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

Phil Nadeau, Ph.D. - Cowen and Company Terence Flynn - Goldman Sachs & Co. Matthew K. Harrison - Morgan Stanley & Co. LLC Geoffrey Meacham - Barclays Capital, Inc. Geoffrey C. Porges - Leerink Partners LLC Cory W. Kasimov - JPMorgan Securities LLC Ying Huang - Bank of America Merrill Lynch Tony Butler - Guggenheim Securities LLC Liisa A.

Bayko - JMP Securities LLC Adam Walsh - Stifel, Nicolaus & Co., Inc. Mohit Bansal - Citigroup Global Markets, Inc. Carter Gould - UBS Securities LLC Alethia Young - Credit Suisse Securities (USA) LLC Alan Carr - Needham & Co. LLC.

Good evening. This is Michael Partridge, Vice President of Investor Relations for Vertex. Welcome to our First quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will open the lines for questions.

This call is recorded and a replay will be available following the conclusion of tonight's call on our website. Dr. Jeff Leiden, Chairman and CEO; and Ian Smith, Chief Operating Officer and Chief Financial Officer, will provide prepared remarks this evening. Stuart Arbuckle, Chief Commercial Officer, will join us for Q&A.

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, our 10-K, and other filings with the Securities and Exchange Commission.

These statements, including those regarding the ongoing development and commercialization of KALYDECO and ORKAMBI, Vertex's other cystic fibrosis programs and Vertex's future financial performance are based on management's current assumptions. Actual outcomes and events could differ materially.

Information regarding our use of GAAP and non-GAAP financial measures and a reconciliation of GAAP to non-GAAP is available in the financial results press release. I would also refer you to slide 3 of tonight's webcast. I will now turn the call over to Dr. Jeff Leiden..

Thanks, and good evening, everyone. 2017 is an important year for Vertex, and we've had a strong start to the year with excellent progress across all aspects of our business. This progress has advanced us significantly toward our goal of developing medicines for all people (1:41).

In the first few months of 2017, we continue to increase the number of people eligible for and being treated with our approved medicines, KALYDECO and ORKAMBI. In September of 2016, we received approval for ORKAMBI in children ages 6-11 in the U.S., and we've seen rapid uptake and strong compliance and persistence in these patients.

This quarter, we also submitted an MAA line extension to the European Medicines Agency for approval of ORKAMBI in children ages 6-11. There are approximately 3,400 children, ages 6-11, who have two copies of the F508del mutation in Europe. We remain committed to expanding the eligibility for and access to ORKAMBI.

We've also made significant progress across our CF pipeline. Last month, we shared positive results for two Phase III studies of the investigational tezacaftor/ivacaftor combination; one study in people with two copies of the F508del mutation and one study in people with one F508del mutation and the second residual function mutation.

Both studies demonstrate the clinically meaningful benefit of favorable safety and tolerability profile across multiple patient groups. We look forward to submitting an NDA and MAA for tezacaftor/ivacaftor in the third quarter of 2017. In addition, we have four next-generation correctors currently in Phase I and Phase II study.

We believe a triple combination of a next-generation corrector with tezacaftor and ivacaftor to provide benefit for the approximately 90% of people with CF who have at least one F508del mutation.

We expect to have data in people with CF from three of these combination regimens in the second half of 2017 and I look forward to updating you on this progress over the coming months. Lastly, we are focused on broadening our CF pipeline and during the quarter, we announced an agreement to acquire CTP-656 from Concert Pharmaceuticals.

Our goal is to develop the most effective and convenient medicines for people with CF and CTP-656 has the potential to be used as part of a future once-daily combination regimen that can treat the underlying cause of CF.

These recent accomplishments give us tremendous conviction that we will achieve our vision of bringing new transformative medicines to people with CF around the world. Our continued progress has also positioned us well to meet our financial goals of delivering sustainable, long-term revenue and earnings growth.

With that, I'll now turn the call over to Ian to discuss our financials..

Thanks, Jeff, and good evening to everyone. Tonight, I will discuss the key aspects of our first quarter 2017 financials and I will also review our 2017 financial guidance. Total CF product revenues of $481 million in the first quarter 2017, represents a 22% increase, compared to $394 million we recorded in the first quarter of 2016.

Additionally, it represented a $27 million increase compared to the total CF revenues of $454 million we recorded in the fourth quarter of 2016. For ORKAMBI, we reported first quarter 2017 product revenues of approximately $295 million, an increase of $18 million compared to the fourth quarter of 2016.

This increase was primarily driven by the rapid uptake for ORKAMBI in the 6 year olds to 11 year olds as well as strong persistence and compliance with this medicine in this age group. First quarter KALYDECO sales were $186 million, compared to $177 million for the fourth quarter 2016.

I'd like to point out that $9 million of this increase was based on mainly one-time adjustments related to reimbursement agreements in Europe. We also continue to manage and prioritize our operating expenses.

Our first quarter 2017 non-GAAP combined R&D and SG&A expenses were $313 million, compared to $306 million in the first quarter 2016 and compared to $295 million in the fourth quarter of 2016.

This revenue and expense profile resulted in a non-GAAP net profit for the first quarter 2017 of $101 million or $0.41 per diluted share compared to the non-GAAP net profit of $22 million or $0.09 per diluted share for the first quarter 2016 and compared to the non-GAAP net profit of $88 million or $0.35 per diluted share in the fourth quarter 2016.

The significant growth in the net profit was largely driven by the strong growth in product revenues while prioritizing and managing operating expenses. From a balance sheet perspective, we ended the first quarter with approximately $1.4 billion in cash, cash equivalents and marketable securities.

During the quarter, we received an upfront cash payment from Merck KGaA related to out-licensing of our oncology portfolio. We also chose to repay $300 million that was outstanding under our revolving credit facility. Our financial position gives us a significant flexibility to reinvest into the business to support our future growth.

Now, turning to our full year guidance, for ORKAMBI, we continue to expect $1.1 billion to $1.3 billion in net product revenues.

Where we land in this revenue range will be determined by the continued uptake and compliance of ORKAMBI in markets where it has been reimbursed as well as the completion of reimbursement agreements in individual countries within Europe.

In particular, if we succeed in gaining reimbursement in France in 2017, this would be the major contributor to revenue growth this year.

After KALYDECO, we are increasing our full year guidance and now expect $710 million to $730 million in net product revenues due to the one-time reimbursement adjustments recognized in the first quarter and the strong underlying demand for the medicine.

Lastly, we continue to expect combined non-GAAP R&D and SG&A expenses of $1.25 billion to $1.3 billion for 2017 as we guided to earlier this year. This guidance reflects the rapid progression of our CF clinical development programs and the ongoing global launch of ORKAMBI.

We do expect non-GAAP R&D and SG&A expenses to grow in the future quarters in 2017. Our goal is to increase the number of people eligible for and being treated with our medicines around the world.

We expect this to result in significant long-term revenue growth and we are committed to investing to create new medicines in other disease areas, while managing our operating expenses and delivering significant earnings growth. With that, I will open the line to questions..

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

Good afternoon. Thanks for taking my question and congratulations on the progress and the strong quarter. One question on what was disclosed in the press release, moving one of the studies of the triple combo from two-week dosing to four-week dosing.

Could you talk a little bit more about that decision, what were the data or analyses that you did to support the longer dosing and what do you hope to achieve or demonstrate with it?.

Yes, hi, Phil, this is Jeff Leiden, I'll take that one. Maybe just to back up a little bit and remind you that we have four different triple regimen combos that are in clinical trials. We sort of think of them in two ways, VX-440 and VX-152 are the first wave, they're in Phase II trials.

And as you know, those trials have two parts, both a het/min population and a homozygotes population. And then the second wave is VX-659 and VX-445, and those are in Phase I trials, but the Phase I trials have a patient component as well.

Before I answer your specific question, I would just say that we're very pleased with the progression of those – all four trials, they are all on time, or actually a little ahead of schedule, to deliver results for the first three in the second half of this year, and the final one, VX-445, in the beginning of next year.

With respect to VX-152 and your question now, the initial studies of VX-152, both parts, het/mins and homozygotes, were designed to be two-week dosing studies.

Based on the tolerability profile that we've seen so far, we decided to extend the duration of the second trial, the homozygous trial, to four weeks, and the reason for that is, it's just going to give us more patient information upon which to make the best decision about which one or several of these we're going to take forward into Phase 3 next year..

Got it.

And one question we get about those Phase 3 trials is, your plans for the Concert molecule in them (10:44), can you talk about your decision process there?.

Sure..

How likely are you to move forward with ivacaftor – tezacaftor versus the Concert molecule in combination with tezacaftor?.

Yeah, so our first priority is to get an excellent efficacy and tolerability regimen for patients who particularly had commenced, we have (11:02) nothing today, and if that's a BID regimen, everything that we've learned from those patients says that it will be well accepted because, as you know, those patients take many, many pills, 20 to 40 pills a day often.

On the other hand, our ultimate goal is to get a highly effective and tolerable regimen that's once-a-day, and the good news there is that both VX-659 and VX-445, we believe, are once-a-day regimens. We know that VX-661 is a once-a-day regimen. KALYDECO is a twice-a-day regimen.

And so, the impetus to acquire the dual rate in KALYDECO (11:34) from Concert was to be a – it's a once-a-day regimen, we'd be able to combine it with VX-661 and either VX-659 or VX-445 to get a once-a-day highly tolerable and highly efficacious regimen..

Got it. Thanks for taking my questions..

Sure..

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

Hi, thanks for taking the question. I was just wondering, to follow up on the triple combos, maybe, can you talk about your disclosure plans, will you plan to release those as a group or will they come in – come out as they come in? And then, regarding the ongoing Phase 3 trial of tezacaftor and KALYDECO on the F508del plus gating patients.

Can you remind us of the design there and what you're hoping to see? Thanks..

Yeah, Terence, thanks for the question. I'll take the first part, the disclosure question.

As we've done in the past, obviously, you are asking the question about future disclosures, I think our plan at this point would be to let the studies play out, we'll have a better visibility of the timing of the data coming from each of the studies in a couple of months from now.

And I think at that point in time, we'll have a better understanding of how the data will roll out. Our intention actually is to provide you with a top line release, probably in the form of a press release, as usual, and safety and efficacy data, because these studies now are including patients, with safety and efficacy data.

And the data supports what the next steps are for each of the compounds and the triple combinations..

And Terence, this is Jeff again. On your question on the gating, tez/iva gating 508 trial. Just to remind you, this is really the follow-up Phase 3 program to the Phase 2 results we have already published that showed, in that case, about a 4.6% additional increase in FEV1 when you add tezacaftor to ivacaftor in these patients.

This is obviously a larger trial, more than 100 patients, it's an eight-week trial, the control is ivacaftor monotherapy versus tez/iva. We're completing enrollment of that trial, and we expect to have the results in the second half of this year.

Based on those results, we'll decide the regulatory strategy, it's a little too early to tell until we see what the results are, and it could be a different regulatory strategy in the U.S. and in Europe, as you can imagine..

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

Great. Thanks for taking the question. So I have another follow-up on the triple.

I guess two pieces, so first, should we infer from your comments that we saw better tolerability than you're expecting and that's what allowed you to increase from two weeks to four weeks? And then why only extend to four weeks in the homozygous arm as opposed to both the homo and heterozygote arm?.

Yeah. Thanks for the question. So I think I would say that sort of the way I said it before, which is based on the tolerability that we've seen, we felt comfortable to extend into four weeks. (14:48) whether that's better or same, that's what the speculation. We have solid data, so we are comfortable extending to four weeks.

In terms of why only one, it's just a matter of we really would like to see four week results if we can with several of these (15:04) so that we can compare them directly. I am not sure we need to do that in every population and so we just decided on that particular population for the study..

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

Hey, guys. Thanks for taking the question. Congrats on the quarter.

Also another triple question, obviously VX-440 and VX-152 are ahead in terms of the development, but assuming those look good, we're just wanted to know what's the thought process, would you wait for de-risking data on VX-659 or VX-445 combos before you think about a pivotal or just what's the decision factor there? And I have a commercial follow-up..

Sure. First of all, we're thinking about triple Phase 3 designs right now. So we're certainly not waiting even until we have data, Geoff. But the good news is because these trials are proceeding nicely, in fact some of them are ahead of schedule, we're going to have data from these, at least the first three in a relatively short timeframe.

And the exact decision is going to be based on that data obviously. It just depends on what we see in terms of making a decision of pull the trigger on one or more of these compounds.

But I don't – what I'm really trying to communicate to you is I don't think even in the case in which we wanted to wait, we're going to do waiting for a launch, because we're going to have the data in a relatively tight timeframe on at least three and maybe all four of the programs.

And based on that data, we think we'll (16:32) make a good decision, I think I'm taking one or more of them forward..

I got you. Okay. And just on ORKAMBI, I know it's hard to say you guys reiterated for the year. Is there – are there any sort of gating factors that you're thinking about in terms of France or other country that are going to contribute to the year.

In other words, as the year moves on, are you guys going to update us on the process or is it most or less just, this is the revenue guidance for the calendar 2017?.

So, Geoff, thanks for the question. Yeah, we did reiterate our guidance $1.1 billion to $1.3 billion. We understand we had a good first quarter with ORKAMBI, a lot of that was actually driven by faster penetration into the 6 through 11 category in the U.S.

And so, with the first quarter behind us, we are looking at that guidance and we're between $1.1 billion and $1.3 billion, but there is still uncertainty as we play out the year on top of what we've already recorded in the first quarter, the run rate coming out of the first quarter, and that does mainly relate to timing of reimbursements in Europe.

And the major contributor outside of the U.S. would actually be France and, as you are aware, there is a lot of uncertainty in France. One is, the political environment over there. At this point, they're going through an election.

And then also, it's an unusual market in that the patients in France are already on drug and we already received the cash from them (18:05). So we don't have this huge advocacy pull to get reimbursement for the drug to ensure that the patients can then receive the drug. So it's an unusual market, it is probably the largest contributor outside the U.S.

for the 2017 revenues, but there is still significant uncertainty surrounding it while we continue to collect the cash, so we felt comfortable keeping our guidance at the $1.1 billion to $1.3 billion..

Okay. Thank you..

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

Thanks very much and congrats on the strong results. So just to follow up on the question about the European reimbursement. Ian, could you talk a little bit more about various parts of the U.K. and Benelux for ORKAMBI because they could certainly move the needle. Are they in your plan for this year or is that something we should expect for next year.

And then if Stuart's available, I'd love to hear where you are in terms of the uptake and the ongoing adoption in the 6 to 11 year olds in the U.S. and whether that's a template that we could look for in other markets over time? Thanks..

So, I'll just take the front end of that, Geoff, and then Stuart is here and Stuart can take the rest of the question.

But I would just say the guidance that we gave, $1.1 billion to $1.3 billion does assume that we gain approval in certain markets and they tend to be the smaller ones and they also tends to be more impactful in the second half of the year.

As of now, when we look at – I'll just point out, when we look at Q2 for 2017, we actually see it to be very similar to Q1, but these other markets even the smaller ones we anticipate come up in the second – more in the second half of the year and contribute then certainly France as I just mentioned, but even the small markets as well, the ones you mentioned, and maybe Stuart could give commentary around those markets..

Yeah. So, as Ian said, the guidance incorporates are kind of ranges of possibilities because we can't be absolutely certain which countries we're going to reach agreements with and when.

Certainly, we're pleased that we are beginning to see countries now strike pricing and reimbursement agreements with us, obviously Germany and Austria are already kind of online, we've added Denmark in the last few weeks, and we have an agreement in principle in Ireland.

But as Ian said, those aren't really going to kick in, in terms of generating additional patients and therefore revenue until the second half, and discussions are then ongoing in those other markets that you mentioned, like Belgium, the Netherlands and the UK, which is a particularly complicated market, not just because of the political situation there, but unlike many of these other countries, it doesn't really have a formal process that we can participate in to take it forward, and so we're really trying to develop with them kind of this thought process for ORKAMBI.

In terms of the 6 to 11 launch, Geoff, which is the second part of your question, the launch is going well here in the U.S., as Ian referred to in his prepared remarks. The vast majority of the growth we saw between Q4 and Q1, which is a result of that 6 to 11 launch here in the U.S.

and the launch trajectory in terms of uptake is very similar to the ORKAMBI launch.

But we're also benefiting from what we expected, which means higher persistence and higher levels of compliance than we saw in the 12 plus population and probably that's due to the profile of the drug in the 6 to 11 population that we saw in the clinical trials and partly that's due to the fact that not surprisingly these patients are managed to a large extent by their parents in terms of compliance.

So that's really how the launch dynamics are going for 6 to 11 here in the U.S..

Great. Thank you very much..

That specifically (22:10) in our guidance for ORKAMBI for this year and the answer is no..

Okay, great. Thanks..

Thank you. And our next question comes from the line of Cory Kasimov with JPMorgan. Your line is open..

Hey, good afternoon, guys. Thanks for taking my questions. My first question is actually on KALYDECO.

Curious about the trends there, I mean the product is generally fully penetrated, how – where is the bump in guidance coming from with regard to the strong underlying demand and then I have a follow-up bigger picture question?.

So – thanks for the question. I'll just walk you through kind of the math as to how we think about and why we did increase the guidance. Obviously, we just recorded $186 million in the first quarter. There were some one-time items in there related to the settlement of contracts. And that's around $7 million or $8 million.

But if you were to remove that amount out of the $186 and then just say that's the run rate and multiple that by four and then add in the $6 million or $7 million, you're actually at $720 million. And so we decided to move the range up. We were once at $690 million to $710 million.

So obviously even at our run rate plus with the strong first quarter, we're above that guidance.

So we moved it up and we put a band around it, because if there is better compliance and persistence, we have out – which we already have strong compliance and persistence there maybe a little upside and if we have less compliance and persistence, maybe a little downsize.

So it was really a function of the math of the first quarter that puts you at $720 million and we just put the guidance around $720 million – being $710 million to $730 million..

Okay. Understood. And then bigger picture BD question.

Now that you've out licensed the oncology asset, curious about your latest thoughts with regards to diversifying the business beyond CF and kind of how do you prioritize building outside of that core competency versus continuing to build that fence around that vertical like your recent Concert deal? Thanks..

Yeah. Good – great question, Cory, and a very timely question. So, I'll answer the second part of it first. This is Jeff. There is no higher priority here than executing on our CF strategy and we're obviously making great progress there, pretty much all respects and we're not going to take that foot off the gas.

We're going to put our foot down on the gas. We really believe now we are well inside of being able to find one or more triple combinations that's going to allow us to treat 80% to 90% of all patients. So that's clearly priority number one for the entire organization, as well as for the BD organization by the way.

If we did see anything else out there that was complementary that we think we could make better regimen, we would certainly be interested in that. However, we also are getting much closer to the end, again really in CF we believe. And so, it's a great time and we have started thinking quite a bit over the last even year or so about what's next in CF.

And so, let me answer it from a strategic standpoint and then I'll let Ian answer maybe from a more specific BD standpoint.

So, strategically, as you know, for a number of years now talk about the CF (25:18) clearance is being a model for what we want to do, meaning high unmet medical need, potentially transformative therapies where there are no therapies and specialty markets that have very low SG&A spend requirements, which allow us to funnel most of our revenue or OpEx anyway into R&D in new diseases and that's exactly the kind of diseases we're looking for, whether it's internal investments or external investments for what that for CF and I think, as you know, David Altshuler joined several years ago, he spent a lot of time, I would say, tailoring our portfolio of internal research to diseases like that and there are diseases like – that we've talked about like sickle-cell disease, alpha-1 antitrypsin disease, adrenoleukodystrophy, that they all look and smell a lot like CF in a whole variety of respects.

And I think that's what you can expect our internal portfolio to look like, and we have a number of those programs that we haven't talked about as well. The other part of the tailoring of the portfolio has been that we've out-licensed several assets that didn't fit that strategy.

So you saw us out-license our flu asset, which was a really interesting drug, but a community drug, to J&J. And you saw us out-license recently our oncology portfolio, again some really interesting transformative assets that didn't really fit our commercial and development strategy.

So I'm pleased with where the internal portfolio is now, and our investments in the internal portfolio, but we've also obviously recognized that, like most companies of our size and stage, we are going to have to supplement our internal portfolio, as good as it is, with some external assets as well. And you've seen us starting to do that.

I think the good news is, as our financial situation and strength, and considerably our cash accumulation has strengthened, and will strengthen, it gives us that much more firepower to go out and acquire other programs and assets to complement our internal portfolio.

You're not going to see us go out and acquire revenues, products with revenues in 2018, 2019, we don't need to, but maybe I'll turn it over there to Ian to describe again our BD strategy. And with the only change over time being that we have more firepower to execute that strategy..

Thanks, Jeff. I actually don't have too much to add to that, (27:27) said it many times on this call, number one strategy is look at everything in CF that complements our approach in CF. Number two is, continue to think about scientific platforms and different modalities that give us opportunity in other diseases that Jeff was describing.

And then number three is, how do we just continue to expand our pipeline? And to Jeff's point today, we have $1.4 billion of cash. We don't have debt. We do have a revolver facility, but we – of $800 million, but we haven't drawn anything down on it.

So we have a significant financial capability to continue to invest in areas that would be consistently where Vertex is focused..

All right. Great. Thanks, guys..

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

Hi. Thanks for taking my question. Can you talk about the U.S. versus ex-U.S.

revenue breakdown this quarter?.

Yes, Ying. So for ORKAMBI, of the $295 million in total, the U.S. accounted for $264 million, and ex-U.S. was the balance, $31 million. For KALYDECO, of the $186 million, we recorded $102 million of that was in the U.S. and $84 million was ex-U.S..

Thank you. And then also, Stu, you mentioned that you just reached a reimbursement agreement in Denmark, and also in Ireland in principle. Can you talk about roughly, are they close to what the pricing you got from Germany? Thank you..

Yeah. Thanks for the question. Yeah, so we're delighted that we are reaching increasing numbers of pricing and reimbursement agreements.

Denmark is one, we have an agreement in principle, as you said, in Ireland, and we're really pleased that these are coming through, and patients in these countries are now going to have access to the product, which will begin to contribute in the second half. In terms of specifically commenting on pricing, we obviously can't do that.

These are confidential agreements between us and the relevant authorities, and so we can't comment on the specific prices..

And, Stuart, (29:45) opportunity to talk about how we think about guidance going forward, that talking about the price that we're gaining, obviously, these are confidential, to Stuart's point. And so, we are thinking more about helping you understand the revenue line by providing you guidance per product.

But then as we look into the future, obviously, we have the potential now, as we create more medicines, that patients that may be on KALYDECO may move on to TEZ and IVA, and those patients that once were on ORKAMBI may also move on TEZ and IVA.

So we're starting to think about, how to help you understand our revenue trajectory and other things that worth discussing here and obviously we'll get some feedback from the Street as well, but what we're thinking about here is providing you kind of total CF revenues.

So at the end of the day, our objective here is to use all the medicines to treat as many patients as possible, and ultimately that's what's important, is treating as many patients as possible, which will translate to a total CF product revenue line. And so, we're giving this some thoughts about how we provide guidance in the future as well..

Thanks, Ian..

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

Yeah. Thanks very much for taking the questions. Jeff, two if I may. In clinical trials, the size of the cohorts for VX-440 are vastly different from that of VX-152.

And I'm just curious that as you roll out the press release later in the second half, will there be sufficient patients to actually make a judgment – for us to make a judgment between the two different molecules in the triple, and more importantly, whether or not there is comparative activity in het/min as well as in homozygous cohorts? And the second question is, very simply, does Teva bind at the same site as Luma (31:38)? Thank you..

Yeah. So let me answer both of those. So first of all, with respect to the size of the trials, it may be a little misleading in terms of what you're looking at on ClinicalTrials.gov, because we want – the VX-440 trial actually has three parts to it.

The first part, Part A and Part B, are the initial smaller trials, 40 patients het/mins, and 25 patients homozygous. Part C is the 12-week trial with 130 patients, that's what's contributing the good patient number that you're seeing there.

But Part A and B are the parts that we'll be making the decisions on with the data this year and those were actually quite similar to VX-152. VX-152 has 35 patients in Part-A, and about the same number maybe slightly smaller in Part-B. And so in fact, we will have an apples-to-apples comparison.

We chose the size of those trials, based upon now all these experience that we've had in Phase 2 trials, which is now many, many Phase 2 trials with CFTR modulators. And as you know, if you go back and you look at those trials, this kind of size of trial is 20 to 35 patients.

Each has been very, very informative in every case essentially predicted the Phase 3 results almost precisely. So we do have a high level of confidence that we're going to be able to compare these and make decisions based on these trial sizes.

VX-659 is slightly smaller, it's one cohort of patients and VX-445 again is slightly bigger, but even there, we think we're going to get pretty good reads to be able to make good decisions about which ones to take forward..

That's helpful.

And again Teva is probably of the same size as Luma (33:14)?.

Yes. Thanks for that. Again, Teva and Luma (33:17) do bind at the same site. They have the same – we believe the same mechanism of action..

Thank you very much, Jeff..

Thanks..

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

Hi. Thanks for taking my question and great quarter.

I just think about rolling out tezacaftor/ivacaftor and how will that interact with ORKAMBI? Will this be – are you thinking about sort of saving out ORKAMBI over time, and the switch strategy or how should we think about the interaction of those two?.

Yeah, Liisa, it's Stuart here. Great question, thanks. Yes, so obviously we're very pleased with the data that we saw earlier this year from the tezacaftor/ivacaftor Phase 3 program, clearly the aging has a very positive benefit risk profile.

In terms of patient populations that we think are likely to be the most interested in it, but if we start with the F508 homozygous population, we're really thinking there that as we know, there are a large number of patients who wanted to be on a CFTR modulator like ORKAMBI, but unfortunately we're unable to stay on the product after because of adverse events.

We think that's going to be a population of patients and their physicians who are likely to be very keen to try the tezacaftor/ivacaftor combination.

We also know that there are a number of patients who are naïve to therapy, have never tried ORKAMBI and we think they also may think more favorably about the benefit risk profile of tezacaftor/ivacaftor.

So those populations would both be additional patients who might be taking a CFTR modulator and really that's likely to be our focus with tezacaftor/ivacaftor, if there are patients who are already on ORKAMBI and who are doing really very well, I think that's going to be a decision for the physician and for the patient, whether they want to consider transitioning to tezacaftor/ivacaftor.

And then the second population obviously which would also be an additional population is the residual function population, and at present in both the U.S.

and in the EU those patients have no product which can treat the underlying course of their disease, and so that again would be an entirely new population, and that's why we say, that tezacaftor/ivacaftor in addition to be the basis for the triple combination is a really important medicine and you said it right, because it's totally in line with our strategy of bringing medicines forward which allow us to treat more patients with CF..

Okay, great. Thank you.

And then as we move to triple, are you thinking this is a kind of one size fits all, more or less across the majority of the CF patients, where it is applicable or do you think you might have still some doublets or different triple combinations for different population?.

Yeah, Liisa, this is Jeff. That's a – it's a great question and an important one, and I think there is still not a full understanding of this, I do want to spend a minute, because our thinking has changed, honestly, too as we started to see this data.

But the most important fact that sort of ground the answer in is that 80% to 90% of all patients with CF have at least one Delta 508 allele, that is rather (36:35) 50% homozygous 508/508 or their 508 with something else on the other allele. It could a minimal function mutation, could be a gating mutation, could be residual function mutation.

So, there's really only about 10% of all the patients who don't have at least one 508 allele.

And the reason that's important is because, what we are learning is, and I hope we'll see this result when we see the triple data in the second half of this year, that we believe a triple from all of our study of our data will allow us to address all of those patients maximally, that is, if you think about the homozygous population, we believe that a triple will be better than any double, that's what our cell data tells us.

And if you look at the het/min population, we believe the triple obviously will be better than the doubles or the singles, because right now those don't work. And if you look at the residual functions or the gating patients, 90% of those patients will have (37:34) so a triple will be better for them too.

And so, once you get to that sort of insight, you realize that actually where this whole field is moving is away from the monotherapies and dual therapies to a single optimal triple therapy that's highly effective and tolerable, it's going to treat these 80% to 90% of patients.

And the patients who are left, who don't have a 508, they'll be a small number of patients for example (38:01), they could be treated with KALYDECO monotherapy, but (38:07) very small numbers here.

And then the final 10% of those patients who don't have a 508 (38:14) likely start credence for the most part and they're going to need a genetic therapy like Gene Editing or Gene Therapy.

So we believe this is going to very rapidly transition over to a single triple for 80% to 90% of the patients, a few patients less perhaps on KALYDECO monotherapy who don't have 508 and then the remaining 10% to 12% really will require genetic therapy, which obviously we're working on, but that's farther out..

Okay, that's very helpful. Thank you. And then I think, just my last question, just along these lines as well is, targeting CFTR is the triple kind of at the upper end or do you think there might be a quad after that or do you really have to think about another mechanism like EMAC and if there is any update there that will be great too? Thank you..

Yes, that's a little bit of both.

So we certainly are still interested in looking at other mechanisms, EMAC being the first one where as you know, we received some data in the second half of this year, because the reason being it is a completely different mechanism, and so one might predict that no matter how (39:16) you could add EMAC here and get some additional benefits.

So, that's one way of – one important way that we're thinking about it. With respect to we're taking a triple to acquire, just more CFTR correctors and potentiators.

I think we're going to have to see the data from these compounds and also continue to get data from our new strategy second gen correctors, because we got – we continue to see improvements in those, but I've to tell you the levels we're seeing and we've shown you this from (39:45) next-gen correctors, those like VX-659, in particular, are really quite high.

And so, yes, we can probably raise the bar a little bit maybe with some others, but we're probably closing in on that single kind of therapy. I think the question will be how does that translate in the clinic, in other words, (40:04) in the clinic and we just don't know that, we haven't reached it.

We know, we can get 15% improvement, for instance in gating patients, gating, 508 patients with tez/iva. The question is, then we see it from the triples, can we go beyond that? And I think only the clinical data is going to tell us..

Thank you very much..

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

Hi, guys. Thanks for taking my questions. My first question is on CTP-656.

Can you give us some guidance around whether you think there would be any anti-trust issues on the acquisition of that molecule from Concert, given that you already have KALYDECO? And I did notice in the Concert proxy documents that you had withdrawn and re-filed your pre-merger notification in report form with the U.S. regulatory authorities there.

Can you just kind of explain that to us whether or you anticipate any FDC issues and what the timing of the clearance would be. That's the first one. Thank you..

Yeah. Well, we're actually – Adam, thank you for the question. We're actually in the review period now and we're working with the regulators as they have questions. But let me just be clear of why we want to acquire CTP-656. It is (41:23) which based on the earlier studies and PK work suggested it's once a day potentiator.

That interests us because we have once a day correctors, the portfolio that Jeff referred earlier on this call. So ultimately, we would like to think about a combination pill to once a day regimen and CTP-656 gives us that opportunity.

That would be the best regimen for patients, as long as we have safety and efficacy and it will be the most convenience for patients and that is the plan. And so, as we go through this review period with the regulators, we will be happy to understand that taking forward CTP-656, this is the best route forward for the compound..

And any color on the timing of when that might conclude the clearance?.

It can go on for a couple of months, few months, it's really subject, we answer questions and then they make their judgment, so it could move on. We do – (42:27) also have an investor vote coming up I believe in mid-May on the approval of the transaction as well, subject to HSR..

Right. And then different question on ORKAMBI in the 6 to 11 population. You talked about strong compliance and persistence. When we think about that in 6 to 11 population, should we be thinking compliance and persistence rates equivalent to say KALYDECO, maybe even a little bit better given the parents are involved.

How should we think about those rates ultimately? Thanks..

Yeah.

Adam, we're moving away really from diagnosing and describing every patient dynamic for every patient population for every country, but suffice to say, they are higher in the 6 to 11 population than we have seen in the 12 plus population with ORKAMBI, and they're much more KALYDECO-like and you'd expect that the profile in the 6 to 11 age group of ORKAMBI is very strong and also, as I've said, they are managed by their parents to a large degree, in terms of compliance..

That's great. Thank you..

Thank you. Our next question comes from the line of Mohit Bansal with Citigroup. Your line is open..

Great. Thanks for taking my question, and congrats on the quarter. Maybe a big picture – maybe a question on the – your base case assumption for the triple combination trials.

So, it is fair to assume that FDA would be looking for a comparator trial against ORKAMBI for the triple combo, at least in homozygotes, and do you think it makes – it maybe makes it little bit easier in heterozygotes, given that you will have to compete against placebo as a comparator there?.

Mohit, thanks for the question. So, let me start by just reminding you of our cellular results, right, which so far have translated into the clinic in pretty much every case.

And those results show that the triple is clearly superior, quite superior, and we published those results in both homozygote cells and in het/min cells to the double, to either ORKAMBI or to VX-661 plus KALYDECO. So, based upon those in vitro results, which as I said, have translated quite safely in the clinic.

We expect – actually expect the triple will be better in homozygous patients than the double, and we expect it will effective, based on what we know so far, obviously we have to confirm all this in the clinic, in the het/ min patients where both ORKAMBI and VX-661 (44:58)..

Got it. Thank you..

Yeah..

Thank you. Our next question comes from the line of Carter Gould with UBS. Your line is open..

Good afternoon, guys and congrats on the quarter. I guess in the wake of the positive tez/iva data, I was just curious on how you guys are looking at the potential development scenarios for your ENaC inhibitor in the case where there's positive Phase II data later this year.

Would the plan still be to move into a pivotal on top of ORKAMBI, or would you pivot tez/iva, or is there some other set of potential options we should be looking at? Thank you..

Yes, great question. So I think the way we're thinking about it is, there are really two questions that we want to answer, and I think the timing is going to work out pretty nicely here.

The first question is really a biological question, it's, if you add an ENaC inhibitor on top of CFTR modulation, do you see incremental results? That's really a biologic question that is predicted by cell biology, but this cell biology is a little bit more complicated than the simple chloride transport in HBEs.

So we need to prove that, and I think we're going to get the answer to that in the second half of this year from this first trial. At the same time, we're going to get the answer to what happens with our triples clinically, how high can we drive FEV1 in both the homozygous and the heterozygous population.

And so at the end of the day, what we're going to do with ENaC is going to really depend on looking at both those results together and basically asking ourselves the question, can we get a significant benefit over triple, do we believe, with an ENaC inhibitor? Because we do believe that quickly, where everything is going to move to triple, so I think the ultimate question will be, if you add an ENaC inhibitor on of top of triple, can you get significantly higher FEV1 responses? And that's really going to be dependent upon the magnitude of the FEV1 response to the triple and the magnitude of the improvement on ENaC.

The good news is, we'll have both of those pieces of data towards the end of this year, I think we're going to be able to make a fairly straightforward decision..

Great. Thank you..

Operator, we have time for two more questions..

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

Hey guys, thanks for taking my question.

Just maybe one that's a little bit more philosophical as well, like how many triple combinations do you kind of want to try, like in this first tranche where you're kind of going with the first four, and then you'll see and then you'll take a step back as to see whether you want to add mechanisms on top of that.

Just maybe just help us – give a little bit of color about what's going on in the labs and how you're thinking about kind of progress beyond what you're doing with triples? Thanks..

Yes. So, obviously, we're going to get a lot of information from these four triples, I believe, because we're going to have a very nice set of – dataset to (47:42) results with four different combinations.

And that, in addition to the fact that we de-risk the tez/iva double combination, both from an efficacy and a safety standpoint, gives me a high level of confidence that one or more of these triples will proceed into Phase III.

So hopefully that answers that part of the question, and it's going to depend obviously on what we see in the second half of this year. And to your other question on what's going on in the lab, (48:08) a very active program looking at triples, I think I've talked about this before.

We, I think, have really figured out how we identify these, and we've identified tens if not hundreds of additional next-gen correctors. Obviously, the only ones that we're going to bring forward (48:23) something that we feel has a favorable profile compared to the ones that we've already done. It could be efficacy. It could be PK.

It could be tolerability. And if we see those sorts of things, it's entirely possible that we bring one or more of those new next-gen correctors (48:39) clinic towards the end of this year or next year.

But I think – I don't want to give you the impression that we're dependent on that, because I have a high level of confidence that one or more of these triples, certainly (48:53) will be able to proceed with the Phase III..

Thank you. And our last question comes from the line of Alan Carr with Needham. Your line is open..

Hi. Thanks for taking my questions.

A couple; one what's your expectations for timing for the iva/tez trial in 6 to 11 patients, when that data available and then, can you give us an update on Germany, that was one that is a slow trajectory, I wonder if that's changed over time and are you still have a high level of conviction that that uptake was just restricted to Germany as opposed to some of the other countries in Europe? Thanks..

Yeah. Alan, it's Stuart here. Let me take the Germany question first, so yes, as you highlighted, we did see a slow uptake in Germany and frankly, it continues to be slow, we are continuing to add new patients day after day, week after week in Germany, but it continues to be relatively slow compared to France and to the U.S.

We continue to believe that we will get to the majority of patients in Germany being initiated on ORKAMBI, but it continues to be slow progress. I do continue to believe that the uptake in other countries will be much more U.S.

like and France like and for instance, to give you an example, and the point, we're successful in signing a contract in Ireland where we have an agreement in principle, I'm very confident based on the level of patient efficacy, the level of physician engagement with us and belief in the product that we'll see uptake there, which is much likely so in the U.S.

and in France. So I continue to believe that uptake in Germany is going to be a relative outline for ORKAMBI and to talk about tez/iva in 6 to 11, I'll hand the call off to Jeff..

Yeah, so for the 6 to 11 tez/iva trail, just to remind you, this is really a safety, tolerability and PK trials in both homozygous patients and patients who have (51:04) ivacaftor responsibly though, it's an open-label trial, its currently enrolling and once we see what the enrollment is, we'll be able to give you a sense of when we expect data, we actually haven't disclosed that because we just don't know yet..

Great. Thanks very much. Appreciate taking my questions..

Okay..

Thank you. Now I'd like to turn the call to Mr. Partridge for closing remarks..

Thanks, operator. Thank you. Thanks everybody for dialing in to our Q1 call. The IR team will be available tonight for any follow-up questions that you have. Have a good evening..

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