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

Chodakewitz - Executive Vice President, Global Medicines Development and Medical Affairs, and Chief Medical Officer.

Geoffrey Meacham - Barclays Capital, Inc. Michael Yee - RBC Capital Markets LLC Geoffrey C. Porges - Leerink Partners LLC Brian Abrahams - Jefferies LLC Terence Flynn - Goldman Sachs & Co. Adam Walsh - Stifel, Nicolaus & Co., Inc. Phil Nadeau - Cowen & Co.

LLC Alethia Young - Credit Suisse Securities (USA) LLC (Broker) Ying Huang - Bank of America Merrill Lynch Liisa A. Bayko - JMP Securities LLC Brian P. Skorney - Robert W. Baird & Co., Inc. (Broker) Katherine Xu - William Blair & Co. LLC Alan Carr - Needham & Co. LLC.

Good evening. This is Michael Partridge, Vice President of Investor Relations for Vertex. Welcome to our Second Quarter 2016 Financial Results Conference Call. All participants are in a listen-only mode right now. And later, we will open the lines for question.

You can access the webcast slides by going to our website where our replay will also be available later tonight. Dr. Jeff Leiden, Chairman and CEO; and Ian Smith, Chief Financial Officer will provide prepared remarks this evening. They will be joined by Stuart Arbuckle, Chief Commercial Officer; and Dr.

Jeff Chodakewitz, Chief Medical Officer for the Q&A portion of the conference call. 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 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 approved 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 four of tonight's webcast. I will now turn the call over to Dr. Jeff Leiden..

Thanks, Michael. Good evening, everyone. It's just over one year ago that we received FDA approval for ORKAMBI, marking the most significant step to date in our journey to develop new medicines for people with cystic fibrosis.

Tonight I'm pleased to report on our significant and steady progress in CF and I'll review three key phases in our efforts to bring all people with CF a medicine to treat the underlying cause of their disease. If we're successful in these efforts, we believe significant and sustained revenue and earnings growth will follow.

Today there're approximately 27,000 people eligible for treatment with ORKAMBI or KALYDECO. However, we're only treating approximately 9,000 or one-third of these patients.

The first and most significant near-term step to increase the number of eligible patients being treated with our medicines is to gain reimbursement of ORKAMBI in key European and other country. Progress with reimbursement for ORKAMBI would enable the vast majority of currently eligible patients to be treatment with one of our CF medicines.

The second step to treat more people with CF is to further expand the labels for both ORKAMBI and KALYDECO, which could increase the total number of eligible patients from 27,000 to approximately 44,000.

And the third step is to potentially treat all people with CF with new combinations of CFTR modulators as well as other approaches to treatment such as ENaC inhibition, gene editing and mRNA therapies. First, to reimbursement for ORKAMBI; outside the U.S. the reimbursement process is ongoing.

And these discussions are progressing as anticipated across Europe, Canada and Australia. We're encouraged that many reimbursement authorities have acknowledged the significant clinical benefits that ORKAMBI provides. We believe that we will achieve reimbursement from European and other government payers, just as we've seen in the U.S.

We look forward to updating you as we obtain reimbursement in key countries going forward. Second, to our label expansion efforts for both ORKAMBI and KALYDECO. Specifically there're some 12,000 additional patients younger than age 12 with two copies of the delta 508 mutation who we believe could be helped by ORKAMBI.

In the second quarter, the FDA accepted for review our supplemental new drug application for the use of ORKAMBI in children ages six to 11 years and granted our request for priority review, setting a target review date, or PDUFA date, September 30, 2016.

If approved, we expect to be ready to bring ORKAMBI to these patients immediately following approval.

In parallel, we're also progressing with our efforts to bring ORKAMBI to children ages six to 11 years in Europe where we plan to submit our application for approval in the first half of next year following the conclusion of our fully enrolled Phase 3 efficacy and safety study in this group of patients.

We estimate that there are approximately 2,400 children ages six to 11 years in the U.S. and 3,400 in Europe who would be eligible for ORKAMBI. There're approximately 5,000 additional patients in North America, Europe and Australia; largely those with residual function mutations who could be helped by KALYDECO.

While we received a complete response letter from the FDA earlier this year regarding our application for approval of KALYDECO, in people with CF ages two and older who have one of 23 residual function mutations, I believe the KALYDECO will be beneficial to these patients is unchanged and we continue to pursue FDA approval for these patients as soon as possible.

There're approximately 1,500 people with CF in the U.S. who have the mutations included in our residual function sNDA. And third, to our expanding pipeline of investigational CF medicines; the most advanced pipeline program in CF is our broad Phase 3 program for VX-661 in combination with ivacaftor.

VX-661 plus ivacaftor may have an improved benefit risk profile compared to ORKAMBI in people with two copies of the delta 508 mutation, and may provide enhanced clinical benefits over ivacaftor monotherapy for other patients with gating mutations.

Enrollment in the study of VX-661 plus ivacaftor in people ages 12 and older with two copies of the delta 508 mutation, is expected to complete in August. Data from this six-month study are expected in first half of 2017. The other three Phase 3 studies of VX-661 are also progressing as planned. We plan to submit a new drug application to the U.S.

FDA for VX-661 in combination with ivacaftor in the second half of 2017. Importantly, VX-661 is also positioned to play a key role in the triple combination regimen with a next-generation corrector and ivacaftor. We believe that this triple combination approach may allow us to treat an additional large group of patients.

Specifically, those with one delta 508 mutation and one mutation that results in minimal CFTR function. These patients do not currently have a medicine to treat the cause of their disease. Our two next-generation correctors VX-152 and VX-440 are being evaluated in Phase 1 studies in healthy volunteers.

Pending data from these studies, we expect to move into Phase 2 clinical development in the second half of 2016 in people with CF. These studies would evaluate one or both for our next-generation correctors with VX-661 and ivacaftor.

Beyond the CFTR modulators, we've entered into multiple strategic collaborations that broaden our ability to evaluate additional approaches to CF treatment that may be complimentary to CFTR modulation in the future.

While the underlying technology and science of each approach differs, the collaborations have a shared goal to develop the best possible future treatments for all people with CF.

Earlier this month we entered into collaboration with Moderna Therapeutics aimed at using messenger RNA to potentially enable cells in the lungs of the people with CF to produce functional CFTR protein.

This is the second platform technology collaboration we have entered into, following our agreement with CRISPR Therapeutics focused on the use of CRISPR/Cas9 for gene editing that we began in late 2015. These platform technologies add to our development stage collaboration with Parion Sciences focused on the use of ENaC inhibition to treat CF.

As we enter the second half of 2016, I'm pleased with both the near-term and long-term growth opportunities for our business. Our goal is to consistently discover and deliver transformative new medicines for patients and to reinvest in scientific opportunities to create future medicine.

We believe our business model, which is focused on significant investment to create value through innovation, research and development, will position us to achieve this goal over the coming years. With that, I'll turn the call over to Ian..

Thanks, Jeff and hello, everyone. Through the second quarter of the year we've created a growing revenue base with ORKAMBI and KALYDECO, which we expect to drive future earnings growth.

Tonight I will discuss our second quarter revenues for ORKAMBI and KALYDECO, review our 2016 financial guidance and discuss our anticipated financial trajectory for the coming years.

In the second quarter of 2016, we reported total CF product revenues of approximately $426 million, a significant increase compared to $155 million for the second quarter of last year. Turning to the revenues for each of our CF medicines; global sales of ORKAMBI in the second quarter were $245 million comprised of U.S.

sales of approximately $229 million and ex-U.S. sales of approximately $16 million, which were mainly from Germany. As of June 30, approximately 6,000 patients have initiated treatment with ORKAMBI in the U.S. Outside the U.S.; ORKAMBI is already available commercially in Germany and also through early access programs in France.

In Germany, uptake continues to be slow than we observed in the U.S. As of June 30, approximately 380 of the 2,500 eligible patients in Germany had initiated treatment.

In contrast, in France, we've continued to see strong and rapid uptake, approximately 700 of 1,500 eligible patients in France have already initiated treatment with ORKAMBI as of June 30 as part of the country's early access programs.

These programs provided the opportunity for physicians in France to begin treating patients prior to their formal reimbursement approval.

We are pleased the ORKAMBI launch has continued to progress consistent with what we discussed on our first quarter call, and today we are reiterating our expectation for 2016 ORKAMBI revenues of $1 billion to $1.1 billion.

Given the slower than expected launch in Germany and that we are approaching peak penetration for ORKAMBI in patients age 12 years and older in the U.S., we expect that further revenue growth for ORKAMBI will occur primarily in the fourth quarter following the potential approval and launch of ORKAMBI for children ages six to 11 years.

Now to KALYDECO. Second quarter KALYDECO sales were $180 million, up $25 million compared to the second quarter of last year. We continue to see small number of additional eligible patients beginning treatment in the U.S. and Europe. As with ORKAMBI, we are reiterating our 2016 revenue guidance for KALYDECO of $685 million to $705 million.

Our 2016 guidance exclude any potential revenues for the approval of KALYDECO in residual function mutations where we continued to pursue the FDA approval for patients ages two and older in the U.S. Now to the operating expenses.

Our second quarter non-GAAP operating expenses were $306 million compared to non-GAAP operating expenses of $254 million in 2015. The increased operating expenses were mainly due to increased cost related to the progression of our CF pipeline and to increased investment in global commercial support for the launch of ORKAMBI.

Our non-GAAP net profit for the second quarter of 2016 was $58 million or $0.24 per diluted share as compared to a non-GAAP net loss of $131 million or $0.54 per share for 2015. From a balance sheet perspective, we ended the second quarter with approximately $1.07 billion in cash, cash equivalent and marketable securities.

Vertex also has $300 million outstanding from a credit agreement, repayable by the end of the third quarter 2017. I'll conclude tonight's call with a few brief comments on financial trends including revenue and earnings growth. Our goal is to discover and develop new medicines for all people with CF.

And as Jeff has discussed, there are three important phases to support these efforts; obtaining reimbursement for ORKAMBI outside the U.S., expanding labels for both ORKAMBI and KALYDECO; and developing new medicines to treat potentially all people with CF. As we progress towards this goal, significant and sustainable revenue growth will follow.

Importantly, as our revenues grow over future years, we are committed to managing our operating expenses to drive earnings growth and we expect to deliver a financial profile that is similar to many of our large cap biotech peers. With that, I open the line to questions..

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

Hey, guys. Afternoon and thanks for taking the question. I have a few commercial ones and one clinical. Want to ask you guys either, Ian or Stuart, any changes to the persistence rates in the U.S.

What are the new strategies to improve it? And then, can you just go into a little bit more detail on the EU outlook, so from what I'm understanding flattish in 3Q from Germany and then maybe what's driving the fourth quarter bump?.

Yeah. Geoff, it's Stuart here. So on persistence rates what we're seeing in the U.S. is very consistent with what we outlined on our Q1 call. In fact, all of the trends really in initiations. Persistence and compliance are entirely in line with what we said then.

And just to remind you and others on the phone of persistence, we said that our expectation was it would track towards about 70% to 80% – between 70% and 80% by the end of this year and the same core compliance. And we continue to believe in those estimates and those estimates are what underpins our revenue guidance that we reiterated today.

In terms of Europe, as you noted, Germany, the pace is relatively slow and Ian mentioned that in his prepared remarks. Incorporated within our guidance, really we're only expecting significant contributions ex-U.S. from Germany.

In terms of how we see things playing out in the rest of Europe, really as you know that's going to be very dependent on us proceeding through the country-by-country reimbursement negotiation processes.

And what I can tell you is that those are progressing as we planned as expected, but given our learnings and the analogy to KALYDECO and the time it took there, we're really not anticipating to conclude many of those reimbursement negotiations until 2017.

Having said that, we recently concluded our first formal reimbursement negotiation in Austria and that'll go into effect from September 1st, but we continue to believe that most of the major markets we're not likely to see any major contributions in terms of revenue growth until 2017 and beyond..

Okay. And just real quick on the clinical side. I know it's less interesting, but the PK for VX-152 and VX-440, will we see any of that in any CF? Then any more thoughts on kind of what the size and scope of the clinical development for the triple could entail? Thanks..

It's a little difficult to answer that, to be honest, Geoff, to say the size of the triple – I mean if I comment more broadly on the operating expense for the remainder of the year and then maybe kind of a trajectory in 2017, I think that's an easier way for me to comment on it.

We always plan and provide guidance based on assuming success and that's why we're investing behind the programs. So our OpEx guidance for the year is at $1.18 billion to $1.23 billion, and we reiterated that with the number in the press release tonight and that's a non-GAAP number by the way, excludes primarily stock compensation.

And then as we look into next year, we actually see – we hope and expect the programs to progress. And as we look into next year as we think about OpEx more broadly, we see that maybe some marginal increases in marketing investments is for the launch of ORKAMBI more broadly and particularly in Europe as we gain reimbursement approval.

And as we look at the development investment, maybe there is – it's more consistent to 2015 to 2016 as programs cycle in and out with the expectation that the VX-661 Phase 3 program comes to closure and we're filing next year and the progression of the triple into a larger Phase 2 study.

So hopefully that gives you an understanding of the trajectory of our investment profiles through this year and then into next year..

Geoff, this is Jeff Leiden.

With respect to your question on the PK data and in CF, what we've said before is that we'll let you know as we conclude the Phase 1 studies and plan the Phase 2 studies for the next-gen correctors, what those Phase 2 studies will look like and we'll provide you with some relevant data so you understand the design of those studies..

Okay..

And those (17:46) are on track for the second half of this year..

Okay. Thanks, guys..

Thank you. And our next question comes from the line of Michael Yee with RBC Capital Markets. Your line is now open..

Hi. Two questions as well. On the commercial side, are you based on long-term data for ORKAMBI? And are you starting to see any patients perhaps thinking about coming back, are there discussions out there in the field about bringing some patients back on, and what do you think about that standpoint? And then a follow-up question on the triple.

Is it safe to say that you've gone well into Phase 1 and the longer the better? And is there something specific in terms of exposure levels that you're looking for relative to assays that would get you some comfort in terms of what you want to see in terms of exposure decreasing. Thanks so much..

Hi. This is Jeff Chodakewitz. Maybe let me just touch on both of those for you. I think from the long-term data perspective, we think that is very meaningful to patients and to prescribers. And I think the reason for that are several-fold. As you know that that information really has a couple of chunks to it.

One is about the long-term safety of the drug; very important, and that continues to look very favorable consistent with what we've seen before. And then we had several for efficacy kind of measures.

Some of that came from the study itself are following patients for a long time and we saw that their FEV1s were maintained, their BMI continued to improve. And although there's no active comparison there, the vent rate in terms of pulmonary exacerbation really remained low and consistent with what we saw during the trial.

So that was all very impactful, we think, for physicians and for patients. The other thing we did was take the information from a matched cohort of historical patients.

And what that allows you to do over that kind of timeframe is to compare the rate of decline of patients FEV 1s who are on our study versus what we think the historical expectation would be.

And that's really then, as we did with KALYDECO, helps us understand if we're shifting that curve and slowing the rate of decline, really modifying the disease and we were very pleased to see that approximately 40% reduction in the rate of decline. So overall, we think that data is very impactful and useful.

In terms of triple combination, really can't give you a lot of details as Jeff Leiden said actually already that that both drugs do continue in Phase 1 studies, and our expectation of course pending data is that one or both of those will start in-patient the second half of this year..

Okay. Thank you..

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

Thanks very much. A question for Stuart, perhaps, I think about the PDUFA date and the pediatric indication for ORKAMBI. Could you talk about what sort of pace you expect to reimbursement to be available to the pediatric patients; the homozygous double deltas.

And then secondly, as you are out in the community and talking to physicians, do you think that the adoption, compliance and persistence rates in the pediatric population will be similar to the adult population or greater or less than you've observed so far? Thanks..

Geoff, thanks for those questions. So yeah, the PDUFA date is September the 30. Obviously we're deep into the planning for that launch because it's only just a couple of months away.

In terms of what we might anticipate for access, on to the first part of your question, my expectation is that access is going to be very good just as that was for ORKAMBI when we first introduced it for the 12 years and over population. And in some ways, this is a somewhat simpler review for the payers.

This is a labeled extension, just extending it down to a younger age. And so my expectation is that we'll secure broad access very quickly. In terms of rate of uptake, similarly I would anticipate the demand to be robust just as it was for 12 year-plus.

And in terms of persistence and compliance, again it's difficult to say exactly how it's going to play out in the real world as opposed to what we saw in the clinical trial setting. Certainly a couple of things that I think give us some encouragement.

We certainly saw in the study that we did that forms the basis of our application that the adverse event rate, in particular the rate of respiratory adverse events was much lower and none of the patients discontinued for that adverse event.

And as you know, that's being one of the primary reasons for discontinuations on ORKAMBI in the 12 years and over population.

And then again one thing that could help us, the six year to 11 year population certainly with KALYDECO, we do tend to see compliance rates being much higher in the younger population, not surprisingly they tend to be very heavily managed by their parents.

And so whilst I don't know exactly how it's going to play out in the real world, I'd certainly expect access to be very good and us to secure that quickly and I'd also expect the uptakes to be very rapid as well..

Thanks very much..

Geoff, I'll just add on to Stuart to reiterate something I said in my comments, which is that the Q4 is where we anticipate to see the growth in ORKAMBI for the remainder of the year. Obviously, that is driven by the six years to 11 years that Stuart was just discussing..

Okay, great. Thanks, Ian..

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

Hi. Thanks very much for taking my question. As you guys see more uptake in Germany and more patients going on treatment in France. I was wondering if you could talk a little bit about persistence and compliance patterns that you're starting to see in Europe. You expect to be able to leverage your learnings from the U.S.

launch, plus the availability of the long-term data now to improve that patient retention in the European launches compared to U.S.? And then separately, just wondering if you could give us a little bit more granularity on the next steps in your level of confidence on residual function mutation, sort of where you stand there with respect to the next regulatory steps? Thanks..

Okay, Brian. So I'll start off on the persistence and compliance and how things are playing out in Europe. I mean one of the benefits of launching in Europe after launching here in the U.S., is clearly we've been able to learn a lot from our experiences here in the U.S.

And I think one of the things that we've been able to do is certainly sensitize people through the fact that some patients may have these respiratory adverse events. And so to be on the lookout for them, to be cancelling patients in advance and that certainly has been one of the many learnings that we took from our experiences here in the U.S.

through the introduction of the product in Europe. The data sources are not quite as robust as we have here in the U.S. in terms of tracking at a non-miles level individual patient data in Europe. And I would say it is relatively early-stage.

The persistence rates are certainly in line in the same kind of ballpark as we saw with the ORKAMBI here in the U.S. And as that data matures over time, we'll be able to give you kind of more detail on exactly how it's playing out.

But the minute the data is relatively mature, I would say it's pretty much in the same kind of ballpark for the systems and the compliance..

And Brian, it's Jeff Chodakewitz. Just to comment on residual function. We really can't comment on what we have ongoing discussions with regulatory agencies.

The only thing I can say that we do really think all the data, both the pre-clinical data and the clinical data really tell us that this drug is beneficial to those patients and our goal is to figure out the way we get access for those patients..

Thanks very much..

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

Hi. Thanks for taking the question. Maybe just two from me. First on ORKAMBI in the U.S. It looks like new patient adds have moderated somewhat this quarter. And I know you were talking about nearing peak.

So is 6,000 or 6,000-ish patients kind of what you're expecting now, or you think you can get to the rest of the 8,500 patients total? And then in Germany versus France, obviously a difference in uptake. Just wondering what you think is driving that and which other countries you could think about those patterns playing out.

Are they going to be more like Germany or more like France? Thank you..

Yeah. Terence, I'll start with the U.S. So, as you said with ORKAMBI we've now initiated over 6,000 patients here in the U.S. which is about 70% of the eligible patient population. And as you might expect with the launch where we're getting to a steeper part of the curve, adding new patients becomes a little bit more tricky.

Having said that, we are continuing to add new patients on a weekly and a daily basis. But as Ian said in his prepared remarks in terms of U.S. growth, obviously the next phase in growth in the U.S. is likely to be from the approval in six years to 11 years, which we hope will come in the next couple of months.

So moving on to how things are panning out in Europe. And you're right. There is a contrast in uptake between Germany and France. Germany is slower than we anticipated and much of that I attribute to the fact that the German market is more fragmented than many of the other markets that we operate in.

And what I mean by that is there's many more centers treating CF patients. And as a result, they've had less experience with CFTR modulators, and, therefore, (28:39) educational need is higher there. And also, we did see a slightly slower uptake for KALYDECO in Germany than we saw in other EU markets.

In contrast that with France, where through early access programs we have, 700 patients have already been initiated on ORKAMBI and that uptake in six months is much more U.S.-like. So, based on that, based on all the other research we've done, we do anticipate that Germany is more likely to be an outlier in terms of rate of uptake.

Although I continue to believe that we will get to the vast majority of the patients in Germany over time.

And in terms of rate of uptake, I would expect it to be more like France in the rest of Europe, pending reimbursement than we've seen in Germany, which I continue to believe is likely to be more of the outlier based on our previous experience with KALYDECO and current experience with ORKAMBI..

Great. Thanks so much..

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

Hi guys. This is John Miller on for Mark. And I just wanted to ask a question about these 6,000 patients that have started on ORKAMBI. You said there's a start – what's the current number of patients on therapy? I'd love know that.

And my other question I suppose would be your thoughts on pricing pressure, especially in an orphan disease like this where pricing ability has typically been very high.

How do you look at that going forward as that's obviously an issue?.

So, I'll just reiterate what Ian said. In terms of the actual number of patients being treated, that's clearly a very dynamic number and changes constantly. So what we have said is that we've to-date initiated 6,000 patients.

We continue to see more initiations and we continue to believe as we do at the end of Q1, but the persistence rate for that patient population is going to be somewhere in the 70% to 80% range. As indeed we believe the compliance rate will be somewhere in the 70% to 80% range. And so that's what we believed at the end of Q1.

We continue to perform against those expectations, and that is in 12 year and above patients in the U.S. is what underlies our revenue guidance that we reiterated today. So in terms of pricing, clearly that's a very hot topic across the industry.

We continue to believe that we're developing very high value medicines, medicines that treat the underlying cause of what is a horrible, life shortening disease.

It's for a very small patient population and we believe and I think that's reinforced by the discussions we've had with the governments through the reimbursement in KALYDECO and the ongoing discussions we're having with ORKAMBI. This is exactly the sort of medicine that they want to be able to provide to their patient population.

So whilst there will be pricing pressures because of the overall macroeconomics on every farmer and biotech company, I continue to believe that the sorts of agents we're bringing to bear are the sorts of products that the governments are going to want to pay for..

Thank you very much guys..

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

Hi. This is Cyrus on for Matt. Couple of questions.

First, are there any efforts to improve the persistence or compliance rates in the United States?.

Yeah. We have a number of programs which are provided either through materials that we provide to healthcare providers to provide to their patients.

Or where appropriate to provide directly to the patients to educate them on the product, the mechanism of action, the fact that they treat the underlying nature of the disease, and so those programs are ongoing. And I think understanding and an educated patient is likely to be a more persistent and more compliant patient.

And also, we continue to try and build the evidence base for ORKAMBI, which increases the benefit risk profile, and to the extent the providers and patients continue to believe in the benefit risk profile.

Then I think they're going to want to try and maintain their time on the product because of the both short-term and long-term benefit to the treatment with ORKAMBI gives them..

Okay.

The second question is when we would be able to recognize the revenues in France and will they come as a lump sum or how will it be dealt with?.

Thanks for that question. Just kind of help everybody else who is behind that question. We actually are providing access to ORKAMBI in France through early access programs and other programs. And we are actually being paid for that drug.

And in my remarks, I did comment that that launch in France is going very well and that we're accessing a lot of patients. We do get a payment for that drug that might be similar to how the ultimate price of the drug plays out in France.

However, from a GAAP perspective, we are unable to record those – let's say, access to those medicine as revenue until we haven't agreed price in France. So I appreciate your question. We'd anticipate that that would be a 2017 event.

As a point that we do get approval on the price which provides a certainty to recording of those revenues, we actually record the revenues as one big catch-up.

So as we've been selling drug, since let's say January 1, 2016 all the way through to the point of reimbursement approval, we will record that cash that we will ultimately have received as part of revenues in the quarter that we received reimbursement approval. We do think that would be a 2017 event..

Okay. Great. Thank you. And then last question.

Is there any update to the VX-661's utility analysis timing for the heterozygous?.

Hi, Cyrus, it's Jeff Chodakewitz. I can tell you that as we talked about previously that is on track to occur during the third quarter. And then based upon that recommendation from the DMC remember that we won't be seeing that information. We will either stop the study or restart enrollment and go to completion..

Okay. Thank you..

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

Hi. Great. Thanks a lot for taking my questions. My first one is you talked about a large bolus of discontinuations in the first quarter because 15% of patients I believe decided to come off in the first three months. I just wondered if there was any residual bolus kind of tail end into the second quarter. That's my first question.

And then my second question is also on discontinuations. You talk about the 15% in the first three months and 20% to 30% longer-term.

Can you help us, after the 15% dropout in the first three months, help us understand the discontinuation dynamics from that point to the 25% long-term discontinuation rate which is the midpoint of your guidance?.

So, yeah, thanks for the questions. So, yes, we did describe there's kind of bolus of discontinuations and that was largely a function of two things.

One, the very, very rapid uptake we saw of ORKAMBI post the initial launch and then we did see about 15% of patients discontinue within the first three months of therapy largely as a result of respiratory adverse events.

And then what we saw was that the rate of discontinuations ameliorated substantially; didn't stop, didn't flatten but it certainly ameliorated substantially.

And as a result of that, that's why we gave guidance that we see the discontinuations or the persistence rate which is the opposite of discontinuations being in that 70% to 80% range by the end of 2016. And everything we've seen through Q2 continues to reinforce our belief because that's where we will end the year somewhere in that 70% to 80% range.

If I understand your question correctly, there wasn't really a second bolus that negatively impacted Q2..

Right. I guess the question was, was there any tail end residual? You had the large number of patients start in the first nine months and you cited that in that in the first quarter.

As we moved into this quarter, was the bolus still moving through in terms of 15% discontinuations or do that really end in the first quarter?.

Maybe a better way to answer this is that when somebody asked this on the call earlier, was that are we continuing to see the dynamics of the launch and let's say the compliance rates and persistence rates, these being maintained. And yes, they are.

So when we talked about the profile of compliance with the medicine being between 70% and 80%, we're still seeing that. When we look at the persistence rates ending up at 70% to 80%, we're still seeing that which means that we – every time there is a bolus of patients that is initiating therapy, we still continue to see discontinuations early on.

However, because there is a lower initiation of patients in, let's say Q1 or even the beginning of Q2, the impact of discontinuations in Q2 is much less than it has ever been..

Perfect. Thank you..

Thank you. And our next question comes from the line of Phil Nadeau with Cowen & Company. Your line is now open..

Definitely. And thanks for taking my questions. Just couple on the pipeline. So, I guess first on VX-661's het-min futility analysis. Never disclosed exactly what the futility hurdle was. I was wondering whether you could give us some sense of the criteria or at least how you're going to interpret a dose signal in particular.

And then a similar question on the Phase 1 for the second generation correctors.

Can you give us some idea of what criteria you're going to look at to decide which will move forward and do you have any plans to move other second generation correctors into the clinic?.

Hi. This is Jeff Chodakewitz. So, in terms of VX-661 futility, I think first of all we really can't go into the details of exactly what the decision tree is, but let me help you think about it a little bit perhaps. There's a certain tension as you make a decision based on partial information.

We want to try if the drug is not benefiting patients to stop the trial. Conversely, there is uncertainty and we also want to be careful about not missing a positive result. Therefore, there always is a certain overlap. And what we tend to do is then say it's clearly not working. We stop.

The consequence of that is, even if it goes forward, there is still uncertainty. It does not mean that it's working, it just means that it may be working. And therefore, until we get to the end of the study, we really would not have any confidence in what the result is going to be..

Yeah. And Jeff maybe before you go on to the next question, I would just comment from a disclosure perspective we get after the question a number of times. I want to be very clear on our disclosure around that.

Consistent with that Jeff is saying, if there is a discontinuation of this study due to the futility, we'll announce that the study is discontinuing and that would be an appropriate announcement at the time that we get that information. If we pass no guarantees that it's working and therefore this information is submissible for approval.

But the only way we communicate around that is on clinicaltrial.gov, we will reopen the recruitment for that study and would expand the recruitment into the study but there wouldn't be announcement to say that we have passed the futility rule..

That's very helpful. Thanks..

Thanks..

And just in terms of your other question. I think what we've always said is that what we wanted to do is bring these medicines – these compounds forward, but we want them to be medicines. And so we try as much as possible to have drugs that we think can have a favorable profile in patients so that the patients continue.

We're going to look at all the information, safety exposure, all the things you'd expect. There's really no one thing that I can say we're going to focus in on is really the totality of the profile of the drugs..

Okay.

Do you have any plans to move in any other second generation characters into the clinic, or does that really depend on what you're seeing in Phase 1?.

Yeah. This is Jeff Leiden. Thanks for the question. As we've said before, this is a large program here. We've discovered a series of second generation correctors and they have different – or next generation correctors. They have different flavors which is interesting. And our strategy here is very straightforward.

We can develop a portfolio of products and bring some of those forward into the clinic and compare them that gives us the best probability of success. So our plan is to continue that program in the research and pre-clinical phase.

And if we see compounds that are interesting, good, better than the ones we have, we certainly will bring them forward to the clinic..

Great. Thanks for taking my questions..

Thank you. And our next question comes from the line of Alethia Young with Credit Suisse. Your line is now open..

Hey, guys. Thanks for taking my questions. Just one on VX-661 and the other study.

Can you give us a flavor around like, maybe kind of what the progress in enrollment, not the homozygous but the other three studies like, kind of what sequence we might expect through the timelines? Second one is just, when you look at some of the long-term data that you generate on exacerbation like at the medical meetings mid-year, do you think that doctors are receiving that, patients are receiving that, that there is like a very kind of profound benefit of staying on ORKAMBI even with somewhat similar to KALYDECO? Thanks..

Sure. So it's Jeff Chodakewitz. Let me first comment on the VX-661 sequence. First of all, as we indicated for the homozygous study, we have a lot of confidence in that finishing enrollment. In August in fact we've actually already stopped screening patients for that study.

So it's just having the last patients of completing the screening process and if they qualify going into the trial. We've already talked about the timing of the study of het-min patients and the futility analysis that's going to be done.

We expect that the next trial that's going to be completed will be the study of patients with 508 (44:30) residual function mutation on the other early on. As we've indicated, we expect that to complete in the second half of this year; very much as we indicated earlier this year.

It's really right on track and then the last study with 508 and gating on the other allele. Again as we've indicated previously, we think in the second half of this year or early next year and as we get the datas and that will allow us to evaluate our best sufficient strategy and file pending data in the second half of 2017.

In terms of the long-term data, I want to be sure that I understand your question. We do think that the results from that long-term data are quite compelling.

You asked specifically about pulmonary exacerbations and so we do look at what basically we use an assessment of how many events are happening for the patients that we're following and think about it as an event rate. And what we do see is that as we've gone out further, a time that remains quite low compared to what we had as our initial comparison.

We think that is quite meaningful to patient and physicians. And actually – and that linked up with the other information like bodyweight and particularly the change is slope of FEV1 and evidence of disease modification.

We think that is driving considerations like starting therapy earlier and considering whether patients who discontinued may want to think about of restarting therapy..

Okay. Thanks..

Thanks..

Thank you. And our next question comes from the line of Ying Huang with Bank of America. Your line is now open..

Hi. Thanks for taking my questions. Can you talk about maybe the ATU pricing you're getting in France. And how does that compare to the German pricing for ORKAMBI. And then secondly, also again on Europe, what's your thought on the Brexit, on the UK, and also broadly speaking, European reinvestment for ORKAMBI? Thanks..

So the ATU pricing in France has not been properly disclosed, but it is very similar to the list price that we have established in Germany. In terms of the thoughts on the Brexit impact, certainly from a financial point of view in the short-term, the really most tangible impact that you can see is really one around the impact on FX.

And because of the nature of our business and the natural hedges we have, we're not expecting that to have a meaningful impact on our business.

There's obviously a range of other legal, regulatory, employment and other aspects that could be impacted by Brexit as the negotiations are ongoing, we're clearly going to be tracking those very closely, and making all the appropriate moves and responses as the situation becomes clear.

But as with many things Brexit, I think they speculate on too many other aspects on what the impact would be, would be crystal ball gazing at best..

Thanks, Stu. And then maybe another one for Jeff.

Can you tell us, when might we see CRISPR and also the Moderna program getting into clinic as it's released?.

So thanks for that question. I appreciate you acknowledging the two very important collaborations that we actually done in the last year. Kind of expanding of such scientific modalities is getting to other diseases, but unfortunately they are early-stage, as you're probably aware.

And we will anticipate getting anything to the clinic in the next couple of years. There's probably three years or more from now. And we'd love to update you on that, but those have been important transactions for the company..

Thank you..

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

Hi. Thanks for taking the question. I thought you had a pretty good KALYDECO quarter.

I'm just wondering if you could comment on where – what's driving growth there? Is it from particular region or rolling out in a new mutation in that?.

Liisa, I'm thrilled with the question. It's nice to be able to talk about KALYDECO and thanks for noticing. Yeah, KALYDECO had a very strong quarter, about $180 million. Most of the growth over Q2 came from the U.S.

and essentially what we've continued to see is increasing new patient initiations in some of the newer indications like the two year old to five year old kids and also in the R117H mutation. So we continued to see strong patient initiations.

And as you know, the persistence rates and the compliance rates with KALYDECO are about as good as I've ever seen. So really is that combination of adding new patients and great persistence compliance rates, particularly here in the U.S..

Okay. Thank you for that. And then in terms of ex-U.S., is it just to make sure we're all on the same page, the only countries you're selling any drug – distributing drug to patients, but I know you're not really selling in France, per se, like France, Germany and the U.S.

Are those the totality of the countries?.

So outside of the U.S., France and Germany are different to many of the other markets.

The way, the structure of those markets work is that there are access programs that you can take advantage of where patients can get access to the products prior to formal reimbursement approval being secured on a relatively broad basis and that's happening in both Germany and France.

And Ian talked about the fact that with France we don't recognize those patients from a revenue perspective. In Germany, we do. There are other countries where on a named patient basis, there are literally handfuls of patients through exceptional programs are getting access to the product, where we are getting paid.

But the vast majority of our revenues outside of the U.S. are coming from Germany. We expect that to continue in 2016 and we don't expect to get really meaningful revenue contributions from markets outside of Germany and outside of the U.S. until 2017..

Okay. I think that's it from me. Thank you..

Thank you. And our next question comes from the line of Brian Skorney with Robert W. Baird. Your line is now open..

Hey good afternoon, guys. Thanks for taking the question. Two quick ones, I guess. First, can you just go over anything you said about the differences between the VX-152 and VX-440. Are they distinct corrective mechanisms.

I know you've always said that the intent is to move forward with both, but I was just wondering if there's a potential for these two drugs to actually be complementary to each other, or like VX-661 and lumacaftor they're just overlapping.

And then when we think about the (52:16) approval later this year, do you think there's any meaningful numbers of (52:20) patients currently on ORKAMBI off-label or do you think there's really completely on (52:24) patient pool right now?.

Hey Brian. This is Jeff Leiden. I'll take the first part and then Stuart can take the second part. We haven't actually talked a lot in detail about the mechanisms of action or the differences or similarities between VX-152 and VX-440. And they're clearly different molecules. And so that's why we brought them both forward into the clinic.

What we have said is that we as part of our discovery programs have discovered a portfolio of next-gen correctors, which do have distinct mechanisms of action as well as distinct drug life properties.

And that's why we're excited about the portfolio, that's why we plan to take multiple molecules into the clinic, because at least in my experience that's the way to maximize your chances of success..

Yeah. Brian on the subject of off-label usage in the six years to 11 years population, we don't track off-label usage, but my expectation is that it would be very, very low.

The reason why I say that is the prior authorization criteria that's seen for ORKAMBI, which have enabled us to get very good access for ORKAMBI are very simple, but very clear and they would tend to say the person has to have a CF diagnosis, they have to have the right mutation type and they check the date of birth so they check the patient is 12 years and above.

And so my expectation would be that the number of people receiving commercial products off-label at this point would be very, very low..

Great. Thanks, guys..

So operator, we'll take two more questions before concluding the call..

Okay. And our next question comes from the line of Katherine Xu with William Blair. Your line is now open..

Thank you. Thank you for taking my questions. I'm just wondering with ORKAMBI versus KALYDECO, do you see a little bit lower compliance or persistence for ORKAMBI as compared to KALYDECO.

And if that's the case, do you think it's mostly because of safety or lower efficacy or both, any sense on that at all?.

Yeah, Katherine. So with KALYDECO, we see very, very high levels of both persistence and compliance and we've said that our persistence with KALYDECO is 90%-plus and overall compliance, both here in the U.S. and internationally, is around 85%.

And as we said at Q1 and is baked into our revenue guidance, we expect persistence for ORKAMBI to be between 70% and 80% and for compliance to be in the same 70% to 80% range. So we do see both of those criteria being lower for ORKAMBI than they are for KALYDECO. And you're trying to attribute exactly why that is. I'm not sure.

I would be able to tease that out for you. I'm sure it's got to do with the benefit, risk and tolerability profile of ORKAMBI versus KALYDECO, but exactly which factor is weighting it one way or the other, I think that would be impossible to differentiate..

And could you give us a quick update on your oncology and pain pipeline candidates?.

So maybe – this is Jeff Chodakewitz – just to give you a quick comment and then maybe a comment I think in terms of our oncology program.

I think very much consistent with where we were discussing it previously that we do have of our lead molecule, VX-970, is really in focused clinical trials in very specific populations, in non-comparative trials to understand what the potential for that drug really can be. And so those are ongoing.

On the pain side, our VX-150 actually just has finished enrolling a Phase 2 POC study in osteoarthritis patients and we expect to have some information later this year..

So Jeff, thanks for that. I'd just pick up on that and say as many people ask this, are we going to be an oncology company? And I think that's a little early to suggest that given that we have one lead molecule at the moment in early stage settings in oncology. We're going to continue to progress those studies as Jeff Chodakewitz said.

And based on that data, we will make a choice at that time of whether we provide further investment or we actually love to see whether the mechanism is better served working with other companies. And therefore, looking more of a portfolio approach to drive forward, let's say, our oncology opportunities. We do have other mechanisms.

One of that is in the clinic and then a couple of that are just late pre-clinical right now. So we have a late pre-clinical, couple of compounds and then also early clinical compounds.

And that's what I term as our oncology portfolio and we'll make the decision of how to progress that best for greatest value once we receive the data from VX-970 the lead program..

Thank you. And our next question comes from the line of Alan Carr with Needham & Company. Your line is now open..

Hi. Thanks for taking the questions. I guess a couple of them here, one of them it looks like the only program you haven't touched on is VX-210.

Wondering if you can give us an update on that in the spinal cord? And then also, with respect to your sNDA around residual mutations for KALYDECO, what sort of options do you have available here in your discussions with the FDA?.

Jeff Chodakewitz. So Alan, I'd say first of all in terms of VX-210, that study is up and enrolling like we have had enrollment now in the trial, but these are acutely injured people. And so we have always expected that enrollment will be slow. And so we are really pretty much on track.

In terms of the residual function, as we talked about earlier, there's really just nothing in terms of ongoing discussions with the regulatory agencies that I can talk about further..

I'm wondering if you can comment on what the outcomes might be here as there's something that might be resolved this year or does this potentially involve more studies, what can you comment from that perspective?.

Yeah. It's Jeff Leiden. So as you know, we just don't comment on ongoing regulatory discussions, probably because they are not predictable than they are not totally within our control.

I think the important point is, we do believe that KALYDECO is active in the set of patients based on both preclinical and clinical data and that we're having ongoing discussions with the regulators about how to get access to these patients with KALYDECO. When we have an answer, we'll certainly disclose that for you..

Fair enough. Thanks very much..

Okay..

Thank you. And I'm showing no further questions at this time. I would like to turn the conference back over to Mr. Michael Partridge for any final remarks..

Okay. Thanks, operator. We appreciate everyone joining us today. We are happy to take additional follow-up questions after the call. The Investors Relations team will be in the office. So please reach out if you need us and have a good night..

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