Vertex Pharmaceuticals Incorporated

Welcome to the Vertex full year and fourth quarter 2018 financial results conference call. This is Michael Partridge, Senior Vice President of Investor Relations for Vertex. Tonight, we will review our continued efforts to develop new medicines for all people with cystic fibrosis, recent advances in our research and development pipeline, and our 2018 financial results and 2019 guidance. Making prepared remarks on the call tonight, we have Dr. Jeff Lydon, Chairman and CEO, Stuart Arbuckle, Chief Commercial Officer, and I would like to welcome to the call Paul Silva, Vertex's Interim Chief Financial Officer. Paul has been Vertex's Corporate Controller and Chief Accounting Officer since 2008, and he and his team have worked closely with the Investor Relations Group since that time. Following prepared remarks from Jeff, Stuart, and Paul, Dr. Reshma Kewalramani, Chief Medical Officer, will join us for Q&A. We recommend that you access the webcast slides on our website as you listen to this call. The conference call is being recorded and a replay will be on our website. We will make forward-looking statements on this call that 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 our triple combination regimens for cystic fibrosis, Virtex's other programs, and Virtex'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.

Thanks, Michael. Good evening, everyone. Over the past several years, I've shared with you Virtex's strategy to create multiple transformative medicines for different serious diseases, by continuing to leverage our long track record of serial innovation. I'm pleased to review with you this evening the significant progress we made in 2018 on executing this strategy and to discuss the important growth drivers that we expect in 2019, which will include many important clinical, reimbursement, and commercial milestones in CF, as well as clinical data from across our research and development pipeline. In CF, we expect to obtain the Phase III data for the BX445 triple combination this quarter and remain on track to submit a new drug application for a triple combination regimen no later than mid-year. We also expect to see more patients initiating treatment with our medicines throughout 2019 as a result of global label expansions and from key reimbursement agreements reached in 2018, which will drive further revenue growth this year. In our non-CF pipeline, data expected in the first half of 2019 from our Phase IIb dose-ranging study of BX150 will inform our plans for potential Phase III development in pain. In our AAT program, we are advancing a portfolio of small molecule correctors, including our first molecule that entered Phase I development in late 2018 and a second that is expected to enter clinical development this year. And in sickle cell disease and beta thalassemia, we have now initiated enrollment of both of our Phase I-II studies of the gene editing treatment of CTX001. I will briefly review each of these pipeline programs with you this evening. First, the cystic fibrosis. Today, approximately half of all people with CF are eligible for a vertex CF medicine, and we stand on the verge of yet another dramatic advance in the treatment of this disease with our triple combination regimens that hold the potential to treat up to 90% of all people with the disease. Our progress in CF in 2018 was marked by two important achievements. First, we saw a significant increase in the number of patients being treated with our approved medicines. This was the result of the successful Symtico launch in the U.S., multiple label expansions for Kalydeco and Arcambi, and the completion of key reimbursement agreements around the world, which Stuart will review in a moment. And second, we made excellent progress in advancing our two triple combination regimens through Phase III development. It was on this call one year ago that we announced our plans to initiate Phase III development for two different triple combination regimens that include a next-generation corrector, either VX659 or VX445. In just one year, we completed enrollment of approximately 1,000 patients across the four Phase III studies and obtained the first Phase III data for the VX659 studies. These data showed clear and compelling evidence of the dramatic benefits that this regimen may offer patients with one F508 del mutation and one minimal function mutation, as well as the significantly enhanced benefit that a triple combination regimen may provide for those with two F508 del mutations who are already being treated with Symptico or Orkambi. We will obtain data for the VX445 triple combination regimen in the first quarter of this year, which will enable us to choose the best regimen to submit for regulatory approval. We remain on track to submit a new drug application for a triple combination regimen no later than mid-2019. We've set a high bar with the triple combination data, but we're also committed to creating even better CF medicines for the future, including once-daily triple combination regimens and regimens that contain other next-generation correctors that may have enhanced profiles. We have multiple molecules in preclinical and clinical development that may provide future improvements for the treatment of CF. Now to our recent progress outside of CF, where we are rapidly advancing a portfolio of potential new medicines through late preclinical and early clinical development across a range of serious diseases with large unmet medical need. I'll start with our AAT program, where we recently initiated clinical development of our first small molecule corrector. The similarities between our AAT and CF programs are striking, and we believe that we will be able to apply many of the lessons learned in our CF discovery and development efforts to accelerate and de-risk our activities targeting AAT. We believe that measurements of the circulating functional AAT protein in people with alpha-1 antitrypsin deficiency will provide us with an early and important marker for the potential of our medicines to treat the cause of this disease, just as the biomarker of sweat chloride did for us in CF. Turning to our research and development program in pain, we recently announced positive Phase II results for VX150 showing a significant reduction of pain in people with small fiber neuropathy. These data mark the third positive proof-of-concept study for VX150 in three different pain conditions and further validate the potential role of NAV1.8 inhibition in the treatment of pain. A Phase IIb dose-ranging study of VX150 in acute pain following bunionectomy surgery is now fully enrolled, and we expect data from this study in the first half of this year. Positive data from this study could support pivotal development of VX150 in pain. We have a portfolio of multiple additional NAB1.8 inhibitors in late preclinical development and expect to advance the first of these molecules into clinical development in 2019. We are also continuing to invest in the discovery of additional potential pain molecules targeting other new mechanisms given the significant need for new pain medicines. Moving on to the sickle cell disease and beta thalassemia programs, where, with our partner CRISPR Therapeutics, we've now initiated clinical studies of CTX001 for both of these important diseases. These studies represent the first clinical trials to evaluate a gene editing treatment using the CRISPR-Cas9 technology in these two serious diseases. As we advance these R&D efforts, we are constantly evaluating new external opportunities that could provide access to new technologies, platforms, or development assets. We have entered into multiple agreements in recent years that are aligned with our strategy, including our collaboration with CRISPR Therapeutics, as well as recently announced collaborations with Arbor Biotechnologies, Merck KGA, Genomics PLC, and Xchem. We entered 2019 with increased flexibility to do more deals that would further broaden our pipeline and enable us to continue to explore serious diseases with multiple modalities and technologies. As we look toward future years, Vertex has the potential for significant revenue and earnings growth through the mid-2020s, based solely on treating more patients with our approved and future CF medicines. Importantly, we also have a rapidly advancing portfolio of potentially transformative medicines for other serious diseases and the ability to enhance our internal R&D efforts with external innovation to drive long-term future growth. At Vertex, we believe that real value for patients and shareholders is created through scientific innovation, and I'm pleased that Vertex continues to be at the forefront of transforming the treatment of CF and other serious diseases. I will now turn the call over to Stuart to review our commercial progress.

Thanks, Jeff. I am pleased to review with you this evening our strong commercial performance for 2018. driven by the launch of Simdico in the U.S., and also our revenue guidance for 2019, which shows continued revenue growth as we treat more patients with our approved medicines globally. Approximately 18,000 patients are currently being treated with our CF medicines, and this resulted in CF product revenues of $868 million in the fourth quarter. The fourth quarter included $294 million in revenues from Simdico in the U.S., which was the primary driver of the significant growth in CF revenues in the quarter and throughout 2018. Our full-year 2018 CF revenues were $3.04 billion, a 40% increase compared to the $2.17 billion for 2017, which is a direct result of treating many more patients globally. In the US, we saw a large number of patients initiate and remain on treatment with Symdeko in 2018. Demand for Symdeko has come from all eligible groups of patients, including those who previously discontinued or never initiated Orkambi, and those who switched from Orkambi or Kalydeco to Symdeko. Given the profile of Symdeko, we had expected that persistence and compliance rates might be greater than those seen previously with Orkambi. and we are pleased to see this play out in the real world. While we are now well into the launch of Symdeco, we do anticipate additional patients will initiate treatment throughout 2019, including patients ages 12 years and older, as well as younger patients following potential approval in children ages 6 to 11, which we anticipate during 2019 and is reflected in the guidance I will discuss in a moment. Kalydeco revenues for 2018 were $1.01 billion, an increase of 19% compared to 2017. The increase in Kalydeco revenues is a direct result of treating more patients in the US based on label expansions received in 2017. Outside the US, we reached important reimbursement agreements for our CF medicines in Australia, Sweden, and Denmark in 2018. adding to the multiple agreements previously reached in Germany, Italy, the Netherlands, Ireland and other countries. These new reimbursement agreements allowed patients to have access to medicines that treat the underlying cause of their disease for the first time and provided a contribution to revenue growth for 2018. These agreements will also contribute to revenue growth in 2019 and beyond. Given the recent EU approval of Simkevi, known as Symdeco in the U.S., and our rapid progress in developing triple combination regimens, our ongoing reimbursement efforts remain focused on obtaining long-term portfolio agreements that not only provide immediate access to our approved medicines, but also a pathway to access and rapid reimbursement for future CF medicines. We've reached these types of agreements in multiple countries, and view these agreements as win-wins for patients and governments, as they provide certainty to patients that they will have immediate access to current and future innovations in CF from Vertex, and budget certainty to governments for the foreseeable future. Our progress in 2018 in launching Symdico, expanding the labels for Kalydeco and Orkambi, and achieving important reimbursement agreements for our medicines outside the U.S., has positioned us for continued revenue growth in 2019. Our 2019 guidance for CF product revenues is $3.45 to $3.55 billion, which at the midpoint reflects approximately 15% growth over 2018. As the timing of when we achieve future reimbursement agreements is not entirely in our gift, our 2019 revenue guidance only reflects anticipated revenues from regions where our medicines are currently reimbursed. Achieving additional reimbursement agreements in 2019 could provide upside to our revenues, and thus we would update our guidance as appropriate at that time. I would note that we expect to see a negative impact in the first quarter of this year from channel inventory build of approximately $10 million that occurred at the end of 2018, and from higher gross to net adjustments, which we typically experience in the first quarter. We expect that these dynamics may more than offset revenue growth from new patients, and that first quarter CF product revenues could be sequentially lower than the fourth quarter of 2018, despite our expectation for continued revenue growth for the full year, as noted in our guidance. I'm pleased with the continued progress we have made in bringing our CF medicines to many more patients globally, which has resulted in strong revenue growth to support our investment in the creation of new medicines for CF and other diseases. I look forward to talking further with you throughout the coming year and will now turn the call over to Paul to further review our financial results and guidance.