated they will discontinue therapy is our believe..

Right. But that’s gets you 10%, doesn’t it? If you multiply 65 by 15..

Liisa, we’ll jump on the phone with you after the call and we'll do the math..

All right. Thank you. And then I just had a question about the Rowe inhibitor. Can you just give us a little detail on that trial what are the endpoints you are looking at? What’s the timing for data? That’s my final question. Thank you..

Hi, Liisa this is Jeff.

So the Rowe inhibitors trial is really specifically in patients who had a catastrophic injury to their cervical spine and then really have very core function of immediately following that injury in the study then we follow those patients at the time of surgery they have either placebo or one of two doses of active drug and it’s about 150 patients total.

And then we follow them for six months looking at particularly how their upper extremities function because that’s so important to how patients, the quality of life of patients and then we do some other measures of disability. And it’s very hard right now.

We just started the study as we’ve said so I think it’s very hard to predict in that kind of population in particular exactly when we are going to get results..

Thank you..

Operator, we have time for two more questions..

Thank you. Our next question comes from the line of Tony Butler of Guggenheim. Your line is now open..

Yes, thanks very much. Briefly, Stuart, in France again the early access patients which receive ORKAMB I think you mentioned 400. I understand reimbursement has not occurred, but given the uptake being fairly strong if one assumes that the majority of that 1500 will be treated by year end and you do get reimbursement let’s say next year.

Does that come in a bolus payment for that which has occurred or is that payment then amortized assuming those patients stay on drug for 2017 and beyond? Thanks very much..

Yes, thanks for the question, Tony. So the way the accounting works in France is that for the cash that we get for those patients before we get reimburse those recognized as cash not as revenue.

At the point that we have certainty about the selling price or very close to certainty about the selling price in France then we will be able to a long-term adjustment, convert that cash to revenues and then from that point forward all of those will be counted as revenues going forward.

And that’s because the - whatever rebate you agree with the French government is retroactive to the sales that you had from the point that you launch the product..

That’s helpful. Thank you.

And finally you would call that out as an item in the quarter in which it occurs, I assume?.

So maybe I'll follow on from Stuart. So I'll just validate Stuart's answer as kind of a CPA, so nice job Stuart. In terms of revenue recognition, many of you that are on this call probably have seen other companies go through this with the ATU in France.

And then absolutely, at the point that we get to a point where we’re comfortable with the price in France, yes, we would call it out in the quarter specifically and in that same of time we’d recognize all the revenue in that very quarter..

Thank you..

Thank you. And our final question comes from the line of Katherine Xu of William Blair. Your line is now open..

Hi, good evening. Thanks for squeezing me in. So I just have one question on the CRISPR program based on the research that you have ongoing right now, what kind of mutations are the most amenable for the technology first. And how difficult is it to eventually correct those FFA which is a deletion [indiscernible]..

Yes. This is Jeff Leiden. Thanks for the question.

I think as you know - if you look today CRISPR is most amenable to actually inactivating treatment, making cleavages, because that's what it does most efficiently and obviously that’s not what we would want to do in the dose by the case and then you move to making corrections and then you move to more complex solution and insertion.

So there is no doubt that there are still challenges to concur both in terms of how we correct solutions like in those by the way, but also in how we deliver this, because obviously this has to be delivered efficiently to a large numbers cells and the lungs and we don’t know how to do that yet.

So that’s why we said and we think CRISPR is incredibly powerful technology for the future, it’s going to take a number of years to concur mostly some of the editing challenges, but also in protecting the delivery challenges that’s what we are working no in CS.

Now, we are also - I just remind you just because nine collaboration, we have right settle targets, fixed targets and some of those would be in other disease where some of these issues like delivery and editing are much more straight forward.

So I think you can’t expect to hear from us over the next couple of years on our progress to some of those other disease..

So at this point are there any limitations that are easier than others to edit, should we know that?.

Yes, as I said I think single based payer corrections are going to be a lot easier than complex solutions and insertions to correct, but nevertheless I mean there are some pretty significant challenge in the diseases like CL.

When you move to ex-vivo therapy and you move to inactivation in ex-vivo therapy you are in a whole different world in terms of efficiency and so you will see some of those I think from us and others as being the first application..

Thanks..

So I will turn it back over to Jeff maybe for some final comments..

Yes, first of all thank you for your questions, thanks for your patience I know it was a long call, but we did want to give you not only our guidance, but detailed rational for the guidance, so that you understand our model. And we appreciate the questions on that.

As I look at our progress with the company over the last year, I guess I will call out three things that I think are important. First, the continuous increase in the number of patients that we treat, that actually have dramatic increase in the number of patients that we can treat with KALYDECO, ORKAMBI.

And as we look forward, the increasing number of patients we can treat with today’s approvals, so as I mentioned $27,000, but we are still only treating the third of those and I think we have a clear path to get to the majority of those patients both in the U.S. and Europe over 2016, 2017 and beyond.

Second thing I would say is the pipeline progression, we are pleased with 661 progressing well into Phase III of multiple trials and multiple patient population, but equally important with next gen correctors which are progressing through Phase I with our - and still on a timeline to get into patients as triple combination made this year.

We think that’s going to be very important. Those were the patients we treated potentially for additional subsets of patients.

And then finally the progression of science, we didn’t talk about that a lot today, but the science CF I think as progressed significantly and we have a much better understanding of the folding correction process and the science that David Altshuler was driving the rest of research group in some of the new diseases, we touched on those a little bit with CRISPR-cas9, but also other, but I hope we will be able have a chance to talk to you about over the rest of 2016 and 2017.

It is an important long-term growth engine for the Company. So with that maybe I will close the call and thank you again for joining us..

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