Vertex Pharmaceuticals Incorporated

Welcome. This is Michael Partridge, Senior Vice President of Investor Relations. Tonight, we will review with you Vertex's business progress and provide our second quarter financial results. Making prepared remarks on the call tonight, we have Dr. Jeff Leiden, Chairman and CEO, Dr. Reshma Kelwal-Ramani, Chief Medical Officer, and Charlie Wagner, Vertex's Chief Financial Officer. Stuart Arbuckle, Chief Commercial Officer, will join us for Q&A. We recommend that you access the webcast slides on our website as you listen to the call. This 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, 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.

Thanks, Michael. Good evening, everyone. It's with great pride and appreciation for all that our employees and leadership team are achieving that I'd like to take a few moments to talk about our progress and to affirm our strategy going forward. I'm pleased to say that our business is outperforming on multiple fronts. As we enter the second half of the year, we are on track to achieve or exceed our 2019 goals, and we're well positioned for continued innovation and growth in the future. We're treating more people with CF than ever before with our approved medicines, which continues to drive significant revenue growth to support investment aimed at creating future medicines. We have rapidly grown our pipeline beyond CF, and we now have ongoing development programs evaluating seven different potentially transformative medicines spanning five specialty diseases. We have also established multiple new collaborations and acquisitions over the past year aimed at complementing our productive internal research engine. First, the CF. Our progress in CF has been extraordinary. In 2019 alone, we have received nine new regulatory approvals or label expansions for our CF medicines globally, reached new reimbursement agreements in 10 countries outside the U.S., and completed the Phase 3 program for our triple combination regimens involving nearly a thousand patients. And just last week, we announced the submission of a new drug application for the triple combination of VX445, Tezacaftor, and Ivacaftor to the U.S. FDA, marking the most significant milestone to date in our efforts to create new CF medicines over the past two decades. The Phase 3 data we announced in May for the VX445 triple combination regimen were unprecedented, showing improvements in lung function and other measures of the disease that were among the highest magnitude ever seen in any of our CF studies. CF is a progressive and debilitating disease. We share the urgency of patients who are waiting for a new medicine to treat the underlying cause of their CF. And we therefore moved quickly to complete our NDA for the VX445 triple combination within just weeks of receiving the final data. Outside the U.S., we are focused on reaching new reimbursement agreements for our current CF medicines. And wherever possible, we are seeking portfolio agreements that will also provide patients with access to future CF innovations from Vertex. Beyond CF, our pipeline is expanding and advancing rapidly. We have seven potentially transformative new medicines in clinical development across five serious specialty disease areas, including Alpha-1 Antitrypsin Deficiency, ApoL-1 Mediated Kidney Diseases, Pain, Sickle Cell Disease, and Beta Thalassemia. We are also increasing our external investment to build a toolkit to develop future breakthrough medicines in specific diseases we're interested in. The most recent example of these efforts are the recently completed acquisition of Exxonix Therapeutics and our expanded collaboration with CRISPR Therapeutics aimed at the development of new genetic therapies for DMD and DM1. These agreements provide us with development candidates that have shown promising preclinical results and also enable us to integrate cutting-edge scientific technology and expertise in diseases that are highly aligned with our business strategy. We plan to execute more of these types of deals as we further expand our pipeline of transformative medicines over the coming months and years. Our strategy to create medicines by investing in serial scientific innovation is working, as demonstrated by our continued strong performance in the first half of 2019. Importantly, our commercial success allows us to invest both internally in our own pipeline and externally through new collaborations to fuel our future growth. The results of our substantial and highly directed investments in R&D are evident in the significant progression of our pipeline, and we have the potential to achieve risk-lowering clinical data in several programs in 2020. Before I end my prepared remarks, I'd like to say a few words about the leadership transition that will happen eight months from now, where I will become Executive Chairman and Reshma will become Virtex's new President and CEO. First, let me say that it's been a tremendous pleasure and honor to lead this company since 2012. I'm very proud of what the team has accomplished during that time. Virtex has never been stronger. Our business is growing rapidly and will continue to grow for the next decade as we bring AlexaCaptor to the vast majority of CF patients worldwide and then deliver on our clinical stage pipeline in multiple other serious diseases. Based upon our success in CF, we now have the financial strength to invest in both internal and external innovation to deliver even more transformative medicines to more patients with serious diseases. Finally, we have an outstanding senior leadership team with a proven track record of executing against our strategy. Together, these factors differentiate us and position us for long-term success. Having worked closely with Reshma for the last several years, I know that she is the perfect choice to succeed me as CEO and is fully prepared to lead Virtex into the future. As a physician scientist, she has a deep commitment to our strategy of serial innovation as well as our inclusive culture of outstanding science. She's an excellent communicator and a strong collaborative leader with a proven ability to execute against our strategy and deliver results. Importantly, she has a track record of putting patients first and driving innovation to have a transformative impact on patients' lives. Of course, you all aren't getting rid of me quite yet. As you probably know, smooth, non-disruptive succession has historically been one of the biggest challenges for biotech companies. Recognizing this, the board and I have worked for several years on a succession plan that would ensure both strategic and operational continuity. As part of this plan, I'm looking forward to playing a continued, active role in the company as Executive Chairman, supporting Reshma and our team through a smooth transition through Q1 2023. Specifically, Reshma and I have agreed that I will maintain an active role in four areas of the company. Business development, helping to get deals done and secure our access to external innovation and products. Building our new Boston research site dedicated to genetic therapies. Investor relations and public affairs and government relations where I've established important relationships at the state, federal and international levels over the last seven years. I look forward to continuing to engage with you as the company progresses. I'll now turn the call over to Reshma.

Thank you, Jeff. I'm honored to become Vertex's next CEO. Over the last eight years, your strategic vision and relentless dedication to science and serial innovation has transformed the company, revolutionized the treatment of CF and produced a pipeline of breakthrough medicines for other serious diseases. The success of our serial innovation strategy has also resulted in unprecedented financial strength. I believe strongly in our differentiated strategy and I have no plans to change it. Our commitment to finish the journey in CF and to create multiple transformative medicines for other serious diseases has never been stronger. I look forward to continuing to work alongside Jeff and our outstanding senior leadership team at a time of such great opportunity for the company. And to deliver on our promises to bring more transformative medicines to patients with serious diseases who are waiting for them. Now, turning to key updates on our medicines in clinical development. 2019 has been a year of important clinical and regulatory milestones for our CF medicines and our pipeline beyond CF. In CF, we recently submitted our NDA for the VX445 triple combination regimen and remain on track to complete our application in Europe in the fourth quarter of this year. Our NDA included a request for priority review, which are granted would provide a Purdue for date sometime late in the first quarter of next year. If approved, this regimen would not only be the first medicine to treat the cause of CF for the FMF population, the largest remaining group of people with CF without a medicine for the underlying cause of their disease, but it would also be a significant enhancement for the FF population. The VX445 triple combination regimen represents a significant advance over currently available medicines and may be able to treat up to 90% of people with CF in the future. We want to bring this medicine to as many patients as quickly as possible, and we've already begun our efforts towards gaining approval for this regimen in younger patients for an ongoing phase three study in children ages 6 to 11. Outside of CF, we have clinical development efforts ongoing across five different diseases and expect important clinical data readouts from multiple programs in 2020. In our AAT program, we have completed evaluation of single and multiple ascending doses of our first small molecule corrector, VX814, in healthy volunteers. Based on the safety, tolerability, and pharmacokinetic data from this study, we have decided to advance VX814 into a phase two dose ranging study in AATD patients who have two Z mutations. We expect to obtain clinical data from our AAT program in people with two Z mutations in 2020. And consistent with our approach of developing a portfolio of multiple potential medicines in each of our programs, we have also recently advanced a second AAT corrector, VX864, into phase one development. Both VX814 and VX864 have received fast-track designation from the FDA. In pain, we have established proof of concept for NAV1.8 inhibition in multiple phase two studies in acute, neuropathic, and musculoskeletal pain conditions. We have identified a number of selective NAV1.8 inhibitors, and our plan is to obtain clinical data from multiple compounds in order to choose the best molecule or molecules to advance into late-stage development. We announced today that we are initiating a phase one study of a novel NAV1.8 inhibitor, VX961. In sickle cell disease and beta thalassemia, we've now dosed two patients in our hemoglobinopathies program with our partner, CRISPR Therapeutics, using the novel gene editing therapy CTX001. The first sickle cell patient was dosed in the middle of this year, which follows the first patient with beta thalassemia who was dosed in the first quarter of the year. Before I turn the call over to Charlie, I'd like to spend a few minutes talking about a new area for Virtex, APOL1-mediated kidney diseases, which includes FSGS or focal segmental glomerular sclerosis. There have been few to no medicines developed and approved specifically to address the underlying cause of kidney diseases. So as a nephrologist who has treated these patients, I find this program exciting both scientifically and personally. Our approach to the treatment of APOL1-mediated kidney diseases will initially focus on the inhibition of APOL1 function in patients with FSGS. We estimate that there are approximately 10,000 people with FSGS in the U.S. who are homozygous for APOL1 mutations. These patients exhibit high levels of protein in the urine, known as proteinuria, and typically progress to reduce kidney function and or kidney failure. We have developed proprietary cell and animal models to evaluate our compounds in FSGS. And based on our preclinical data, we believe that inhibiting APOL1 protein function will reduce proteinuria and alter the course of this progressive disease. I am pleased to report that we recently began dosing healthy volunteers in a Phase I study of our first oral small molecule inhibitor of APOL1 function. This molecule, known as VX147, is the first of multiple potential medicines for APOL1-mediated kidney diseases that we are advancing in late stage research. If we are successful in Phase I, our plan is to initiate a Phase II proof of concept study in 2020 where we would evaluate the ability of VX147 to reduce protein levels in the urine. A demonstrated reduction in pertinuria in FSGS would represent an important biological proof of concept for this program. In summary, we've made outstanding progress in CF and in multiple other disease areas in 2019 and are positioned to obtain important clinical data from multiple diseases in our pipeline in 2020. I'll now turn the call over to Charlie.

Thanks, Reshma. I'm pleased to review with you our second quarter financial results, which showed both strong commercial performance as a result of treating more CF patients globally and disciplined investment focused on internal and external innovation to create future medicines. All of the results and guidance I will discuss tonight are non-GAAP. Our second quarter total product revenues were $940 million, a 25% increase compared to the second quarter of 2018. This increase was driven primarily by the uptake of SimDiCo in the US and the recent launch of SimKevi in Germany. SimDiCo and SimKevi revenues for the second quarter were $362 million. The strong SimKevi launch in Germany represented the majority of the $46 million of SimDiCo and SimKevi revenues from outside the US. As a result of new reimbursement agreements and new regulatory approvals for young children, we also continue to see new patients initiating treatment with Kalydeco and or Camby. Our second quarter 2019 combined R&D and SG&A expenses were $394 million, similar to the $388 million seen in the second quarter of 2018. The significant growth in revenues and disciplined spending in the second quarter resulted in operating income of $413 million, a 59% increase compared to the second quarter of 2018. Net income for the second quarter of 2019 was $327 million compared to $244 million in the second quarter of 2018. We also continue to strengthen our balance sheet, ending the second quarter with approximately $4 billion in cash and marketable securities compared to $3.2 billion at the end of 2018. We expect to continue to generate significant cash flow throughout 2019 and beyond as more patients are treated with our medicines, and we have a clear strategy of reinvesting in both internal R&D and external innovation to support our long-term growth. The results of our commitment to reinvest in R&D are clear, as evidenced by the progression of our internal pipeline into multiple new diseases and also by our increased use of capital to establish new collaborations and acquisitions aimed at the creation of future medicines. Over the past 12 months, we have invested more than $600 million in cash to establish multiple new collaborations and acquisitions that provide us with access to new external scientific technologies, programs, and expertise in multiple diseases to complement our internal research engine. These activities and the significant expansion of our internal team dedicated to finding and securing new scientific opportunities underscore our commitment to investing in external innovation to support our future growth. Importantly, with our growing free cash flow, we have even more flexibility to enter into additional deals. Now on to guidance. As a result of our strong commercial performance seen in the first half of 2019, we are increasing our total CF product revenue guidance to $3.6 to $3.7 billion from the prior range of $3.45 to $3.55 billion. Our revenue guidance reflects anticipated revenues from countries where our medicines are currently reimbursed. Our financial guidance for both combined R&D and SG&A expenses and our anticipated effective tax rate is unchanged. We remain on a trajectory of significant revenue growth, which is driving expansion of our operating margin and increases in net income. Importantly, our increasing revenues are allowing for significant reinvestment in internal and external programs to fuel our future growth with new medicines. Echoing Jeff's comments from the start of the call, Vertex has never been stronger and is well positioned to continue executing on its strategy to drive value and growth through investment in serial innovation. With that, I'll open the line to questions.

Ladies and gentlemen, if you have a question or comment at this time, please press star then one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press the pound key. Again, if you have a question or comment at this time, please press star then one on your telephone keypad. Our first question or comment comes from the line of Phil Ndudu from Cohen & Company. Your line is open.

Good afternoon. Thanks for taking my questions and congratulations on the progress. Just two for me. First, on the financials for the quarter, there was a big step up quarter over quarter in the doublet revenue, the Orkambi, Simteco revenue, and still not clear to me what exactly drove that uptick in Q2 versus Q1. Would you be willing to delineate what factors drove that uptick? And then second on VX814, I'm curious if you'd be willing to say anything more about the Phase I profile you saw or the Phase II trial design you're about to start. Thanks.

Yes, I'll take the first question, Phil, on the step up in revenues. Essentially, this was driven by a number of things. It was the ongoing launches of Simteco here in the US and Simkevi outside the US, most notably in Germany where it seemed there's driven fantastic performance. So that's led to the growth of Simteco, Simkevi. And while that has cannibalized some of our Orkambi revenues, we've actually received a number of new approvals for lower range ranges for Orkambi and Kaleidiko over the last few quarters. And as those launches are being executed, that's adding new patients in for Kaleidiko and Orkambi as well. So it really is a combination of expanded labeled indications for our older medicines, Orkambi and Kaleidiko, and then the successful launch of Simteco around the world.

Phil, this is Raishma. With regard to your question about VX814, that's the first small molecule corrector we've taken into AAT. We have completed the Phase I study, which is a SAT, a single ACE sending dose, and a MAD, and multiple ACE sending dose. And what we saw there was a profile that looked really good from a safety and tolerability point of view. That was, of course, the primary endpoint, but also importantly around the PK. With regard to what we're going to do in Phase II, obviously we need to have our discussions with the regulators, but what I can tell you is that I expect the study to be of a very reasonable size and of a very reasonable duration, not this similar to what you've seen us do with CF. And I say that because what we're going to be measuring is AAT levels and activity.

That's very helpful. Thanks for taking my questions.

Thank you. Our next question or comment comes from the line of Salvin Richter from Goldman Sachs. Your line is open.

Thanks for taking my questions. So regarding the AAT program, you talked about looking at the endpoint of AAT levels. Do you think that liver histology would be required? And then how do you see the assets fitting into the treatment paradigm in light of different approaches that are in development? And I have a follow-up.

Sure. Sure. So Salvin, you know that the data point that's available to us right now pertains to the infusion therapies and what they used in their Phase III programs and what their approvals were based on is indeed AAT levels. And that's the data point and that's what's available to us. What I foresee here in terms of our AAT program are a few points that I just want to make sure I highlight. One, this is a small molecule oral corrector. So that's important. This is oral. The second is that certainly for the lung AAT levels and activity will be important. And for the liver, I do expect that we're going to evaluate liver biopsies in Phase II and that we will need to have discussions with regulators with regard to how that fits into the label and what that program looks like. Let me ask Jeff to make a comment as well.

I think the second part of your question, Salvin, which is related to the first is how does this compare to other approaches? Maybe just to remind you that AAT, as Rachael said, is both a lung disease and a liver disease. The mutant protein is misfolded and accumulates in the liver and therefore causes significant liver disease in up to 30% of the patients. And obviously it doesn't get into the serum in an active form and so it doesn't protect the lung against out of digestion by proteases. So you have these two different organs that are involved and really successful treatment of the disease will require treatment of both the liver and the lung. This approach, as Rachael was saying, is a small molecule which has the distinct and sort of differentiated advantage of treating both by refolding the protein in the liver and clearing the liver. We believe it will have a positive effect on the liver disease and of course by refolding the protein into an active form in the serum, we expect it to have a positive effect in the lung. And I think you can see why we're enthusiastic about that if you look at our slides. This time we've shown you 814 in the past. This time we showed you 864, which is the next molecule, for a longer period of time, for 12 weeks now. And what you see in that slide in a mouse model that's actually expressing the human mutant protein is two important things. One, we're able to drive functional levels of AOT in the serum well into the carrier range quickly and that effect is sustained over 12 weeks. In fact, if anything, it increases as we go through the 12 weeks. And two, with 12 weeks of therapy, we're really able to see remarkable clearing of the liver, both the non-aggregated forms of the blush and the aggregated forms, which are the punctate forms. And so those are exactly the things, the reason we're excited, exactly the things that we want to look for in the human. Most of the other approaches out there, as you know, either treat the lung, so for instance the replacement therapy, or they treat the liver, for instance the antisense or knockdown therapies that are out there, but they don't treat both. And so the reason we're so excited about this is it's a small molecule approach that treats both, at least in our mouse model, and that's what we'll be looking for as Rachel described in the Phase II studies, which can be a fairly small number of patients for a fairly short period of time.

Great, thank you. And then on the call, you did discuss a couple of times today using capitals for external opportunities. And are you thinking about smaller transactions like the one you just did with exonics? And in the context of that, when you think of building a genetic center, do you see yourself sticking just to gene editing, or would you expand into other modalities? And then further, you know, would it be these smaller transactions, or could there be a larger transaction in your future?

Sure. First of all, I don't want to call exonics a smaller transaction. They might be insulted by that. We thought it to be an important and significant transaction, but I know it could be a larger transaction. And that's, of course, what you mean. You know, as we said before, first of all, we are accumulating significant financial firepower and capital on our balance sheet, and so you should expect to see us do more deals and potentially larger deals. But the strategy will remain the same as it's been for the last four years. And as you know, we focused on three areas, anything in CF that could be complementary or additive to what we're doing now with triple. Obviously, we're not seeing many of those because the triple has set such a high bar, but we continue to look at everything out there. The second one is technologies or technology platforms that would allow us to better treat the kinds of diseases we're interested in that you heard about today, either alone or potentially in combination with small molecules. And you've seen us do the CRISPR deal, the Moderna deal, the Arbor deal, the X-Chem deal, all of those fall into that category. And then the third area is looking for assets, mostly preclinical and early clinical assets that would complement our pipeline in the diseases we're interested in. In a way, Exonix was a part of that because DMV and DM1 or two diseases were interested in, and we continue to look for those assets. So I think you can expect to see more of that with respect to the size of the transactions. We do have more firepower, and so you could potentially see larger deals. But what I think you will not see is us doing large deals to buy on-market products or late-stage products to grow revenue or to buy revenue growth. We really don't need that given the revenue growth we're projecting out well into the 2020s from both the CF franchise and then the pipeline. Does that give you a better sense of what we're looking for?

Yes, that's helpful. Thank you.

Okay,

sure. Thank you. Our next question or comment comes from the line of Michael Yee from Jeffreys. Your line is open.

Thanks for the question. On AAT, I just wanted to go back to that and ask Reshma if you guys have a lot of confidence in the assays that you guys have used and how relatable or translatable that is to CF, specifically as it relates to what level of data you're using. What kind of data do you think you can get in the human and then how long it would take for that to show up and what specifically you

want to see in the communication?

Thanks for that. Maybe let me talk about AAT and our level of confidence with regard to the assays and our approach. So with regard to the assays, that one's pretty simple. The assay for levels is...

You may be getting a lot of background noise. Maybe you can mute.

I'll try and speak over the noise. The assay with regard to AAT levels, that one's pretty simple. That's a commercially available, readily accessible assay for levels. With regard to activity, that one is also well worked through. It's in ELISA and that is not something that we think is going to be particularly complicated. With regard to confidence, obviously, unlike CF, which has already gone through our preclinical assays and through the clinic so we can look back and make those correlations, with AAT we have yet to go into patients. That being said, the reason we have confidence and the reason I'm very excited about taking this forward to phase two is the animal models we have, remember, have the human gene inserted into it and whether we look at levels or activity in the mouse or we look at the liver, and particularly as we look at the liver over time, it just continues to impress us and raise our levels of confidence.

And then, Mike, the other thing, as you know, is that we know from sort of experiments of nature that carriers, meaning the parents of these patients, are asymptomatic and they have reduced levels anywhere from sort of 11 to 17 micromolar. Certainly by the time we get to 17 micromolar, there's a lot of evidence that's highly protective. So we know the level that we're looking for in advance and as Rachel said, simply by measuring levels of active AAT in these phase two patients, we get a pretty good idea of where we are with respect to treatment efficacy and carrier levels.

Thank you. Our next question or comment comes from a line of Alethea Young from Cantor, FG. Your line is open.

Hey, guys. Thanks for taking my question. Congrats on a very good quarter and progress on the pipeline. I just wanted to kind of maybe take a step back and ask a strategic question around the pain program. I noticed you're kind of differentiating molecules, so can you just spend some time maybe discussing how you think pain and the certain indications associated with it might fit with your business and, you know, are you planning on partnering some of them or keeping some to yourself? That would be very appreciated.

Thanks. Alethea, let me start. This is Rachel, and let me just bring everyone up to speed on where we are, and then I'll turn it over to Jeff to make some comments about strategically where it fits into the business, partnering and all that. So with regard to the pain program, you know that we have advanced the X150 through phase two B dose ranging, and we've had positive results in neuropathic pain, osteoarthritis, as well as acute pain. The safety profile looked good, the tolerability looked good, and that's one half of the equation. The other half of the equation goes back to our approach to CF as well as to AAT, and that has to do with bringing forward a portfolio of molecules. And that part, as it pertains to the new news for today, we're advancing the X961, our next NAD1.8 inhibitor, into the clinic. So we're going to wait for the results from that one and then pick the best molecule or molecules to advance into late stage development. If I try to maybe simplify it and raise the altitude, you know we always talk about cracking the biology and then pouring on the chemistry. In the pain program, the part of this that we're at is pouring on the chemistry. And what we're doing now is bringing our molecules forward, and we're going to pick the very best one or ones to take to late stage development. Jeff?

Yeah, with respect to how we think about pain sort of strategically and commercially, which I think is your question, you know we've said in the past, we really view it as multiple indications, even potentially multiple causes. But we see it as acute pain, which is the kind of pain that you have when you have a surgery or a tooth extraction or an injury. That pain is treated mostly, not entirely, but mostly in hospitals, pain centers, dental offices, etc. And you can reach most of those patients with a specialty sales force. And so we view acute pain, which is a multi-billion dollar opportunity, as something that's certainly consistent with our Vertex strategy of make a transformative drug in the specialty area. And obviously the other driver in acute pain is that we're sitting in the middle of a horrible opioid crisis, and the majority of the pain treatments for acute pain are opioids. And so we think having a molecule like 150 or 961 that would have opioid-like efficacy without any of the addictive potential or side effects would be a very powerful transformative advance in the treatment of acute pain. That one we will develop and commercialize ourselves. If you move on to neuropathic pain, which is the second type of pain, you know, very, very different. There's a diabetic and non-diabetic component there. It's also a specialty market. It requires slightly more, slightly larger sales force, but certainly one we could muster. And the key there is going to be to demonstrate that one of our molecules is superior to the molecules out there like Lyrica, pre-gabalin, etc., which, as you know, are going generic. And so we're doing those studies as part of our Phase II program, and then we'll be able to decide what the commercial strategy is there. And then the third area is what we call musculoskeletal pain. It's what you would think of as low back pain, sciatica. It's a huge market, as you know, a multi-billion dollar market. That's a community market for the most part, and that's a market that we would not enter ourselves. We have positive results in that market, but that's one where we would look to partner with a company that had a community sales force that we would not intend to build. We still think we can monetize this with them, but we certainly wouldn't do it ourselves. So maybe that gives you a little clarity about how we think about these three different components of the market.

Yeah, very helpful. Thanks for teasing that out.

Thank you. Our next question, the climate, comes from the line of Corey Kasimov from JPMorgan. Your line is open.

Afternoon, guys. Thanks for taking the question, and congrats to both Jeff and Reshma on the news. So two for you. First, on AAT, I know this is standard strategy for Vertex, but can you describe the key differences between the two AAT molecules you have now? Is there anything that really stands out there? And then secondly, I just wanted to ask about the triple and the potential of a future once daily. Did the selection of 445 over 659, was the decision made to any extent based off of early work in combination with your other next-gen correctors that you're working on or with the X651 for use in that once daily combination? How important do you think a once daily option is at this point?

Okay.

Hi, Corey. Two very different questions. Maybe let me tackle the CF-1 first, and I'll go backwards and do AAT. With regard to triple combination, let me take the first half of that, and I'm going to ask Stuart to comment on the importance of one daily. So, no, the decision to select 445 versus 659 really has nothing to do with our ability to combine it with some of our other molecules. I think you're thinking about VX561, our deuterated IVA-Caftor compound that is itself in phase two. The VX561 corrector could be combined with VX121, which is what it is combined with currently, and it is in phase two, but we could have easily paired it with 445 or 659. Stuart, do you want to talk through once daily? Yeah,

Corey, once daily is an advance for sure, and we certainly want to try and make things as easy as possible for patients to take our medicines. But much more important is the efficacy and safety of the triple combination regimen. And so it's definitely an advance. It's something we want to do to try and make things as easy as possible for our patients. But going from twice a day to once a day is nowhere near as important as the levels of efficacy that we are delivering with the triple combination regimens. And then AAT, I'll hand it back to Reshma.

Okay. So with regard to AAT, VX814 and VX864, preclinically they both look very good. And obviously we look at parameters pertaining to efficacy as well as safety, but there are also additional parameters that we've paid careful attention to preclinically. Those include things like formulation, DDI, PK, and both VX814 and VX864 look really very good. The reason we're taking multiple molecules into the clinic is what we've learned honestly from CF. And what we've learned is once you crack the biology, it really is about pouring on the chemistry and it serves as risk mitigation as we progress forward. So both VX864 and VX814 look very good and we're going to be moving those as quickly as possible.

Thank you. Our next question or comment comes from the line of Matthew Harrison from Morgan Stanley. Your line is open.

Great. Good afternoon. Thanks for taking the questions. Two for me. One, Jeffer Reshma, could you just give us an update on the current status of your negotiations with various EU countries about reimbursement for your CF medicine? And then second on FSGS, can you just talk broadly, is proteinuria a potential regulatory endpoint in that disease or how should we think about that as a biomarker that could be used from a regulatory standpoint? Thanks.

So, Matthew, it's Stuart here. I'll take the question on reimbursement and then Reshma will take the question on FSGS and proteinuria. So as Jeff said in our prepared remarks, we have made some important progress in the first half of this year in securing new pricing and reimbursement agreements in various countries around the world, either for Symbicose and Kevi or for our expanded indications for all Cambi and Kaleidiko. There's a number of countries where we are yet to establish access and that is a very, very high priority for us as a company. We're in active discussions with all of the governments where we don't currently have access and our commitment to securing access for our current and indeed future medicines is as strong as it's ever been. Unfortunately, it's impossible to comment on exactly when we'll be able to bring those discussions to a successful conclusion, but it actually remains a top priority for us and we remain committed to getting access as soon as we possibly can. Reshma, FSGS.

All right, FSGS. So with regard to what could the regulatory endpoint be and could it be proteinuria, I guess there's a few important points to raise. The first is that not all proteinuria is created equal. And what I mean by that is regulators around the globe have actually thought about this issue and have held workshops and this is something that is often discussed in the renal community. And really where we are is that there are certain homogeneous renal diseases that lead to heavy proteinuria and in those sorts of conditions, proteinuria may well be an endpoint that is the one that is important in the long run. Now, there are many other diseases that are far more heterogeneous with levels of proteinuria that are smaller and that's a different kettle of fish. We have to go through our regulatory interactions. We have to have these discussions and we're not there yet. But what I will say is that not all proteinuria is created equal. And in my mind, when you're looking at a homogeneous disease, a disease like APOL1-mediated FSGS, which is a genetically defined condition, it is a very described patient population and the proteinuria that we're talking about is heavy with the consequence invariably being progression of the kidney dysfunction or progression to end-stage renal disease, which really means dialysis or transplantation. So there's a lot of conversation to be had around proteinuria being the endpoint.

I hope that helps.

Thank you. Our next question or comment comes from the line of Brian Abrahames from RBC Capital Markets. Your line is open.

Hi, guys. Congrats on the quarter. Thanks for taking my questions and my congrats to Jeff and Reshma as well. A question on AAT and then a question on the kidney program. On AAT, any reason why 864 was tested for longer periods in the assays that you presented versus 814? And then on the kidney program, some recent data suggested that APOL1 RNA variants might have a more direct impact on podocyte damage that leads to proteinuria. So I'm just curious what drives your confidence that targeting the protein will reverse the pathophysiology? Thanks.

Maybe I'll take those both. First of all, with respect to 864 and 814, no, there was no real reason that we had different timeframes. In fact, we've looked at shorter timeframes for 864, longer timeframes for 814. I think what you should take away from that is we've seen very, very consistent results with both of these molecules, which is one of the reasons why we're so encouraged and excited about taking them into the clinic. So I think that's pretty simple. Your second question was about the RNA variants, yeah, in APOL1. So let's talk just real quickly. Actually, Reshma, maybe talk about APOL1 and what we know about the mechanism and why we're excited about what we've got there.

Yeah, sure, sure. So let me try to break down APOL1-mediated kidney disease. It's a genetic disease. It follows an autosomal recessive pattern, so you need homozygousity to get the disease. And maybe the thing that is the most important to know is amongst African Americans who have FSGS, 70-plus percent of these patients have APOL1-mediated disease. So that's why this is so important, and in the U.S. there's about 10,000 people who have this. We understand the mechanism of APOL1-mediated disease very well, and we also understand the mechanism of our molecule, VX147, very well. We've developed a host of in vitro cell-based assays, and we also have a mouse model with the human gene that we've inserted. And we really have a very, very good understanding of what happens with the protein, the next steps, how we are interdicting on this, resulting in decreased protein. And the 75 percent that you see is a very big number. And the bottom line of all of this is the way you end the progression of kidney disease, the way you stop this is you need to do two things. One, you need to target the underlying biology, and two, you actually need to decrease proteinuria, because proteinuria itself further damages the kidney. And so that's sort of where we are, and that's why we feel very good about our program. Jeff, I don't know if you have any other comments you want to make. I think if I heard

you correctly when you were asking specifically, do we believe this is an RNA variant issue? And the answer to that is no. We believe and have very strong evidence, both pharmacologically and genetically and biochemically, that this is a protein defect of the mutinase 1 protein.

That's really helpful.

Thanks. Thank you. Our next question or comment comes from the line of Paul Matias from Stiefel. Your line is open.

Thanks very much for taking the questions. To continue the trend, I'm going to ask two on AAT. One on the mouse data. Can you talk about how early you're treating in the lifespan of mice where you're seeing this level of clearance in the liver? How much protein accumulation has already occurred? And second, we had found a posting on the A1AT foundation for a study for VX814 going on at the Covance Research Unit in Dallas, looking at ZZ mutant patients that looked like it was recruiting. Can you clarify, is that study ongoing and is that something that could produce some data potentially on the sooner side? Thanks.

And maybe I'll take the first one in range and we'll take the second part of that. This is Jeff. So we started treating these mice at about one month of age. We treated them in this particular experiment we showed you with AAT614 for 12 weeks. And in answer to your question, is there already protein accumulation? Very significantly, yes. You can see that actually in the slide there. And you see that protein accumulation occurring early and getting worse and worse over time in the control animals and essentially clearing or mostly clearing in the treated animals.

I think your second question was around VX814 and some clinical trial postings and such. What you can expect to see from us is the same level of urgency that we worked on CF with AAT. And so you're right, we are starting to really mobilize our clinical trial efforts and you may well postings for patient recruitment. I would anticipate that the data event with regard to when can we see some data from people with ZZ, the ZZ mutation, I would say that that's likely to be a 2020 event.

Okay. Thank you.

Thank you. Our next question or comment comes from the line of Jeff Porges from SVB Lerink. Your line is open.

Thank you very much. I appreciate you taking the question. Stuart, just a couple on the core business. Could you just give us an update on where you are with the success of SimDeco in the penetration of the adult population carrying Adderall 508 allele? Just to help us with benchmarking, related to that, would you anticipate the vast majority of those patients switching pretty quickly to the triple? Should we anticipate that there is incremental patient volume available to the triple or is it primarily going to be the cannabinoid of existing volume? And that's in the adult market in the US. Obviously, the individual geographies around the world will play out over time.

Yes. SimDeco here in the US, in the 12-plus population, we are about 18 months into that launch now. That launch has gone spectacularly well. The vast, vast majority of F508 delhomozygous patients are now being treated with either SimDeco or Orcambi because there are a large number of patients who have chosen to remain on Orcambi. So that launch is kind of very long in its life cycle. As you know, the life cycle of our launches in CF is pretty short. The uptake tends to be fairly vertical. And obviously, we're earlier in the launch in ex-US markets, but as Charlie said in his prepared remarks, the launch, for instance, in Germany is going tremendously well. And there, we're now over 80% of F508 homozygous patients are being treated with a CFTR modulator, either Orcambi or increasingly SimKevi. So the launches in the 12-plus population going very well, and that's largely what's driven the strong revenue growth this quarter. In terms of the number of patients who might transition, you know, hard to predict until we get out there in the real world. But certainly, given the strength of the clinical data that we have in terms of the additional clinical benefit patients see from adding in a third product, our second corrected to SimDeco, I think that the demand is likely to be really, really strong. Those levels of efficacy are truly, truly incredible. And certainly, the feedback we've had from the physician and patient community, both directly and also through research, would suggest that we're going to see very high levels of uptake. In fact, if anything, it's likely to be most constrained by the actual capacity of the CF centers to be able to make that transition rather than physician and patient interest in getting onto the triple.

Thanks very much.

Thank you. Our next question or comment comes from a line of Mohit Banfield from Citi. Your line is open.

Thanks for taking my question, and congrats to both Jeff and Reshma. Mary, would love to get your thoughts on the recent mRNA data we have seen the transplant. Do you think the delivery, what do you think of the delivery here, and what is the challenging part of delivering a mRNA therapy in LIMH? We'd love to get your comments on your own efforts with the modernization. Thank

you. Sure, thanks for the question, man. This is Jeff. Obviously, it's a little too early, I think, to really make much of any comments about the data we saw today. Very early data, one part of a trial, single doses, very small numbers of patients. I honestly can't really give you much of a comment, and we usually don't comment on competitors anyway. I certainly can comment on what we think about nucleic acid therapy, mRNA therapies, which you know we're working on as well. We do believe that ultimately they may play a role in the treatment of CF, but we also believe it's a very long journey. And the reason for that, as you just pointed out, is the delivery issue. It is very difficult to deliver to the entire lung, to the right cells, which we'll come back to in a minute. And in the case of mRNA, to do that repetitively, which will certainly be needed. And while we're working on it, and many others are as well, it's a difficult problem. And the problem isn't expressing CFTR. That is a relatively easy problem. The problem is how do you deliver it to a football field of surface area in a lung that's inflamed, full of nucleases and other immune cells, get it into the right cells, and then do it over and over again in the case of RNA. That's a really tough problem. And we've said we think that's 10 or 15 years away before we crack that problem, or others crack that problem. Now, the other issue that's worth keeping in mind is CF is not a lung disease. CF is a systemic disease that affects many different organs, including the pancreas, the liver, the GI tract, et cetera. One of the obvious advantages of small molecule CFTR correctors, like our triple approach, is they treat all the organs, which is very important and very beneficial for these patients. Even when we work out the inhalation therapy or someone works out the inhalation therapy for the lung, if it's possible, that will only obviously treat the lung. And so I think as a standalone therapy, these will be quite challenging. And then the final thing I would say is, you know, there are two different fundamental approaches here. One is some sort of gene therapy or gene editing approach where you get into a stem cell, which can repopulate the airway continuously. And the other one is you deliver it to the brachial epithelial cells. But unfortunately, as you know, those turn over every few weeks. And so if you're going to deliver mRNA to the brachial epithelial cells, that will require continuous re-treatment, which has all sorts of immune and other inflammatory challenges itself. So we're very interested in this. We think it's a very big problem. We and others are working on it. I think it is a 10 or 15 year journey. And unfortunately, these inhalation therapies probably won't treat the entire disease, they'll just treat the lung.

Thank you. Thank you. Our next question or comment comes from the line of Brian Scorney from Baird. Your line is open.

Thanks, guys. Thanks for putting me in here. Just maybe if I could ask a question on the -L-1 program. Is there activity for this molecule for the different variants? And would you expect this to be equal effective for G1 or G2? And is this going to go here for complete knockdown of -L-1? And are there any impacts, risks that we should be thinking about for full inhibition of -L-1? And would you expect to see reductions of wild type -L-1 in the healthy volunteer study?

Yeah. This is Rayshra. I think you're asking a few different questions about what do we understand about -L-1 in our models? And what do we understand about how VX147 works? And so in general, we feel quite good and we have data in our models with both G1 and G2. So I do expect that when we go to the clinic and treat patients with -L-1 mediated FSGS, that it would be all comers of -L-1 mediated disease. With regard to what do we expect to see with our inhibition, we haven't taken this to humans yet, so it's difficult to say. But what I can tell you is that in our animal models, we have seen good preclinical safety, good PK, and the data we've shown you on the slide, very good reductions in protein levels.

And would we, just in the healthy volunteers, would we be looking at a biomarker in terms of wild type -L-1?

As you know, the Phase I FAD-MAD study, the primary endpoint for that is going to be safety and tolerability. The key secondary endpoint is going to be PK. And when we get to our dose-ranging studies, when we're really going to start to see the impact on protein oreo.

Thank you. Our next question or comment comes from a line of Whitney Ijum from Guggenheim. Your line is open.

Hey, guys. Thanks for taking the questions. And Rachel and I, congrats as well. I wanted to follow up on an earlier question around gene editing versus gene therapy and some of the investments you guys are making specifically with the research center and bringing John Gray onto the team. So as we think about Virtex investing in viral vector capabilities specifically, is that more around delivery in gene editing or even RNA as we think about that? Or does that signal an interest in broader gene therapy applications going forward?

Yeah, this is Jeff. So maybe just to remind those who aren't as familiar as you are with what we have announced. So we are very interested in both gene editing and gene therapy, not as pure therapeutic modalities. We're not going to become a gene editing company. But because the diseases that we're interested in, many of them, are very amenable to gene editing or gene therapy approaches or combinations of gene editing and gene therapy with small molecules. And so we're really building a toolbox, a broad toolbox of mRNA, gene editing, and potentially gene therapy approaches that we can use to address those diseases. We're actually also very interested in learning how we can combine those with small molecule approaches. As part of that effort, we recently announced simultaneously three things. One was the expansion of the collaboration with CRISPR therapeutics into DMD and DM1. Simultaneously, the acquisition of Exonix, which gives us great scientific expertise with Eric Olson, very important guide IP, very impressive preclinical data in the dog model, and really accelerates our DMD and DM1 programs. And the third, as you mentioned, was hiring John Gray, who's really one of the world's experts in making and manufacturing AV vectors, because AV vectors are obviously going to be very important in both gene editing and gene therapy approaches. We plan to combine all of those into a new research site here in Boston, which we call Vertex Genetic Therapies. It'll have 150 to 200 scientists or so, and it will have both the project teams around these diseases, like DMD and DM1, but also a preclinical and clinical manufacturing facility that will allow John to do vector work, vector formulation, bioanalytics, and preclinical and clinical vector manufacturing.

Operator, we have time for one more question.

Our final question comes from a line of Evan German from Credit Suisse. Your line is open.

Hi, all. Thanks for taking the question. Congrats on the strong quarter, and my congrats as well to Reshma on your upcoming promotion. So one on the drug pricing front. Do you see any risks to Vertex's U.S. businesses with the recent proposal by the administration to allow for importation of drugs from Canada? And while Vertex has not been a focus of recent discussion on drug pricing, how are you managing the potential risk of increased drug pricing pressures in the U.S. as this discussion is unlikely to go away anytime soon? Yeah, thank you for

the question. It's really a two-part question. First, with respect to drug importation, and I would also include in that, by the way, price importation, because those are really both the same things. We believe very strongly in policies that do two things. Policies that encourage innovation to make more breakthrough transformative drugs, and policies that then make sure that all eligible patients can have access to those breakthrough drugs, which is equally important for us. When we look at the drug importation or price importation proposals that have been made, they don't meet either of those objectives. And in fact, we would argue that they're counter to both of them. From an access standpoint, importing drugs from Canada doesn't solve the problem because there's not nearly enough supply to supply access to the patients who need them in the U.S. Second, we feel there's a potential very significant safety issue of allowing drugs to flow across the border in an unregulated fashion. And third, we're very certain that these kinds of policies will stifle the innovation that's led the industry here in the U.S. to be the leading innovator to make new breakthrough drugs. So we feel that that type of legislation is completely inconsistent with our principles. With respect to what are we doing for the future, I think the biggest thing we're doing for the future is to make sure that we're making transformational drugs because at the end of the day, these are the kind of drugs that patients and payers want to pay for and they want us to invest in. And the best evidence of that is our CF programs here in the U.S. where we've seen very rapid reimbursement from all forms of payer, including government payers, Medicaid, Medicare, as well as the commercial payers. And the reason for that is simple. They understand the value of those medicines to patients, and these are the kind of medicines they actually want to pay for. And I think when you look at our pipeline as Rachel described it, what you see is exactly the same kinds of medicines for serious diseases like sickle cell disease, pain, A.T., April 01. That's the most important thing. Obviously, we talk with politicians and lawmakers to explain the value of innovation. We have active programs to do that. But the most important thing we do is to actually do innovation and invest in it because I think that's how we protect the value for patients and shareholders.

Great. Thank you.

That concludes the Q&A period for today. I'd like to turn the conference back over to Mr. Partridge for any closing remarks.

Thank you, Operator. Thanks for tuning in to our call. If you have additional questions, the Investor Relations team is available for a follow-up in the office tonight. Have a good evening.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You can now disconnect. Everyone have a wonderful day.