Vertex Pharmaceuticals Incorporated

Good evening. This is Michael Partridge. Welcome to the Vertex fourth quarter and full year 2021 financial results conference call. On tonight's call, making prepared remarks, we have Dr. Reshma Kewalramani, Vertex's CEO and President, Stuart Arbuckle, Chief Operating Officer, and Charlie Wagner, Chief Financial Officer. We recommend that you access the webcast slides as you listen to this call. This 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 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.

Thanks, Michael. I'm pleased to discuss our performance and progress in 2021 and to share our vision for where Vertex is headed. 2021 was a very important year for the company, during which we expanded our leadership position in CF, significantly advanced the mid- and late-stage pipeline, and further strengthened our financial position, and one which sets us up for high-value milestones in 2022 and a very bright future for years to come. Our revenue and earnings continue to reflect the significant growth of our global CF franchise, and based on our success in treating more CF patients, we again delivered exceptional financial results. generating nearly $7.6 billion in product revenues, representing 22% growth year-on-year and 27% growth over Q4 2020. Also in 2021, we initiated two global Phase III studies with our next-in-class CF regimen, VX121 Tezicaftor VX561, completed enrollment in the pivotal studies of CTX001, delivered proof of concept with VX147 in a type of APOL1-mediated kidney disease known as FSGS, delivered early but very promising results with VX880 in type 1 diabetes, and advanced VX548 into two proof of concept studies in acute pain, the results of which are expected this quarter. These advancements span small molecule, gene editing, and cell therapies, and six disease areas, including CF. Fueled by our success in cystic fibrosis, our financial profile and balance sheet have been further strengthened, enabling both continued investment in internal and external innovation and industry-leading operating margins. We provided a detailed overview of Vertex at our webcast two weeks ago at the J.P. Morgan Conference. Tonight, our prepared remarks will recap the high points around our CF franchise and our pipelines, and also review our commercial performance and financial expectations for 2022, starting with CF. For the 90% of CF patients who can benefit from a CFTR modulator, we see continued significant growth ahead, as we have more than 25,000 patients who could benefit from Trikafta and our other CF medicines, but who are not yet on treatment. Stuart will discuss the opportunity ahead of us and our high confidence that we will reach these patients in his prepared remarks. Approved first in the U.S. in October of 2019, Trikafta has set a high bar in terms of both clinical trial and real-world data and has become the standard of care for patients with CF today. To recap, in late 2021, we shared 96-week data from the extension of the Trikafta pivotal trial, where we saw no decline in mean lung function. This was the first for any CFTR modulator. We now have the first real-world data for Trikafta from the USCF Foundation Registry. Across approximately 16,000 patients treated with Trikafta and represented in the registry in 2020, relative to patients eligible for Trikafta in the year prior to approval, we see an 87% reduction in the risk of lung transplant, a 77% reduction in pulmonary exacerbations, and a 74% reduction in the risk of death. Nonetheless, If it is possible to deliver better clinical outcomes than Trikafta, we are determined to be the ones who do so. And our next-in-class triple combination of VX121-Tezacaftor-561, which holds that potential, is already in pivotal development. We expect completion of enrollment in both Phase III Skyline trials in late 2022 or early 2023. This combination has the potential for greater clinical benefit, more convenient once-daily dosing, and a significantly lower royalty obligation. For the last 10% of CF patients who do not make any CFTR protein, with our partners at Moderna, we've now demonstrated that we can not only efficiently deliver full-length CFTR mRNA to human bronchial epithelial cells in vitro, but also to bronchial epithelial cells in non-human primates. solving a long-standing delivery challenge and marking a significant step forward in bringing a treatment for the last 10% of CF patients. Based on these results, IND-enabling studies for our CFTR mRNA program are now underway. We plan to file the IND this year with clinical trials beginning thereafter. Beyond CF, we have a pipeline that is broad and deep and delivering and considerably more advanced compared to a year ago. I'll review a few of our clinical stage programs, each of which is a first-in-class or best-in-class program, has the potential to serve a large number of patients, and represents a multibillion-dollar opportunity. Beginning with CTX001, our one-time gene editing treatment with the potential to provide a functional cure for sickle cell disease and beta thalassemia. This is our most advanced program outside of CF, and we expect this will be our next commercial launch. We're wrapping up discussions with regulators to finalize our submission data package for CTX001, including the number of patients and duration of follow-up. This program accelerated significantly last year based on strong physician and patient interest. We completed enrollment in both Phase III studies. Both were oversubscribed, and to date, we've dosed more than 70 patients. We look forward to sharing more clinical data with CTX001, longer-term follow-up, and many more patients at a medical forum later this year. On the way to our planned global regulatory filings by year-end 2022. Moving on to VX147 and the APOL1-mediated kidney disease program. In renal medicine... One of the most important genetic discoveries of the last decade was the realization that mutations in the APOL1 gene are a key driver of significant kidney disease. VX147, our small molecule inhibitor, specifically targets this APOL1 protein and in so doing targets the underlying cause of APOL1-mediated kidney disease. In the Phase II single-arm study of 16 patients with APOL1-mediated FSGS, VX147 demonstrated unprecedented reductions in proteinuria, a marker of kidney damage, and was generally well-tolerated. Importantly, the 47.6% mean reduction in proteinuria was on top of standard of care. These Phase II results propel the advancement of VX147 into pivotal development. Our next step is an end-of-Phase II meeting with the FDA, and our goal is to initiate pivotal development targeting the broad AMKD population of approximately 100,000 patients, including but not limited to those with APOL1-mediated FSGS later this quarter. Turning to type 1 diabetes and VX880. Type 1 diabetes results from autoimmune destruction of pancreatic islet cells, and we have known for some time that whole pancreas or cadaveric islet cell transplantation can be curative. The challenge has been quality and quantity of donor tissue. We believe we've overcome this challenge. We are the only company that has shown we can make allogeneic, stem cell-derived, fully differentiated, insulin-producing islet cells and make them at industrial scale. Our goal... with our type 1 diabetes program is to develop a functional cure for this disease, including for the more than 2.5 million people living with type 1 diabetes in the U.S. and Europe. We shared day 150 results approximately two weeks ago from the first patient treated with VX880. This patient had severe, long-standing type 1 diabetes and prior to treatment with VX880 had difficult to control sugar levels and multiple severe hypoglycemic events with no detectable endogenous insulin as measured by C-peptide. He had a hemoglobin A1c of 8.6% and was taking 34 units of exogenous insulin daily. The results from this first patient treated with half the targeted dose of VX880 are remarkable. Fasting C-peptide, a measure of endogenous insulin production, is now over 400 picomoles. Hemoglobin A1c is down to 6.7%, and the patient is on minimal exogenous insulin. VX880 was generally well-tolerated, and the patient remains free of symptomatic hypoglycemic events since the perioperative period. I mentioned at the J.P. Morgan conference earlier this month, and it bears repeating why these results are so foundational. Achieving durable results in type 1 diabetes requires two things, high-quality insulin-producing islet cells, we have that, and a method to protect these cells from the immune system. We can address the immune response in several different ways. Today, with VX-880, we're combining the stem cell islets with standard immunosuppression in the Phase I-II study. We can shield these same stem cell islets with an immunoprotective device. In this approach, immunosuppressives would not be needed. This approach is in IND-enabling studies, and we expect to file the IND later this year, with clinical trials beginning thereafter. And in earlier stages, we're using gene editing technology to make so-called hypoimmune pancreatic islets, yet another approach that eliminates the need for immunosuppressives. The VX880 Phase I-II clinical trial is up and running at multiple sites. The trial continues to enroll in dose patients. We anticipate sharing data from more patients and longer duration of follow-up this year. I'll conclude the pipeline overview with VX548, a novel selective inhibitor of NAV1.8, which is in clinical proof-of-concept studies for acute pain. Two proof-of-concept studies in acute pain were initiated in the second half of 2021, one in patients following abdominoplasty surgery and one in patients following bunionectomy. These studies are dose-ranging, placebo-controlled studies, and both include an opioid reference arm. The abdominoplasty study has now completed enrollment and dosing, and the bunionectomy study will complete in the coming weeks. We anticipate having results from both studies this quarter and announcing both results together. With that, I'll turn it over to Stuart.

Thanks, Reshma. I'm pleased to review tonight our continued strong commercial performance. Our CF business performed exceptionally well in the fourth quarter and for the full year in 2021. Our Q4 global revenues were $2.07 billion. Full year revenues were $7.6 billion, an increase of 22% over 2020. U.S. CF product revenues grew 10% to $5.3 billion in 2021, driven mainly by the launch of Trikafta in the 6- to 11-year-old patient population following its approval last June. Our product revenues outside the U.S. increased 66% over 2020 to $2.3 billion. We signed more than 15 new reimbursement agreements in 2021, and following these agreements, we have seen strong uptake of Captrio and Trikafta matching the launch dynamics in the U.S. Looking to the future in 2022 and for the next several years, we expect significant continued revenue growth. as there are more than 25,000 patients remaining who are addressable with our CFTR modulators, but who are not yet treated. These patients fall into three categories. Patients who have not yet initiated treatment, largely in countries where we are recently reimbursed and therefore are early in the launch curve. This includes countries such as Canada, Spain, and the Netherlands. Patients in geographies where we are not yet reimbursed, such as Australia. And finally, younger patients. who will be addressed through ongoing label expansions. We continue to make progress in addressing younger and younger patients. As examples, we secured approval for Caftrio in 6- to 11-year-old patients in Europe and the UK just a few weeks ago, and our submission for approval of Trikafta in these younger patients is also currently under review in Canada. And in 2022, we plan to file for approval for Orkambi in patients 12 to 24 months of age in the U.S. and Europe, based on the recently completed Phase III study. In addition, with our mRNA program in IND-enabling studies, we are making real progress in developing a medicine for the additional 5,000-plus patients that we cannot address with our current CFDR medicines, but who are potentially addressable with the successful development of an mRNA therapy. The recent long-term and real-world data, as discussed by Reshma in her prepared remarks, have significantly strengthened our competitive position and highlight the benefits of our medicines for CF patients. For a genetic disease like CF where patients start medicines at an early age and take them chronically over their lifetime, long-term and real-world data like these are incredibly important to patients and physicians. They take many years and thousands of patients to generate and set a very high bar for any future therapy to meet. I would now like to provide a commercial perspective on two programs that are in or entering pivotal development that highlight our future diversification beyond cystic fibrosis. I'll start with CTX001, our CRISPR-Cas9-based gene editing therapy for hemoglobinopathies, which we plan to file for regulatory approval before the end of this year. In terms of market opportunity, 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 of these are patients with severe sickle cell disease, and the vast majority of these are in the U.S., 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 busulfan-based conditioning regimen, which is in line with our own estimates of the numbers of severe patients. With global regulatory submissions planned for CTX001 toward the end of this year, our launch preparation activities are well underway. including building our market access, patient support, and healthcare professional-facing teams, as well as finalizing our manufacturing and supply chain network. Finally, as Reshma noted, we plan to advance VX147 to pivotal development this quarter, so I would like to comment on the opportunity we see in APOL1-mediated kidney disease, or AMKD. In the Phase 2 study, we enrolled patients with two APOL1 mutations who had focal segmental glomerulosclerosis, FSGS, as demonstrated by biopsy. This was an ideal population to test the clinical hypothesis of APOL1 inhibition. There are approximately 10,000 patients with APOL1-mediated FSGS. However, we estimate that the population of people with two APOL1 mutations and kidney disease primarily driven by APOL1 is much larger, approximately 100,000 patients. This is the initial target population that we will seek to address with VX147, and so this represents a multibillion-dollar opportunity. Awareness of, diagnosis, and genotyping of patients with AMKD are all low. So in parallel with the planned progression of VX147 to pivotal development in 2022, we expect to begin increasing awareness of APOL1-mediated kidney disease with treating physicians, with a focus on the importance of genotyping. I'll close by noting that we are about to celebrate the 10th anniversary of the approval of our first CF medicine, Kalydeco. It has been an extraordinary 10 years as we have developed and launched not only Kalydeco, but three additional transformative medicines to address the underlying cause of disease for CF patients. I'm excited for the opportunity in 2022 to bring Trikafta-Kaftrio to even more patients around the globe and the potential to commercialize multiple potentially transformative therapies outside of CF in the near future, starting with sickle cell disease and beta thalassemia. I will now turn it over to Charlie.

Thanks, Stuart. In the fourth quarter of 2021, Vertex continued to demonstrate very strong financial performance. Fourth quarter total product revenues were $2.07 billion, a 27% increase compared to Q4 of 2020. I would note that it is typical for channel inventory to fluctuate from quarter to quarter, and in Q4 2021, revenues benefited from moderately higher channel inventory. We expect these inventory levels to normalize in Q1 of 2022. Our full-year revenues of $7.6 billion represent an increase of 22% compared to 2020 revenues of $6.2 billion. 2021 revenue growth was driven by strong international uptake of CapTrio and 6-11 uptake of Trikafta in the U.S. And with full-year sales of $5.7 billion, Trikafta CapTrio now represents 75% of total company revenues. Other notable milestones include are that the USCF product sales exceeded $5 billion for the first time and ex-USCF product sales exceeded $2 billion for the first time. Our fourth quarter 2021 combined R&D and SG&A expenses were $703 million compared to $539 million for 2020, and our full-year expenses were $2.33 billion compared to $1.98 billion in 2020. Increased expenses were driven by investment in our research pipeline advancement of multiple mid- and late-stage clinical programs, incremental costs for our growing CF business, and investments in pre-commercial activities for CTX-001. Our continued revenue growth combined with disciplined spending resulted in a 2021 operating margin of 57% and non-GAAP operating income of $4.34 billion, an increase of 24% compared to 2020. Our non-GAAP tax rate for 2021 came in at 21%. With continued revenue growth and profitability, we finished 2021 with $7.5 billion in cash. And consistent with our corporate strategy, our top priority for capital deployment is reinvestment in innovation, both internally in our R&D programs and externally, with business development aligned to our R&D strategy. We have invested approximately $3 billion in collaborations and acquisitions since 2019. Additionally, we have made more than $2 billion in share repurchases to offset dilution over that same timeframe. Now to guidance. Our 2021 performance reflected strong uptake for Trikafta in the U.S. and for Keftrio in multiple countries around the world. For 2022, we project that we will achieve total product revenues of $8.4 to $8.6 billion. At the midpoint, that's an increase of nearly $1 billion, or 12% growth over 2021. I'd like to remind you, as is our practice, this guidance reflects our expectations for approved products in countries where we have already secured reimbursement. For non-GAAP OpEx, we are guiding to a range of $2.7 to $2.75 billion. Consistent with our innovation strategy, we expect to continue to allocate greater than 70% of our OpEx to R&D with year-over-year growth largely driven by investment in our pipeline in order to advance key programs through mid- and late-stage development. Finally, we expect our non-GAAP tax rate for 2022 to be in the range of 21% to 22%. In closing, 2021 was a very important and successful year for the company. We significantly expanded our leadership position in CF by treating more patients, generating key long-term and real-world data, advancing the next-in-class CFTR modulator program into Phase III, and continuing to innovate for all CF patients. We also accelerated our R&D pipeline in 2021 and obtained key data readouts across multiple programs and multiple modalities. We further strengthened our financial position, enabling continued investment in internal and external innovation while delivering industry-leading operating margins. Most importantly, these advances set the foundation which positions us for multiple milestones and significant value creation in 2022 and beyond. We look forward to updating you as we progress through the year. Let's now open the call to questions.

Certainly. And first, I'd like to hand the program over to Michael Partridge, Senior Vice President of Investor Relations.

Thanks, operator. I would just want to note to everybody before we start the Q&A that our conference room audio has cut out. We're all on our cell phones, and we'd like to proceed with the Q&A, but please bear with us. Thank you.

Thank you. If you'd like to ask a question at this time, please press star then 1. Our first question comes from the line of Michael Yee from Jefferies. Your question, please.

Hey, guys. Thank you for the question, and congrats on a great year end. We had a question on APOL1. I know that you are certainly meeting with FDA soon and trying to start a pivotal study, so you must have some thoughts around both the design, the endpoints, and what you expect out of the FDA and what you plan to do. Maybe you could give some color on that, both on primary and key secondary points you'd expect to be in agreement with FDA. Thank you. Sure.

Hey, Michael, thanks very much for the question and for the kind words for the year. With regard to the VX147 program, the important point here to discuss is that in Phase 2, what we did was study APOL1-mediated FSGS, which is one kind of APOL1-mediated kidney disease. APOL1-mediated kidney disease as a whole, that's to say where patients have two APOL1 alleles and kidney disease driven by those two alleles, that overall population is 100,000 patients in Europe and the U.S. The FSGS population that we studied is about 10,000 patients. So why did we do that? This was a very deliberate decision because the FSGS group are a very severe group of patients with heavy pertinuria, rapid progression to end-stage renal disease, and no available therapy. Reasoning that if we could have impact in those patients then we could go forward into phase three with confidence that we would be able to impact the broad AMKD population. The results from our phase two study are, and I don't use this word loosely, they are unprecedented. 47.6% reduction in pertinence on top of standard of care in an APOL1-driven FSGS population is an impressive result. With regard to the study design for the next stage, we are, as you rightfully point out, Michael, we are going to have our end of phase two meeting with the FDA in the near term. That is just something we haven't done yet, although we have had the benefit of conversations with the agency. The important parameters I'll put on the table are the following. Proteinuria, which is what we measured in phase two, that is a measure of kidney damage. It's an important endpoint in and of itself. The community and the agency have had discussions over the last many years about that endpoint being a potential regulatory-enabling endpoint for accelerated approval in homogenous proteinuric kidney diseases. So that's just one point to mention. The second point is what would the endpoints be? We're talking about proteinuria. And certainly the hard endpoint would be time to ESRD treatment. a decrease in the GFR slope and depth. It's usually a composite endpoint for the hard endpoint. So that's really what we're looking at. We are very excited about the program. We are looking to have our end of phase two meeting with the FDA in the near term. And we're looking to start our pivotal development towards the end of this quarter. I hope that's helpful.

Thank you.

Thank you. Our next question comes in the line of Phil Nadeau from Cowan & Company. Your question, please.

Phil Nadeau Good afternoon. Thanks for taking our question. Maybe just to follow up to Michael's, in terms of the specific endpoint, you just mentioned proteinuria and then the composite endpoint of more clinical results. In the recent past, it seems like the renal division of the FDA has been shying away from surrogate markers and focusing companies on the more clinical endpoints. Can you talk a bit more about your optimism for maybe getting pertinuria as a primary endpoint? Would you actually seek an SPA if you get an agreement on that endpoint to try to lock the FDA in? And maybe how likely is it that you actually have to do a clinical endpoint-based trial? If so, how long of a study would that end up being? Thanks. Yeah.

Hey, Phil, thanks for the follow-up question there. Okay. So with regard to... What is the likelihood of pertinoria being the endpoint and such? We have to simply have our end of phase two meeting and we're going to know that soon enough. So no need to speculate. The end of phase two meeting is going to happen in the near term and we will know. What I can tell you is that the agency has been open for many years now. for pertinuria to be an acceptable surrogate for accelerated approval in homogeneous kidney diseases. And when I say that, inherent in that statement is, and then of course you'd have to do the continuation of the trial to get to the hard outcome. So those are the conversations we're going to enter into. Obviously, and I think you know this, but I'll mention it just in case, the degree of proteinuria is really important because, one, not only could proteinuria be a potential accelerated endpoint, but, two, the degree of proteinuria is directly related to the heart outcome. So when you see an improvement in proteinuria of almost 50%, it bodes well for many reasons.

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

Hey, guys. Thanks for taking my question. Just wanted to shift a little bit to sickle cell. And I know, obviously, you guys are heading toward kind of a submission, hopefully, but can you talk a little bit about where you stand on conditioning regimens and some of the work that you may be doing going forward to kind of maybe make them kind of less onerous for patients with sickle cell things?

Yeah, yeah, great question. Althea, let me just step one step back and make sure everyone is tracking with you on where we are with the CTX001 program today and then where we're going with conditioning regimens that we're looking to improve. Okay, so where are we today? Across the sickle cell and beta thalassemia programs, we have completed enrollment. The initial target was 45 patients in each program. Each of the studies was oversubscribed and we have more patients than that and we have completed enrollment. We have dosed more than 70 patients and we are looking, as I said in my prepared remarks, towards a filing towards the end of this year. This program is with busulfan-based single-agent myeloblative therapy. And we think that that regimen, with the benefit-risk that it provides, would be applicable to about 32,000 people in the U.S. and Europe with sickle cell and beta-cell. 25,000 of those would be sickle cell patients, and the majority of those in the U.S., But to unlock the full potential, which is, I would say, about 150,000 patients in the U.S. and Europe, we do see gentler conditioning regimens being key to that. We have programs internally at Vertex. We have recruited a world-renowned team in our what we call VCGT, Vertex Cell and Gene Therapies Division. Our partners at CRISPR also have programs in improved conditioning, as do a number of other academic and biotechnology, other biotech companies. I will say, Althea, that I think that this is a problem that will be solved. And I say that for two reasons. One, we have line of sight onto the biology. We understand the cell surface markers and the ligands that we could use to pursue the cell types that we are trying to deplete selectively. And two, because this kind of approach, this gentler conditioning regimen would have applicability beyond sickle cell and beta-fal in oncology. And so I do think that this is

a problem that is going to be solved. Thank you.

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

Hey, guys. Thanks so much for the question. I have a couple also on CTX001. The first one is, you know, from a regulatory perspective, what would you highlight, Reshma, Regulators, you may need to see, is it stuff like, you know, number of patients, median follow-up, or is it, you know, better clarity on things like manufacturing scale-up? And then on the commercial front, I'm just trying to think of, you know, the arguments you can make with a curative approach in the cost savings you can make. So is there an evaluation ongoing on treatment costs that you're doing maybe in parallel to support reimbursement? You know, things along those lines. Thank you.

Yeah, sure thing, Jeff. Jeff, I'm going to start and then I'll turn it over to Stuart to tell you a little bit about how we see the burden of this disease. With regard to the regulatory next steps, the most important thing to share with you is that we are the beneficiaries of almost every regulatory designation you could imagine on both sides of the pond. Prime, Orphan, RMAT, which is the cell and genes for breakthrough designation. So we've had the benefit of having discussions with the regulators over time. You are right about the two outstanding items. It's about the number of patients and the duration of follow-up. With regard to your question on manufacturing, You know, in the grand scheme of things, Jeff, this is an easier manufacturing approach. I don't mean to suggest it's easy, but it is easier because it's an ex vivo approach and it requires just the Cas9 enzyme and the guide RNA. Our partners at CRISPR were very thoughtful and from the start, We planned for the manufacturing that we are using in clinical trials to be the same process that we use in our commercial program. And not only that, it's also the same sites, the same exact sites that we are using to manufacture in our clinical trials program are the same sites that we expect to use when we commercialize. So that all is proceeding to plan. I'm going to ask Stuart to comment on the burden of disease and how we see that. Stuart?

Yeah, Jeff, so you ask a great question. These are obviously lifetime conditions and have a significant clinical but also economic burden on patients and on the healthcare system. There are some published data on this topic. They're not terribly up to date, many of them. So as you might expect, we are working to develop updated estimates of the economic impact of sickle cell and beta thalassemia. It is very, very significant. It's obviously impacted by things like in sickle cell disease, the cost of the vaso-occlusive crises, particularly if they lead to hospitalizations and the other medications that patients take. In thalassemia, it's obviously the burden of transfusions and then also some of the additional care that patients can require because of the transfusions, such as ion chelation and other supportive care. So we are working to generate updated estimates of the economic and, indeed, social burden of sickle cell disease and thalassemia, and that will be an important part of the context to demonstrating the cost-effectiveness of a one-time curative therapy like CTX001.

Great. Thank you, guys. Thank you. Our next question comes from the line of Brian Abrahams from RBC Capital Markets. Your question, please.

Hey, guys. Good evening. Thanks for taking my question, and congratulations on the quarter and the year. You've obviously shown very promising data from the first patients with the VX880 for diabetes. And I guess I'm curious, how consistent should we expect the effects to be patient to patient with this type of approach? How are you feeling overall about the safety profile as you've continued to enroll patients? And what would be your aim as you move from half to full doses? Would it be generating a more rapid response, an even more rapid response than you've seen, or potentially moving towards complete normalization of some of the key parameters? Thanks.

Yeah. Hey, great questions. There's a number of questions in there, and I think... if I try to wrap up what you are foundationally asking is how do we see this program progressing and what should you expect when we get to full dose because the one patient's data that we shared at half dose are really pretty impressive. Okay. As you know, Brian, the really important part of these data, and the reason we shared the data from the first patient are threefold. One, it was at half dose, yet the results, whether you look at the endogenous C-peptide levels, and remember, this patient has 30 years of diabetes and made no endogenous insulin. That result was pretty impressive. The second is hemoglobin A1C and the really significant decline in insulin was what made us share those results. It has not been, results like that have simply not been seen in this field. With regard to consistency, what we are aiming for here is a functional cure for this disease. So we are expecting patients to consistently have elevations in C-peptide, decreases in hemoglobin A1C, and improvements, if not elimination, of exogenous insulin. With regard to the safety profile, I'm only going to comment on the data that we've already shared. And as I said, the therapy was well tolerated in my prepared remarks. And importantly, because as you think about hemoglobin A1Cs decreasing, you have to think about the patient not suffering from low glucose levels, and that didn't happen. This patient has been free of severe hypoglycemic episodes since the perioperative period. So as we look forward, what are we looking to? The study is up and running in multiple sites. We are looking to enroll more patients, dose more patients. And the reason we are looking to go to full dose is because we are going for a curative approach. And when you look at the history and the experience of cadaveric islet transplants, the quality and quantity of cells are very related to the durability of the response.

That's so helpful. Thanks very much.

Yeah.

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

Good afternoon. Thank you for taking my questions. What is the bar here for the two Phase II acute pain programs that are reading out this quarter in terms of moving forward? And then separately, could you speak to your capital allocation plans?

Yeah, sure thing, Salveen. Let's take the pain studies first. We are in two acute pain studies, one in abdominoplasty, a model of soft tissue pain, and one in bunionectomy, which is seen as a model for pain in a quote-unquote hard tissue. Both studies are very similarly designed. They are dose-ranging studies with a placebo control arm and an opioid reference group. What we're really looking for here is therapeutic pain relief without the side effects of opioids. Obviously, the most important one of that is the addictive potential. I don't have to tell you about the opioid epidemic raging in the U.S., and we have very high confidence in VX548 on the safety side and the lack of addictive potential because there is simply no receptors for NAV1.8 in the central nervous system. On the efficacy side, we go into this with confidence for three reasons. One, this is a genetically validated target. Two, this is also a pharmacologically validated target with our own VX150 data that you'll remember had positive proof of concept across acute, neuroplastic, and let's call it musculoskeletal pain. And three, this particular molecule, VX548, amongst its other properties, is also multifold more potent. So that's really what we're expecting, and that's how we are looking at the 548 program. With regard to capital allocation, Sylvain, we've been very consistent as we've talked about our capital allocation strategy that we believe that the greatest value we can create is by investing our capital in innovation, both internal and external. We've never invested more than we are today in internal innovation, and you see the results of that with VX147, with the phase two results and its progress into pivotal development. With the two phase two studies we just spoke about in the pain program, not to mention the VX121561 tesocaptor program and CF in phase three. And you also see it with our investments that we've made in business development, with the SEMA acquisition and the really terrific results, albeit early, from the VX-880 program. And going forward, what you can expect is the same. Our strategy is working, and we expect that we will continue to invest in both internal and external innovation.

Thank you.

Thank you. Our next question comes from the line of Colin Bristol from UBS. Your question, please.

Hey, good afternoon, and congrats on the quarter and the strong 22 guys. You know, not to sort of flog a dead horse, but we're obviously getting closer to a competitive CF trip at Readout, and I'd love for you to remind us specifically, what is it that gives you comfort around the level of competitive threat or the lack of? And then just a quick one on your type 1 diabetes program, VXA-80. On the encapsulation device, you said you've overcome fibrosis and vascularization issues. Is there a drug-eluting component to this device? Thanks.

Yeah. Hey, Colin, thanks so much for the kind words and for the questions. Let's do type 1 diabetes first, and then we'll go back and do CF landscape. All right. We talked a little bit about the results on patient number one and the progress to full dose and why we're doing that and what our real goal is and to restate that we're looking to bring a functional cure forward for this disease. The other reason those results in that first patient are so important is because those same cells, exactly those same cells, are the cells that are in the cells plus device program. And that cells plus device program is now in its IND enabling studies phase, and we do expect to file that IND this year. I will keep my comments about the encapsulation at a high level, but what I can tell you is that the device has been specifically configured to allow vascularization and exchange of oxygen and nutrients to allow insulin to go back and forth and for it to sense glucose, but to keep the immune system out. I'll also tell you that it's not just the materials, but it's the geometry. And our studies to date, including in large animal models, tell us that we've overcome the historic complications with foreign body response and the lack of the ability to properly oxygenate and provide nutrients to the cells. With regard to the CF landscape, and we've talked about it before, but I'll remind that as you look at the CF landscape today, the bottom line is that Trikafta has simply set a very high bar More patients around the globe are treated with a vertex CFTR modulator today than ever before, and the vast majority of that is with Trikafta. Trikafta's clinical trial data are remarkable. You remember the PPFEV1 of 14% from the clinical trial results. But it's not just the acute changes in lung function. As I shared in my prepared remarks, Trikafta now has long-term data from the 96-week follow-up study from the pivotal trials, and what it shows is no decline in mean lung function over time, the first for any CFTR modulator. And now we also have data, real-world data from the CF registry, and that shows improvements in really important measures like transplantation, pulmonary exacerbation, and death. And so you put this all together, and what you really have is if there's any medicine that will compete with Trikafta, it has to go head-to-head against Trikafta in clinical trials. That's exactly what we're doing with 121561, Tezicaftor. It has to have improved benefit, and you have to have the long-term data. The only company that has that is Vertex. And the most advanced competitor to Trikafta is our own 121561-Tezacaftor, which is already in phase three studies.

That's great.

Thank you. Thank you. Our next question comes from the line of Robin Karnaskas with Truist Securities. Your question, please.

Hi, guys. Thanks for taking the question. So real quick one. So just for 548, does that new molecule have the ability to work in neuropathic pain? I noticed that you didn't do a trial this time with that molecule. And then on type 1 diabetes program, there is going to be some patient data coming out of Viasite and CRISPR with an edited embryonic stem cell program that they have. And I was just curious, like, when we see that data, like, how do you see that as a read to whether or not your edited program will work without immune suppressants. I know it's a less differentiated program potentially than your cell line versus your IPSC cell line or your cell line. And so just trying to understand the read that we should expect or how you're looking at that data when it comes out to the potential for using an edited version without immune suppression for your program.

Yeah, yes. Really great questions, Robin. Let me take the neuropathic pain question first with 548, and then let's do type 1 diabetes. Okay. The NAV 1.8 axis. as I described earlier, is an exciting one. It's an exciting target for us because of the genetic validation, but also because of the pharmacologic validation with VX150, which had positive results not only in acute, but also neuropathic pain. So, yes, I do expect VX548 has potential in neuropathic pain. Unlike acute pain, which as the name implies, is a short-lived pain syndrome. Neuropathic pain is a chronic disease state. So the kind of preclinical data and the work that we need to do and the package we need to put together is different. And that's what we're doing right now. But I do expect that the NAV 1.8 axis and that target will be important in neuropathic pain. And I point you to the NAV 150 results as the clearest reason to believe. With regard to the... question around potentially getting to a point of having fully differentiated allogeneic insulin producing pancreatic islet cells that could be edited to evade the immune system. Here's the most important thing. You have to have the cells. It's not actually about the editing. It's not actually about the device. It's not actually about the off-the-shelf immunosuppressants. Those are three different ways to protect the cells from the immune system, but it's actually about the cells. And the only company that has these allogeneic, fully differentiated pancreatic islet cells that make insulin and can make these cells in industrial quantities is Vertex. And we are working on multiple approaches to protect these cells from the immune system. VX-180 uses the off-the-shelf immunosuppressors. We call it VX-264. That's the cells plus device program that uses a device to protect the cells from the immune system. And then, of course, we have our program to edit the cells.

But the key is it's the cells. Thank you.

Our next question comes in the line of Mohit Bansal from Wells Fargo. Your question, please.

Great. Thanks for taking my question and my congratulations as well. Maybe another one on VX147. How well understood is the homogeneous nature of ApoL1-mediated kidney diseases with proteinuria being the key marker here? I'm asking it because genetic testing is not routinely performed in these patients. So trying to understand if there is a lack of data that could be a gating factor for the FDA from making a leap from FLGS to a broader ApoL1-mediated kidney diseases.

Yeah. Mohit, thanks so much. So let me tell you a little bit about the background of ApoL1-mediated kidney disease, and I think it'll help you understand where we are. and what it means for the future. And you're right about the fact that testing is low and that we need to do more in order to get patients tested. But as you also know, when we have a disease for which we have no therapy to offer patients, which is the case today with ApoL1-mediated kidney disease, the motivation for patients and physicians understandably is not high to get a genetic diagnosis for something we can do Nothing to be helpful. Okay, so the April 1 story is a very recent story. It's only about a decade, 12 years old, that we have actually come to understand that the large amount of kidney disease, proteinuric kidney disease, that we previously didn't understand in patients of African origin is ApoL1-mediated kidney disease. This is only something we've figured out in the last 10 to 12 years. The homogeneity of the disease is clear, and I would even say obvious. And I say that because it's found in people who have kidney disease with proteinuria and two ApoL1 alleles. That's how you define this group. And the underlying thread, therefore, is having two ApoL1 alleles. There have been studies done in patients who have pertinuria and have two ApoL1 alleles versus not. And when you have two ApoL1 alleles, your outcomes are uniformly worse. You progress the kidney disease faster. That's the homogeneity. Now, the question you also ask is, is this well known? Is this well understood? Because our understanding of the genetics itself is fairly recent, there is an education effort, and that is part of what we're doing. We ourselves are working on a 503C diagnostic to accompany VX147, and we're working with patients and physicians to ensure that diagnosis is supported.

Super helpful. Thank you, Reshma.

Sure.

Thank you. Our next question comes from the line of Evan Siegerman from BMO Capital Markets. Your question, please.

Hi, all. Thank you so much for taking my question. One for you, Reshma. So from your view as a nephrologist, how important is EGFR as a measure of kidney disease progression Does change in proteinuria confer the same measurement in your view?

Yeah, it's a really great question, Evan. The thing I would share with you that's topmost on my mind if I wear my nephrology hat is that the hope that VX147 offers is something that is truly novel and a big deal, a big deal in the renal community. The reason I say that is that this is one of the few genetically defined kidney diseases that we understand, and it is one of the first, if not the first, precision medicine approach to a genetically driven kidney disease where we're targeting the underlying cause of the kidney disease. There is a relationship between proteinuria and GFR. So GFR is simply a measure of kidney function, right? Just like PPFEV1, which we're all very familiar with as a measure of lung function. And the relationship is this. Proteinuria measures kidney damage. It tells you that protein, which is supposed to stay on one side of the membrane, is leaking out into the urine. When you have that, And it progresses. The next step is decreases in GFR, measure of function of the kidney. And unfortunately, the next steps after that are continued decline leading to either transplantation, dialysis, or death. So these are very related measures. I think they are individually important and collectively very telling about the course of a patient. But maybe clinically speaking, what I would say is when you see a patient who has a peritoneal kidney disease, what are we trying to do in the clinic? We are trying to reduce peritoneuria because there is a clear correlation between peritoneuria and the hard outcomes of transplantation, dialysis, and death.

Perfect. Thank you so much.

Operator, we'll take two more questions.

Certainly. Our next question comes to the line of Hartej Singh from Oppenheimer. Your question, please.

Great. Thank you for the questions and the really nice report. I'll ask Stuart a question here. I'll give you just a quick break. Stuart, you know, in cystic fibrosis, you'll do close to $9 billion by the end of this year in cystic fibrosis. You've penetrated about two-thirds, 75% of the population by then. you know, how to think about where you can get to, you know, can you get to 90% plus penetration with your CFTRs aside from the approach of Moderna? And then just quickly, you know, assuming you get approval for sickle cell disease and beta thalassemia, how do you see an uptake? I mean, would there be a warehousing in the beginning? Would there not be? Would the uptake be slow and steady? Just any color there. Thank you for the question.

Great, Hatesh. Thank you. So, Yeah, our guidance for 2022 is $8.4 to $8.6 billion, as Charlie said in his prepared remarks. And that is a reflection of the momentum we have coming into 2022 from 2021, where we launched 6 to 11 Trikafta in the U.S. and also secured numerous reimbursement agreements outside of the U.S. So our guidance incorporates that momentum and countries where we already have reimbursement agreements. As you said, though, we still have a lot of the CF population who could potentially benefit from a CFDR modulator who are not yet being treated, somewhere north of 25,000. And we have a lot of confidence that we're going to get to the vast majority of those patients because they are in sort of three categories that we've demonstrated that we can address. The first one is patients who are in countries where we have reimbursement agreements and but patients haven't been initiated. And that's largely because we're early in the launch curve. So think of countries like the Netherlands and Spain. The second category is countries where we have regulatory approval but don't yet have reimbursement. So think countries like Australia. And the third category is younger patient groups, where we've demonstrated with Kalydeco and Orkambi that we can develop our products down into younger and younger age ranges. And as I said, Trikafta is now approved for 6 to 11 here in the U.S. Very recently, Caftreo was approved for 6 to 11-year-old patients in both the EU and the UK, and we're continuing to look at developing it for even younger patient groups. So we have a lot of confidence that we're going to be able to get to the vast majority of those 25,000 patients over the next few years, and that's going to drive significant revenue growth for several years to come. And then, as you mentioned, in addition to that, there's an additional 5,000-plus patients who aren't going to be able to respond to CFTR modulators because they produce no protein. And those are the patients we're seeking to address with our mRNA therapy. And as Reshma said in her prepared remarks, we've made good progress with that. So we have a lot of confidence. There's a lot of growth left in our CF franchise over the next several years. In terms of the sickle cell and transfusion developed thalamus thalassemia patient populations, again, we see a very significant opportunity there. As Reshma mentioned, approximately 32,000 patients who have severe disease between the US and the EU. So we see a significant multi-billion dollar opportunity just treating those severe patients. Obviously, this is a different type of condition. This is a different therapy. And so I wouldn't be thinking of an uptake curve like we've seen in CF. It's not going to be anywhere as dramatic as that. But certainly, in that severe sickle cell and thalassemia populations, we see a multibillion-dollar opportunity ahead of us.

Very great. Thanks.

Thank you. Then our final question for today comes from the line of Tibjit Chattopadhyay from Guggenheim Securities. Your question, please.

Hey, good afternoon. Thank you. I want to go back to VX147 with a three-part question. So number one, has the agency signaled a threshold for proteinuria reduction for accelerated approval? Number two, if I understood your prior comments, the hard endpoints will be collected in the same study? and will convert the subpart H to a full approval? And number three, does the broader high-rescape O1 protein neuro-kidney disease population, is this also a double H disease? And do they progress to ESRD at the same speed as FSGS? Thank you.

Yeah. Sajid, you asked three important and related questions the 147 program in AMKD. So let me try to answer them in this way. When we talk about the 147 program and targeting our pivotal development so that we can address the 100,000 people with 2ApoL1 alleles and proteinuric kidney disease, these people already have kidney disease. These are not people at risk for kidney disease. So the double-hit hypothesis is a good point. That's for at risk to develop disease. These people we are talking about already have disease. The second question is a related question around proteinuria, its potential use as a surrogate endpoint for accelerated approval, and then how you do these studies in terms of the hard endpoints. As I said before, we simply haven't had our end of phase two meeting. We'll have it soon enough, and then I can share details of the program with you. But generally speaking, the way that studies are done when proteinuria is the endpoint for accelerated approval is in the same study, the study continues, and you go on to the composite endpoint of change in GFR, time to ESRD, or death. And that's how you collect that hard endpoint.

Good. Thank you so much. And congrats on the quarter and the guide for the full year.

Okay. Thanks so much, Devjeet. Okay, Operator, thanks very much.

We appreciate everybody joining us tonight, the Investor Relations team in the office tonight, and happy to talk to you if you have additional questions. And you may now disconnect. Thank you very much.

Thank you, ladies and gentlemen, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day.