Michael Partridge - Vertex Pharmaceuticals, Inc. Jeffrey A. Chodakewitz - Vertex Pharmaceuticals, Inc. Stuart A. Arbuckle - Vertex Pharmaceuticals, Inc. Ian F. Smith - Vertex Pharmaceuticals, Inc. Jeffrey M. Leiden - Vertex Pharmaceuticals, Inc. David Matthew Altshuler - Vertex Pharmaceuticals, Inc..

Michael Yee - RBC Capital Markets LLC Geoff Meacham - Barclays Capital, Inc. Terence Flynn - Goldman Sachs & Co. Ying Huang - Bank of America Merrill Lynch Alethia Young - Credit Suisse Securities (USA) LLC (Broker) Brian Abrahams - Jefferies LLC Matthew K. Harrison - Morgan Stanley & Co. LLC Geoffrey C.

Porges - Leerink Partners LLC John Scotti - Evercore Group LLC Brian P. Skorney - Robert W. Baird & Co., Inc. (Broker) Liisa A. Bayko - JMP Securities LLC Tony Butler - Guggenheim Partners Alan Carr - Needham & Co. LLC.

Good evening. This is Michael Partridge, Vice President of Investor Relations. Welcome to our Third Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will open the lines for questions. This conference call is recorded and there will be a replay available later tonight.

You can access the webcast live by going to our website. Dr. Jeff Leiden, Chairman and CEO; Stuart Arbuckle, Chief Commercial Officer; Dr. Jeff Chodakewitz, Chief Medical Officer; and Ian Smith, Chief Financial Officer will provide prepared remarks on this call. They will be joined by Dr.

David Altshuler, Chief Scientific Officer for the Q&A portion of the 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. I will now turn the call over to Dr.

Jeff Leiden..

Thanks, Michael. Good evening, everyone. Vertex's strategy in cystic fibrosis is to treat as many people with CF as possible, and to continue to enhance the clinical benefits for those treated by our medicines. Our long-term goal is to reduce the progressive and irreversible effects of CF by treating the underlying cause of the disease.

There are three key components to our strategy. First, to increase the number of eligible patients being treated with our approved medicines, mainly by obtaining reimbursement for ORKAMBI for more patients outside of the U.S.

Second, to further expand the labels for KALYDECO and ORKAMBI around the world and third, to develop new combination regimens with CFTR modulators, designed to enhance benefit for all patients. This evening, I'm pleased to report that we continue to make excellent progress on all of these fronts.

Last month, the FDA approved ORKAMBI for the treatment of children with CF, ages six through 11, who have two copies of the F508del mutation. With this approval, approximately 29,000 patients worldwide are now eligible for our medicines. Today, we are treating approximately 9,000 of these 29,000 eligible patients.

Moving forward, we remain focused on expanding access to ORKAMBI and KALYDECO, for the many eligible patients, who are still awaiting treatment, largely through obtaining reimbursement for ORKAMBI in Europe, Canada, and Australia. We are also continuing to make progress and our efforts to expand the labels for KALYDECO and ORKAMBI.

In the U.S., we're focused on obtaining approval for KALYDECO in patients with residual function mutations. And in the EU, we expect data this quarter from our Phase 3 trial of ORKAMBI in children ages six through 11, who are homozygous for the F508del mutation.

If successful, these would represent approximately 5,000 additional patients, who may benefit from our approved medicines. Beyond this important progress, our long-term goal is to treat all people with CF. During the last year, we have significantly advanced our CF pipeline, which now spans all phases of research and development.

Today, we announced the planned initiation of two separate Phase 2 studies of our next-generation correctors, VX-440 and VX-152 in people with CF, and also a Phase 1 study with third next-generation corrector, VX-659, is part of a triple combination.

These studies represent significant milestones in our efforts to treat as many people with CF as possible and will provide the first safety and clinical efficacy data in patients including het/min patients for a triple combination regimen that includes a next-generation corrector.

We expect to have data from the Phase 2 studies in the second half of 2017. Additionally, we look forward to obtaining Phase 3 data for the combination regimen of VX-661, which now carries the generic name tezacaftor and ivacaftor in the first half of 2017.

As we enter the fourth quarter of 2016, Vertex is a global biotech company that has discovered and developed two breakthrough medicines for people with CF, while broadening our pipeline of future medicines. Our significant revenue growth and return to profitability over the past year are metrics of the kind of company that we are becoming.

A company that consistently creates transformative medicines for patients and deliver significant and sustained revenue and earnings growth for our shareholders. With that, I'll hand the call over to Stuart to discuss the performance of our medicines..

Thanks, Jeff, and hello, everyone. Tonight, I will review the performance of ORKAMBI, our ongoing efforts to obtain reimbursement in Europe, the label expansion for children, ages six through 11 in the United States, and the outlook for KALYDECO. In the third quarter, global sales of ORKAMBI were $234 million, comprised of U.S.

sales of $211 million and ex-U.S. sales of $23 million. This quarter, sales in the U.S. declined compared to the second quarter of this year, largely due to a slowing in refills during the summer months of July and August. We have now seen the vast majority of these patients refill their prescriptions.

The overall compliance and persistence rates, we are observing remain as we outlined earlier in the year. During the quarter, patients in the U.S. continued to initiate treatment at a slower rate as we approach peak penetration in the U.S. for patients aged 12 and over. As of the end of September, approximately 6,400 patients in the U.S.

have initiated therapy on ORKAMBI. Last month, we revised our 2016 ORKAMBI revenue guidance to be between $950 million and $990 million for the full year and we are reiterating that guidance today. U.S. treatment trends were one reason for the revised guidance.

And the other main driver was the ongoing launch in Germany, which has been slower than expected. As of September 30, approximately 500 of the 2,500 eligible patients have initiated treatment in Germany.

We remain confident that we will treat the vast majority of eligible patients over time in Germany, but it will take longer than we had originally anticipated to reach that goal.

In contrast to Germany, we continue to see a strong demand in France, where approximately 900 of the 1,500 eligible patients have initiated therapy through early access programs as of the end of September. I would note that we're not recognizing revenue for these patients in France, until we achieve a formal reimbursement agreement.

Throughout Europe, reimbursement is progressing as anticipated. While there are unique aspects to each process, reimbursement typically falls into three phases, a clinical benefit assessment, an economic evaluation, and price negotiations. In several countries, benefit assessments and economic evaluations are complete.

We're pleased that government pay us across Europe, recognized the severity of this disease and the broad clinical benefits of ORKAMBI. We have now entered the third phase of the reimbursement process, which includes price negotiations in many key countries.

While the process takes time to complete, we believe that we will achieve broad reimbursement from key European and other government payers. We expect our first pricing agreement in a major European market to come in Germany this December. Pricing and reimbursement approvals for patients eligible for ORKAMBI outside of the U.S.

are expected to drive significant revenue growth in 2017. I will now turn to our recent sNDA approval for ORKAMBI announced last month.

We were delighted the FDA approved ORKAMBI for the treatment of children ages six through 11, who have two copies of the F508del mutation and since then we've been working to get the medicine to the approximately 2,400 eligible patients as rapidly as possible.

Interest in ORKAMBI for this age group has been very high and our interactions with public and private payers have been productive. We expect broad coverage of ORKAMBI for these patient population, as payers have already evaluated the product after approval last year in patients 12 years and older.

Thanks to the commitment of healthcare providers at CF centers across the country. I'm pleased to report the first children ages six through 11 are already receiving ORKAMBI. We expect the launch to drive revenue growth in the fourth quarter of 2016 and in 2017. Turning to KALYDECO, net revenues for the product were $176 million in the third quarter.

We are now treating the vast majority of currently eligible patients and therefore we expect this level of quarterly revenues to be maintained in the near-term unless KALYDECO is approved in CF patients with residual function mutations. Today there are approximately 29,000 people eligible for ORKAMBI or KALYDECO globally.

Yet, we are only treating approximately one-third of these patients. Therefore expanding access to both of our medicines for eligible patients around the world is our top priority. With that, I'll turn the call over to Jeff Chodakewitz..

Thanks, Stuart. Tonight, I will review the significant progress we are making with our CF pipeline and I'll start with the Phase 3 program of tezacaftor. We believe the investigational combination of tezacaftor and ivacaftor could play an important role in the treatment of people with CF.

Enrollment is now complete in the Phase 3 study in F508del homozygous patients and also in the study in people who have residual function mutations. Data from both studies are expected in the first half of 2017. The Phase 3 study in people with gating mutations is expected to complete enrollment in early 2017.

Pending data from the Phase 3 program, we plan to submit an NDA in the U.S. for tezacaftor and ivacaftor in the second half of 2017. I'd like to turn now to the progression of our next-generation correctors and triple combination regimens.

Our research and development strategy is to advance multiple compounds into development on the basis of our predictive preclinical assays and on Phase 1 safety studies, so we can choose the best combinations to evaluate in Phase 3 development.

The advancement of VX-440 and VX-152 into Phase 2, and the selection of VX-659 for clinical development reflect the strategy. VX-440 and VX-152 will evaluate triple combination dosing for four weeks and two weeks respectively. And we'll evaluate both het/min and F508del homozygous patients.

Data from both of these studies are expected in the second half of 2017. The Phase 2 study of VX-440 includes three parts, each has a different strategic objective but shares the same primary endpoints of safety and efficacy as measured by absolute change in lung function. Slide eight of the webcast, outlines some of the study's key features.

Part A is focused on het/min patients, and part B will enroll F508del homozygous patients. Parts A and B of the study will evaluate triple combination dosing for four weeks, and we expect to have the data in the second half of 2017. The potential initiation of Phase 3 development will depend on these data and discussions with regulatory agencies.

Part C is designed to generate 12-week safety and efficacy data for triple combination dosing in het/min patients and will run largely in parallel with potential Phase 3 development and we'll evaluate the contribution of the individual components to the overall triple combination regimen.

Slide nine of our webcast outlines the Phase 2 study of VX-152. This study includes two parts; the primary end-point of safety and tolerability, but a key focus will also be looking at measures of efficacy including absolute change in lung function and change in sweat chloride among others.

Part A will enroll het/min patients and Part B will enroll F508del homozygous patients.

The VX-152 study will evaluate triple combination dosing for two weeks and data are also expected in the second half of 2017, and are intended to support the potential initiation of a longer duration Phase 2b or registration program, pending data and discussions with regulatory agencies.

Our Phase 1 studies in healthy volunteers and other pre-clinical studies provide support for advancing both VX-440 and VX-152 into Phase 2 development, and have informed the designs of the Phase 2 studies we're announcing today.

Based on Phase 1 learnings, we believe VX-440 may have a wider therapeutic window and this is the reason that the VX-440 study will evaluate four-week dosing from the outset. We also noted in our press release today, a specific contraception requirement for females of child bearing potential seeking to enroll in the VX-440 study.

This enrollment criterion was based on recent results from pre-clinical development toxicology studies. Based on laboratory findings from our Phase 1 study of VX-152, we're also excluding patients with G6PD deficiency from the Phase 2 studies of VX-152 and also VX-440.

G6PD deficiency and CF prevalence have limited (13:50) geographic overlap and therefore the incidence of G6PD in the CF population is very low. We estimate this impacts less than 1% of all CF patients overall. I will just make a few comments on the in-vitro profile for VX-659 highlighted here on slide 10.

In our HBE assays, the use of a triple combination that contains VX-659 with tezacaftor and ivacaftor resulted in maximal efficacy that was greater than that seen with VX-440 or VX-152 in triple combination. Additionally, VX-659 is highly potent in-vitro, which makes it favorable for a combination with other molecules.

The Phase 1 study of VX-659 will be very similar to those we conducted for VX-440 and VX-152. Pending data from healthy volunteers, we plan to conduct the first evaluation of VX-659 in CF patients as part of the initial Phase 1 study. We expect to initiate Phase 2 development for VX-659 in the second half of 2017, pending data from the Phase 1 study.

Stepping back from the trial designs, we believe, we are in a strong position to define the clinical activity of three different next generation correctors in patients and have data in 2017 that enhance the probability of success for our next-generation corrector program.

The studies we are conducting with VX-440 and VX-152 could provide data sufficient to move to pivotal development, accelerating our ability to deliver significant clinical benefits to even more patients than we treat today. I look forward to providing updates on our triple combination regimens as they progress.

Before, I hand the call over to Ian, I did want to mention, one additional clinical milestone we expect to achieve before the end of this year. Data from a Phase 3 efficacy study to support approval for ORKAMBI in children ages six through 11 in Europe is expected in the fourth quarter.

Pending data from this study, we plan to submit an MAA variation in the EU in the first half of 2017. With that, I'll hand the call over to Ian..

Thanks, Jeff. Good evening to everyone. As you've heard tonight, we continue to make significant progress across our business. In my opening remarks today, I will review our third quarter financial results, review our 2016 financial guidance and discuss our anticipated financial trajectory into 2017 and longer-term. Financial results first.

In the third quarter of 2016, we reported total net CF product revenues of approximately $410 million, growing 38% compared to the third quarter of last year, of the number of patients being treated with our medicines significantly increased with the launch of ORKAMBI in July 2015.

Our third quarter non-GAAP operating expenses were $298 million, including R&D expenses of $214 million and SG&A expenses of $84 million.

The increased expenses for the third quarter of 2016 compared to 2015 were primarily the result of increased costs related to the progression of our CF pipeline and increased investments in global commercial support for the launch of ORKAMBI.

This quarter we recorded a non-GAAP net profit of $40 million, or $0.16 per diluted share, compared to a non-GAAP net loss of $32 million, or $0.13 per share for the third quarter of 2015.

This turnaround to profit was driven by a significant increase in revenues compared to the prior year, which outpaced a smaller increase in non-GAAP operating expenses. From a balance sheet perspective, we ended the third quarter with a strong cash position of $1.1 billion.

Additionally, earlier this month, we've replaced our $300 million term loan with a credit agreement that will significantly lower our interest expense and increase our available credit up to $800 million pending certain conditions. We will continue to build upon our strong financial position going forward. Now, let's turn to 2016 financial guidance.

We are reiterating our 2016 ORKAMBI revenue guidance of $950 million to $990 million and within this guidance, we expect ORKAMBI revenues to grow from the third quarter to the fourth quarter of 2016 as children's ages six through 11 initiate treatment in the U.S.

As Stuart mentioned earlier, the initial signs of these patients initiating therapy are encouraging. And as we look into 2017, we see continued growth for ORKAMBI, primarily driven by gaining reimbursement approvals throughout Europe and continuing pediatric launch in the U.S.

We continue to anticipate 2016 KALYDECO net revenues to be between $685 million and $705 million. As we look forward into 2017, we do not expect significant revenue growth for KALYDECO, if KALYDECO were to be approved in residual function patients that would be the only significant driver of growth for KALYDECO in 2017.

For our operating expenses, we continue to expect our combined non-GAAP R&D and SG&A expenses to be between $1.18 billion and $1.23 billion for the full year. As we look forward to 2017, we anticipate modest growth in operating expenses to support the progression of our CF pipeline and the launch of ORKAMBI in new geographies.

As we continue to increase the number of patients that we treat, we expect our revenues to grow significantly in the coming years, while operating expenses will only increase modestly.

We are well on track to deliver financial profile that is similar to many of our large cap biotech peers, which includes high operating margins, sustainable earnings growth, and significant cash generation. I'll now open the line to questions..

Our first question comes from the line of Michael Yee of RBC Capital Markets. Your line is open..

Hi, good afternoon and thanks for the question and congratulations on the updates on everything, particularly the triple. I guess my question on the next-generation compounds is, can you talk a little bit about what you mean by therapeutic window for VX-440, for VX-152, talk a little bit about safety and tolerability, what you saw in PK.

Just give a little more color there, that would be helpful in between the two programs. And then just a commercial question for you is in the guidance you have given for the year in ORKAMBI, obviously you're launching the six-year olds to 11-year-olds.

What type of cadence or ramp do you expect there? What's in your guidance? Is it a similar ramp to the 12-year old and up, even if these are healthier patients? Just want to understand what you're expecting there. Thanks so much..

Hey, Mike. It's Jeff Chodakewitz. Maybe I'll start, talk about the next-gen program. We are excited as you said to have both molecules progressing into Phase 2.

We think that based on our Phase 1 results, and you know that given our ability to use our preclinical assays, we can look at the exposure and have a sense of whoever is going to get to in the clinic, we think that both compounds are going to go into their Phase 2 studies with doses that are both going to be well tolerated and efficacious and I think that's very exciting.

Maybe just to hone in a little bit on your question about therapeutic window, that really comes from both compounds being generally well-tolerated. In VX-152, we did see some GI symptoms mostly nausea and vomiting, and therefore that's the basis for that comment.

So for VX-440, we're going right to four week studies and with the potential therefore to accelerate quickly into a Phase 3. And then for VX-152 because of that we are starting with Phase 2 studies and then can extend dosing from that..

Okay..

And Mike, just to address your question on the six to 11 launch, obviously it's now early days, we've got the approval on the September 28, so we're less than a month in but certainly the early signs are encouraging and you might expect interest is high in using ORKAMBI in this younger patient population.

We're making good progress with both, public payers and commercial payers.

In terms of securing access and already have approval for about 50% of covered lives which is, obviously, an important prerequisite to getting access to these younger patients, and so, as a result of all that, we are expecting similarly robust uptake for that, which we saw with ORKAMBI in the 12 plus population and that's what's incorporated into our overall guidance..

Okay. Great. Thank you so much..

Thanks, Mike..

Thank you. Our next question comes from Geoff Meacham of Barclays.

Your question, please?.

Afternoon, guys, thanks for the question and congratulations on the plans for the triple.

I just had a couple on that, for either VX-440 or VX-152, can you talk a little bit about what you're looking for FEV1-wise, just from a powering perspective? And then in either Phase 2 is there a washout period for homozygous patients who have had prior exposure to ORKAMBI? And I have one follow-up..

Hey, Geoff, it's Jeff Chodakewitz. So, again, I think that as you saw from our Phase 2 designs we're really going to be getting a pretty robust look at how both molecules are going to perform.

We're really being able to look at both het/min patients and homozygous patient, which is, I think, very important and the fact that we think that the doses we're going to be taking into Phase 2 can deliver benefit for both populations. That's really – that's really critical. Our Phase 2 studies are really not so much powered on any individual number.

They're really giving us a good handle on being able to understand what the drugs are capable of doing and to your point, we are going to actually leverage a washout from ORKAMBI, so that people can participate and we're going to importantly look after the end of dosing and because we think that that follow-up period coming off of treatment actually has been, can be very informative in terms of having confidence in the result.

So, that gives you a sense..

Got you. Okay. And just real quick, in the past, you guys have talked about between VX-661 and VX-809, things like tissue penetration differences, half-life differences.

Any way to generally characterize what you would say are differences between VX-659, VX-440, and VX-152 just from maybe a PK or chemistry perspective?.

So, Geoff, maybe I'll just quickly take that because that question is just frequently asked. There are small differences between compounds. I think the major difference is that they are structurally different..

Got you. Okay. Thanks, guys..

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

Hi, thanks for taking the questions. Maybe two from me. Just on the second-gen correctors, can you give us any insight in terms of the dose-limiting talks in the animal models? Was the GI seen there? And then on VX-440, just wondering some more details on the design of Part C of that trial.

I was wondering if you have regulatory sign-off to run that as part of Phase 2 rather than include in Phase 3. Thanks..

So, I think in terms of our Phase 1, I think I have given you actually quite the flavor on what we've seen with the – in the healthy volunteers, good tolerability overall. I mentioned the nausea and vomiting.

I should clarify that that was at doses – that was absorbed at doses higher than the doses that we're going to be talking into Phase 2, that's how we think about being sure that we have a therapeutic window.

In terms of the pre-clinical data, I really can't comment on that level of detail, and of course everything we do as we go forward will be confirmed with regulatory agency..

Okay.

And then on the VX-440 Part C?.

Oh, I'm sorry, I guess I was – sorry Terence, I was going to that part of your question. We can't comment on the individual discussions we're having with regulatory agencies. I think to your – as we talked about that, that is going to accomplish several things.

It's going to help us understand the performance of the triple, it's importantly going to give us data on 12-weeks of dosing, and depending on the results that we're seeing as we said this data actually could be done, basically in parallel with Phase 3 study..

Okay.

Is that the triple versus each of the sub component, each – versus mono of each of the three drugs or is it versus a doublet?.

No. It's really primarily about triple versus doublets..

Okay, thank you..

Thank you. Our next question comes from Ying Huang of Bank of America. Your question, please..

Hi, thanks for taking my questions. And it's great to hear the Phase 2 advancing for the new CF correctors (27:40). So maybe for Steve, you mentioned that 6,400 patients now have started treatment in U.S. for ORKAMBI. That leaves to about another 2,000 patients.

Is there a reason we should think of why those 2,000 patients would not initiate therapy, if that's possible? And then secondly, I have a question on, maybe Jeff, on the Phase 2 protocol for these two molecules.

Do you think as what we've seen with KALYDECO in G551D patients and also ORKAMBI in homozygous F508 deletion patients, two weeks or even four weeks should be long enough to see a significant improvement in lung function given that these patients have the (28:19) mutation? Thank you..

Ying, so thanks for the question. Yes, over 6,400 patients have initiated therapy on ORKAMBI and we're obviously delighted with that. It's over 70% of the eligible patients, but as you said that means that 2,000 are yet to be initiated.

Obviously the individual decision about whether a physician and patient want to initiate therapy is one that they have to come to themselves, but we are certainly continuing to see new patients being initiated as we deliver and develop more evidence about the long-term benefits of ORKAMBI, I think that's giving physicians, patients even more reasons to think about whether they would want to be initiated on ORKAMBI.

And on the Phase 2 question, I'll hand that over to Jeff..

Thanks, Stuart. Hi, Ying, as you note, we obviously don't have data yet for the triple, but everything that we've seen across our portfolio with modulating CFTR really suggests that both the two-week and the four-week studies are going to be able to give us valuable insights into the potential efficacy of the regimens..

Great, Thank you..

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

Hey guys. Thanks for taking my question and congrats on the progress in Phase 2.

On the corrector front with some of these new correctors, I guess how do you think broadly about positioning of these assets? And like you know with the VX-440 and VX-152 compounds, would you think about moving both into Phase 3? And then I have one question about Europe..

Yeah, Alethia, this is Jeff Leiden, that's more of a strategy question, so maybe I'll take that and first I'll just remind you that our strategy all along has been to develop a portfolio of next-generation correctors, really for two reasons, one they do have different properties, they come in different flavors and we really want to see those different flavors in people and understand how they perform and two, there is a probability of success issue here, right? By bringing three or four of these different correctors into Phase 1 and now in this case Phase 2 studies, it increases the probability of success that will come up with the best regimens for each of the patient populations.

And while we can predict an awful lot from our preclinical cellular-based assays, because they predicted quite well on the efficacy front, as a couple of folks noted before, there can be differences in potency and maximal efficacy in drug-like properties and those are best seen really from these Phase 1 and Phase 2 trials and we're learning a lot as we go about these different molecules.

Would we ever take two molecules into Phase 3 development? It's absolutely possible just as you've seen with lumacaftor and VX-661, two first-generation correctors because they may also have different profiles.

It's just going to depend on the data that we see from these Phase 2 studies, but I think the important thing is the strategy we're taking is this portfolio strategy..

Great, thanks.

And then on Europe for Stuart perhaps, maybe with some of the reimbursement conversations, do you find them kind of a different flavor as you go through each country, or there kind of similar themes on what you kind of payers are concerned about for ORKAMBI?.

Yeah. So the concerns and questions that we get, Alethia, are very consistent. As we've said a number of times, while each process is different, they tend to kind of orient themselves around three phases. One is a discussion of the clinical benefits of ORKAMBI.

And in general, we've been very pleased that payers across Europe have recognized the broad clinical benefits of ORKAMBI. Then there is an economic evaluation and after that phase you enter into the price negotiations.

And so, while each process is different in each different country, they tend to follow that same pattern, and they are kind of proceeding as we anticipated.

And I'd say the last thing is that in addition to evaluating the clinical benefits from an economic perspective, they're concerned about the overall budget impact it might have for them in their individual country..

Thank you. Our next question comes from Brian Abrahams of Jefferies. Your question, please..

Hey, thank you for taking my questions. And my congrats as well on the progress of the next-gen correctors. Two questions, first, I was wondering if you might be able to expand upon the comments you made regarding preclinical tox studies that led you to include contraception and exclude the G6PD deficiency patients for the VX-440 studies.

Was that something just related to a hormonal interaction? And then, on the commercial side, I realize it's very early days, but just wondering if you had any sense of compliance and persistence, or at least compliance in the six year old to 11 year old patients relative to what you've seen in adults thus far?.

So, Brian, it's Jeff Chodakewitz. I'll start and then turn it over. Just want to be sure I understand your question. For the preclinical data for VX-440 and contraception, I believe there are a set of standard studies that are done actually on rabbits.

And there we test the development of toxicity, the effects of the drug and we did find for VX-440 that they were some abnormality suggesting a potential deleterious effect on the fetus.

We don't know whether that actually translates to people, but the prudent thing to do clearly, is to ensure that women in the study are using highly effective contraception and that's what we flagged that we'll be doing that in our Phase 2 study with VX-440..

And on your compliance question, as you say, it's very early days yet, we're just one month into the launch in the six year to 11 year old children. However I think, there are some reasons to be optimistic that the compliance rates there could be higher than we see in teenagers and in young adults.

Certainly, that's what we've seen with KALYDECO and that's not atypical for what you see in other chronic disease, is where clearly these young kids are largely, if not exclusively under the supervision of their parents and therefore, compliance rates tend to be at the higher end of the spectrum..

Thanks very much..

Thank you. Our next question comes from Matthew Harrison of Morgan Stanley. Your question, please..

Great. Thanks very much. I have, two things that I just wanted to ask. So, I guess, both on next-generation correctors.

One, can you just compare and contrast, what you would expect to learn from two-weeks of dosing versus four-weeks of dosing and how you would correlate whatever signals you're going to get out of that? How you might move those compounds ahead? And then, second question is can you just tell us the dose levels of VX-152 and VX-440 that you're using in these Phase 2 studies?.

Hi, Matthew, it's Jeff Chodakewitz. So, let me talk about the two-weeks and four-weeks, because we're actually going to have very similar end-point in both. And as we spoke about earlier actually, we think that both two-weeks and four-weeks are going to be able to give us meaningful information.

We're also going to have sweat chloride being evaluated in both trials which will also be valuable. Ultimately, what we're going to do is use all the information, we actually also have a lot work being done to actually understands from a modeling perspective, so that we can get the absolute most information out of our clinical trials.

And so we're going to use all that information across both to make the best decisions and we think that that will contribute to both.

I think in terms of the specifics of the doses as you may see in this design, we're going to go into patients with the small cohort, that's really just to confirm that that exposure is the same in patients as it is in healthy volunteers, we don't have any reasons to think that it will be different or we're going to do that just to be sure, we're taking the right approach.

And then we'll choose our doses from there to confirm for the rest of the trials..

Thank you. Our next question comes from Geoffrey Porges of Leerink Partners. Your line is open..

Thanks very much for taking the questions and congratulations on advancing some more CF compounds. First, just wondering if on slide 10, you could tell us, where VX-152 fitted compared to VX-440 in tezacaftor in that assay? And then a couple of commercial questions.

Ian, you've been fairly clear about, what we should be expecting for KALYDECO in 2017, and there have, certainly, been some ups and downs in both consensus and in guidance this year for ORKAMBI. So, wondering where you would suggest that we sort of should be bracketing for next year for ORKAMBI.

There are certainly a lot of variables with Europe, with the pediatric indication coming online in the U.S.

so that would be helpful? And then, Stuart, lastly, as you're negotiating price in Europe, could you give us a sense of how you're thinking about having a portfolio of CF combinations? Are you expecting to have them at different price points, so should we be thinking that over time, they gravitate towards a band, regardless of whether it's two or three drugs in the combination? Thanks..

Thanks for the question. This is David Altshuler. I'll take the first part. As we showed last year in the het/min cells and also homozygous cells, VX-152 and VX-440 have very similar levels of max efficacy..

Okay. Great. Thanks..

And Geoff, to your question on guidance, I was very clear on KALYDECO in my prepared remarks, where KALYDECO is treating roughly 90% of eligible patients that it's – and it has a very good persistence rate and compliance rate, and we'd anticipate that continuing on into next year.

So, as you see the current quarterly run rate for KALYDECO, we see that continuing on in 2017, the market for that potentially increasing would be if we were able to gather residual function approval, and as Jeff Chodakewitz explained, we are currently in discussions with the regulatory authorities in the U.S.

regarding that approval and that continues that discussion. Regarding ORKAMBI, it's still too early to say. We're very comfortable with the guidance we've provided through the end of this year of $950 million to $990 million and that does include the recent pediatric approval.

As we look to 2017, we'll probably thinking about how we give guidance around the U.S.

market and maybe Germany as well, because we do have visibility and knowledge to those markets in terms of the other international markets of how quickly and the timing that they come on, we just need to get that some thought over the next few months of whether we actually try to provide a bracket around that guidance, there is a certain unknown elements but I'm sure, you can appreciate with these discussions and sometimes the discussions push out because you are actually holding out for a price that you believe is appropriate for the medicine.

And so, it's about us getting to the right spot and rather than putting guidance around it and be forced around guidance, we'll give it some consideration of how we put a bracket around that and we'll be back to you early in 2017. And then to your third question, I'll pass it over to Stuart..

Great. Thank you..

Hey, Geoff.

In terms of pricing principles, obviously, we can't comment on the pricing of future products, but I'll talk to our pricing principles overall, which have been very consistent for how we priced KALYDECO and ORKAMBI and the two primary drivers and really the number of patients that we're able to benefit with our medicines, and then the level of clinical benefit or value that we're able to bring.

And I think, you've seen that we adhere to those principles with ORKAMBI and whilst we don't have formal pricing agreements in place across Europe, yet, you have seen with the list prices of ORKAMBI that they are lower than they are for KALYDECO, which reflects the fact that clearly ORKAMBI is – has a much wider eligible patient populations despite the fact that medicine has two different components within it.

So, I think you can expect that we'll be adhering to those pricing principles as we bring next-gen correctors and other medicines to market for eligible CF patients..

Okay. Thanks very much..

Thank you. Your next question comes from John Scotti of Evercore ISI. Your question, please..

Hi. Good afternoon. Congrats on all the progress.

I just wanted to ask on VX-659, if you were to compare the preclinical toxicity profile of that asset to VX-440 with regard to what the potential teratogenicity et cetera, and then VX-152 with the nausea, are you confident that the chemical structure of VX-659 is different enough where we won't see those issues in humans in the clinic with regard to what we see with VX-440 and VX-152? And then I guess just quickly on timing, given the trials are small and if we assume they enroll quickly, is it unreasonable to assume that we could see data more towards mid-next-year rather than towards the end of the year, I know, you've guided the second half? Thanks..

So, John, first of all, I just want to pass on the team's best wishes to Mark and we look forward to....

Thanks, thanks – thank you so much..

...hearing back from Mark at some point, and I'm sure, I share everybody else's thoughts that are on the phone. In terms of the question, I'm actually going to ask Jeff Leiden to answer it because there is a whole portfolio approach here that we have starting from VX-659 and the methodology of how we pick our molecules and what that basis is.

And you should anticipate that the world, there will be more molecules coming, so.

So, Jeff?.

Yeah. Thanks for the question, John. Maybe just to go back one step and remind you of how we look at these molecules and select them. So, first real acid test for these molecules is our human HBE cells, both het/min cells and homozygous cells from multiple donors.

And as we showed you, I think in one of the slides today, VX-659 actually has efficacy as measured by chloride transport, which is maximal efficacy that's significantly higher than what we were seeing in VX-440 and VX-152, which were also quite high by themselves by the way.

We've also measured a number of other things in that assay, like cilia beat frequency (45:38) and others and we see the same kind of difference between the VX-659 and VX-440.

We then put the molecules through a pretty rigorous stream with respect to PK, tox co-formulability, really making sure that we're bringing the drugs into the clinic as oppose to molecules.

And we're done with most, but not all of that for six, five times, we're certainly done with enough that so we feel very comfortable that we have a tox profile and the PK profile, that we're confident in taking into Phase 1 studies, both in normal and in patients this time as well.

We have not done yet with the developmental studies in rabbits and we don't have that data yet and obviously we don't have any human data, which is the final test of PK and safety and we'll only see that in the Phase 1 study.

In addition just as Ian mentioned just meeting the clear expectations, we have a number of other next-gen correctors, in our late preclinical pipeline we expect to bring at least one of those forward into the clinic in the first half of next year and maybe more and the reason for that again is that these molecules come in a number of different flavors, different policies, different properties and we want to bring a multiple of them into humans as part of triple combinations to understand how they interact.

I hope that gives a flavor of where VX-659 sits and what we know and some things we don't yet know, but we'll know soon..

That's really helpful. Thank you. Thank you so much..

Thank you. Our next question comes from the line of Brian Skorney of Robert W. Baird. Your question, please..

Hey, good afternoon, guys. I have two questions.

I guess why both – why start both programs in het/min, it seems like you'd potentially get more information out of adding this on top of VX-661 ivacaftor in patients with two F508del alleles, and also when we look at the relative differences of the four generations, is it reasonable to assume that two correctors within the same generation still are redundant? And is there any obvious redundancy to cross combining correctors of the different generations?.

Yeah, Brian, it's Jeff, again. Let me answer both. Both are really good questions. Maybe I'll answer your second question first. Really the portfolio approach is based upon the fact that while the molecules may bind to the same site, they may even have the same mechanism of action.

There are obviously a number of other properties that are going to be really important in picking the best regimen. They include potency because the more potent a molecule is the easier it is to combine into a triple combination of formulae.

They include maximal efficacy, obviously and we showed you that VX-659 as an example has a greater maximal efficacy, but they also include things like PK properties, tissue penetration, drug-drug interactions, all of those things.

And so when you think about this portfolio, think about it not only in terms of mechanism of action and not only in terms of efficacy and potency, but think about it as, how do we create the best triple regimen with one or more of these molecules going forward.

Does that make sense to you in terms of how we're thinking about it?.

Yeah, that is helpful..

And then repeat your first question for me?.

Just on the strategy of going in het/min first..

Yes, so just to be clear about what we're doing here. First of all het/min obviously is the big group of patients with the largest unmet need. And so as we think about taking these molecules forward, that's the patient population that we are most focused on, but I do want to be clear that we're essentially doing these things in parallel.

And so we will have results both in the het/min population and the homozygous population essentially at the same time or with very little delay and that's going to let us really design the best Phase 3 study I think here.

One of the things that I've really been pleased with over the last four years or five years is as we've developed these molecules, we've learned an awful lot about how to take the development forward.

Most quickly, most efficiently and then how to start to think about Phase 3 trials, perhaps a little differently, and so I do think you're seeing the results of that here as we sort of streamline these Phase 2 trials, do them in parallel as opposed to in series, as we've done it in the past and then hopefully based on the results of course launch into Phase 3 in a much broader fashion than we've done previously..

Great. Thanks, Jeff. That's helpful..

Thank you. Our next question comes from Liisa Bayko of JMP Securities. Your line is open..

Hi. Thanks for taking my question.

And just to clarify, there is no intention to formulate maybe a quad or something, you wouldn't add some of your next-generation correctors together and I guess why not would be the question?.

Yes, so as a theoretical question, Liisa, of course we would think about quads, and as you know we're also looking at some other mechanisms of action, things like ENaC inhibitors that could be combined. So there is nothing a priori that says that we wouldn't look at four drug combinations.

Obviously, the ENaC inhibitors inhaled, so it wouldn't be co-formulated but I do think there is one difference here that's worth mentioning.

I think it would be unlikely that for instance that we would put VX-152 and VX-440 together because they do appear to have the same mechanism of action and so adding them together would be not expected to produce a lot more benefit..

Okay.

And then, can you maybe talk about where you're going to be enrolling patients for some of these preliminary studies for the next-generation? Is it going to be North America, ex-U.S.?.

Hi, this is Jeff Chodakewitz. We're actually going to be doing studies in sites both in the U.S. and in Europe..

Okay. Great. Thank you. And then, just wanted to get a little bit more clarity on the hormonal component, I think you maybe talked about this earlier for VX-440 and what you've seen there in your preclinical stuff and then what that would just mean, if you were to take it forward? Thank you..

Sure. This is Jeff Chodakewitz again. So just to clarify perhaps, we've already talked about the rapid toxicity and why we're putting the contraceptive language in place.

The hormonal wording doesn't actually come from preclinical studies, with VX-440 at higher doses there was some evidence of liver enzyme induction and that can actually somewhat lower the exposure to the hormones in contraceptives.

And so therefore again, to ensure that we're using highly reliable contraception, where excluding that as being the primary method..

Okay, great. Thank you..

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

Thanks very much. Two questions briefly. And cohort 1a, can you help me understand the notion of using the low dose first before you move forward, while it may be intuitive you don't do that for VX-152? And then the second question is really around VX-152.

To me you've outlined very well the portfolio strategy, why certainly you're moving forward with VX-440 and VX-659. But is the only reason for VX-152 the fact that it does not have teratogenicity? Thanks again..

Hi, Tony. It's Jeff Chodakewitz. So two comments, one the 1a as we go back to sort of a prior conversation, the intent of 1a is to go make the transition from healthy volunteers to patients and be sure basically as the exposure is similar in the two groups.

And since it could potentially go up or down, although we don't expect it to do either, that's why we wouldn't want to go in at a high dose and then have the exposure actually end up higher. That's why we always would start in this kind of situation with the low dose and then expand, which is the intent.

In terms of your broader question about the VX-152 and VX-440, I think it goes actually back to Jeff Leiden's comment that we think both molecules will have the potential to be well-tolerated at doses that can deliver benefit to patients, including excitingly both homozygous patients and het/min patients, we don't have a treatment option, and that's really why we're taking both forward and we'll continue to learn as we have other molecules to our portfolio..

Operator, it's Michael Partridge, we have time for one more question..

Yes, sir. And that question comes from the line of Alan Carr of Needham & Company. Your question, please..

Hi, thanks for taking my question and congratulations on progress.

Wondering if you could clarify a bit some of the timing around VX-152, VX-440, and the results from those and the results from your VX-659 phase to – are you trying to – are you going to be able to position these three – a data from three Phase 2 trials at the same time in order to decide which one or two to bring into Phase 3?.

So, Alan, this is Jeff Chodakewitz. Let me just review how that winds up of course in the end, all these timeline, particularly the Phase 2 studies are going to be dependent on the rate of enrollment, but what we expect would be that for both VX-152 and VX-440 that we will be getting results as we've said in the second half of 2017.

At that point, we will also have the Phase 1 results from VX-659 as we talked about that's given everything, we've learned about the relationship from pre-clinical to exposure to benefit a patient, we think that we will be able to understand a lot about all three compounds as we're looking forward to make decisions at that point..

Okay. This is Jeff Leiden. I just wanted to be clear that we don't think about VX-659 as being on exactly the same timeframe as VX-152 and VX-440 and as Jeff said, it's a little difficult to give you precision, because it depends on how fast user enrolled.

VX-659 will only have a small cohort of patients in the Phase 1 and so we'll have to see what we learn from that. But if you were to ask me just to put a sort of marker on the table, I think that VX-659, myself, is about six months behind VX-152 and VX-440.

So, we're not going to be waiting obviously if we see positive results with VX-152 and VX-440 before taking those into Phase 3 to wait for VX-659, if that's really the question..

Yeah. Okay. That helps.

And then one other one, I guess, can you give us an update on VX-371, where do you think you stand with your CF program and ciliary dyskinesia there?.

So, it's Jeff Chodakewitz. For both of our studies, both the study in CF where we're looking at the ENaC inhibitor on top of ORKAMBI and in people who are homozygous for F508del and the study in patients with PCD, both are actively enrolling..

And timing for results, what's the latest on that?.

It's always going to be – of course until we end up getting the study fully enrolled, it's just too hard to give you any precision, I'm sorry..

All right. Thanks very much. I appreciate you taking my questions..

Okay. Everybody thanks for joining us tonight. For those of you going to the North American CF Conference, we look forward to seeing you there, on Thursday night this week. We will also be webcasting our presentation there, starting at 6:30 PM Eastern Time on Thursday.

Tonight, the Investor Relations team will remain in the office, if you have any additional questions. Thank you..

Ladies and gentlemen, that does conclude your call. You may disconnect at this time. Have a great day..