Vertex Pharmaceuticals Incorporated

Good evening. Welcome to the Vertex Second Quarter 2020 Financial Results Conference Call. This is Michael Partridge, Senior Vice President of Investor Relations for Vertex. Making prepared remarks on the call tonight, we have Dr. Reshma K. Walramani, Vertex's CEO and President, Stuart Arbuckle, Chief Commercial Officer, and Charlie Wagner, Chief Financial Officer. We recommend that you access the webcast slides on our website as you listen to this call. This conference call is being recorded and a replay will be available 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 are filings with the Securities and Exchange Commission. These statements, including without limitation, those regarding Vertex's marketed CF medicines, our pipeline, and Vertex's future financial performance, are based on management's current assumptions. Actual outcomes and events could differ materially. I would also note that all of the financial results and guidance that we will review on this call this evening are non-GAAP. I will now turn the call over to Dr. Reshma K. Walramani.

Thanks, Michael. 2020 continues to be a year of remarkable progress for Vertex across all aspects of our business, as measured by the continued strong performance of the Tri-Captal launch in the U.S. The recent positive CHMP opinion for the triple combination regimen in Europe, completion of a landmark reimbursement agreement to expand access to the triple combination for patients in England, and the advancement of our late preclinical and clinical stage pipeline programs, most notably our proof of concept data for CTX001 that underscores the curative potential of this therapy in both beta thalassemia and sickle cell disease. I'm especially proud that the Vertex team has been able to accomplish all of this despite the challenges presented by the COVID-19 pandemic and want to acknowledge the resilience and commitment of all of our employees to continue to deliver on our goals for patients. Turning first to our CF medicine, today the vast majority of our eligible patients in the U.S. have begun treatment with Tri-Cafta, reflecting the significant and fundamental benefit that this medicine provides by addressing the underlying cause of disease. The rate of uptake for Tri-Cafta and the speed at which we have obtained broad reimbursement speak to the appreciation of the therapeutic profile of this medicine, which we believe will be the foundation of CF therapy for many years to come. Outside the U.S., in June we received a positive CHMP opinion for the triple combination regimen, which if approved will be known in Europe as Caftrio. This positions us for an earlier than expected approval in Europe in the coming month, which would provide up to 10,000 new patients with the first medicine to treat the underlying cause of their disease. Following the anticipated approval later this year in Europe, we plan to seek a potential expansion of the Caftrio label to include patients with one F508-DEL mutation and a residual function or gating mutation based on the positive phase three data reported earlier this month that showed Caftrio adds significant additional benefit in these patients. We are also pleased that we were recently able to expand our reimbursement agreement with NHS England to include Caftrio, allowing thousands of patients in England to begin receiving this medicine once European Commission approval occurs. This is truly a landmark achievement for patients and builds on our other innovative reimbursement agreements such as those in Ireland and Denmark that include Caftrio as well as our other medicines. Reaching these agreements in advance of regulatory approval is uncommon and reflects a shared belief in the value and benefit of our medicines in treating the underlying cause of cystic fibrosis. Based on our -to-date performance, driven primarily by Trikafta, we are again revising upward our 2020 revenue guidance, which Stuart and Charlie will discuss in more detail in a moment. Beyond 2020, we retain clear line of sight to reaching our longstanding goal of bringing the triple combination to 90% of all CF patients worldwide as we obtain additional regulatory approvals including approvals to treat younger patients and reimbursement agreements globally. Turning to our programs beyond CF, where we are advancing a differentiated and broad pipeline of small molecule, cell and genetic therapies for a range of serious diseases. Despite the challenges of the COVID-19 pandemic, we have now been able to reinitiate enrollment and dosing in all of our clinical trials and we've also been able to initiate new clinical studies during this period. Let me go into more detail on a few of these programs. In our CRISPR-Cas9 gene editing program with CTX001, we and our partner, CRISPR Therapeutics, announced new clinical data at the EHA meeting last month that highlighted the curative potential of gene editing in two serious diseases, beta-thalassemia and sickle cell disease. A total of seven patients had been treated with CTX001 as of the EHA meeting and all of these patients had successfully engrafted, which is an important yet early sign of their potential response to treatment. Of note, we have now resumed conditioning and dosing in both studies of CTX001 and have dosed additional patients across the program in recent weeks. This program continues to gain momentum as we enroll and treat even more patients and we expect to report additional data later in 2020. In AAT, we have now reinitiated enrollment in the Phase II study of VX814 at all sites that have indicated the ability to resume clinical trials. This means that some, but not all clinical trial sites have been reopened and are screening and enrolling patients in the VX814 study. We have also now initiated a similar Phase II study with our second AAT corrector, VX864. Ultimately, the pace of enrollment will dictate the timing for data readouts from VX814 and VX864. We now expect data from the VX814 study toward the end of 2020 or Q1 2021. In the next several months, we will have a much clearer picture of enrollment dynamics for these studies and when to expect data for each molecule. Our goal is to evaluate data from each Phase II study and to pick the best molecule to advance into late stage development. This is consistent with our strategy of cracking the biology and then pouring on the chemistry to allow us to discover multiple molecules that we can simultaneously advance through proof of concept and pick the best molecule then for further development, just as we did in CF. In APOL1-mediated FSGS, multiple clinical trial sites are now open for screening and enrollment in our Phase II study of VX147, evaluating the reduction of pertinoria over 13 weeks. We expect to obtain data from this study in 2021. And with our cell therapy for type 1 diabetes, we are tracking for an IND submission in late 2020 to support initiation of our first study to evaluate the islet cells alone in patients with type 1 diabetes. The advancement of key IND-enabling activities and the generation of preclinical data to support the IND package in type 1 diabetes were key priorities in the first half of the year and have remained on track through the COVID-19 pandemic. With that summary of the business and review of the R&D portfolio, let me turn it over to Stuart.

Thanks, Reshma. I am pleased to review with you this evening our continued strong commercial performance. Trikafta revenues for the second quarter were $918 million, reflecting very rapid uptake in the U.S. across the vast majority of all eligible patients. We have received rapid and broad reimbursement from both public and private payers, and feedback from patients and CF centers has been highly positive, consistent with the strong benefit risk profile for this medicine. Our Trikafta revenues to date in 2020 have also benefited from very strong persistence and compliance trends and from increased patient inventory levels as a result of early refills amidst the COVID-19 pandemic. I am proud of the teams that have worked tirelessly to execute such a phenomenal launch, which has exceeded even our own expectations. And I am thankful for the commitment of the CF community to working with us to help get so many patients onto Trikafta since its approval in October last year. We now have the opportunity to build on this strong performance of the U.S. launch with an earlier than expected potential approval in Europe. This approval, which is anticipated to come in the next few months, will allow up to 10,000 new patients with a minimal function mutation to be treated with a medicine for the underlying cause of their disease for the first time. Further accelerating our ability to bring this medicine to patients is the recent expansion of our agreement with England to include immediate reimbursement of Caffetrio for patients ages 12 and older upon EC approval, as well as reimbursement for all future label expansions for Kalydeco, Orcambi, Simkevi, and Caffetrio. This unique agreement provides the CF patient community in England with certainty that they will be among the first in Europe to receive our CF medicines. We are very pleased with this expanded agreement, which is a reflection of the importance and value of treating the underlying cause of CF with our medicines. We would like to thank NHS England and the CF patient community for their commitment to working collaboratively with us towards this agreement over recent months. And we are working with the other developed nations in the UK to finalize equivalent agreements as soon as possible. As a result of our strong start to 2020, we are again raising our revenue guidance for the year. And I will offer the following perspective regarding launch dynamics in the US and how we view the anticipated Caffetrio launch in the EU. First, we are nine months into the Trikafta launch in the US, and the vast majority of all eligible patients have now begun treatment. Second, the compliance and persistence rates and patient inventory levels we have seen to date with the launch are high, and we expect them to normalize in the second half of the year. And third, we will be launching Caffetrio in Europe amidst an ongoing and rapidly evolving global pandemic. This may significantly impact patients' ability to see their physicians for treatment initiation visits and to conduct important laboratory and clinical work to support initiation of Caffetrio. It will also be the first time that our teams have had to execute a launch virtually. As in the US, we ultimately expect to treat the vast majority of eligible patients in Europe. However, the exact trajectory of the launch in Europe is uncertain. All of these factors and their potential impact on future quarters are reflected in our revised revenue guidance, which Charlie will review in more detail momentarily. We expect CF revenue growth beyond 2020. This growth will be driven primarily by additional approvals and reimbursement agreements for Caffetrio outside the US, and by expanding the Trikafta and Caffetrio labels to treat younger patients. As markers of our continued progress to reach more patients with our medicines, our regulatory submissions for the triple combination are complete in Australia and Switzerland. And following potential EU approval of Caffetrio later this year, we plan to begin discussions in countries where we are not yet reimbursed with the goal of providing access to this medicine for eligible patients as rapidly as possible. We also remain on track to submit a supplemental new drug application for Trikafta in the US in the fourth quarter of 2020 for children ages 6 to 11 years of age with one F508-DEL mutation. If approved, some 1,500 new patients in the US would be eligible for a medicine to treat the cause of their CF beginning in 2021. We expect this submission would be followed rapidly by similar label expansion efforts outside the US, and by additional Phase III studies to support approval in even younger children. In summary, Vertex remains on a trajectory of significant near-term and long-term revenue growth as we bring Trikafta and Caffetrio to more patients globally in the coming months and years. I am pleased with the significant commercial progress we've seen to date in 2020, and will now turn the call over to Charlie.

Thanks Stuart. Our financial performance for the second quarter was exceptional, highlighted by continued significant growth in CF product revenues following the launch of Trikafta. The second quarter total CF product revenues were $1.52 billion, a 62% increase compared to 2019, bringing our -to-date revenues to just over $3 billion. Our second quarter revenues included $1.21 billion in revenues in the US and $314 million in revenues outside the US. Revenues from outside the US in the second quarter grew 31% over the prior year, driven by strong patient uptake of Orkambi and Simkevi following the completion of multiple reimbursement agreements in late 2019. Both in the US and in countries outside the US where our medicines are reimbursed, the vast majority of eligible patients have now initiated treatment with our medicines. Our second quarter 2020 combined R&D and SG&A expenses were $467 million, compared to $394 the second quarter of 2019, bringing our -to-date expenses to $945 million. As we've said previously, our 2020 expenses reflect greater investment to support the use of our CF medicines globally and the expansion of our pipeline into new diseases. The significant growth in revenues combined with more moderate growth in spending resulted in -to-date operating margin of 58% and -to-date operating income of $1.75 billion, an increase of 122% compared to operating income in the first half of 2019. -to-date net income for 2020 was $1.36 billion, compared to $623 million for the first half of 2019. Now to guidance. Today we are revising upward our 2020 financial guidance for total CF product revenues to a range of $5.7 to $5.9 billion, which at the midpoint reflects 45% growth over 2019. Our guidance reflects the strong launch of Trikafta to date in the US, the performance of our other CF medicines globally, and the anticipated approval and uptake of CapTrio in Europe, specifically in England, Ireland, Denmark, and Germany. Even with the exceptional midyear results, it's important to reiterate a few of the moderating factors that Stuart mentioned in his remarks. First, the persistence and compliance trends to date for Trikafta are strong, and in fact, they're among the strongest and best we've seen for any of our medicines at this stage of the launch. However, we are still less than a year into the launch, and as such, we expect these metrics to reach a steady state during the second half of the year. Second, as we previously noted, we saw a benefit from patients refilling their Trikafta prescriptions early as the COVID-19 pandemic emerged. This resulted in patients having a higher amount of Trikafta on hand at the end of both the first and second quarters. Our guidance assumes that this increased patient inventory normalizes throughout the second half of 2020. And finally, I would also note that while we have incorporated some incremental European revenues for CapTrio into our revised 2020 revenue guidance, the actual rate and level of uptake that we will see in 2020 in Europe is unpredictable, given the ongoing pandemic and the fact that we are conducting a virtual launch. Our op-ex and tax guidance remains unchanged. I would note that we have recognized some savings on expenses as a result of the COVID-19 pandemic, travel costs, for example. However, we have also actively rebalanced our spending by making incremental investments in certain programs and in technology infrastructure to support both the remote operation of certain clinical trials and -from-home capabilities for our global workforce. With our strong revenue and profitability, we finished the second quarter with $5.5 billion in cash. And as in recent years, our top priority for capital allocation is to reinvest in our own internal R&D engine and to invest in external innovation to accelerate the creation of future medicines for the disease areas in which we are interested. Now back to Reshma for a few concluding remarks.

Thanks, Charlie. The first half of 2020 was a trying period for people, societies, and businesses across the world as we grappled with the widespread impact of the COVID-19 pandemic. As a global business with thousands of employees, Vertex shared in these challenges. Yet despite the significant changes in how we work, interact, and operate our business, Vertex continues to thrive and our people continue to rise to the occasion with courage and determination. As I said earlier this year, the future of Vertex remains brighter than ever. And this remains true today as we enter the second half of the year with continued strong commercial execution, increasing momentum across our pipeline with our Type 1 diabetes program approaching the clinic, and multiple upcoming data readouts in the next 6 to 12 months. And the financial strength to support both internal innovation and business development to discover and develop new medicines for patients and to support our long-term growth. I look forward to updating you as the year progresses. Thank you and we'll now open the call to questions.

Thank you. Ladies and gentlemen, if you have a question at this time, please press star then 1 on your telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Please stand by while we compile the Q&A roster. And our first question comes from the line of Corey Kasimov with JPMorgan.

Hey, good afternoon, guys. Thank you for taking my question. I wanted to ask about the AAT program. Now that the Phase 2 864 study has initiated, are there any key differences between this and the 814 study that's ongoing? On CT.gov, it looks like 864 is 40 patients versus 50 patients for 814. So, I wonder if there's any specific rationale behind that and any other potential differences between the two trials. Thanks a lot.

Yes. Hey, Corey. It's Raishma. In essence, the 814 study, which is a study of about 28 days with a one-month safety follow-up, a few different doses in a placebo group, is similar, if not exactly the same, as our VX864 study. Again, a few different doses of placebo group, 28 days of treatment, and another one month of safety follow-up. You can think of them as very similar.

Okay, great. Thank you.

Thank you. And our next question comes from the line of Salveen Richer with Goldman Sachs.

Good afternoon. Thanks for taking my questions. On guidance for the CF franchise, how are you factoring in the positive PHMP decision with regard to countries coming on board in the second half, and how are you accounting for England? And then with regard to the pipeline, where do you stand with progress of the DMD-DM1G editing program?

Hey, Salveen. This is Raishma. Let me ask Charlie to take the first question about guidance and how we're thinking about PHMP. And of course, there still is a step of European Commission approval. And I'll come back and tackle DMD and DM1.

Charlie? Sure. Thanks. Salveen, as we mentioned on the call, we have factored into our revised guidance an assumption of incremental revenues from approval in Europe. But as Raishma points out, we do not have the approval yet. And so the exact timing of that is not perfectly clear. We also highlighted that it will be a virtual launch of everybody working from home and the potential for the ongoing pandemic to have an impact on the rate of uptake. That said, we feel very good about including it in the guidance. And that is factored into the number we gave today.

And with regard to the DMD and DM1 programs, you'll remember, of course, last year around the summertime, we acquired Exxonix. And that's where we got the DMD and DM1 programs from. And then a few months after that, we acquired SEMA. And that's where we're working on the Type 1 Diabetes program with. With regard to where we are with DMD, we're in late preclinical development. We have had our conversations with the FDA. We understand what they are looking for in terms of preclinical safety and preclinical pharmacology. And we have a very good sense of what the IND package needs to look like. We are working through all of that. And I anticipate in the coming months, we're going to be able to give you further updates. I'll just also let you know that we're thinking very, very diligently and working hard on things like process development and analytical development. You've seen in the landscape that there is a real importance around dose and around getting the analytical development to make sure that you are very clear about what the dose is right. And so we're investing a good amount of our time and effort to make sure that we get all of that right as we make progress towards the clinic.

Great. Thank you.

Thank you. And our next question comes from the line of Phil Nadu with Cowan & Company.

Good afternoon. Thanks for taking my questions and congratulations on the quarter. Just a couple of commercial ones and one brief follow-up on AAT. Commercial in Europe, Stuart, you mentioned that there will be 10,000 patients who will be on label for tricaflavirin approved. Could you give us a sense of how many of those patients will have reimbursement at the time of approval? And then second in the US, can you give us a sense as to the level of inventory that is being held by patients currently?

Sure, Phil. Thanks for the question. So yes, as you mentioned with the label to include the FMF patients, that's about 10,000 patients, up to 10,000 patients across Europe who will be eligible for a CFTR modulator for the first time. Those patients are roughly split, not exactly, but roughly split as per the existing patient populations. And so the largest countries are the UK and Germany. Places like France, Italy, Spain follow that. That's where the vast majority of patients are. And so obviously the agreement in the UK is in England or subsequently in the other devolved nations is excellent because that's the single biggest patient population. Then Germany, obviously, is a country where you get immediate access post the EC approval. Other countries like France, Italy, Spain, et cetera, we will have to begin the reimbursement negotiations there. So that's how that patient population splits out overall. In terms of patient inventory, we didn't see any incremental inventory build on patients in the second quarter. It really was a carryover of the inventory build that patients have made when the pandemic first hit in the first quarter and towards the end of the first quarter here in the US. And so we have not seen a drawdown on that inventory. We did not see an increase in that patient inventory in the second quarter.

That's very helpful. In a brief follow-up to Corey's question on AAT, what's your way of thinking on the next steps once you get the proof of concept data from the first two candidates? Could you move right into a pivotal study or would it be more likely that there will be an interim trial to further flush out the profiles?

I had a little bit of a hard time hearing you, but I think it's about what is the next step once we have proof of concept data for VX814 and can we go into pivotal development after that. So yes, I do anticipate that once we have the proof of concept data and we have a sense for dose and we get a look at the safety in patients with alpha-1 anticoagulant deficiency, we will be moving into pivotal development. Of course, we have two programs, VX814 and VX864. VX814 is in the lead and depending on exactly what the timing of each of those programs are, etc., we're going to have to make some decisions. But yes, I do anticipate after we are at a point of having POC, we would move right into phase three, pivotal development.

That's really helpful. Thank you.

Thank you. And our next question comes from the line of Michael Yee with Jeffreys.

Hi, thank you. Congrats on a great quarter. Two pipeline questions, one on AAT. Obviously everyone is focused on functional AAT. I think we all know that and we look forward to that. Is there anything in your secondary endpoints or any other biomarkers you would look at to help support the overall totality of what's going on? There's outstanding questions around trafficking to the lungs, etc., etc. I think that's an interesting thing if there were any biomarkers to help support what's going on. My second question actually is on 147 for FSGS. You made some great comments, Reshma, and I know you are an expert in renal disease. I guess my question is, are you confident that a strong reduction of proteinuria can happen in a short amount of time or what amount of time do you need based on that mechanism to show that in a phase two? Thank you so much.

Yes, yes. Short thing. Let me parse that into the questions around AATD and then I'll get to FSGS and proteinuria. So on the AATD program, be it for VX814 or for VX864, it is really about looking at the antigenic AAT levels and at the functional serum AAT levels. And if you ask me, well, what exactly are we looking for? What's the breadth of information that we can glean from the proof of concept studies? Besides those two things, the other two that I would point you to is safety. We can't minimize that. This is the first time that this medicine has been put into patients with this disease. And the last part is the PK PD relationship and the relationship between the doses and the achievement of the exposure that we are seeking. So those are really the key elements that we will be able to glean when the study is complete. With regard to FSGS, so, you know, proteinuria is something that we in the renal community have talked about for a long, long time. There have been multiple workshops between nephrologists, academia, regulatory agencies, et cetera, to think about the relationship of proteinuria and outcomes like time to ESRD, as well as all of the questions you must be imagining with regard to onset of proteinuria, the duration of reduction in proteinuria, et cetera. And if I just sort of make a long story short, the reason you see our proof of concept based to study B of 12 weeks duration is that I think it's going to take about that amount of time to start to see a reduction. And that sort of explains the duration of the study.

Yep. Thank you.

Thank you. And our next question comes from the line of Alethea Young with Centaur.

Hey guys, thanks for taking my question and congrats on the quarter. So I just want to talk a little bit about CTX001 and of course there are a lot of medicines now in sickle cell and beta-thal and just how you think about positioning of a potential one and done versus, you know, like the global bloods and the oddiocese and the vortices of the world. Thanks.

Yeah, this is Raishma. What I'll say to that question. I'll feel, you know, I can't tell you how excited I am with the CTX001 program that we're conducting in conjunction with CRISPR therapeutics. This is now a program that has achieved proof of concept in beta-thalassemia, right? We've dosed the first two patients. We've talked about the fact that they have been grafted. We've talked about the hemoglobin levels in these two patients and it's well north of 11 grams per deciliter. The first patient is at 14.2. The second patient is at 12.5 grams per deciliter at five months. The patients are going from the first patient 34 units of blood transfused per year. The second patient 61 units of blood transfused per year to no transfusions in the follow up that we have observed. And while it is still a limited number of patients and a limited duration, patient number one is now out 15 months. So we are really getting out there. We're past that one year point. And we've also shared the data with regard to the first sickle cell patient who's also had hemoglobin F well north of 40 percent and has had no VOCs. So I think that there is a big difference between transforming a disease and treating a disease. There is a big difference between having no VOCs, no transfusions and having to manage some amount of chronic disease. And I think that there is a great importance in having a therapy that is one time and then a person's life is restored. So I see enormous promise in this particular program.

Thank you. And our next question comes from the line of Jeff Neacham

with

Bank of

America. Hey, guys. Thanks so much for the question and congrats. Another good quarter and CF. So I had a commercial question and a pipeline one. Stewart, can you talk about for the quarter, the TriKAPTAS sales, the patients coming from switching versus new HET men patients? And maybe I know maybe you don't get specifics, but how close are you to the 90 percent penetration that you've seen with other CF products? And then for Rachel, I didn't see a lot of detail on the plan for the remaining 10 percent of CF patients. I know you guys are committed to 100 percent, but maybe just remind us of what the status is of the programs, for example, for premature stop, etc.

Thank you. Hey, Jeff Stewart here. So thanks for the question in terms of the source of TriKAPTAS prescriptions. When we say it's the vast majority of patients and it's the vast majority of patients across all segments, we mean just that there really is not very much. Difference between the uptake in those who were naive to a CFTR modulator before TriKAPTAS was approved and those who were on either Kaleidiko or Camby or Cymbiko. So the level of uptake has been pretty, pretty universal. And we are very much at the flat part of the the launch curve that there are still patients who are being initiated. But we are very much at the flat part of the launch curve now, which is why, as Charlie alluded to in talking about the guidance, it really is much more about the trends in persistence and compliance. And for the pipeline question, I'll hand that over to Rachma.

Yeah, you're very right about the commitment to get to all patients. And what I'll tell you is, and just to remind everyone, for the last 10 percent, the underlying pathophysiology and the problem we have is that those patients make no protein, either because of premature or stop codons. They just don't make any protein. And insofar as no protein is made, CFTR modulators cannot be helpful to these patients. So one way or another, a nucleic acid therapy is going to be needed. And we have programs in this area, and I see good progress with our partnership with Moderna in working on an mRNA approach to this last 10 percent. So more to come. The other point that we've made in the past and is worth repeating is there's also an important delivery consideration here. The lung has a very large surface area. And of course, we're talking about trying to get delivery into a lung that has a large surface area, but is also very inflamed and full of mucus. So the delivery problem cannot be underestimated, but we have made good progress with our partners at Moderna. And I am optimistic about our ability to get there for our last 10 percent of patients.

OK, thank you.

Thank you. And our next question comes from the line of Evan Seigerman with Credits Weeks.

Hi, guys. Thank you so much for taking my question and congrats again on another fantastic quarter. So you seem to be pretty cautious about the upcoming potential launch of Ceph Trio in Europe, studying the pandemic. The pandemic is arguably more of an issue here in the US at the moment. So how were you able to overcome some of these commercialization issues domestically? And is there anything you think that you won't have some more traction in Europe? And I understand kind of the ins and outs of the reimbursement of, say, for example, in Germany. Thank you. Hey, Evan.

Thanks for the question. So I think your question you were breaking up a little bit was why are we concerned about the launch trajectory in Europe when the pandemic is kind of more of an issue in the US now? And really, I would say two things. The first one is that you remember we got the approval for like after in October of last year. And as you remember from our our Q4 and Q1 calls, we had seen very, very rapid uptake in the first few months of the post the approval when really the pandemic had not really been as big of a deal here in the US as it already had been in Asia and obviously in Europe. And so we are launching, I think, into a very different situation where the pandemic is still a very, very dynamic issue. And, you know, we're seeing openings and and re lockdowns and things like that. So it is a very different situation, I think, that we are launching into when we get the approval by the European Commission. The second thing that makes it different is that, you know, like most businesses, the vast majority of our employees are working from home. Certainly the commercial organization is all working from home. And so we will be launching this medicine virtually, which is a first for us as a company. The last thing I would say, which is linked to the pandemic is about patients and physicians and their ability to to get together and see each other as a result of the of the pandemic. And so that's a dynamic which we have to take into consideration. And as we said in our prepared remarks, it's just uncertain how all that is going to play out. So I do think the situation we're launching into in Europe is very different to the situation we were fortunate enough to be able to launch into here in the U

.S. All right. Thank you so much

for that. Appreciate it.

Thank you. And our next question comes from the line of Robin Karnoskis with SunTrust.

Thank you so much and congratulations on all the progress in this environment. I just want to ask a little bit about more about European dynamics and what were the lessons you learned just on the launch itself in the United States with Trikafta and basically what could be some positive reads to Kaftrio for the launch in Europe just regarding compliance and uptake. Because I think you just addressed the question around COVID. So it's really more about, you know, do you think that this is more like Kaleidika launch versus Orkambi? And what are some positive reads that we might see when approved? Thank you.

Yeah. Hey, Robin, it's Stuart here. Thanks for the question. In terms of the positives we can take from the U.S. experience, obviously there's many of them because the launch has been such a terrific success. And so I think some of the positives would be obviously there's very high levels of awareness within the CF community of the triple combination regimen and its very positive benefit risk profile. Secondly, that that positive benefit risk profile has played out in real world exactly as we saw it play out in our pivotal and indeed earlier studies that the efficacy is very, very strong and the overall benefit risk profile is really, really positive. So those are definitely positives that resulted in high levels of persistence and compliance. So I think those are all very positive read throughs. The big uncertainty, as I say, is we are launching this into a very, very different situation environment than we were launching back in October of 2019, which in many ways seems a lifetime away, both in terms of the patients and physicians and their ability to get together and our ability to launch in a virtual world is just unproven. So that's clearly very different. We're thrilled to have got a reimbursement agreement in place in England in advance of the approval. That's clearly positive. And one of the positives here in the US is that we got very rapid public and private reimbursement. Obviously, though, there are a number of countries in Europe where we don't yet have reimbursements agreements in place and we're going to have to begin that process. And that process is likely to take a bit longer in Europe than it did here in the US. So there's definitely many positives, but there are a number of things which are going to be different, which leads us to believe that the exact trajectory of the launch is difficult to call. Having said that, I will leave you with this final thought. Just as we have done in the US, we are confident that over time, the vast, vast majority of patients will be initiated on Cap Trio over time.

Thank you.

Thank you. And our next question comes from the line of Mohit Bansal with Citi.

Great. Thanks for taking my question and congratulations from my end as well on the progress. My question is regarding the AAT and functionality. Given that these patients have a mutation, so even when you correct the misfolding, the protein which gets released is still going to be ZAAT. So to that end, do you think it could be an issue and how exactly you are managing the functional AAT levels? Thank you.

Sure. Mohit, this is Reshma. So just to make sure that we're all grounded on the pathophysiology here, when you have Alpha 1 antitrypsin deficiency, when you have that disease, you're right. This is a genetic mutation. It's a mutation of the Serpin A1 gene. And that mutation leads to a misfolded protein. The way our small molecule correctors work is they properly fold that misfolded protein and in doing so, alleviate the congestion in the liver. So that's how the liver part of the disease can be addressed with our approach. And because you have the corrected AAT protein now in the blood, that can go to the lung and do its job, which is to protect the lung from autodigestion. So the small molecule approach allows you to correct both the liver disease and the lung disease. The point that you're raising about how functional is this corrected AAT, people call it the competence of the molecule. And we have assessed that free clinically in our model and the competence is high. And we have assays. You can think of it as an ELISA assay, but we have assays that we can assess the functionality of the protein in neutralizing the neutrophil elastase. And that looks good. So that's the reason we've entered into phase two proof of concept development. And that's why in phase two, we are measuring not only antigenic level, but also functional level. So we all have a direct readout.

Great. Thank you very much.

Thank you. Our next question comes from the line of Jeffrey Porges with SVB Lierink.

Thank you very much. Stuart, I just want to follow up on the agreement that you have in place in England. Could you first give us a sense of what proportion of the 10,000 patients that you mentioned, the incremental patient numbers are in England? And secondly, in that agreement, is it similar to the Irish agreement with a cap on the total potential spend for the government, the NHS in England? Or is it purely volume dependent? Thanks.

Yeah, Jeff, thanks for the question. So yeah, the agreement in England, obviously we're thrilled to have reached that agreement. The ratio of patients in the UK that are FMF is roughly the same as you would see for the other mutations. And so you can broadly think that it's proportional to the population size of the UK versus others when you look at the CF population. In terms of the exact terms of the agreement, I can't talk about the exact terms of the agreement. It is similar to others that it does include access to our existing medications, including Captreo, once approved. And additional indications for those approved medicines. So that would include going down into the age groups. And it does include a cap on total expenditure to give some certainty to the UK government and in this case NHS England specifically.

Thank you.

Thank you. And our next question comes from the line of Gina Wang with Barclays.

Thank you for taking my questions and also would like to add my congratulations on a very strong quarter. So I have two questions. The first one is regarding the revenue, quarter revenue. If assuming no refueling that would translate to roughly 12,000 patients. So my question is, you know, can you share the percentage of the patient that was refueled and also what is the discontinuation rate? And a second question is regarding the beta-phalassemia sickle cell. What would be your plan for registration trial? Specifically, what you could learn from Bluebird's experience?

Gina, I'm not sure I entirely heard all of your questions. I think you were asking about the percentage of patients that are on the medicine and have stayed on the medicine, if I'm hearing you right. So it's more

the refill rate. So you know, the perception. Yes, the refill rate.

Yeah, persistence rate. So yeah, there's there's approximately 18,000 patients in the U.S. who were eligible for Trikafta on its approval with the very broad FNE label. Of those, the vast majority of those have initiated therapy and the persistence rates, as we call it, the number of patients who stayed on the medicine, i.e. the opposite of those that discontinued, the persistence rates are very, very high. Some of the highest we've seen for any of our medicines at this time in the launch. So whilst we're not getting into the exact specifics of what that is, you can imagine that they are they are very, very high. Obviously, the discontinuation rate only increases over time, right? There aren't it doesn't go the other way, but it's very, very high. And I think that's not surprising given the benefit risk profile we saw of this medicine in our pivotal trial. And on fetus out on sickle cell, the question there, I'll hand that over to Reshma.

Gina, with regard to the beta-sal and sickle trial, and what do we need to show in terms of the phase three pivotal trials? I think the trials that you see that we designed are right for the job in terms of the endpoints. I think very clearly in beta-sal, alkenia, transfusion, independence is key and in sickle cell, it's all about the reduction of VOCs. Obviously, both metrics on which CTS-001 has performed very well. Early stages, few patients, all of those caveats. But I think that the studies that we've designed are the right ones. And I think those are the endpoints to watch.

Thank

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

Great. Good afternoon. Thanks for taking the questions. I guess two for me. One, Stuart, can you just comment on the residual patients on Ndeco and or Cambia? I guess the second question is just related to AAT. I was hoping you could comment on if you think the phase three program or the regulatory strategy would look different if you observed carrier levels of the protein versus a level similar to what replacement therapy has.

Thank you. Yeah, Matt, thanks for the question. So the vast majority of patients who are on or can be Cindeco or Kaleidico who are eligible for Trikafta, just as for the other patient groups, are transitioning or have transitioned to Trikafta. So what you see in the performance of the business is that the patients who are remaining on that are either those who are less than 12, so the younger age groups where we continue to expand our indications there. And so we continue to initiate new patients here in the U.S. And AAT, I think that will be a racial one. Thanks,

Stuart. All right. On the question of AAT and what are we thinking about in terms of our phase three plan? Let me just take one step back and just link what we're doing in phase two to phase three and give you a sense of how that strings together. So in phase two, we're obviously looking at safety and we're looking at the functional AAT levels and the serum antigenic AAT levels. And what we're trying to do there is to get the best estimation of dose, right? We are studying a number of different doses versus placebo. We're going to evaluate the dose exposure relationship and select the right dose. Assuming that we are in a position to move forward to phase three based on these phase two results, which obviously we haven't seen, but assuming that that is the next step, what we're going to do in phase three is evaluate a few different measures. And as I said before, we haven't had our meeting with the FDA yet. We haven't had that end of phase two meeting. So this is a conceptual framework, but obviously we need to go through those meetings and come out the other end with an agreement with the agency. The framework would be that we would indeed be looking at antigenic levels. We would be looking at serum functional levels. We are planning to have an assessment of clearance of the liver from these polymers. And remember, again, with the small molecule approach, we have this opportunity to treat both the liver and the lung. So we plan to do that. And we are going to have that be a package. We need to go through the discussions with the agency. We need to confirm that that package would be acceptable. And as I said a number of times previously, the the companies that make augmentation therapy, about five of them have gotten their approvals in the U.S. based on levels of AAT. And so we need to go through that separately. We are very interested in and I'm sure others might be interested in understanding the impact of our small molecule correctors on lung function measured by imaging or something like a primary function test. And those are all considerations that we continue to talk and think about. But the framework for our package really is functional AAT levels, antigenic AAT levels, and the clearance of the polymers from the liver.

Operator, this is Michael. We have just a few minutes left. We'll take two more questions.

Certainly. Our next question comes from the line of Brian Abrams with RBC Capital Markets.

Hi there. Thank you for taking my questions and my congratulations as well on the quarter. A couple on AAT also. You talk about the importance of smoother AAT or functional AAT levels that a corrector like 814 could confer versus a high peak to trough from an exogenous augmentation. And really the ways to assess the potential benefits of this. And then, you know, thinking longer term, you laid out sort of the schematic for what a pivotal could look like. I'm also curious your level of interest in exploring combinations with complementary mechanisms, either internally or externally to potentially optimize outcomes. Have you done preclinical work along those lines and where might heterozygous patient populations fit into the future development plan? Thanks.

OK, there's a lot packed into that question, but let me maybe try to tackle a little bit about where we are in terms of how we think about augmentation therapy or exogenous. What is basically protein replacement versus our approach with a small molecule? A couple of what I think are basic, but it's often hard to keep all of these things in mind and it's important. So let me start there. One critical element to point out with regard to exogenous augmentation therapy is that the only effect it could have is on the lung. And the reason I say that is because exogenous therapy is doing nothing for the production of misfolded protein, which gets stuck in the liver, if you will. And that is what causes fibrosis and could lead to cirrhosis. So one big concept about exogenous therapy that the only possible organ that it could help is the lung. Very different than the small molecule approach. The second is you raise a good point around the PK and the peak to trough. The way augmentation therapy works is you go to a center and once a week you get an infusion of this protein therapeutics. And during the course of that week, you have the augmentation that you receive. Let's say you went to the center on a Friday. So from Friday to Friday, what you have is what you received. And in that intervening period, you don't have any more AAT. This is very important because in you and me, in people who don't have Alpha 1 antitrypsin deficiency, what happens is that AAT production changes in accordance to what your body needs. So for example, in times of stress, inflammation, infection, your body produces multiple more AAT in order to have the AAT medicine do its job, which is the need to prevent auto digestion. None of that can happen when you go into center for once a week therapy. So there are many other differences we could talk about, but maybe the three for today is that the small molecule approach allows you to treat both lung and liver. It has this ability to change depending on what the needs of the body are. You can think of it as being under control of its own promoter. And the third point is around the fact that the augmentation therapy is just those once a week and it has its decay over that week. And that is not how AAT works in the body. I hope that helps.

Thanks so much. Thank you. Our last question comes from the line of Paul Matias

with

Stiefel.

Great. Thanks so much for fitting me in. I'll continue the trend with two AAT questions. One, I was curious, based on genetic data or natural history data, what range of AAT production do you think you'd need to increase a ZZ mutant patient to in order to clinically de-rest the nest study? And then second, I was wondering if you could just comment now that you're going to phase two with A6-4, some of the product differences as it relates to pharmacokinetics and potency. And I guess, you know, are you confident that that is a molecule that should be should be materially more potent? Thanks so much.

Okay, we'll, we've had a lot of AAT questions, so I guess it's fitting for our last question to be about AAT. You know, I think the question behind your question is, what are we really looking for in phase two? And a little bit of that is around what levels are we looking at and how does 814 compare to A6-4, right? So let me just tell you what we're really looking for in terms of the proof of concept study. Remember that this is a molecule and this is a target that we have not studied before. No one has done what we're doing. We are the first ones there and we are going to learn about the translation to patients with AATD with this trial. When we were doing CF, we'd obviously already gone through the translation from the bench to the bedside with Kalydeco and Orkambi and SIM by the time TriCAPTA came along. And now this is like our translation to AATD to Kalydeco. So here's what we're looking for from that proof of concept study. First, safety. Second, we're looking for the relationship between PKAPD and dose and exposure to ensure that we get to the exposure levels that we need to get to. And third, I'm looking for a movement upward in AAT level, both antigenic and in functional AAT levels. Because what that will tell us is that we have met proof of concept. We have put the drug into patients with this disease and what we see is good safety, exposure that we're looking for and movement up. Then we know, once we know we've cracked the biology and I'm not saying it's easy, but between cracking the biology and pouring on the chemistry, pouring on the chemistry is easier. And so once we have that proof of concept, then we can think about taking those next steps. So that's what I'm really looking for from that phase two study.

Okay. Thank you all for joining us. We appreciate you tuning in. The investor relations team is available tonight if you have additional questions. Stay safe and have a good evening.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you can now disconnect.