Vertex Pharmaceuticals Incorporated

Good evening. Welcome to the Vertex Third 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 Kewalramani, Vertex's CEO and President, Stuart Arbuckle, Chief Commercial Officer, and Charlie Wagner, Chief Financial Officer. Dr. David Altshuler, Chief Scientific Officer, will join the Q&A portion of the call following the prepared remarks. 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 our filings with the Securities and Exchange Commission. These statements, including, without limitation, those regarding Vertex's market at 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 select financial results and guidance we will review on the call this evening are non-GAAP. I will now turn the call over to Dr. Reshma Kewalramani.

Thanks, Michael. I'll begin tonight with a few general comments across the business and then provide details on our R&D programs before turning it over to Stuart for a review of the commercial performance. First, starting with CF. 2020 continues to be a remarkable year for our growing CF business. Our performance through the third quarter was driven by the strong Trikafta launch in the U.S., and we are building on that progress as we launch Captrio, as the triple combination is known in Europe. Based on our year-to-date performance, we are again revising upward our 2020 product revenue guidance to $6 to $6.2 billion. There are two important aspects that characterize our outlook in CF, and I want to be sure to provide a perspective on both. The first is growth, which has been exceptional. 2020 is poised to deliver more than 50% growth in revenue over 2019, and we see significant top and bottom line growth beyond 2020, driven by three factors, expansion of the triple combination geographically, expansion of our medicines to lower age groups, and additional mutations, as well as the development of a treatment for the last 10% of CF patients who cannot benefit from CFTR modulators. There's two ways to think about this growth. Near term, even for the CF population who are currently eligible and reimbursed for our medicines, there are many patients who have yet to begin treatment. And beyond that, there are at least 20,000 more who we anticipate will become eligible through label, geographic, and reimbursement expansions. Stuart will go into more details on these growth drivers in a moment. The other aspect of our business I want to address is leadership. We have a strong leadership position in cystic fibrosis, and we believe this will last a very long time, into at least the late 2030s as a base case, when considering the high bar set by the significant benefit of Trikafta to patients and the patent coverage for this regimen. Turning to the pipeline. Our pipeline reflects a deliberate strategy of investing in serial innovation, both internally and externally, to develop first in class or best in class treatments for serious diseases. The diseases we pursue are selected based on the understanding of causal human biology, target validation, and biomarkers with high fidelity from bench to bedside. Once we begin working on a disease, we are relentless in our pursuit of a transformative therapy. Because drug development is an inherently high risk endeavor, we strive to increase our chances of success by advancing a portfolio of drug candidates for each disease so that we can bring the very best one to market. This strategy is working exactly as expected, and it is the reason for our success in CF. And this is exactly the same approach we are applying to every pipeline program. With this strategy, Vertex has advanced a broad and deep portfolio with first-in-class programs in the clinic in five different disease areas outside of CF. The programs in sickle cell disease, beta thalassemia, FSGS, and alpha-1 antitrypsin deficiency are already in patients, and the type 1 diabetes program is projected to be in patients next year. A number of these programs have the potential to read out important proof-of-concept data between now and the end of 21. Individually, each represents a potentially transformative treatment for a serious disease, and collectively, they represent a very large opportunity. Some compounds will inevitably fail, and some programs will not fulfill their early potential. In terms of the Vertex portfolio, not all of the molecules will succeed, and not all of them have to. Even if two or three of the programs succeed, and we firmly believe that they will, The return on investment for the innovations that emerge will create exceptional outcomes for patients and drive exceptional returns for our shareholders. That is our R&D and corporate strategy. Lastly, a few words about the AATD program. This program is an example of our portfolio approach at work. The recent discontinuation of VX814 is disappointing. but it is neither unusual nor extraordinary to have a clinical program discontinued in early or mid-stage development. This is a potential for any molecule, and it is anticipated in our overall strategy, hence our portfolio approach. That is to say, the advancement of multiple molecules in parallel through research and into early clinical development. Our enthusiasm for the AATD program is not diminished. and it does not change how we think about VX864 or our follow-on molecules. Let me now turn to reviewing some of our R&D programs in more detail and highlight some specific upcoming pipeline events. Starting with CF, we have completed the study of Trikafta in patients 6 to 11 years of age and are on track for filing this quarter with a potential approval in 2021. The Phase III study in Trikafta for 2- to 5-year-olds is also now underway. And lastly, we continue our efforts in nucleic acid therapies to bring forward a treatment to the last 10% of CF patients who do not make any CFTR protein and hence cannot be served by CFTR modulators. On this front, I'm pleased with our second collaboration with Moderna and the preclinical progress using mRNA to serve the last 10% of CF patients. Moving to AATD. The Phase II study of VX864 is ongoing and continues to enroll in dose patients. This Phase II study is a dose-ranging proof-of-concept study in approximately 40 people with AATD. The duration of treatment is 28 days, followed by 28 days of safety follow-up. We expect to see results from this program in the first half of 2021. We're also advancing additional small molecule correctors through preclinical development with a goal of at least one new corrector entering the clinic next year. Next, the CTX001 program. Our gene editing program in transfusion-dependent beta thalassemia and sickle cell disease is gaining momentum. As you will recall, data at the EHA conference in June included the results for two patients in the beta thalassemia study, which provided clinical proof of concept for CRISPR-Cas9 ex vivo gene editing in this disease. Results were also presented for one patient with sickle cell disease. Also in the summer, we updated you on enrollment and dosing progress, noting that a total of seven patients had been treated with CTX001, and all had successfully engrafted. Since then, we have enrolled and dosed additional patients across both studies. Given the progress across these trials, we look forward to reporting additional clinical data including more patients and longer durations of follow-up by the end of this year. With regard to the APOL1-mediated FSGS program, enrollment is ongoing in our Phase II proof-of-concept study of VX147, evaluating the safety, pharmacokinetics, and reduction in proteinuria over 13 weeks. We expect to obtain initial data from this study in 21. And with our cell therapy for type 1 diabetes, We have completed the required IND-enabling studies and manufacturing work, which were key priorities in the first half of the year, and we are on track to submit an IND application to the FDA before the end of this year. We expect the first study to focus on islet cells alone, and I am optimistic about the progress we're making. This program is important in so many ways, including the number of patients who are living with this disease and the approach. which holds the potential to truly transform this condition. In summary, we've made strong progress across the business in Q3, and we are well positioned for continued growth in CF and continued advancement of our portfolio of small molecules, cell, and genetic therapies across multiple different disease areas. And now, over to Stuart.

Thank you, Reshma. I am pleased to review with you this evening our continued strong commercial performance. It is amazing to think that Trikafta was first approved in the U.S. just a little over a year ago. The response to the product has been incredibly positive. Payers recognized the value of the medicine and provided almost immediate access for eligible patients. The CF community enthusiastically welcomed the approval and CF centers have worked tirelessly to initiate treatment for patients even during the disruption caused by the COVID-19 pandemic. As a result, today, the vast majority of eligible patients in the US are now being treated with Trikafta. Total CF product revenues for the third quarter were $1.54 billion, reflecting this impressive uptake in the US. We continue to observe that patients are maintaining the relatively high levels of personal inventory that they built up at the beginning of the pandemic. Moving forward, we are focused on maintaining the high rates of patient persistence and compliance that have been important factors contributing to our revenue performance in the year to date. In late August, we were delighted to receive an earlier than expected approval for CAF TRIO in Europe. We have begun to execute what is our first fully remote launch. Despite the challenges posed by COVID-19, which continues to surge in Europe, our team has enabled patients to access CAF TRIO in multiple countries. Germany, which provides immediate access to new medicines, and other countries where we secured reimbursement for the triple combination ahead of approval, including England, Ireland, Scotland, Wales, and Denmark. We are also working to secure reimbursement and access for all eligible patients in countries where we don't yet have agreements in place. As in the U.S., enthusiasm in the CF community is high. And over time, we expect the vast majority of patients will be treated. We expect the impact of the CAF TRIO launch to become a significant driver of growth starting in the fourth quarter. All of these factors and their potential impact on results for the fourth quarter and full year of 2020 are reflected in our revised revenue guidance, which Charlie will review in more detail. I am pleased by the progress we've made in bringing our medicines to patients to date. Our teams are working hard to ensure that we are able to reach all eligible patients with CF as quickly as possible after regulatory approval, and we expect to see continued revenue growth in CF beyond 2020. Our goal remains, as it has always been, to treat the 90% of all CF patients who might benefit with our CFDR modulators. While we have made great progress towards this goal, our job is far from done. Today, there are still many patients who, although they are eligible and have reimbursement and access to our medicines, have yet to start treatment. These patients are primarily in Europe, and our teams are working toward treating all of these patients. As we think about our CF business heading into 2021 and beyond, there are more than 20,000 patients who we believe will become eligible for our medicines as we achieve additional regulatory approvals and secure future reimbursement agreements. The key expected drivers for our near and long-term growth in CF include, first, reaching reimbursement agreements for CAF TRIO in additional countries in the EU. Next, regulatory and reimbursement approvals for the triple combination in additional geographies, such as Australia. Third, regulatory approval and reimbursement of the triple combination in children ages 6 to 11. And finally, continued label expansions and reimbursement in younger age groups, and additional mutations for our portfolio of CF medicines. We remain steadfast in our belief that we will be able to treat 90% of all CF patients with our CFTR modulators in the years to come, and we look forward to continuing to update you on our progress. I am very grateful to the CF teams at Vertex in both the U.S. and internationally for who have delivered tremendous results during these challenging times, all in service of our shared dedication to patients living with this life-shortening disease. It is because of this commitment to delivering for our patients that I have high confidence in our ability to reach all eligible patients with our CFTR modulators. Finally, I would like to thank once again the CF community for their commitment to collaborating with us to reach our shared goals. Charlie will now review our third quarter results and financial guidance. Thanks, Stuart.

In the third quarter of 2020, we continued our exceptional financial performance headlined by the strong results with Trikafta in the U.S. Third quarter total product revenues were $1.54 billion, a 62% increase compared to 2019, bringing our year-to-date revenues to $4.58 billion. Our third quarter revenues included $1.22 billion in the U.S. and $314 million in revenues outside the U.S. Revenues from outside the U.S. in the third quarter grew 31% over the prior year, driven by continued uptake of our medicines following the completion of several reimbursement agreements late last year. And as Stuart mentioned, Captrio launched late in the third quarter, so we expect to see increased contribution to international revenues in the fourth quarter and beyond. Our third quarter 2020 combined R&D and SG&A expenses were $497 million, compared to $416 million for the third quarter of 2019, bringing our year-to-date expenses to $1.44 billion. Our expenses in 2020 reflect increased costs to support the rapid global expansion of our CF business, as well as targeted investment in the expansion of our pipeline into new disease areas and the progression of several important clinical programs. The significant continued growth in revenues combined with more moderate growth in spending resulted in year-to-date operating margin of 57% and year-to-date operating income of $2.6 billion, an increase of 118% compared to operating income in the first three quarters of 2019. Year-to-date net income for 2020 was $2.06 billion compared to $945 million in the first three quarters of 2019. With our strong revenue and profitability, we finished the second quarter with $6.2 billion in cash. Consistent with our corporate strategy, our top priority for capital deployment is to reinvest in innovation, both in our internal R&D engine and in external innovation aligned with our R&D strategy, to accelerate the development of transformative medicines for serious diseases. In summary, Vertex's exceptional financial performance represents an attractive combination of growth, profitability, and scale that is unique among large-cap biotech. Now to guidance. Today we are pleased to once again revise upward our 2020 financial guidance for total product revenues to a range of $6.0 to $6.2 billion which at the midpoint reflects 52% growth over 2019. This revised guidance primarily reflects the ongoing and impressive performance of Trikafta in the U.S., our current view of persistence and compliance trends, and the impact of the Kaftrio launch on fourth quarter revenue. For non-GAAP OPEX, we are maintaining our guidance of $1.95 to $2 billion, with the vast majority of the year-over-year increase concentrated in R&D. With the expansion and progression of our pipeline in 2020, we are poised to generate important clinical data and results across our programs in coming quarters. The progress of these programs will be the primary driver of further investments in 2021, as well as investments in critical technologies and capabilities. For example, we expect our vertex cell and genetic therapies efforts to remain a priority as programs enter the clinic and advance further in clinical development. This includes investments in our ongoing CTX-001 Phase 1-2 program and our Type 1 diabetes program, which we expect to move into patients as we initiate a Phase 1-2 study next year. Lastly, due to changes in the utilization of certain tax assets, we are revising our 2020 full-year non-GAAP tax rate guidance to a range of 20% to 21%. I would note that the benefits that lower our 2020 tax rate are not expected to repeat, So our non-GAAP tax rate is expected to remain at 21% to 22% in subsequent years. Now back to Reshma for a few concluding remarks.

As we head into 2021, I'm very pleased with both the achieved and potential growth of the CF franchise and the breadth of our pipeline. Our strategy of investing in internal and external innovation is working with more CF patients becoming eligible and receiving treatment. with CFTR modulators and our portfolio of first in class and best in class therapies advancing, providing additional confidence for our long-term growth. I want to make a point of recognizing the progress of our R&D teams, especially in diseases outside of CF, with a broad pipeline of potentially transformative programs. Throughout our history, we have built this differentiated pipeline now extending to five diseases already in the clinic outside of CF by investing in game-changing science, research, and development. With continued internal innovation in our labs, as well as external innovation through business development, such as partnerships with CRISPR Therapeutics and our acquisitions of SEMA and Exonix, we are on track to deliver multiple programs into the clinic, and multiple proof-of-concept readouts in the coming year. This proven R&D and business development strategy of investing in transformative science and medicines internally and externally is core to our current success, and it will continue to be so as we move forward into 2021 and beyond. I look forward to updating you on the progress across the business and the multiple R&D programs in the clinic in the coming months. Thank you, and we'll now open the call up to questions.

Certainly. Ladies and gentlemen, if you have a question at this time, please press star then 1 on your touchtone telephone. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Phil Nadu from Cowan & Company. Your question, please.

It sounds like, based on our conversations over the last week, investors are really trying to figure out whether the issues with 814 are mechanism-based or molecule-specific, and therefore, how optimistic should we be about 864? So I'm curious, how do you think about that particular question? And in particular, were there any differences in bioavailability in the healthy volunteer studies between the two molecules? or anything from the preclinical studies that you can point to that would suggest 864 won't have the same issues with LFT elevations that 814 did. Thanks.

Hey, Phil, this is Reshma. Let me start with that question, and I'm going to ask David Altshuler, who's with us, to comment further. You're asking a really important question about whether the findings with 814 should be considered molecule-specific or should be considered on mechanism. And there's another question in there about how different is 864 from 814. So let me just tell you where we are, and then I'll ask David to give you some color. From all of the data that we have and our understanding, I have no reason to believe that this is on mechanism. I believe that this is molecule-specific idiosyncratic to VX814. and 864 and 814 are different chemical entities. And I'm going to ask David to give you a little bit more color on mechanism versus 814, and then tell you specifically a few differences between these molecules, which are clearly different molecular structures. David?

Thank you, Reshma. Thanks for the question, Phil. First, with regard to... whether or not these are on mechanism or idiosyncratic findings in 814. Although we don't know, and of course we can't know for sure, we see no reason to conclude that the LFT findings are on mechanism. There's really two lines of logic there that we think are most convincing. The first is that it is very common to have LFT abnormalities as a cause of programs stopping in early development, and these are typically chemical-based, not mechanism-based. The second is that with regard to a specific interaction of our mechanism and hepatotoxicity, I'll just note that we have done multiple studies in mouse models that carry the human ZAAT gene, where the polymers are seen and liver histology and injury happens. And in those models, when we treat with our small molecules, not only do we see no evidence whatsoever of hepatotoxicity, we actually see improvements. in liver histology. And so common things being common and the specific chemical nature of most LFT abnormalities combined with the mouse data makes us think that it's premature to conclude that it's mechanism-based and we certainly look forward to the 864 data. Finally, just to close, you asked about 864 and 814. They're chemically different molecules. They have different structures. 864 is multifold more potent than 814 and does have different physical properties. and metabolism, and these really represent two different opportunities to treat the disease. And just to close, in our CF experience, we put multiple next-gen correctors into the clinic. We saw that different molecules, even in the same class, have quite different properties, and so that actually underlies our portfolio strategy.

That's very helpful. Thank you.

Thank you. Our next question comes from the line of Salveen Richter from Goldman Sachs. Your question, please.

Good afternoon. On the AAT program, can you speak to your third-generation compounds and how you might be able to optimize them on the forward? And I have a second question. Thank you.

Salveen, I think you were asking about the generation of compounds coming behind VX864 for AATD. And I'm going to ask David to make some comments. The one thing I'd like to say is, as I said in my prepared remarks, once we have a disease in our sandbox, we are absolutely relentless about pursuing a transformative therapy. And in the case of AATD, but honestly across our entire pipeline, our approach is defined by this idea of bringing multiple molecules in parallel forward and up through early development, and that's exactly what's happening in AATD. David, do you have any points that you want to make about the next generation of molecules?

Just that we've been working for some time, as we always do, to have multiple scaffolds to get improvements in potency and properties and all of the features you would look for, and we're excited to move forward molecules that are in late preclinical development that would have differentiated and improved features.

And then secondly, can you just speak to your business development strategy on the forward and if this initial setback has changed this outlook as well as, you know, maybe commenting here on your mRNA and CRISPR-Cas9 programs and kind of where they stand in terms of moving into the clinic?

Yeah, sure thing. So, I mean, let me take that. This is Reshmaa. You know, we have had a long interest in business development. We have this fundamental belief in investing in innovation, be it internal or external. Last year, you know, we did over $1.5 billion worth of business development activities. And that interest remains. Our desire to have business development be one and the same in terms of strategic approach with internal R&D, that remains. And very specifically, our three pillars of interest, that remains exactly the same. That is to say, we are interested in CF, particularly in technologies that could help us with the last 10%. We continue to be very interested in tools, like we did deals with Affinia and Moderna and Arbor and others. And we're very interested equally in assets that could tackle diseases that are in our sandbox. Now, the one thing that has changed, I think pretty obviously, is our growing financial strength. And we certainly have the capacity to do more deals or bigger deals. And from that perspective, what we are really focused on is our strategy. And we're prepared to use our balance sheet for business development opportunities that fit within this very disciplined strategy that I've laid out. I'll quickly get through to our mRNA. I think you must be asking about the collaboration with Moderna. I'm pleased with the way our teams in San Diego and Moderna are working together on the CF Last 10% program. And with CRISPR-Cas9, that program is in partnership with CRISPR Therapeutics. As you heard in the prepared remarks, since the summer and since EHA, we've enrolled more patients. We've dosed more patients. Those early results were very impressive to us. Two patients in beta thalassemia and one in sickle cell that we presented over the summer. And for sure, those are small numbers of patients. But it is really a functional cure for those patients. And we're very much looking forward to the results that we intend to share before the end of the year with more patients being treated and longer duration of follow-up.

Thank you.

Thank you. Our next question comes from the line of Jeff Meacham from Bank of America. Your question, please.

Question. I just have a couple. One, Stuart, with COVID accelerating in Europe and countries going into full quarantine, the question is, what, if any, are there tweaks to the launch plan? And the second question, Rachel, I thought the stock reaction after the AAT setback was a bit overdone, but it is implying that there's not a lot of investor confidence in the portfolio behind CF. So to answer put an emphasis on Salveen's question. Is there urgency to move the pipeline to mid or late stage through larger scale BD? The pipeline is broad. It just seems like it's early. It won't catch up in time for when CFs potentially starts to moderate growth-wise.

Yeah, thanks for the question. Let me ask Stuart to go first, and then I'll come back for the second part of your question.

Yeah, Jeff, thanks for the question. So, Obviously, the reaction from the community to CAF TRIO in Europe has been high, exactly as we saw here in the U.S., and we fully expect over time that we will treat the vast majority of eligible patients. The real question is, how quickly are we going to get to that destination? And obviously, there are a number of factors that are important there, but clearly one is the ongoing and rapidly increasing changing pandemic. In terms of changing our launch planning, which I think was your question, it really hasn't changed our launch planning at all. We had been planning since March for a fully virtual launch, and that's what we are executing right now. Obviously, that causes some uncertainty. The pandemic leads to uncertainty about how easy it will be for patients and physicians to interact. So that's why it's certainly uncertain as to how quickly we will get to that kind of peak uptake. The early trends are, I have to say, very encouraging. Obviously, in this quarter, we were just a few short weeks into the launch, but the early trends are encouraging. And as I say, we expect to get to the vast majority of them over time. The real question is just how quickly we get there.

And about your question for the pipeline, including business development, and I think if I just stand back and reflect, I think you're really talking about how do I see growth in the coming years, the next decade. Let me parse that out into two parts. We have to be very careful about making sure that we don't forget about CF. So where we are in CF, as you heard Stuart talk about, we are at a place where we have Tricaptor, Captrio, which can serve up to 90% of patients. But that is not all today. It means that there are some patients in some geographies where there's regulatory approval and reimbursement, but we haven't yet gotten to those patients. And then, of course, there's the 20,000-plus patients that we are going to get to with future approvals and reimbursements. And then there's the last 10%. of our CF patients, so that is multiple years of getting to more and more patients, and by treating more and more CF patients, more growth for the company. Then let's go very specifically to the non-CF pipeline, and I wanna make sure I take a minute to really go through this. The non-CF pipeline today, this is not in the future, this is not one year from now, it's not even a few months from now, today. The pipeline is already in phase two. So it's in proof of concept stage in five disease areas. And let me just make sure I take another minute and just underline a few important points. In the CRISPR-CTX001 program, beta thalassemia, we shared clinical proof of concept results in beta thalassemia over the summer timeframe. We anticipate proof of concept results for sickle cell disease by the end of this year when we share the data from the patients who are currently going through their treatment. That's two. AATD, and this one's really important. You'll remember that 814 and 864 were, let's say, six months apart, something like that. It's certainly months apart, not years apart. And while disappointing, our strategy fully contemplates that molecules and programs may not succeed. And that's why 864 was already in the clinic, already in Phase 2, and we do expect those results in the first half of 2021. Moving on then to FSGF, that's also in Phase 2. And then just to go a little bit more into the pipeline, The type 1 diabetes program, that IND is going to go in by the end of this year, which means that's going to be in patients now. That means in patients, not in healthy volunteers, but in a phase 2 in patients in 2021. So I think when you really carefully look at the pipeline and you stand back and say, where are we really? I think we're in a really good place. Five disease areas already in the clinic. with more coming through up in the pipeline and much to look forward to even in the last few months of this calendar year. And what I mean by that is the 6 to 11 in CF, that application going in, the CRISPR data coming out, and the IND for type 1 diabetes. I hope that helps.

Yeah, very much. Thanks, Reshma.

Yeah, yeah.

Thank you. Our next question comes from the line of Paul Mateus from Stifel. Your question, please.

Thank you so much for taking my questions. One AAT and one commercial, if you don't mind. On AAT, in the 814 press release, you mentioned that analysis of the PK data from the study indicated exposure levels were low. Were you implying that they were lower than seen in healthy volunteers? And if so... what would you kind of make about that? Could that have anything to do with the fact that these AAT patients may have livers that operate differently? And then commercially, just one question on ex-U.S. price. I know you're not going to disclose granular details, but as you think about price of Trikafta or the SSS out of the U.S. in year one, with the country mix you're launching in initially, how might that compare to kind of the long-term price that you're anticipating? Thanks so much.

Paul, let me take the first part of your question first, and then I'll ask Stuart to comment on XUS pricing. So with regard to 814, that study is obviously an incomplete study. What that means is that we don't have all of the patients in all of the dose groups completing the full treatment period, and we're in the process of closing out that study and bringing all that data in. From the data that we did have access to, what we see is that the exposure across the dose range is lower than the target exposure that we were looking for. And the target exposure that we are looking for is the range at which we expect, let's call it therapeutic elevations of AAT levels to have occurred. Now, when we think about, well, gosh, why is there low PK? There's a standard list of things one thinks about, and yes, you're right that healthy volunteers are different than disease patients in the fact that one's healthy and one has the disease, but there are actually a number of other fairly obvious but nonetheless differences. Differences in age, differences in gender, diet, concomitant medicines, formulations, etc., So those are the kinds of things we think about, and absolutely, as we bring in all this data, we're certainly going to evaluate all of that. I think the important point, though, is that H6-4 is the medicine that's in Phase II, and we're looking forward to the H6-4 study to give us a full view of this pathway and this mechanism. You asked a question in there before I turn it over to Stuart about livers. You know, there's about 100,000 people in the U.S. who have AATD, and we have no evidence that they react differently to oral medicine. So I don't have any evidence of that. Stuart, over to you for the question about pricing in Europe.

Yes. So, Paul, I think it's important to think about the two types of countries that we are able to get the medicine to immediately. So the first one is countries like Germany, which provide immediate access. And there, because of the structure of the German market, you get immediate access for patients at the list price whilst you negotiate a price over the next 12 months. Whereas in contrast, countries like the UK, Ireland, Denmark, where we negotiated prior to the approval the negotiated price for CAF TRIO there, we are essentially selling at our final price, as it were. So moving forward, we're going to be entering more and more markets where we have negotiated prices. Your question was, you know, how will the negotiated price compare? You know, really hard to say because we haven't finalized those negotiations. But in general, I'm expecting our negotiated prices to be as they are for our other medicines in a pretty narrow range across Europe because we know that the products provide the same value and benefit to patients no matter what country they're in.

Thanks so much. That was very helpful.

Thank you. Our next question comes from the line of Alethea Young from Cantor. Your question, please.

Thank you for taking my question. And I just wanted to kind of ask another one around AAT. Can you talk about some of the scientific work that you've done to kind of address when you were formulating these molecules, kind of the efficiency that's going to be needed to kind of clear the large amount of AAT created? I know you've been very thoughtful about that, so just wanted to get some more detail on that. Thanks.

Yeah, sure. Thanks. I'm going to ask David to give you some color of how we think about this molecule. I think what you're really getting to, Althea, is that the – the AAT as a protein is an abundant protein. And I'll ask David to give you some of our insights. Obviously, we're not going to give you the answer to this question because it's a non-obvious insight that our scientists had. But David, we'll give you some follow-up.

Sure. No, thank you for the question. You know, one of the reasons we've been excited and remain very excited about this program is because it's the only approach that has the potential to address both the lung disease and the liver disease in this important condition. And the key thing to the question you're asking and why the solution is so promising is because although there is a lot of AAT made, one molecule of the drug can refold or appropriately fold, I should say, more than one molecule of AAT. So it's really not a concern that we have based on all the experiments we've done in molecules and cells and animals. about whether or not one molecule can do. And it just underscores our commitment to beyond 814 and obviously being very excited about 864, also other molecules, because this mechanism has so much problem.

Thank you. Our next question comes from the line of Michael Yee from Jeffery. Just your question, please.

Great, thanks. Two-part question around AAT. I guess you can see from some of the questioning that maybe there is a hypothesis that some of it might be mechanism-based either because it's specifically a liver-targeted drug and you're actually trying to bind aggregates in the liver. So I guess my question is, one, how confident are you that it's not something mechanism-related there other than the preclinical model since it's a liver-targeted drug and that's actually might be related? And two is, I guess, how fast did it come on in 814, and do you have some degree of confidence you're at least past the early parts of the study for 864 to make us feel just a little bit better? Thanks.

Yeah. Mike, I think that the bottom line to your question is help us understand why we think this liver finding is not going to be a recurrent finding in 864. And I'm going to ask David Altshuler to comment on this important question about why we don't think that this is on mechanism. I'll just say that, Mike, the absolute bottom line, there is no way that I can promise you or that David A. can promise you that with VX864 or any molecule in our pipeline, is not going to have a safety finding. There is no way to promise that. Obviously, that is the reason we do the phase two studies, specifically to assess safety, PK exposure, and then, of course, a sense for the primary endpoint. But I don't believe that this is an on-mechanism finding, and I'll ask David to walk you through the multiple lines of reasoning. And I think David's done that, but I'll just ask him to go through one more time what we've seen in our animal models because we have studied this in great detail in our mouse models because we're actually evaluating the liver.

David? No, thank you. And thanks a lot for the question. I mean, I think one thing I'll say before I go through that is we have no evidence that this is a liver-targeted drug. I just want to be clear. This is a drug that acts on a protein that's expressed in the liver. And actually, one of the things we're excited about in the approach is actually AAT is not only made in the liver. It's actually made in other cells of the body. And actually, this drug is systemic. And so it would be, I think, incorrect to say this is a drug targeted to the liver, even though it does act on the liver. And then I think you come back to the question, and I'll just go through again, the three lines of logic that make us I think it's premature, certainly, to conclude that this is on mechanism or because of the disease, even though, as Reshma said, we can't know for sure. And the three arguments are most LFP abnormalities are chemical in nature, not on mechanism. The second is we've specifically studied in mouse models the human ZAAT protein and being corrected by this mechanism with multiple different compounds, multiple different chronic studies, and we see not liver toxicity, but improvement. And then the third is, perhaps in people's minds, is that the liver of a patient with AAT just somehow can't tolerate medicines. And I think that, as we know, 100,000 people have this disease, and there's no evidence we're aware of for any sort of liver toxicity associated with having AATD. So I just don't think it's the right conclusion. And nonetheless, we certainly are excited for 864 and the next molecules. and we'll look forward to telling you more data as we collect it.

And just to follow up the comment on 864 and how far you've gone and enough to feel better versus 814. Yeah, yeah.

Sorry about that, Mike. It's very early days. We are just in the early parts of that study, so I don't have more details for you. It's obviously a study that is – going to take some time to complete given that we expect our results in the first half of 21. Thank you.

Thank you. Our next question comes to the line of Corey Casimo from JP Morgan. Your question, please.

Thank you so much for taking my question. This is Turner on for Corey. So in just trying to understand the ultimate opportunity for Trikafta, where do you see pockets of patients that are more difficult to get on label or bring in for treatment? beyond just the 10% that are amenable to CFTR modulators? And how do you just quantify that in the context of the estimated 68,000 CF patients eligible for Trikafta? And then I have one quick follow-up.

Yeah, this is Rachel. I'm going to ask Stuart to comment, but I just want to make sure that we set the frame correctly. The number that we use is 75,000 total patients. I just want to make sure that we get that one clear. The 68,000 represents 90% for whom a medicine like Trikafta could offer potential, the last 10% being those who need a nucleic acid approach. And the opportunity, I'm going to turn over to Stuart.

Yeah, Turner, thanks for the question. You know, based on our experience here in the U.S., which is now just over a year And we have the vast, vast majority of patients across all eligible types, those who were naive to therapy, not even eligible for a CFTR modulator, those who were already being treated with oral Camby and Simkevy, those who were discontinued. Across all of those groups, we have seen very, very strong uptake. And so I really can't identify for you a group of patients that we have to date that found that it is more difficult to be initiated on Trikafta. In terms of future growth, we addressed some of that in my prepared remarks. Obviously, with the approval of CafTrio, we're now hoping to replicate what we've done with Trikafta here in the U.S. with CafTrio in the EU. We are encouraged by the early trends in Germany and the U.K. and Ireland, where we already have access for patients, and that is clearly important we need to secure similar reimbursement agreements across the rest of Europe to be able to access those patients so that is obviously a first step to getting access for those patients we don't have reimbursement for today and then as we said in total if you count those patients and additional patients that we can get to through expanding the CAF TRIO label to other countries like Australia and to going to younger age groups with Trikafta and Caftreo, such as the 6- to 11-year-olds, and then further expanding our entire CF portfolio to younger patients and also to other mutations, like the rare mutations. In aggregate, in addition to what we've already been able to deliver, we think there's over 20,000 more patients that we'll be able to benefit. So we continue to feel good about where we are, but we know the job's not done and we have a long way to go to make sure the 90% of patients that are gonna be eligible for CFTR modulators have the ability to try one. And then as Reshma said, in addition to that, we're continuing to work hard to develop new medicines and new interventions for the 10% who won't benefit from the CFTR modulator.

Thank you, that's helpful. And then just understanding that you're bringing in the remaining 814 data Is there a potential chance that we get a glimpse at the data prior to seeing 864 results as we're just trying to benchmark 864 for ourselves? If so, to what extent of the data could we potentially see, or alternatively, do you plan on publishing preclinical 814 data? Thanks so much.

Yeah, yeah. All really great questions. Obviously, we're going to bring all the data in from the VX814 program as we close that out. Again, the key finding there is that we have low exposure and we didn't achieve the target range. So I don't have high expectations that the data is going to be informative. I think the key thing to look forward to is VX864 and those results. And we certainly are working expeditiously to get that trial enrolled and to be able to see those results. And as I said before, that should be available in the first half of 2021.

Thank you. Our next question comes from the line of Mohit Nansal from Citigroup. Your question, please.

Great. Thanks for taking my question. And maybe switching a little bit to FSGS. So given that it is a small trial and relatively short, is it possible that we could see bad data even before the 80 data? I mean, this trial did not start because of COVID. And the follow-up question is, ApoL1 mutation is implicated in many kidney diseases. So if this first compound were to be successful, do you have any plans to go into those broader indications like lupus necropsy and other indications?

Thank you. Hi, Mohit. Thanks so much for the question about FSGS. So with regard to the trial, you're right, it's a reasonably efficient trial, you know, a dozen or so patients. It is a longer duration trial than the AATD program. It's a 12-week trial, so there's a difference there. And it's a little bit early to call for both the 864 program and the VX147 program. when exactly the results will be available. They're both studies that are active, enrolling, and we're dosing patients, but it's just a little bit too early to call. I'll just point out on that one, the FSGS program, the endpoint there is pertinuria, and as you know, there have been multiple discussions between the community and regulatory agencies, and that does seem to be a very... acceptable endpoint to the agency. So I'm particularly eager to look at those results. I'm going to ask David Altshuler to tell you a little bit more about APOL1-mediated kidney disease, although I am the nephrologist here. Some people tease that this is one of David's most favorite programs, so I'll let him tell you about a couple more APOL1-mediated kidney disease that we are looking at. David, do you want to just quickly talk about that?

Absolutely. You know, APOL1 strikes us as a really compelling target for the strategy of using human genetics and genetically validated targets to go over after major unmet needs. And you've got the strategy right, because the idea is to first go into FSGS, which is a severe disease, very strongly driven in certain populations by APOL1 genotype. But in addition, there are many, many patients with non-diabetic kidney disease, with other forms of proteinuric kidney disease, for which APOL1 is a driver. and so certainly we first need to get proof of concept for the mechanism and figure it out, but it would be our expectation, if that succeeds, that we would be able to go into a variety of other indications, and it's really one of the most unusual and compelling common genetic risk factors with a major effect on a disease, protein or kidney disease, for which there is great unmet need.

Sorry, very helpful. Thank you, David and Reshma.

Thank you. Our next question comes to the line. Gina Wang from Barclays. Your question, please.

Thank you for taking my questions. And I'm sorry I also have to ask one more question about AATD. So, David, you did mention there are three possible reasons. One, you know, being as a small molecule, but H6 were also small molecule. Could you help us understand a little bit, you know, regarding what you see between healthy AATD volunteers, you know, anything differences in terms of the exposure and the drug dose that will make you feel more confident that H6-4 will show better clinical profile. And my second question is regarding the beta thalassemia sickle cell program. And so, should we expect the late break abstract at the ASH? And also, will we see the data beyond seven patients that announced? And also, what would be the plan for the registration path from here?

Well, Gina, I think you managed to get three questions in there. I know we're coming up on the hour. Let me quickly tackle the CTX001 question, and I'll ask David to – I think you're really asking about differences between 814 and 864, and I'll ask David to give you a quick comment on that. So you should expect to see more data from the CTX001 program. You should expect to see data in more patients and longer duration of follow-up in both beta thalassemia and sickle cell disease. And we'll just have to be a little bit more patient with regard to the exact venue of those data. David, do you have a quick question on 814864 that you haven't already commented on?

All I would say is what we were saying about the idea of LFT abnormalities being chemical specific, we meant specific to the particular molecule, and 864 being structurally different than 814, we would not necessarily expect to see the same kind of problems again.

Okay, thank you.

Thank you. Our next question comes from the line of Robin Karnaskis from . Your question, please.

Hey, guys. This is for Robin. Thank you so much for taking my questions. I had a question about your diabetes program. We talked about two different types of opportunities. Can you tell us where you are in terms of timelines for the device? How much work is left before you can think of moving into patients? And does the IND that you expect to file cover both of those opportunities? Are you looking at them as independent programs or Do you believe that they have to be done in sequence?

Thank you. Yeah, yeah. Sure. I really appreciate the question and the opportunity to talk a little bit more about the Type 1 Diabetes Program. I think you've characterized it correctly. I see this opportunity as two shots on goal. The first, and the one we're starting with, is let's call it naked cells. That's the IND that's going in by the end of this year. and that's the program I anticipate will be in the clinic in 2021. The kinds of patients that the naked cells could serve as an example, there are a few thousand people who have what are called SHEs or severe hypoglycemic episodes. Now, while diabetes certainly has the morbidity when you have hyperglycemia, that are nephropathy, neuropathy, and retinopathy, that takes years to develop. These SHEs can kill you because you become severely hypoglycemic with lack of awareness. So that's one group of patients this could serve. And the second group of patients, obviously, are people, for example, who are type 1 diabetics, who are post-kidney transplant, who are already on immunosuppressive medicine. So that is the naked cell alone program. But clearly, the high fruit and the biggest population we could serve is the population that could have the cells encapsulated in the device. And that's the second program that we're going to bring forward. And I'll look forward to telling you more about it as the months go by. But the one to look out for now is the IND for the Naked Cell Program. Great. Thank you so much.

Hi, Operator. We're coming right up on the hour, so we'll take two more quick questions.

Certainly. Then our next question comes from the line of Jeffrey Porges. Lee Rink, your question, please.

Thank you very much. Reshma, so you have $6.2 billion in cash on the balance sheet. You're generating about close to a billion and a quarter in free cash flow, it seems, or you will be by the end of the year. So hypothetically, let's say that you could have $12 billion in cash on your balance sheet in the middle of next year. Could you give us an idea how you plan to deploy that capital? You've had questions on the call about business development activity, but that's a huge amount of cash and you have no debt. So what are you thinking of doing?

Yeah. Jeff, thanks for the question. And as you point out, you're asking a question that's broader than business development and about capital allocation. Let me make a high-level statement, and then I'm going to ask Charlie to also chime in. We are very pleased with the way the business is progressing. We are very pleased with the strength of our balance sheet, and we recognize that this is a really favorable position to be in. We believe at our core that the best deployment of our capital is in innovation. And I'm going to turn it over to Charlie to give you a sense of how we specifically think about that. Charlie?

Yeah, thanks, Reshma. Jeff, I appreciate the question. Really, it's the strength of the business, of course, with the growth and the profitability. We do generate a lot of cash flow, as you point out. And so naturally, we are very focused on capital allocation. As Reshma highlights, we clearly believe that the best use of capital is to invest in innovation. And you've seen us be very active over the last two years in BD, gaining access to important platform technologies and capabilities, as well as assets that have really helped us broaden and deepen the pipeline, importantly with SEMA and Exonix. So looking ahead, you can expect that we'll continue to be active. The BD team is very active. And we have, as you point out, the balance sheet capacity and flexibility to do more and potentially do bigger deals. But importantly, we do intend to stay very close to our corporate and our research strategy because we feel that for BD specifically, that is the best opportunity for us to add value and drive ROI over the long term.

Thank you.

Thank you. And our final question for today comes from the line, Evan Ziegerman from Credit Suisse. Your question, please.

Thank you, guys. Appreciate fitting me in at the end. I'll be quick. So in KOL calls, I've gotten very positive feedback on curative approaches to sickle cell disease and beta thalassemia. Do you have any colors to what you might need to show at a pivotal or registration-directed trial in terms of efficacy or follow-up just to give us a sense as to when that could potentially be part of the Vertex commercial story?

I didn't catch the tail end of the question, but I think you're really asking about CTX001 in beta thalassemia and sickle cell disease. Okay. And how we see the registrational approach. It's a little bit too early to call exactly the number of patients, the duration of follow-up, and what exactly the regulators will require. That being said... Clearly, the results that we've shared from the summer are exceptional. And while very small in number, two people in beta-thal, one in sickle cell, they do represent, in essence, a functional cure for those patients. We also have secured multiple regulatory designations like PRIME and RMAT, FastTrack, et cetera, that give us the opportunity to have conversations with regulators. And that is, of course, very helpful. So I think that the studies that we're doing are exactly the right ones in the right patients. So for example, in beta thalassemia, what I mean specifically is patients who are both beta zero, beta zero, and non-beta zero for the beta thalassemia side, and for the sickle cell side, patients who are severe sickle cell patients with multiple VOCs over a one to two year period. And I'm really very much looking forward to those regulatory interactions. And in a little bit more time, we'll be able to come back to you and let you know specifically what those packages look like after we have the opportunity to work through that with regulators.

Excellent. Thank you so much.

Okay. Thank you, everybody, for joining us on the call tonight and on the webcast. We appreciate it. The investor relations team, if you have additional questions,

is available tonight please reach out to us we'd be happy to help thank you thank you ladies and gentlemen for your participation in today's conference this does conclude the program you may now disconnect good day