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Edited Transcript of VRTX earnings conference call or presentation 26-Apr-18 8:30pm GMT

Q1 2018 Vertex Pharmaceuticals Inc Earnings Call

Cambridge Apr 30, 2018 (Thomson StreetEvents) -- Edited Transcript of Vertex Pharmaceuticals Inc earnings conference call or presentation Thursday, April 26, 2018 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ian F. Smith

Vertex Pharmaceuticals Incorporated - Executive VP & COO

* Jeffrey Marc Leiden

Vertex Pharmaceuticals Incorporated - Chairman, CEO & President

* Michael Partridge

Vertex Pharmaceuticals Incorporated - VP of IR

* Reshma Kewalramani

Vertex Pharmaceuticals Incorporated - Chief Medical Officer and Executive VP of Global Medicines Development & Medical Affairs

* Stuart A. Arbuckle

Vertex Pharmaceuticals Incorporated - Chief Commercial Officer & Executive VP

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Conference Call Participants

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* Alethia Rene Young

Crédit Suisse AG, Research Division - Research Analyst

* Brian Corey Abrahams

RBC Capital Markets, LLC, Research Division - Senior Analyst

* Carter Lewis Gould

UBS Investment Bank, Research Division - Large Cap Biotech Analyst

* Chuan Fu

JP Morgan Chase & Co, Research Division - Analyst

* Dane Vincent Leone

BTIG, LLC, Research Division - Director and Diagnostics and Life Sciences Analyst

* Geoffrey Christopher Meacham

Barclays Bank PLC, Research Division - MD & Senior Research Analyst

* Geoffrey Craig Porges

Leerink Partners LLC, Research Division - MD, Biotechnology, Director of Therapeutics Research and Senior Biotechnology Analyst

* Matthew Kelsey Harrison

Morgan Stanley, Research Division - Executive Director

* Michael Jonathan Yee

Jefferies LLC, Research Division - Equity Analyst

* Philip M. Nadeau

Cowen and Company, LLC, Research Division - MD and Senior Research Analyst

* Robyn Karnauskas

Citigroup Inc, Research Division - Director and Senior Analyst

* Terence C. Flynn

Goldman Sachs Group Inc., Research Division - MD

* Ying Huang

BofA Merrill Lynch, Research Division - Director in Equity Research

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Vertex Pharmaceuticals First Quarter 2018 Conference Call. (Operator Instructions) As a reminder, today's conference may be recorded. There will be a brief pause and then the conference will begin.

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Michael Partridge, Vertex Pharmaceuticals Incorporated - VP of IR [2]

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Good evening. This is Michael Partridge, Senior Vice President of Investor Relations for Vertex. Tonight, we will discuss our first quarter 2018 financial results and our continued progress to build long-term leadership in the treatment of cystic fibrosis.

Dr. Jeff Leiden, Chairman and CEO; Dr. Reshma Kewalramani, Chief Medical Officer; and Ian Smith, Chief Operating Officer, will provide prepared remarks this evening. Stuart Arbuckle, Chief Commercial Officer, will join us for Q&A. We recommend that you access the webcast slides as you listen to this call. The slides are available for download on our website. This conference call is being recorded, and a replay will be on our website starting later tonight.

We will be making forward-looking statements on this call. These statements are subject to the risks and uncertainties discussed in detail in today's press release and our filings with the Securities and Exchange Commission. These statements including, without limitation, those regarding Vertex's marketed CF medicines, the ongoing development and potential commercialization of any triple combination regimen for cystic fibrosis, Vertex's other programs and Vertex's future financial performance are based on management's current assumptions. Actual outcomes and events could differ materially.

I will now turn the call over to Dr. Jeff Leiden.

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Jeffrey Marc Leiden, Vertex Pharmaceuticals Incorporated - Chairman, CEO & President [3]

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Thanks, Michael, and good evening, everyone. 2018 is an important year for Vertex and in the first few months of this year, we've continued to build in our established track record of innovation to discover, develop and deliver transformative medicines to more people with CF.

The approval of SYMDEKO, our third disease-modifying CF medicine, offers many patients an important new treatment option, in particular, for those F508del homozygous patients who never started or who discontinued ORKAMBI. The SYMDEKO launch is off to a strong start in the U.S., and we anticipate approval in the EU in the second half of this year.

Today, the number of people eligible for one of our approved CF medicines has grown to 34,000 worldwide and about half of these patients are currently on treatment. With the launch of SYMDEKO as a new treatment option and the completion of additional reimbursement agreements outside the U.S., we are positioned to see continuing significant revenue and earnings growth in 2018 and beyond. Our belief that we can treat many more patients in the future as well as to further enhance the benefit of CFTR modulators is based on our rapid progress in developing triple combination regimens that include a next-generation corrector.

Earlier this year, we announced that we had initiated Phase III studies to evaluate VF-659 in triple combination with tezacaftor and ivacaftor in 2 groups of patients: those with 1 F508del mutation and 1 minimal function mutation and those with 2 F508del mutations. The first sites are open for the Phase III study in patients who have only 1 minimal function mutation, and we have begun to dose patients in that study.

Today, we also announced the start of Phase III development for our second next-generation corrector, VX-445, as part of a triple combination regimen in the same groups of patients that we're evaluating with VX-659. This marks important progress toward our goal of advancing 2 different next generation triple combination regimens to allow us to choose and bring forward the best regimen to people with CF as quickly as possible.

We're also making important progress in our research and development pipeline beyond CF. We are preparing to begin clinical development of CTX001, an investigational CRISPR-Cas9 gene editing treatment in 2 devastating diseases, beta-thalassemia and sickle cell disease with our partner, CRISPR Therapeutics. We also continue to make important progress with the selective NaV1.8 inhibitors, VX-150 and VX-128, for the treatment of pain. We look forward to generating additional data from ongoing studies of these potential pain medicines to inform future development plans.

In 2018, we also expect to move one or more potential medicines from our internal research programs into clinical development in other diseases. I look forward to updating you on our continued progress during the year.

Tonight on the call, I'm pleased to have with us Dr. Reshma Kewalramani, our newly appointed Chief Medical Officer. Reshma joined Vertex in 2016, and her depth of medical knowledge paired with her experience and proven track record as a clinical leader make her an ideal successor to Dr. Jeff Chodakewitz, who will remain with us through early 2019 as a senior adviser as he transitions to his planned retirement. I'd like to personally thank Jeff for his extraordinary leadership and dedication to improving the lives of people with CF and other serious diseases.

I'll now turn the call over to Reshma to review the status of our CF clinical programs in more detail.

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Reshma Kewalramani, Vertex Pharmaceuticals Incorporated - Chief Medical Officer and Executive VP of Global Medicines Development & Medical Affairs [4]

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Thanks, Jeff, and good evening, everyone. Tonight, I'm very pleased to review our progress in advancing VX-659 and VX-445 triple combination regimens into Phase III development and to share the initial results for once-daily triple combination regimens that include VX-561, a once-daily potentiator.

First, to the VX-659 triple combination regimen. During the first quarter of 2018, we announced the initiation of 2 Phase III studies of VX-659, tezacaftor and ivacaftor, as an investigational triple combination regimen for people with CF. The first study is evaluating the VX-659 triple combination regimen versus placebo in approximately 360 patients ages 12 and older who have a minimal function mutation. A schematic of this design is shown on Slide 7.

The key feature of this study is that the efficacy assessments at 4 weeks and a safety assessment through 12 weeks will form the basis of a potential NDA submission. The 24-week assessment will generate data on key secondary endpoints as well as safety. Disease data are not required to complete the NDA submission. As Jeff mentioned, sites are open, patient enrollment in the study has begun and the first patients have been dosed.

A second study will evaluate the VX-659 triple combination in approximately 100 F508del homozygous patients ages 12 and older. The design of this study is shown on Slide 8. The key features of this study are a 4-week run-in where all patients received tezacaftor and ivacaftor and then a primary efficacy assessment after 4 weeks of additional dosing where VX-659 or placebo is added to tezacaftor and ivacaftor.

To support a regulatory submission in the U.S. to treat the F508del homozygous population, we anticipate using the 4-week efficacy data from this study in conjunction with 24-week safety data from the study in F508del minimal function patients. Data from these studies of VX-659 will also be used to support planned regulatory submissions in Europe and other regions.

Turning to VX-445. Today, we announced the initiation of 2 Phase III studies of the VX-445 triple combination regimen for patients with CF. The study designs are similar to the Phase III program I just discussed for VX-659 and are shown on Slides 9 and 10, respectively.

We recently obtained results from the nonclinical toxicology studies for VX-445, and we expect the FDA's review of these data prior to the start of our Phase III studies. Initiating Phase III studies with both VX-659 and VX-445 gives us the opportunity to generate data for 2 different triple combination regimens and pick the best regimen to bring to patients as quickly as possible. In addition to evaluating each triple combination regimen in the studies I just discussed, we also plan to evaluate each of these triple combination regimens in patients who have a gating or residual function mutation.

Earlier this year, we announced Phase II results from VX-445 in F508del minimal function patients that support advancing VX-445 into Phase III studies for that population. Today, we are reporting the initial Phase II data for VX-445 in triple combination in F508del homozygous patients. Once again, the efficacy observed was impressive, and the safety profile of VX-445 was similar to that observed in previously reported parts of this study.

This Phase II study evaluated VX-445 or placebo in combination with tezacaftor and ivacaftor for 4 weeks after a 4-week run-in of tezacaftor in combination with ivacaftor. In the patients who received this triple combination, we observed a significant improvement in lung function of 11 percentage points over what was obtained with tezacaftor and ivacaftor alone. This improvement was evident by the second week of the treatment period and sustained through the 4-week dosing period. These data are shown on Slide 11.

The VX-445 triple combination was generally well tolerated, and the safety profile is consistent with what we've learned previously with this regimen. Today, we are also reporting the initial results for the once-daily potentiator, VX-561, when dosed as part of a triple combination regimen with VX-659 or VX-445 and tezacaftor in people with one minimal function mutation. In these Phase II studies, mean absolute improvements in ppFEV1 of 11.7 and 12.2 percentage points from baseline through week 4 of treatment were observed for the VX-445 and VX-659 triple combination regimens, respectively.

The once-daily triple combination regimens were generally well tolerated, and the safety results were consistent with what we have observed in triple combination studies that included ivacaftor. While we believe that the results clearly support the hypothesis that VX-561 has a role in future once-daily triple combinations, the FDA has requested additional dose ranging for VX-561 including potential evaluations of monotherapy before allowing evaluation of VX-561 in late-stage development. We look forward to updating you on our progress with our triple combination regimens as we advance these programs.

I'll now turn over the call to Ian.

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Ian F. Smith, Vertex Pharmaceuticals Incorporated - Executive VP & COO [5]

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Thanks, Reshma, and good evening to everyone. 2018 is off to a strong start, and tonight, I'm pleased to review our first quarter 2018 financials, the SYMDEKO launch in the U.S. and our 2018 full year financial guidance.

Revenues first. Total CF product revenues of $638 million in the first quarter of 2018 represent a 33% increase compared to the $481 million we recorded in the first quarter 2017. Our total product revenues have continued to grow each quarter as we increase the number of patients treated with our approved medicines. Today, we estimate approximately 34,000 patients are eligible for our medicines, of which about half are being treated. We expect the eligibility and the number of patients we treat to continue to grow throughout 2018 and therefore continue to drive revenue growth.

I'll make some brief comments on SYMDEKO launch in the U.S. Since the FDA approval on February 12, we have been educating health care providers on the medicine and working with payers to secure reimbursement. We are seeing broad coverage in access to SYMDEKO as the majority of commercial and government payers are reimbursing for the medicine. For the first quarter 2018, we reported SYMDEKO revenues of $34 million, which reflects the initial 7 weeks of sales. We continue to prepare for the anticipated approval of this medicine in the EU in the second half of 2018.

Our first quarter 2018 non-GAAP R&D and SG&A expenses were $360 million compared to $313 million in the first quarter of 2017. This increase was primarily due to the advancement of our portfolio of triple-combination regimens for CF and the investment to support the treatment of patients with our medicines globally.

Non-GAAP net income for the first quarter 2018 was $196 million compared to non-GAAP net income of $101 million for the first quarter of 2017. The increase in non-GAAP net income was largely driven by the strong growth in total CF product revenues. During the first quarter 2018, we also strengthened our balance sheet as we ended March with approximately $2.5 billion in cash, cash equivalents and marketable securities compared to $2.1 billion at the beginning of this year.

Now turning to the guidance. We continue to expect full year 2018 total CF product revenues in the range of $2.65 billion to $2.8 billion comprised primarily of combined revenues from countries where our 3 approved medicines are currently reimbursed. The midpoint of this range represents approximately 26% growth over 2017 driven by the launch of SYMDEKO and an increased number of patients treated with our approved medicines. As we have commented on previous calls, we are focused on total CF product revenues in our guidance given that some patients on KALYDECO and ORKAMBI will switch to SYMDEKO. The timing and the amount of the switching is not yet known.

We believe the overall growth of CF product revenues is the most important metric because it reflects revenue growth from treating more and more CF patients. We also continue to expect combined non-GAAP R&D and SG&A expenses of $1.5 billion to $1.55 billion. The key investment drivers are the execution of pivotal studies for 2 triple combination regimens, supply chain investment for the potential commercial success of a triple combination regimen and the incremental investment to support the launch of SYMDEKO.

Our financial profile has strengthened significantly over the past 2 years. Our continued execution across all parts of our business has positioned us to deliver sustainable revenue and earnings growth and to continue to expand our operating margin in 2018 and beyond as we significantly increase the number of patients we treat with our medicines.

With that, I will open the line to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Geoffrey Porges with Leerink.

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Geoffrey Craig Porges, Leerink Partners LLC, Research Division - MD, Biotechnology, Director of Therapeutics Research and Senior Biotechnology Analyst [2]

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The only surprise really is that you're not going ahead with a pivotal trial with 561, and I'm wondering if you could give us a little bit more understanding as to the basis for the FDA's decision. It seems a little unusual given that it's just one of the isomers of -- well, actually, it's only a deuterated version, I beg your pardon, of KALYDECO. What's the basis for that caution? And should we assume that, that same standard of single-drug dose finding is going to be applied to every potentiator that might potentially enter the class?

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Ian F. Smith, Vertex Pharmaceuticals Incorporated - Executive VP & COO [3]

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Hey, Geoff, it's Ian. Maybe we could actually separate that question to 2 parts, which maybe have Reshma talk about the data and Jeff Leiden talk about how we intend to incorporate 561 into our regimen as we go forward. I would remind you, back in early this year, this -- we look forward to getting results from 561. It was pending data and pending discussions with the FDA and maybe we can give you a little more insight into that. So Reshma, do you want to talk about the data first and then, Jeff, on the strategy for incorporation?

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Reshma Kewalramani, Vertex Pharmaceuticals Incorporated - Chief Medical Officer and Executive VP of Global Medicines Development & Medical Affairs [4]

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Sure. Sure. So as you know, in both the VX-659 and the VX-445 proof of concept studies, we had one part that included VX-561 in place of ivacaftor. And let me walk you through the results in terms of efficacy and safety. On the efficacy side, as you heard in the prepared remarks, we had an improvement in ppFEV1 of 11.7 and 12.2 percentage points, respectively, for 445 and 659. Really impressive results that we were very pleased with. On the safety side, the results were remarkably similar to what we've seen in our ivacaftor studies. And when we looked at these results both on efficacy and safety, we were very impressed with what we saw and impressed with the consistency of the safety profile. Jeff?

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Jeffrey Marc Leiden, Vertex Pharmaceuticals Incorporated - Chairman, CEO & President [5]

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Yes, so Geoff, as you said, we got those results and obviously you need to have the Phase II results before you go and discuss Phase III design with the FDA, which we did over the last several weeks and months. And it became clear to us that the way the FDA was looking at 561, despite the fact that, as you say, it's really a deuterated version of KALYDECO, is as a new chemical entity. And the kind of information they're asking for, for instance, some of the dose ranging and potential monotherapy, is exactly the kinds of things that they would typically ask for a new chemical entity, particularly before it goes into a combination regimen. And so our decision was -- because our goal has always been to get the best regimen to patients as quickly as possible, we decided to move forward with 445 with KALYDECO because that's the quickest route and we didn't want to take a delay. Having said that, I also think that their decision was probably a bit influenced by the fact that KALYDECO has been so well studied in so many thousands of patients and frankly, it set a very, very high bar both in terms of efficacy and safety. And so they have a lot of comfort with it and that made it, I think, easier to enable us to move forward more quickly with that regimen. Having said all that, as Reshma said, the data for 561 is quite compelling. We do plan to take it forward into a once-a-day regimen. We're still in discussions with the FDA about exactly what data they're going to need in some of these Phase I and Phase II studies, but we think that's highly doable. We just don't want to wait. So as soon as we know that, we'll progress those studies and we'll work out a bridging strategy that allows us to bring 561 along with either 659 or 445, whichever one we choose, to patients.

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Operator [6]

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And our next question comes from the line of Geoff Meacham with Barclays.

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Geoffrey Christopher Meacham, Barclays Bank PLC, Research Division - MD & Senior Research Analyst [7]

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I just have a commercial one and then a clinical one. For SYMDEKO, when you look across the OUS approval trajectory, including Europe and Australia, down the road, just what are lessons to be learned from ORKAMBI? Can you help maybe abbreviate the process -- reimbursement process, I'm speaking about? And then I have a couple follow-ups on the clinical side.

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Stuart A. Arbuckle, Vertex Pharmaceuticals Incorporated - Chief Commercial Officer & Executive VP [8]

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Hey, Geoff, thanks for the question. So on SYMDEKO ex U.S., what can we learn from our experiences with ORKAMBI? Obviously, in many countries, we've been successful with getting ORKAMBI priced and reimbursed. And clearly, we'll be looking to build on those successes. In some of the markets where we haven't yet secured reimbursement for ORKAMBI, which we continue to very, very actively pursue, we have also begun discussions with some of those authorities about potential portfolio like agreements where we may be able to get accelerated access for patients to SYMDEKO. Obviously, those discussions with ORKAMBI are very, very active. And obviously, with SYMDEKO, they'll pick up more steam when, as we anticipate, we get the approval ex U.S., certainly in Europe, in the second half of this year. What I would stress though, Geoff, is we're not kind of waiting for SYMDEKO and then only really going to try and get reimbursement for SYMDEKO. That's not how we're thinking about it. As you know, patients with CF have a relentlessly progressive disease. We know that treating them as early as possible is incredibly important, certainly with disease-modifying agents like ORKAMBI. And so we're continuing to pursue, with every degree of urgency that we can, reimbursement for ORKAMBI. The other thing to remember, which I think is an important point, is that the SYMDEKO approval is likely to be for people 12 and over. And as you know, in recent years, we've expanded the indications for ORKAMBI, first, to 6 to 11 and hopefully subsequently down to 2 to 5. And so ORKAMBI is going to continue to play a very, very important role for those younger children with CF.

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Geoffrey Christopher Meacham, Barclays Bank PLC, Research Division - MD & Senior Research Analyst [9]

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And then just on the -- that's helpful. Thanks, Stuart. And then on the pipeline side, when you think about the future triples beyond 659 or 445, I get the strategy with 561, but what would be the real objective here? Do you -- are you guys still actively pursuing more novel combinations in Phase II? I'm trying to figure out -- if you have an assay that's predictive of FEV1, is it worth it to go into larger studies for just a few points of FEV1? In other words, is there an upper end that's kind of worth your investment or not?

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Jeffrey Marc Leiden, Vertex Pharmaceuticals Incorporated - Chairman, CEO & President [10]

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Yes, it's a great question, Geoff. As I said before, we have now reasonably large number of additional next-gen correctors that are flowing through research and into late preclinical development. And so the decision that we're going to make, and we'll have to start making it soon because some of those are moving along quickly, is are they significantly better than we believe than the 2 that are currently moving forward, 445 and 659. And significantly better is really the whole profile of the medicine, right? So it's certainly efficacy, but it's also once-a-day formulatability; dose, for instance; potency. All those things will go into our decision. But at the end of the day, the decision will be if we feel we have a molecule that's significantly better than the other 2, we'll take it forward into Phase I and certainly into early Phase II. That's easy and quick to do. If we don't, we won't.

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Operator [11]

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And our next question comes from the line of Michael Yee with Jefferies.

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Michael Jonathan Yee, Jefferies LLC, Research Division - Equity Analyst [12]

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Congrats on the good SYMDEKO launch as well, to start off. Two-part question, I guess. Just to follow up on the whole concept of more dose-ranging studies needed for 561. I mean, I guess it would seem to be an important readthrough to what the regulators were saying on novel compounds. So just to clarify, are you implying that you need to actually prove it out as a full potentiator and run it as a monotherapy program and prove that it's an active potentiator for new compounds? Just wanted to clarify that. And then the second question was on the Phase IIIs that are ongoing, and it sounds like you started dosing patients. I mean, I presume that would be pretty fast. So while I wouldn't want you to necessarily guide on data, would you actually announce data when it's done after 4 and 12 weeks? Or do you need to file? I guess, what would be your disclosure policy be on these Phase IIIs that we're all looking forward to?

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Jeffrey Marc Leiden, Vertex Pharmaceuticals Incorporated - Chairman, CEO & President [13]

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Yes, Mike, this is Jeff. I'll take the first part and maybe Ian will take the second one on the disclosure question. With respect to the first part, I never comment on what the FDA is going to want for other people's programs. We do think it's informative that they view 561 as a new chemical entity because as Geoff Porges mentioned, it's quite similar to KALYDECO, but clearly different. So I don't think it's unreasonable. Obviously, as compounds get more and more different and newer and newer, I think that they're going to have the same expectations for new chemical entities pretty much across the board, but obviously that's up to them.

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Ian F. Smith, Vertex Pharmaceuticals Incorporated - Executive VP & COO [14]

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And Mike, as to your question on disclosure, I don't really want to [design] the disclosure and what we include in that at this point in time. So it will be -- we'll complete the study. We'll gather the data, what does the data inform us of in terms of a filing strategy. And I think that's what you could imagine us disclosing. And the timing to that, we'll let you know when we're further into the studies. But as usual, it will be what we can we do with the data and we'll provide you that action and we'll provide you the data that supports it and we'll let you know when we have that.

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Operator [15]

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Our next question comes from the line of Ying Huang with Bank of America Merrill Lynch.

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Ying Huang, BofA Merrill Lynch, Research Division - Director in Equity Research [16]

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Maybe I'll ask one on the clinical trial design for the Phase IIIs. You're testing the Phase III for homozygous patients in about 100 patients where -- while you're testing on the, I guess, triple combo in the heterozygous patients in -- sorry, the 180 patients for the het/min trial. So I was wondering if the trial for homozygous patients is sufficiently powered to show security in efficacy, or it is most likely a supplemental trial to compare the efficacy. And then secondly, maybe commercial side on the SYMDEKO launch. Can you tell based on early experience who are the patients taking SYMDEKO today? Are those mostly patients who were not tolerant of ORKAMBI before? Or you're seeing also some other patients switching to SYMDEKO?

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Ian F. Smith, Vertex Pharmaceuticals Incorporated - Executive VP & COO [17]

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Ying, just before Reshma gives you the answer, I just want to correct one of your points, and we are obviously doing 2 different Phase III trials, 1 in het/min, 1 in 508, 508 patients. The het/min Phase III study does have 360 patients in, and the 508, 508 Phase III study has 100 patients in. And now maybe Reshma can help you understand how the het/min study will lead and how 508, 508 will follow.

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Reshma Kewalramani, Vertex Pharmaceuticals Incorporated - Chief Medical Officer and Executive VP of Global Medicines Development & Medical Affairs [18]

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Sure. Sure. So for each of our programs, VX-659 and VX-445, the programs are actually very similar. So I'll use 659 as an example, but it's very similar to 445. In each program, there's going to be a study of 360 patients total for het/min patients and 100 patients total for homozygous F508del patients. Now the 360 patients for het/min, that comes from a desire that we have to look at things like pulmonary exacerbation, which is going to take more patients. With regard to the 508 homozygous study, that is well powered. Indeed, if you just look back at our proof of concept studies, you can see the fairly substantial improvement in things like sweat chloride, ppFEV1 and even CFQ-R.

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Stuart A. Arbuckle, Vertex Pharmaceuticals Incorporated - Chief Commercial Officer & Executive VP [19]

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And Ying, on the SYMDEKO launch, obviously we're just 7 weeks in to the launch at the end of Q1, but we are able to tell in this early stage of the launch where those patients are coming from, and we see a mix. We are certainly seeing patients transition from ORKAMBI and KALYDECO based on the strength of the clinical data. But perhaps more importantly, we're also seeing use in patients who were not being treated with CFTR modulator prior to the approval of SYMDEKO, and that's really in 2 areas. One you mentioned, which is those homozygous who had been initiated on ORKAMBI but unfortunately had to discontinue the medicine. And then we're also seeing use in patients who were naive, who had never been initiated on a CFTR modulator, and we're also seeing SYMDEKO being used in those. And obviously, those last 2 patient groups are incredibly important because those are patients who are not being treated with a disease-modifying agent prior to the launch of SYMDEKO.

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Operator [20]

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Our next question comes from the line of Terence Flynn with Goldman Sachs.

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Terence C. Flynn, Goldman Sachs Group Inc., Research Division - MD [21]

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Maybe was just wondering if you could give us a little bit more detail on the couple cases of rash that you saw with -- in the triple combo Phase II that you just closed and just any idea which of the agents that might be tied to and anything you can say on that front. And then a question for Ian just on SYMDEKO. Can you quantify any inventory for the quarter?

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Reshma Kewalramani, Vertex Pharmaceuticals Incorporated - Chief Medical Officer and Executive VP of Global Medicines Development & Medical Affairs [22]

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Sure. So let me start with the question that you had on the clinical side. Where we are right now is that we've completed our proof of concept studies for both VX-659 and VX-445, and what that means is we've treated about 200 patients. In that 200-patient experience, we have a low incidence of rash overall and a low severity. We have no serious events. These rashes have resolved with discontinuation of treatment or interruption. And interestingly, on that latter point, we've had a couple of cases where patients have interrupted their therapy for a period and then restarted and completed their course without trouble. To give you some context for this, KALYDECO and ORKAMBI, the rashes that we're seeing in our next-gen program are very similar in incidence and quality as what's been seen there. And you can look at the USPI and you'll see ORKAMBI is about 7% and KALYDECO is about 13% or so.

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Ian F. Smith, Vertex Pharmaceuticals Incorporated - Executive VP & COO [23]

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Terence, to your question on SYMDEKO, I'll first draw you to the kind of top line revenues, CF total revenues and comment on that, which is the inventory in the channel at December 31, 2017, was similar to the inventory in the channel at March 31, 2018. So what that tells you is that the channels remained even for -- between those 2 periods, and therefore the revenue number is real demand in Q1. As to your question to SYMDEKO, there was some slight channel build, but that was offset to some channel decline on KALYDECO and ORKAMBI from December 31 period. In summary, total CF revenues in Q1 were the real demand and it was not channel build.

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Operator [24]

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And our next question comes from the line of Brian Abrahams with RBC Capital Markets.

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Brian Corey Abrahams, RBC Capital Markets, LLC, Research Division - Senior Analyst [25]

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I guess first off on the triple combo Phase IIIs. Obviously, a lot of enthusiasm amongst sites, and we're hearing about sites needing to really filter patients as to who is eligible for the study. So I guess my first question is really how are you managing that operationally, the potential for healthier or more highly motivated patients to come into these Phase IIIs and maybe perhaps skew the results or reflect the different population studied in Phase II? And then I have a quick follow up on 561.

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Reshma Kewalramani, Vertex Pharmaceuticals Incorporated - Chief Medical Officer and Executive VP of Global Medicines Development & Medical Affairs [26]

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Sure. So we have the benefit of having worked with CF patients in this community for some time now and executing not only Phase II studies, but Phase III studies as well in the patient populations that we're studying now in VX-659 and VX-445. And the inclusion and exclusion criteria, the discussions with sites, the way that the sites are screening patients and such are fairly well described, and what we're doing in Phase III is similar to what we ourselves just completed in Phase II. So I feel very good about how the operations are running and the time line on which we are enrolling these studies.

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Brian Corey Abrahams, RBC Capital Markets, LLC, Research Division - Senior Analyst [27]

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Great. And then actually maybe a question on 445. You mentioned you're awaiting the FDA review of nonclinical tox. Just wondering if you could say whether there was any notable observations there or if that's just a box check.

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Reshma Kewalramani, Vertex Pharmaceuticals Incorporated - Chief Medical Officer and Executive VP of Global Medicines Development & Medical Affairs [28]

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Sure. You know that the preclinical tox, the chronic tox results are standard fare. We've looked at it. We don't see anything in there, but of course, the agency has to review that.

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Operator [29]

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And our next question comes from the line of Phil Nadeau with Cowen and Company.

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Philip M. Nadeau, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [30]

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First one, question on 445 and the homozygous data. It didn't look like there were some liver enzyme elevations in that study. Is there anything to be concerned about there? Are those rates similar to what you've seen for other agents in the past?

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Reshma Kewalramani, Vertex Pharmaceuticals Incorporated - Chief Medical Officer and Executive VP of Global Medicines Development & Medical Affairs [31]

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Sure. So we've looked at the safety, as you can imagine, in great detail, and no, we don't see anything interesting or different there, very much what we've seen with our other trials.

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Philip M. Nadeau, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [32]

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Okay. And second on the qd regimen and when it can move forward, do you have a rough sense of how long the dose escalation that you need to do will take? Is that something that you think you could finish in 2018? Or is this possibly a multiyear process?

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Jeffrey Marc Leiden, Vertex Pharmaceuticals Incorporated - Chairman, CEO & President [33]

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Yes, thanks, Phil. We're still in discussions with the agency, and so it's a little too early to give you a precise answer. I think we'll know very soon, and when we do, we'll let you know what the plan is. But most of what we're hearing about it is it's fairly straightforward so far. But until we finalize those discussions, I don't want to give you precise time lines.

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Operator [34]

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Our next question comes from Matthew Harrison with Morgan Stanley.

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Matthew Kelsey Harrison, Morgan Stanley, Research Division - Executive Director [35]

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I thought I'd change it up and ask about the CRISPR program for a second. So you've mentioned, and I think CRISPR has mentioned, that you filed the CTAs. You've gotten 1 approved. It sounds like some are still pending. Can you just talk a little bit about what the next steps are in terms of starting dosing and what items are left pending to get the other CTAs approved and open some more sites?

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Jeffrey Marc Leiden, Vertex Pharmaceuticals Incorporated - Chairman, CEO & President [36]

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Yes, Matt, this is Jeff. Thanks for the question. Maybe just to give folks a little background; I know you're aware of this. We're actually planning to study CTX001 in 2 related but different diseases, beta-thalassemia and sickle cell disease. On beta-thal, we've submitted multiple CTAs, as you mentioned, for beta-thal. One of those has been approved, and we expect to begin dosing later this year for beta-thal in Europe. In the U.S., we are on track to file an IND for sickle cell disease, and we'll also file outside the U.S. And again, depending on exactly when we do that, we anticipate starting dosing soon thereafter. So my hope is we'll be dosing in both diseases this year and that should allow us to start to generate some data in patients. As you know, these will likely be the first gene editing trials in people. We're pretty excited about that.

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Ian F. Smith, Vertex Pharmaceuticals Incorporated - Executive VP & COO [37]

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And I will just actually add to it. We are very excited that it's the first gene edit trials in patients. But I'd also say, the -- this one came from a collaboration with CRISPR Therapeutics. Part of, let's say, expansion in growth opportunity is how we form these collaborations and give us product opportunities. And I just want to say that we're very happy with that collaboration with CRISPR Therapeutics, the progress we've made there and the partnership to progress this opportunity towards the clinic is -- it's pretty exciting for us at this stage and a very different disease than CF.

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Operator [38]

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Our next question comes from the line of Cory Kasimov with JPMorgan.

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Chuan Fu, JP Morgan Chase & Co, Research Division - Analyst [39]

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This is Chuan on for Cory. Just another one maybe on the once daily. So understanding that the absolute difference for 445 and 659 was similar, but when looking at the placebo-adjusted data for 659, it looks to be quite a bit better at least on ppFEV1 since the placebo did quite poorly. Maybe if you could just comment on that. And then does this contribute at all to the decision not to move directly forward with 445 in the once daily? Just kind of thinking that given the 240-milligram dose for 659 is being used for the other trials, was there may be a desire to look at this specific dose rather than the 400 before making the final decision in addition to all the things that the FDA is asking for?

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Jeffrey Marc Leiden, Vertex Pharmaceuticals Incorporated - Chairman, CEO & President [40]

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Yes, thanks for the question. Actually, as we look at the data, the thing that's impressed us most, Shawn, is the consistency of the data. And it's pretty remarkable to me to see 4 to 6 different Phase II trials with different agents and different combinations that are all generating almost identical results, not only in terms of ppFEV1, by the way, but in terms of sweat chloride, in terms of CFQ-R, et cetera. And it's obviously very important that these are placebo-controlled studies and that we're seeing statistical significance in very small numbers of patients. So I guess our interpretation is what's remarkable is the consistency across the board between different regimens. We don't see a difference between 561. Any of those small differences are really just due to the patient numbers. And so no, that didn't drive any of our decision-making nor do I believe it drove the FDA's decision-making about how to proceed with 561. It's really just a matter of their view that this is a new chemical entity and their desire to have the appropriate early data set before we move into Phase III and we'll get that.

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Chuan Fu, JP Morgan Chase & Co, Research Division - Analyst [41]

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Okay. Great. And then sort of just a modeling question, can you maybe refresh our memories on the breakdown for the number of residual function patients qualified? It looks like the number of residual function mutations listed on the KALYDECO and the SYMDEKO labels are about the same: 16 for KALYDECO and 17 for SYMDEKO. So kind of just based on your announcement in conjunction with the approvals for KALYDECO in residual patients, it looks like there should be about 1,500 patients that are currently covered, ages 2 plus for KALYDECO in the U.S. Just wondering roughly how many patients is this for SYMDEKO given that this is in 12 plus. And then how many additional residual function patients are there OUS?

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Ian F. Smith, Vertex Pharmaceuticals Incorporated - Executive VP & COO [42]

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So Shawn, we'll get back to you after the call. You did ask for the -- well, just want to make sure what you asked was, what's the total number of RF patient population. We'll get back to you after the call on that.

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Operator [43]

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And our next question comes from the line of Dane Leone with BTIG.

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Dane Vincent Leone, BTIG, LLC, Research Division - Director and Diagnostics and Life Sciences Analyst [44]

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I want to ask -- it's kind of a follow-up to an earlier question regarding the rash appearance generally in your commentary about seeing it in around 13% of patients with KALYDECO. I was just curious. Could you elaborate any more in terms of the safety profile that you're seeing with 561? And is there any reason to think that the extended half-life of the molecule could exacerbate some of the safety profile that we've seen with KALYDECO?

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Reshma Kewalramani, Vertex Pharmaceuticals Incorporated - Chief Medical Officer and Executive VP of Global Medicines Development & Medical Affairs [45]

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Sure. So when we looked at the data from VX-561 in either the 659 program or the 445 program, what we see is real consistency with regard to efficacy as well as the safety profile.

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Jeffrey Marc Leiden, Vertex Pharmaceuticals Incorporated - Chairman, CEO & President [46]

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And just to be clear, as Reshma said before, both the incidence and severity of rash are very low here. They're similar to what we've seen with the other medicines. And as you know, that hasn't in any way affected the uptake or utility of those medicines. So we're very pleased with the overall benefit of this profile.

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Operator [47]

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Our next question comes from Carter Gould with UBS.

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Carter Lewis Gould, UBS Investment Bank, Research Division - Large Cap Biotech Analyst [48]

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I guess 2, I guess, for Jeff. Now that you got clarity on the Phase III designs and you're entering a little bit more of an execution phase right now, any shifts in focus or attention on the BD front? And then just on the 445 once-a-day combo, just the quality of life data, the placebo arm looked a bit anomalous. Maybe just add some context around that. The active arm seems relatively consistent with the prior studies.

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Jeffrey Marc Leiden, Vertex Pharmaceuticals Incorporated - Chairman, CEO & President [49]

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Yes, thanks for the questions, both good questions. First one, on BD. Really, there isn't a shift. As Ian said in his prepared remarks, we have been accelerating, revving up our BD efforts for the last several years with the same consistent strategy around CF platforms and early-stage transformative products. We continue to look and be very active in that space. You can expect to see us do more deals similar to the ones that we've done already, say, with CRISPR and Moderna, on Parion, et cetera. And because we have more firepower, we have more flexibility in terms of the size of those deals. And so some of them maybe even larger than the ones we've done already. So I don't think there's really a change, but there's certainly a very active effort. It's just part of our focus on diversifying our pipeline beyond CF, both through internal research and external collaborations or acquisitions. Maybe, Reshma, do you want to comment a little on the placebo arm and CFQ-R?

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Reshma Kewalramani, Vertex Pharmaceuticals Incorporated - Chief Medical Officer and Executive VP of Global Medicines Development & Medical Affairs [50]

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Sure. Sure. So as we looked at the CFQ-R results across 659 and 445, actually across all the doses that we studied and in all the populations that we studied, what you see is big double-digit improvements in CFQ-R. In the study that -- the one 445 study, you rightly point out that there's anomaly in the placebo group. In essence, there are 2 patients that are just plain different, and that difference is what drove that CFQ-R value there. But you're right. It's an anomaly, and it comes from 2 patients out of 8, small numbers.

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Operator [51]

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Our next question comes from Alethia Young with Crédit Suisse.

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Alethia Rene Young, Crédit Suisse AG, Research Division - Research Analyst [52]

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One on the NaV1.8, the VX-150, I just wanted to talk a little bit more about your strategy there. I know you have the data. Where do you plan on presenting it? And how do we think about moving forward in the Phase III and commercializing? And then just kind of also, can you just talk about if there's a preference at this point between true M&A or kind of doing more partnerships like you've done in the past?

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Jeffrey Marc Leiden, Vertex Pharmaceuticals Incorporated - Chairman, CEO & President [53]

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Yes, this is Jeff. Alethia, thanks for the questions. With respect to pain, as we've said before, we don't really think about pain as one disease. It's multiple diseases that are a little bit different: inflammatory, acute, neuropathic, et cetera; nor does our pain program have one compound in it. We have VX-150, as you know, for which we have positive data in both OA and in acute pain. We have VX-128, which is a fast follower that we're also very excited about. And I'd also remind you that in pain, both oral formulations and IV formulations are important, particularly for acute pain. So this is sort of a complicated chess game where we have to decide what's the best medicine for the best indication and the best formulation out of our pipeline, which is growing. And the way we're doing that is to do some exploratory studies in Phase II in these multiple indications. And I think we should have the data from those later this year, early next year, and that would allow us to make a decision about how to move forward. And I know -- some folks have asked me, "Wasn't that going to slow you down?" Actually, my answer would be it's going to actually speed us up because if we do Phase II correctly and we really understand the right dose, right medicine, right disease and right formulation, it's going to allow us to move much quickly in Phase III. And we're particularly excited about that because obviously, in areas like acute pain, we're sitting in the middle of this horrible opioid epidemic. And if we can demonstrate new oral agents, for example, that have the potency of opiates without the addictive potential, we think there's going to be a very favorable regulatory environment. But we want to make sure we have all the data we need to take advantage of that.

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Ian F. Smith, Vertex Pharmaceuticals Incorporated - Executive VP & COO [54]

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And Alethia, I'll take your second question, which is I'll first say that M&A versus licensing, we just view those as a tactic in terms of execution. And so as Jeff said earlier, we have 3 broader strategies in how we think about the outside world to Vertex, and that is look at everything in CF to see whether it complements our own approach; secondly, to have the possibility of expanding our scientific footprint beyond small molecules and maybe beyond gene editing now. And then secondly -- thirdly, sorry, what product opportunities are there, and if those product opportunities come in the way of licensing or M&A, again, that's just a tactic of how you incorporate those into the company. To Jeff's comment earlier, also, we do have more capital available today. As you saw in the first quarter, we added close to $500 million of capital, and that's from $2.1 billion to $2.5 billion of cash. And we have no debt. So we do have more capability today to add to our pipeline. The question is also do you think you're going to get involved in large M&A and utilization of our own share count? No, we don't believe that. We're focused on more earlier stage, high science ideas. As a company, we have lots of growth in front of us with CF, and that's where our focus is [on trying to] in terms of driving revenue growth and capital accumulation and we'll look at earlier stage opportunities in other disease areas.

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Operator [55]

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And our last question will come from Robyn Karnauskas with Citi.

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Robyn Karnauskas, Citigroup Inc, Research Division - Director and Senior Analyst [56]

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So I guess the first question is a follow-up where you're asked about what exactly -- when will we see the data. You're saying when you complete the study, you'll assess. When you say complete, is that 4 weeks? Or could that be 12, or could that even be 24? Just a sense of like, what do you define as complete? And how do you keep those placebo patients on the triple placebo for het/min? And the other, other question I had was you had a great quarter of SYMDEKO. What are you thinking about in the back end? Like, reasonable assumptions can get you above your guidance. So I was just kind of thinking, when you see a great, strong, robust 7 weeks of sales, how can you temper expectations going into the back of the year as the reason why you didn't raise guidance this quarter?

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Ian F. Smith, Vertex Pharmaceuticals Incorporated - Executive VP & COO [57]

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Thanks, Robyn. So firstly, to your first question, just to remind you that the het/min study, which is the lead study with 659, our anticipation is that we'll provide you the data based on what we expect to file upon. And so when you look at the design of that study, it has a 4-week efficacy endpoint and a 12-week safety endpoint. So we would want it to run through the 12 weeks because that's the basis of the filing. So you would anticipate that we would run through that period of at least 12 weeks. We would collect the data. We would have to obviously analyze it, and we'll provide a disclosure on the 659 study in the het/min patients, which would complete using the 4- and 12-week data. As to your question regarding revenue expectations, we reiterated our guidance on the call tonight, $2.65 billion to $2.8 billion. We did have a strong first quarter. We've got to see how the year progresses. We have built in growth into that guidance. The main growth, we do anticipate, will come from those markets that we see that are already reimbursed from all 3 products and the main growth in terms of adding patients with [the placebo] will be through SYMDEKO. And so we're holding on our guidance at this point in time, and we'll see how the year goes. And the potential drivers of growth outside our guidance could be getting some of the markets where we're not currently reimbursed actually reimbursed and launching in those markets, and we'll update you at that time.

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Operator [58]

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Thank you, and this concludes today's question-and-answer session. I would now like to turn the call back to Mr. Michael Partridge for closing remarks.

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Michael Partridge, Vertex Pharmaceuticals Incorporated - VP of IR [59]

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Thank you, Chelsea. Thank you, everybody, for tuning in to the call this evening. The Investor Relations team will be available tonight for any follow-up questions that you have. Good night.

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Operator [60]

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