Vertex Pharmaceuticals Incorporated

Good day and thank you for standing by. Welcome to the Vertex Pharmaceuticals Q2 2021 conference call. At this time, all participants are on a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you would need to press star one on your telephone. Please be advised that today's conference call is being recorded. If you require any further assistance, please press star then zero on your touchtone telephone.

At this time, I'd like to turn the call over to your host, Mr. Michael Partridge. Sir, you may begin. Good evening. This is Michael Partridge.

Welcome to the Vertex Second Quarter 2021 Financial Results Conference Call. Making prepared remarks on the call tonight, we have Dr. Reshma Kewalramani, Vertex's CEO and President, Stuart Arbuckle, Chief Commercial and Operations 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 call is being recorded. 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 in our 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 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.

Thank you, Michael. As we reach the halfway point in 2021, our business is performing exceptionally well and is very well positioned for the future. Our CF franchise is strong and growing. During the second quarter, we reached a number of new reimbursement agreements for the triple combination, as well as other CFTR modulators in our portfolio, including in major markets like France and Italy, earlier than expected. These reimbursement agreements are occurring in a timeframe that is far quicker than is typical for OUS markets, and importantly, we are achieving reimbursements at levels which are robust and reflect the value of our CF medicines. We also secured regulatory approval for the triple combination in the six to 11 age group for the U.S. Taken together, these additional reimbursement agreements and regulatory approvals provide thousands of new patients with access to our medicines. As such, we are raising our 2021 guidance range by $500 million to a range of 7.2 to 7.4 billion, reflecting 18% year-on-year growth at the midpoint of the range. But our work in CF is not done. There are still more than 30,000 people with CF who are yet to be treated, and by reaching these patients, we see continued significant growth for the CF business. With regard to the pipeline, progress is accelerating across the portfolio. We now expect to achieve target enrollment in both CTX001 studies in Q3. We have initiated the VX548 Phase II program in acute pain. We are on track to begin the Phase III next-in-class triple combination program in CF shortly. And in the next six to nine months, we expect important data readouts from multiple clinical stage programs, including VX147 in APOL1-mediated FSGS, VX548 in acute pain, and VX880 in type 1 diabetes. I'll now review the key clinical stage programs in more detail. Starting with CF, we are relentless in our efforts to maximize the benefit we can deliver for patients. Trikafta sets a very high bar, and we recognize that any new medicine that aims to treat the 90% of people with CF with at least one F508 del allele, including our own medicines, has to show clear potential to improve on Trikafta. We announced earlier this week that the once-a-day, next-in-class, triple combination VX121-Tezacaftor-VX561 is advancing to Phase 3. We believe it holds the potential for greater efficacy and convenience for patients. It also has the benefit of enhanced economics for our business, based on the fact that the royalty obligation would decrease from low double digits to low single digits. We are also committed to developing therapies for the approximately 10% of patients who cannot benefit from CFTR modulators. Our lead program, in partnership with Moderna, uses an mRNA-based approach and continues to make progress in late preclinical development. Let me now turn to our non-CF clinical pipeline, which includes five mid- to late-stage programs using three different therapeutic modalities, including small molecules, cell, and genetic therapies. The most advanced program in the pipeline is CTX001, our gene editing therapy, which represents a potential one-time functional cure for patients with beta thalassemia and sickle cell disease. This program continues to have strong momentum and impressive results. We've shared new data at EHA last month involving 22 patients who were treated with CTX001 and had at least three months of follow-up. In this data set, all beta thalassemia patients including beta-0, beta-0 patients who have the most severe form of the disease were transfusion independent, and all sickle cell patients were free of pain crises following CTX001 therapy. We now have dosed more than 45 patients across the program and are on track to achieve target enrollment in both CTX001 studies in the third quarter. We are working with regulators to finalize the filing package for CTX001 and anticipate filing for approval in the next 18 to 24 months. Moving to VX147. VX147 is our lead molecule for the treatment of APOL1-mediated kidney disease, and we anticipate clinical data from our Phase II proof-of-concept study in APOL1-mediated FSGS in the second half of 2021. The VX147 Phase II study evaluates the safety and the reduction of proteinuria over the course of 13 weeks. The achievement of double-digit decreases in proteinuria with this molecule would be a significant risk-lowering milestone for the program, as this would establish ApoL1 inhibition as a promising new mechanism that can be applied to the approximately 100,000 patients in the U.S. and Europe who have ApoL1-mediated non-diabetic pertinuric kidney disease. Consistent with the portfolio approach we take with every pipeline program, we have multiple molecules in development behind VX147 targeting the ApoL1 pathway. Turning to the NAV1.8 program. As announced last week, the Phase II trial in acute pain following bunionectomy surgery with our selective NAV1.8 inhibitor VX548 is underway. and data expected by early 2022. NAV1.8 is both genetically and pharmacologically validated, with our previous molecule, VX150, demonstrating positive proof of concept in acute, neuropathic, and musculoskeletal pain. VX548 is more potent than our prior molecules, which allows us to use lower doses and also more fully explore the dose-response curves. We expect to move faster with VX548 by conducting multiple clinical studies in parallel. Indeed, we are starting a second phase 2 acute pain study following abdominoplasty in the coming weeks. The potential to serve patients suffering from acute pain is substantial, and Stuart will share additional perspective on the market opportunity in his remarks. Moving on to type 1 diabetes. The Phase I-II study with VX880, our islet cells alone approach, is underway, and the first patient has been dosed. Ours is the only approach to use stem cell-derived, fully differentiated, insulin-producing islet cells, distinguishing it from all other therapies in clinical development today. Similar to CTX-001, we anticipate that proof of concept for VX880 may be established with relatively small numbers of patients, over a reasonably efficient timeframe. We expect initial data from the study in 2022. Our optimism for this program and for the ability of VX880 to demonstrate clinical benefit comes from the cadaveric islet cell transplantation experience, which has already provided a precedent for transformational outcomes. Beyond VX880, our Cells Plus Device program is continuing to progress in late preclinical development. Finally, in AATD, as we shared with you in June, the VX864 Phase II clinical data showed clear evidence of biological activity, though the magnitude of clinical effect did not support its progression to pivotal studies. Based on these data, we remain confident in and committed to AATD and to our small molecule corrector approach. This is the only approach that targets the underlying cause of AATD and therefore holds the potential to treat both the lung and liver manifestations of disease. We expect that our next wave of molecules will advance into the clinic in 2022, and that we will be able to move more rapidly through clinical development with the insights we have gained from the VX864 trial. I'll now hand it off to Stuart.

Thank you, Reshma. I'll begin by reviewing the Q2 revenue performance of our CF medicines. our Q2 global revenues reached nearly $1.8 billion, driven by increasing revenues outside the U.S. as a result of the launch of CAF TRIO and continued strong performance in the U.S. In the U.S., the launch of Trikafta in ages 12 plus has been highly successful, and just under two years since regulatory approval, the vast majority of eligible patients have initiated treatment. We have continued to see very high persistence and compliance levels, and we're now focused on the ongoing launch of Trikafta in children ages 6 to 11 in the U.S., following the approval in June. Outside the U.S., we have made significant progress with reimbursement for our medicines. We now have reimbursed access for Caftreo in more than 15 countries outside the U.S., less than one year following EMA approval. This compares favorably to the industry standard, both in terms of the timeline in individual countries and the total number of markets in which we have reimbursement agreements. Our rapid reimbursement progress can be attributed to multiple factors. The transformative clinical benefits of the triple combination, the support and collaboration of governments and the CF community, and the expertise of our commercial team built over the course of a decade. Importantly, as Reshma mentioned earlier, we are achieving reimbursement for our medicines at levels that recognize their considerable clinical value. The pivotal clinical trial data for Trikafta were unprecedented, and as with all of our prior medicines, we are continuing to track the long-term performance of the triple combination in extension studies of our pivotal trials and in the real world to be able to fully understand and communicate the long-term benefits of CFDR modulator therapy to all key stakeholders. We have previously shown powerful evidence that treatment with Kalydeco, Orkambi, and Symdeco slows lung function decline, results in multi-system benefits, and transforms the course of the disease in CF patients. Earlier this month, we obtained our first long-term follow-up data with the triple combination. In the FF and FMF patient populations, treated for at least 96 weeks with Trikafta, in the open-label extension of the pivotal clinical trials, we do not see any decline in mean lung function over time. This is a first for any of our CFTR modulators. We look forward to sharing these data in a forthcoming medical forum. Although we are pleased with what we've achieved so far, we still have a long way to go to reach all CF patients. As we have previously communicated, we estimate there are 83,000 people living with CF in the US, Canada, Europe, and Australia. And approximately 90% of these are likely to benefit from a CFTR modulator. We estimate that there are more than 30,000 patients who could benefit from our current CF medicines who are not yet being treated. Reaching these patients, which will drive significant additional revenue growth, will be achieved by successfully launching our medicines where we have reimbursement, securing additional new reimbursement agreements, and label expansions to younger age groups. And we remain confident we will be able to reach the vast majority of these patients. I would now like to provide some perspective on the market opportunities for some of the other medicines in our mid- and late-stage pipeline, starting with CTX001. With the amendment of our collaboration agreement with CRISPR Therapeutics, Vertex now has taken global leadership for all aspects of the CTX001 program. As a result, we are in a position to leverage Vertex's demonstrated ability to develop, and secure access and reimbursement for transformative medicines. We see tremendous potential for CTX001. We estimate that there are more than 150,000 patients in the U.S. and Europe who have beta thalassemia or sickle cell disease, approximately 32,000 of whom have severe disease. 25,000 are severe sickle cell disease patients, and the vast majority of these are in the U.S., We believe that a gene editing approach, which holds the potential for a one-time curative treatment, will be highly valued by patients, physicians, and payers. Consistent with our own internal market research, published physician surveys in the U.S. consistently indicate that they expect a quarter to a third of their sickle cell disease patients would be good candidates for a one-time curative approach using the current conditioning regimen, which is in line with the estimates of the numbers of severe patients. And with gentler conditioning regimens in the future, we expect CTX001 to be an attractive option for a much larger proportion of the 150,000 beta thalassemia and sickle cell disease patients. Our pre-commercial efforts are well underway. There are a number of notable features that are guiding our approach to this market, including, one, Patients with severe beta thalassemia and sickle cell disease are symptomatic and have a lifelong history of hospitalizations and other significant cost burdens. We are developing health economic models to demonstrate the cost effectiveness of a functional cure for these patients. Two, new and flexible payment models will be needed for a functional cure for these diseases. We are engaged with payers to understand what models work best for them and for patients. And three, patients are geographically concentrated. For instance, 75% of eligible sickle cell patients in the U.S. live in 15 states. We will use these and other insights to establish a commercial operation that is both lean and highly effective, as we have in CF today. Let me now turn to Payne and share our perspective on the market opportunity for a novel medicine in this area. Acute pain therapies represent 1.8 billion treatment days a year in the U.S. Despite more than 90% of prescriptions being generic, acute pain still represents a $4 billion market, underscoring the opportunity for a novel transformative agent. A new medicine that even takes a portion of the current treatment days has multi-billion dollar potential. In acute pain, a significant component of the market is opioids. A medicine with high efficacy and without the limitations of opioids, particularly their addictive potential, would be transformative for patients and the healthcare system. With regards to commercialization, treatment is highly concentrated within hospital and post-operative settings. 25% of US hospitals account for 80% of all opioid prescriptions. Given this concentration, successful commercialization will be possible with a small, specialist-focused commercial model, again, consistent with our lean SG&A approach. Finally, type 1 diabetes. VX880 has advanced to patient studies, and relatively soon we will begin to have a view of its clinical profile. We estimate that 60,000 patients in the U.S. and Europe with severe type 1 diabetes or type 1 diabetes with prior kidney transplant would be potential candidates for VX880. In and of itself, the islet cells alone program is a significant market opportunity, and existing transplant approaches establish a basis for the high value of a transformative therapy. Beyond VX880, the cells and device program could address the broader type 1 diabetes population, 2.6 million patients in the US and Europe. In conclusion, it's an exciting time to be at Vertex as we continue to bring our CF medicines to more patients, And we still have significant growth ahead in CF with new reimbursement agreements and label expansions to younger age groups. And beyond CF, our mid- and late-stage pipeline is rapidly advancing, with each program having both the potential to transform lives and presenting a significant commercial opportunity.

And with that, I'll hand it over to Charlie. Thanks, Stuart. In the second quarter of 2021, Vertex again continued its record of outstanding financial performance, In fact, we're in the midst of our eighth consecutive year of at least double-digit revenue growth. Second quarter total product revenues were $1.79 billion, an 18% increase compared to the second quarter of 2020. This growth was primarily driven by strong international uptake of Captrio and continued performance of Trikafta in the U.S. Our second quarter revenues included $1.26 billion in the U.S. and $536 million outside the U.S. Ex-U.S. revenues for the quarter grew 71% over the prior year, reflecting the full quarter effect of prior initiations in Europe, as well as any new patient initiations in countries where patients have access to Captrio. Our second quarter combined R&D and SG&A expenses were $537 million, compared to $467 million for the second quarter of 2020, driven largely by investment in our clinical stage programs and our research pipelines. As our pipeline continues to expand and mature, we expect our R&D investments will continue to be substantial while we drive toward proof-of-concept data and further clinical and regulatory progress across the pipeline. Our continued growth in revenues combined with carefully managed growth in spending translates to a second quarter operating margin of 57%. With our strong revenue and profitability, we ended the quarter with $6.7 billion in cash following the one-time $900 million payment to CRISPR Therapeutics for the amended collaboration. Our strong financial performance to date, the future growth profile in CF, and the tremendous potential of our broad and deep pipeline made this the right time for the $1.5 billion stock repurchase authorization that we announced in June. This authorization gives us the opportunity to repurchase stock at very attractive prices as we seek to offset future dilution from equity programs. Now to guidance. We are making a significant upward revision to our previously issued 2021 guidance for total product revenues to a range of $7.2 to $7.4 billion. This $500 million increase in our revenue guidance range reflects year-to-date business outperformance as well as the rapid progress we have made in reaching new reimbursement agreements. Year-over-year, this guidance represents nearly 18% growth at the midpoint. As is our practice, the guidance only includes revenue for countries that are currently reimbursed. Future new reimbursements are not included. We are maintaining our non-GAAP OPEX guidance for the full year 2021 at $2.25 to $2.3 billion. Driven by R&D investment, we anticipate that our OPEX in the second half of 2021 will be sequentially greater than in the first half of the year. Specific drivers include the new economic split under the amended CTX-001 collaboration, advancement of VX548 to multiple studies in pain, and investment to support type 1 diabetes clinical development. For our non-GAAP tax rate, we continue to guide to a range of 21% to 22% this year. Looking to the future, the financial profile of our business is exceptional in many ways. First, we expect to see continued significant top and bottom line growth from our CF franchise into the middle of the decade as we continue to reach more and more patients. Second, our CF revenues are well protected by the triple combination's strong IP, which extends to the late 2030s and which could be further extended with the new next-in-class triple now entering pivotal trials. Third, our differentiated business model and lean SG&A lead to high margins and strong cash flow, which allows for sustained levels of investment into internal and external R&D and continued strong earnings growth. And finally, We have a number of multi-billion dollar opportunities advancing in the pipeline, many with near-term milestones, including those in beta-thal, sickle cell disease, ApoL1-mediated kidney disease, pain, type 1 diabetes, and AAT, each of which have the potential to drive significant growth beyond CF into the 2030s. With that, I'll turn it back to Reshma to close.

Why don't we go directly to questions and open the phone lines now?

Thank you. As a reminder, to ask a question, you will need to press R1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. I show our first question. It comes from the line of Michael Yee from Jefferies. Please go ahead.

Hi, guys. Good evening. Thanks for the question. Reshma, I know that there's an important Phase 2 readout for RF. FSGS later this year, and you've talked about that, and I know you've talked about what you're looking for in terms of reduction of proteinuria. I guess my question was twofold. One, are there scenarios where reductions are more modest and you have to think about what that would mean for going forward? And second, if it was really good reductions, you know, production of proteinuria is a surrogate, so wouldn't you still need to run a much longer study appreciating it's a genetic mutation? patient population. So maybe you could talk to those scenarios and how you think about the robustness of data. Thank you.

Yeah. Hi, Mike. You know, the question you asked is about the VX147 program. For the others on the phone, this is the APOL1-mediated FSGS program that is currently in Phase 2, and we are on track to read out the Phase 2 results in the second half of this year. The way I see this program, Mike, and what we're really looking for is safety for sure. It's a phase two program. And on the efficacy side, you're right. It is about percent reduction in proteinuria. And we are looking for double-digit reduction in proteinuria because at those levels, it's meaningful and it is correlated with improvements in GFR and the hard endpoints of time to ESRD. As with all of our programs, Mike, we have a portfolio approach here. I am excited to see these results. The community, physicians, as well as patient groups and the regulators, particularly in the U.S., have had multiple workshops and conferences over the last several years. And the regulators have expressed openness for proteinuria to be the regulatory enabling endpoints. Now, whether that's an accelerated approval, whether that's a full approval, all of that obviously will need to be discussed as we progress the program and have those discussions with the regulators. But I've been really pleased with how the regulators have thought about it and the fact that this is indeed a genetically defined renal disease. And what the regulators have often talked about is a homogeneous proteinuric kidney disease. And that is what this is. So I feel optimism for Protonuria to be the regulatory enabling endpoint. And obviously that makes for a more efficient trial.

Thank you. I show our next question. It comes from the line of Phil Nadu from Calvin & Company. Please go ahead.

Good afternoon. Thanks for taking our question. Kind of a two-part regulatory question from us. You recently announced that the design of the CF phase three trial and it's notable because as a non-inferiority primary endpoint, we're curious to know whether simple non-inferiority is sufficient to support FDA approval or if the FDA asks for superiority or something else from the secondary endpoints. And then second part of the question is when will we get similar details on what's necessary to file CTX001 I think you've been guiding for an FDA update sometime this year. We're kind of curious, is that going to come sooner rather than later, and if you have any preliminary idea of what will be necessary for filing that candidate. Thank you.

Sure. Let me take the CTX001 question first. As I mentioned in my prepared remarks, we are now looking to achieve completion of target enrollment in Q3. So that's really a very near-term completion of the targeted enrollment. So what we're really looking at now, and I've described before, as we've had these conversations with regulators, and we do have the benefit of really virtually every regulatory designation one can imagine. So we've had the opportunity to have productive discussions with the agency. It's about the size of the filing package. It's about the duration of follow-up and the CMC manufacturing controls I'd like to see. Achievement enrollment is really short-term, so it's about the duration of follow-up and CMC manufacturing. I do expect that we're going to bring those discussions to a conclusion in the next coming months, and I do anticipate filing to be possible in the next, oh, let's call it 18 to 24 months. So that's really what it looks like on CTX001. On the phase three next in class CF program, we've gone through our discussions with the regulators, we've had our end of phase two meetings, and this trial design that you see reflects those considerations and those discussions. I will point out that as I look at the VX121 data, there are three really important elements that stand out to me. The first is that In our HBE assays, and you know that our HBE assays translate very well into the clinic, not only qualitatively, but quantitatively, singularly, or in combination, so 1, 2, 1 alone, or in combination with tethycaptor 5, 6, 1, the results are, in our HBEs, that 1, 2, 1 is more efficacious, more efficacious than even Trikafta. That's really saying something. And in the Phase II results, you can look at the sweat chloride, which is the real direct translation of chloride transport in vitro. And you can see that we're looking at numbers that are more like 45 to 45 millimolar with the 1-to-1 regimen versus 33 to 39. That's what we saw in Phase II with the Trikafta regimen. And then, of course, PPFEV1. which is more variable, but even that has indications for being better than Trikafta. So while the primary endpoint is non-inferiority, I see a lot of optimism in these data to even have the potential to be better than Trikafta.

Thank you. I show our next question comes from the line of Jeff Mecham from Bank of America. Please go ahead.

Great afternoon, guys. Thanks for the question. Just a couple for you guys. So on the pipeline, I know there's been a lot of emphasis on BD, but for what you have today in the pipeline, are there investments that you can accelerate to get into registration trials faster, for example, like in pain? And then when you look in CF, beyond rolling out across the EU and maybe adding younger patients across the board, What do you think, I know you're not going to give long-term guidance, but what does the normalization of the market look like in terms of maybe the incidence rate? What are you guys assuming? I'm just trying to get a sense for when CF is more moderate growth, is that the timeframe where you think that you're going to have more of a P&L impact from you know, from sickle cell and beta-thal from 001 or other elements of the pipeline, just trying to get a sense to put all the pieces together for kind of the long-term growth picture. Thank you.

Yeah, it's a great question, Jeff. And let me set it up for you, and then I'm going to ask Stuart to comment on market dynamics, and then I'll come back and address your question about the pipeline and how we see that going. What I'll say to start with is, I really see continued significant growth for many years to come in our CF franchise. And I'm going to ask Stuart to outline those dynamics for why I say that.

Yeah, Jeff. So as you know, we updated our estimates of the epidemiology for people living with CF in the U.S., Canada, Europe, and Australia earlier this year to approximately 83,000 patients. And we're probably treating about half of those patients today. And as you know, we updated our guidance today to a range of $7.2 to $7.4 billion. What that means is, and I don't want to gloss over this, is that there is more than 30,000 patients remaining who are eligible for our CFTR modulators. They are likely to benefit from our existing CFTR modulators. And those 30,000 patients really fall into three categories. The first one is people who live in countries where we have regulatory approval and we've secured reimbursement, and we are beginning the launches in those markets. And as you know, the launches of our CF medicines tend to be very rapid. Second group of patients are those who live in countries where we have regulatory approval but don't yet have reimbursement. Obviously, we've had a great year securing reimbursement for Cafetrio, just a year ago. just under a year from the EMA approval, and I have full confidence that we're going to continue that run and secure additional reimbursement agreements in countries where we don't have it today. And then we have to get down into younger patients. And as you know, we've done that with Kalydeco and or Canby, and given the benefit-risk profile of Trikafta, we fully expect we'll be able to get down to younger age groups. So over the next several years, we see multibillion-dollar revenue growth potential through getting to those more than 30,000 patients. Additionally, we are also working on the 7% to 10% of patients who aren't going to be eligible for our CFTR modulators using genetic approaches through our collaborations with, amongst others, Moderna. So we do see continued growth of our CF franchise for several years to come based on continuing to execute in the way that we have done over the last few years. And then to tell you how the pipeline is going to layer on top of that, I'll hand it back to Reshma.

You know, the pipeline is progressing nicely. And I actually would say it's accelerating. And let me tell you why I say that. The pain program is now in phase two for the bunionectomy study. And in parallel, very shortly, we're going to start up the abdominoplasty study. The CTX-001 program, as I said in my prepared remarks, that one is going to achieve target enrollment in Q3 now. And when I think about 147, that is absolutely on track to have results in the second half of this year. And when I put all of that together, it looks like a really important next six to nine months in terms of not only data readouts, but the opportunity to advance to milestones in each of these programs. And that's not even talking about the programs that are in late preclinical development or in phase one. So we are investing heavily in our pipeline. It is because the pipeline is accelerating and there are many opportunities for us to get to the next important milestones in clinical development. I would be remiss if I didn't say a word about VX880. This is the naked cells only approach. This one is a phase one, two trial. And I would think about this one as similar to CTX001 in that a reasonably small number of patients in a reasonably efficient timeframe will really tell us what we have. And so that was another one that I think is going to be important to keep our eyes on and to invest behind.

Thank you.

I show our next question comes from the line of Salveen Richter from Goldman Sachs. Please go ahead.

Thanks for taking my questions. For CTX001 on manufacturing, do you have an understanding of the assays required or, you know, how differences could play out regulatory-wise versus gene therapy given this is a new technology? And then with your work with Moderna on mRNA and gene editing, maybe you could just help us understand how that's progressing and when those might enter the clinic.

Sure. Salvi, with regard to CTX001, we really have had the opportunity to have multiple discussions with the regulators, not just on what the potential filing package could look like in terms of the clinical data, sample size, et cetera, but also on CMC and manufacturing. And we have a very good understanding of what the agency, both here and outside the U.S., would like to see in terms of potency assays and release assays. And that work is going very well. In terms of the mRNA program, you know that we have multiple programs for the last 10% of our CF patients, the most advanced of which is the mRNA program in partnership with Moderna. There's really two components here. It's the mRNA construct itself. and it's also delivery. We have made solid progress on both of those, and I would say the important one is on delivery. A little too early for me to give you timing for when that would enter the clinic, but I will say that the progress has been very good, and I'm feeling very optimistic about our ability to get to that last 10% of patients, maybe even compared to six months ago.

Thank you. I show our next question.

It comes from the line of Robin Konowska from Truist Securities. Please go ahead.

Hi. Thanks for the question. Starting first a little bit on – I have to ask this question. I did not want to be the person who asked this question on the call, Reshma, but I have to. Your thoughts on the Galapagos headwind as people are focusing on their data coming up. I know they're behind you, but can you just give any more additional color on the biology perhaps even on how you view their drugs? And second, on pain, you mentioned like timelines. You could get some clarity on your pipeline over the next six to nine months. When could we actually see data from pain? Those trials can roll really quickly. Maybe give us some sense of what your expectations are for your next data set and what the bar might be. Thank you.

Yeah, sure thing, Robin. Let me start with pain. I'm really excited about our pain program. You know that we have a program in NAV 1.8. That's the one that's furthest ahead in our discovery and preclinical research. We also have programs in NAV 1.7. The reason I'm particularly excited about NAV 1.8 is it's a genetically validated target for sure, but it's also pharmacologically validated by our very own BX150. The molecule that's in the clinic now, VX548, really is all the attributes we were looking for in terms of potency, as well as in drug-like properties, DDIs, manufacturability, et cetera. So this one really looks very exciting to us. It's already in the bunionectomy study that is up and running as a phase two proof of concept study. The abdominoplasty is right behind it, and that should start up very shortly. We are also interested in pursuing peripheral neuropathic pain in the NAV1.8 area. And the reason for that is because, again, our VX150 molecule had positive proof-of-concept data, not only in acute pain, but also in neuropathic pain. So that one is another study that's coming. With regard to acute pain, The studies are very short in duration because it's a procedure like a bunionectomy. You have treatment that is over a couple of days, and so the results can be obtained in a reasonably efficient timeframe. I expect that the bunionectomy results will be ready by, let's say, the tail end of this year, beginning part of next year, abdominoplasty results thereafter. So that's really how I would encapsulate the pain program. With regard to the Galapagos data, maybe Galapagos AbbVie data, you know, Robin, I'd rather focus on our portfolio and tell you about how I see our portfolio. And maybe the best way to summarize it is VX121561-TEZA, CAFTA holds the potential to bring greater patient benefit than even Trikafta. It's once daily dosing, which I think adds level of convenience for our patients. And in all honesty, the greatest threat to Trikafta, the greatest competitor to Trikafta in terms of the most advanced is our very own VX121561 Tezacafta.

Thank you.

Our next question comes from the line of Corey Kosomov from J.P. Morgan. Please go ahead.

Great. Thanks. Good afternoon. I appreciate you taking the question. I actually want to follow up, Rush, on what you were just talking about, kind of on Phil's earlier question on the QDCF study, but from a slightly different point of view. So recognize it's designed to demonstrate statistical non-inferiority from a regulatory standpoint, but what do you think you need to show for this to actually displace a product as good as Trikafta in the market? I'm assuming dosing once versus twice a day isn't enough on its own. And did you say in the prepared remarks, I just want to make sure we have this right, that the royalty on the QD goes to low single digit from low double digit? Do we get that right?

Yeah, yeah. Corey, with regard to the study, you're right. For the regulatory enabling endpoint, it is a non-inferiority study, and that non-inferiority is on PPFEV1. You're also correct that the royalties go from low double digits with Trikafta, Kaftrio, to low single digits. Let me just take a step back, though, and help maybe everyone on the phone line understand our perspective on the 121 program and why we're really doing this. So our longstanding goals in CF have been threefold. First, bring forward a medicine that can treat up to 90% of patients with cystic fibrosis. Give that a check. That's Trikafta, Caftreo. Second, get patients who can benefit from CFTR modulators to the highest levels of efficacy. And the way we've discussed that is to bring patients to carrier levels of sweat chloride. And that's really important because at those levels, when you look at carriers of cystic fibrosis, they really have no manifestation of disease. And when you look at our own data, other published data, it is absolutely true that the better the sweat chloride results, which is a reflection of CFTR function, the better the outcomes for our patients. And the third big goal has been to get to the last 10% of patients. The 121561 Tezacaptor program is all about that big goal number two, get patients to carrier levels of sweat chloride. And certainly, it is the case that some patients on Trikafta can get there. But we are looking to get many, many more patients to those levels, if not all patients. And that is 121561-TEZA. And as I reviewed, from what we see in the HBE cells, in terms of chloride transport, sweat chloride from the Phase II studies, and even PPFEV1, all these measures point us in the direction that this is possible with 121561. And of course, we're busy in the labs working on even more efficacious molecules.

Thank you. I show a next question. It comes from the line of Lisa Bayko from Evercore ISI. Please go ahead.

Hi. Thanks for taking the question. I want to ask a little bit more about the FSGS study design. Can you talk about sort of the background therapies that patients will be on? And will they be on steady background meds headed into the study, or will there be any changes ahead of the study? Will you allow for the use of steroids? Just curious about some of the other factors. Thank you.

Yeah, sure thing. Lisa, in our Phase II study, we are looking at patients who have ApoL1-mediated FSGS with two ApoL1 alleles, and we are looking for patients with... heavy amounts of pertinuria. We are allowing patients to be on background therapy, and we are looking for the double-digit percent reduction of pertinuria that I was talking about earlier on top of whatever background therapy our patients may be coming into our trial with.

Okay, great, helpful. And then we'll...

Sorry, thank you. Our next question comes from the line of Brian Abrams from RBC Capital Market. Please go ahead.

Hey, guys. Good evening. Thanks for taking my question. So a question on 121. Can you talk about where you're planning to conduct the Phase 3 triple combo study? And, you know, is that going to be in the U.S. or outside the U.S.? Would you expect any medium-term impact to Trikafta or Captrio revenues? And then, you know, it looks like the sweat chloride that you observed, at least in the Hetman, was dose-dependent. I'm wondering, do you feel you fully explored the dosing curve here? Any safety or PD reason not to further dose escalate, just given the high bar set by Tarkastis? Thanks.

Sure thing. Brian, we are going to be conducting the study in the usual countries, U.S. European countries, the standard. Remember, this study, both the studies in the 121 program are compared to Trikafta or Caftreo. So this is not placebo controlled. So patients are going to be on active therapy in either arm. That obviously makes it a lot easier for patients to enroll into this study. With regard to impact on revenues for Trikafta, no, we don't see any impact on revenues through Trikafta. And with regard to how did we select the dose, how did we think about this program, we shared with you the results from the Phase II study. And as is the case with all of our programs, we take all of that data. We do quite a bit of modeling and simulation. to settle on the best dose that maximizes efficacy and has the greatest benefit-risk profile. I think that's exactly what we've done with the regimen that we've selected. And as I mentioned on my response to one of the other questions, what I see in these data with the regimen that we're selecting is in vitro chloride transport that is even better than Trikafta. Sweat chloride levels, which is the most approximate translation of chloride transport, so the sweat chloride levels in our Phase II trial that are higher than what we saw with Trikafta. And PPFEV1, which you know has greater variability, that is also showing us potential to be better than Trikafta. You know, I have to say what is obvious. Trikafta is a great medicine. What we saw in the clinical trials has been recapitulated in the real world. You heard Stuart talk about the longer-term data with Trikafta that just continues to look excellent. But we think we have something that might be even better than that with 121561-Tezacaftor, and I'm really looking forward to the Phase III results.

Thank you. I see our next question comes from the line of Paul Matthias from Stiefel. Please go ahead.

Great. Uh, thanks so much and congrats on the quarter. Uh, I said a couple other April, all one questions, if you don't mind, one was just on, on finding these patients. I know the study, or at least per clinical trials, it's been going on for a little over a year and that the implied sample size is estimated to end up at around 10. Has it been difficult to find patients as genetic testing a headwind? And then second, you know, Reshma, I know you talked about this is obviously a first study. double-digit proteinuria as a goal. Can you just kind of contextualize that in terms of what thresholds of change in proteinuria have predicted clinical benefit in the past? Is there some sort of minimum change that has been relevant to get FDA comfortable with accelerated approval? Thanks so much.

Yeah, yeah, all great questions about the APOL1-mediated FSGS program. Let me start with the clinical trials and the enrollment and such. First and foremost, we are on track to have results in this calendar year and the second half of the year. It has been a study that has taken some time to enroll, and I'm not surprised about that. The factors that we need to think about are, remember, this study started right in the midst of the pandemic, actually right when the pandemic was hitting a real high point in terms of case numbers here in the U.S. The second is that this is a disease for which we don't routinely employ genetic testing in renal medicine. So it takes a little bit of time to find the patients, genetically test them, and have them enroll in our studies. And the third thing is ApoL1-mediated FSGS is the smaller of the spectrum of ApoL1-mediated kidney disease. And the ApoL1-mediated FSGS patients, because it's the smaller component, they are spread across the U.S., and they don't necessarily live close to a testing center, and so that was particularly difficult in the pandemic. With regard to what we are looking for, we are looking for percent decreases in proteinuria, and I think double-digit decreases in proteinuria in this Phase II study, which is a first-in-class molecule for this genetically validated target would be just excellent. And the question around what is the agency looking for and such, it really depends on the kidney disease of interest. We are looking at a homogeneous kidney disease. It is all genetically defined. And I think that that falls into a category in and of itself. And as I said, there is no precedent for this. We are the first to bring a targeted therapy for ApoL1-mediated kidney disease. But I do think a percent reduction in the double digits would be very meaningful.

Thanks a lot. Thank you. Our next question comes from the line of Brian Scorney from Barrett.

Please go ahead.

Hey, good afternoon, everyone. Thanks for taking my question. My question is really on the diabetes program. Just strictly thinking about the opportunity in patients who are going to require lifetime immunosuppression, how do you kind of think about differentiation from your cell line from sort of the cell trans donor cells, which I think should probably get approved in the next month? Is there a supply constraint there due to sourcing that you think you overcome with sort of the stem cell line? or are there other characteristics of differentiation that you think can make your technology work better? And then in terms of, I know you're working on sort of encapsulation for protecting the differentiated islet cells to reduce immuno-reactivity, but are you exploring other ways, such as the induction of immune tolerance or cell editing, to get around the need for immunosuppression as well? And any thoughts on sort of those pathways?

Yeah. Really, really great questions, Brian, and thank you for those. I'm really happy to talk about the type 1 diabetes programs. I'm sure you can hear from the enthusiasm in my voice. It's one of the ones that really holds enormous potential for patients. So let's just start at the very top of the funnel. There are more than 2 million patients, 2 million patients with type 1 diabetes in the U.S. and Europe. So the potential to help patients is enormous. when you look at it from that perspective. I'll take your second question first about encapsulation. I do think that it will be important to have the cells be encapsulated in a device or in some way be immune evasive so that you don't require immunosuppressives to be able to get to all of those patients. I think that the device approach is elegant and because it has the benefit of simplicity. That's not to say that it's a simple device, but it is to say that the cells encapsulated with this device then don't require any further manipulation, which is elegant. That all being said, we are very interested in all other approaches, and we are pursuing other approaches to immunoevasion. The lead approach is with the cells encapsulated in the device. With regard to the cadaveric cells and the cells that are available currently, the big differentiator, and this is really important to understand because it's fundamental, those cells are cadaveric cells. And those cadaveric cells have all of the limitations that have made the procedure difficult for patients to undergo. That is to say, quality and quantity of cells are limited. Our approach is a stem cell-derived, fully differentiated, insulin-producing islet cell, and that makes quantity not an issue and quality not an issue. And so that's really the foundational difference between our approach and the other.

Great. Thank you, Rashma. That's very helpful.

Yeah, sure thing. Operator, we have time for one more question.

Thank you, sir. Our last question comes from the line of Alethea Young from Cantor Fitzgerald. Please go ahead.

Hey, guys. Thanks for squeezing me in. Just a quick question on how you're kind of thinking about maybe kind of external deals. Maybe, you know, are there an interest in kind of concept or are you still kind of focused on kind of earlier safe deals? Thanks.

I'm sorry, Alicia, I didn't, we couldn't hear your question in the room. Could you repeat your question?

External deals kind of in the early stage or in the late stage, but then I guess just in thinking about the timelines with the outlier encryption program being a little bit more delayed than we thought. Thanks.

I think the question is about deals, external deals, looking at what phase might we be looking at. I think that was the question.

Lucia, we're interpreting a question in the room about... Can you hear me now? Can you hear me now?

We can hear you. Yeah. Basically, I'm just asking about kind of external timelines, external development, you know, kind of aspirations, like whether you're looking at more proof of concept still, or are you looking at kind of earlier stage development programs, which you kind of have gone with in light of what's been going on with Alpha-1 epitrypsin?

Sure thing. I think you're asking about business development and how we're doing... Yeah, okay, and external innovation. You know, Althea, we have been and we remain today very focused on innovation, both internal and external. And we've talked in the past about our areas of interest and how we view this, namely in CF, in tools to... augment our toolbox and assets that fit our sandbox diseases, all of those stay exactly the same. Our R&D strategy encompasses both internal and external innovation. You have never seen us invest more in our internal innovation. Our pipeline has both sources of assets from our own pipeline and what we brought in from acquisitions like SEMA and Exonix and partnerships like CRISPR and Moderna, and you should expect us to continue in the same way.

Great. Thank you.

Thank you. This concludes our Q&A session. At this time, I'd like to turn the call back over to Mr. Patrick for remarks.

Thanks, Operator. Thanks, everybody, for tuning in to tonight's call. The Investor Relations team is in the office, and we look forward to any additional questions that you have. Have a good night.

This concludes today's conference call. Thank you for participating.