Vertex Pharmaceuticals Incorporated

Good day and welcome to the Vertex Pharmaceuticals third quarter 2023 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Susie Lisa. Please go ahead, ma'am.

Good evening, all. My name is Susie Lisa, and as the Senior Vice President of Investor Relations, it is my pleasure to welcome you to our third quarter 2023 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. The call is being recorded, and a replay will be available on our website. We will make forward-looking statements on this call that are subjects 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 cystic fibrosis 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 that we will review on the call this evening are presented on a non-GAAP basis. In addition, the impact of foreign exchange is presented inclusive of our foreign exchange risk management program. I'll now turn the call over to Reshma.

Thanks, Susie. Good evening, all, and thank you for joining us on the call today. We've delivered another strong quarter and continue to drive execution across the company. By reaching more CF patients, third quarter global product revenue grew 6% versus the prior year period, and we are raising full year 2023 CF product revenue guidance to approximately $9.85 billion. We are delivering on our marketed medicines in CF while simultaneously preparing for commercial excellence in multiple areas ahead of our potential near-term launches. including Exacell in both severe sickle cell disease and transfusion-dependent beta thalassemia, VX548 for acute pain and longer-term in peripheral neuropathic pain, and Arvanzacaftor triple combination therapy for cystic fibrosis. Most notably, we are tracking towards an exocel PDUFA date for sickle cell disease on December 8th of this year and for TDT on March 30th of next year, with global regulatory reviews also underway in Europe and the UK. Phase three pivotal trial readouts in early 2024 from both our Vanzecafter triple in CF and our VX548 program in acute pain. A phase two trial readout by year end 2023 from our VX548 trial in diabetic peripheral neuropathy and completion of enrollment in the phase two portion of the VX147 phase two three program in AMKD later this year. With that overview, let me now turn to a pipeline update, starting with cystic fibrosis. For our next-in-class Vanzecafter triple combination therapy, we remain on track to complete all three Phase III studies, Skyline 102 and 103, in patients ages 12 years and above, and the Ridgeline study in patients ages 6 to 11 by the end of 2023, and share results from these three pivotal studies in early 2024. We have high expectations that the vanzecaftor-triple combination can deliver greater improvements in CFTR function than Trikafta based upon the totality of evidence generated to date, including in vitro from our HBE assays and in Phase II studies. The vanzecaftor-triple holds the potential for enhanced clinical benefit versus Trikafta for patients and the convenience of once-daily dosing. It also carries a substantially lower royalty burden. In addition, we continue to make progress with another important program in our CF portfolio, VX522, our CFTR mRNA therapy in development with our partners at Moderna for the more than 5,000 CF patients who cannot benefit from CFTR modulators. We continue to expect to complete the single ascending dose portion and initiate the multiple ascending dose portion of this study by the end of the year. Turning now to Exacell, our CRISPR-Cas9-based gene editing program for sickle cell disease and transfusion-dependent beta thalassemia. This program holds the potential to be a one-time functional cure for these debilitating and life-shortening diseases. Exacell represents an enormous advancement for the estimated 32,000 people living with severe sickle cell disease and transfusion-dependent beta thalassemia across the US and Europe. It is a large commercial opportunity. On the regulatory front in the U.S., we were very pleased to have had the chance to discuss the XSL filing with members of the FDA Advisory Committee last week and to hear the very compelling stories from patients. The meeting represented a significant milestone for Vertex. and the first potential CRISPR-Cas9-based therapeutic. We look forward to our upcoming PDUFA dates and to the potential of bringing this precise, durable gene editing therapy to patients. Internationally, in both the UK and the EU, we are also well into the regulatory review process and expect regulatory decisions in these jurisdictions in the coming months. In addition, we recently submitted a marketing authorization application for Exocel to the Saudi Food and Drug Authority, or SFDA. I am pleased to share that Exocel is the first medicine ever to receive breakthrough designation by the SFDA, reflecting both the high unmet need and the high enthusiasm for Exocel in the Kingdom of Saudi Arabia. We look forward to updating you in the coming months. Moving on to the pain program, NVX-548, our novel, highly selective NAV1.8 inhibitor that holds the promise for effective pain relief without the side effects or addictive properties of opioids, and therefore represents a significant commercial opportunity in both acute and neuropathic pain. The pace of the phase three program in acute pain has been rapid, which we see as an indication of the high unmet need and strong patient and physician interest in an efficacious non-opioid acute pain therapy. We have completed the randomized control trial in abdominoplasty, the RCT and bunionectomy, and a single arm safety and efficacy study remain on track to complete by the end of this year. As previously discussed, we will unblind, analyze, and share results on all three studies at the same time, and we expect to do so in early 2024. This comprehensive phase three program has been designed to support a broad, moderate to severe acute pain label and to enable prescribing and usage across multiple care settings. We're also studying VX548 in peripheral neuropathic pain, or PNP, yet another area of high unmet need. Recall, we previously demonstrated positive proof of concept with the predecessor molecule VX150 in neuropathic pain. In diabetic peripheral neuropathy, or DPN, I am pleased to share that we have completed our Phase 2 12-week dose-ranging proof-of-concept study. We anticipate sharing the results from this Phase 2 trial by the end of this year. As we await the DPN results, we are excited to initiate a second phase two peripheral neuropathic pain study of VX548 by the end of the year in lumbosacral radiculopathy or LSR. It's a type of neuropathic pain caused by the impairment of nerve roots in the area of the lumbar spine. Given the limited therapeutic options, the significant opportunity to serve a large number of patients, and the promise that the NAV1.8 mechanism holds, we are excited to pursue the potential of VX548 in each of these neuropathic pain types. Next, on to type 1 diabetes, where we are evaluating stem cell-derived, fully differentiated, insulin-producing islet cells for people with type 1 diabetes. Our goal is to develop a potential, one-time, functional cure for the millions of people living with type 1 diabetes, including the more than 2.5 million patients in North America and Europe alone. The VX880 or naked cell program, where we have already established proof of concept, is foundational to the type 1 diabetes program as a whole. Here, patients take standard immunosuppressants to protect the islet cells from the immune system. At EASD last month, we presented positive, updated clinical data from all patients in Parts A and B of the VX880 study. With regard to study status, Part C of the study, which administers the full target dose with concurrent dosing, is now fully enrolled. Our second program, VX264, or the Cells Plus Device program, encapsulates these same cells in a proprietary immunoprotective device, and hence, there is no requirement for immunosuppressants. We have begun enrollment and dosing in Part A of the VX264 study. And finally, our third program, still in the research stage, is our hypoimmune cells, in which we edit the same fully differentiated cells so as to obviate the need for immunosuppressants. Transitioning now to enaxiplin or VX147, the first potential medicine to target the underlying cause of APOL1-mediated kidney disease, or AMKD. The Anaxipline Pivotal Program for Patients with AMKD is a single, adaptive, Phase 2-3 study with a pathway to accelerated approval in the U.S. The Phase 2b dose-ranging portion of the study continues to enroll and dose patients, and we expect a complete enrollment by the end of this year. We now expect to select a dose and move to Phase 3 of the study in Q1 of 2024. Now turning to Alpha-1 antitrypsin deficiency, or AATD. We have discontinued development of VX864 due to non-serious rash events in some patients in the Phase II program. Our next generation molecules, VX634 and VX668, both have greater potency and better drug-like properties and are both in Phase I clinical trials. These trials continue to enroll and dose healthy volunteers. We look forward to sharing more on AATD, including next steps as we learn more in the coming months.

With that, I'll turn it over to Stuart. Thanks Reshma. I will focus my remarks tonight on CF, XSL and pain. We delivered strong third quarter commercial results with CF product revenue growing 6% globally versus the prior year as we continue to reach patients in younger age groups as a result of new regulatory approvals and via new reimbursement agreements. Our strategy in CF has always been to develop medicines for all people living with CF and to serially innovate to deliver increased clinical benefit. We will continue to execute near-term with a focus on younger age groups, and then our goal is to drive growth over the medium term with the Vansecafta triple combination and longer term with our mRNA program VX522 that we are developing in partnership with Moderna. Now turning to Exacell, our next targeted launch and potential multi-billion dollar opportunity. This quarter, I will provide some insights as to launch readiness ahead of potential near-term regulatory approvals, and then detail the patient journey. In the US and Europe, we've previously highlighted that there are approximately 32,000 eligible patients with severe disease, 25,000 with sickle cell disease, and 7,000 with beta thalassemia. The majority of sickle cell disease patients are in the US, while the majority of TDT patients are in Europe. Within Europe, approximately 75% of all eligible patients live in four countries, the UK, France, Italy, and Germany. Italy has by far the highest prevalence of eligible TDT patients, while France and the UK represent the majority of eligible patients with sickle cell disease. In the US and Europe, we are on track with our globally enabled supply network and launch preparations with authorized treatment centers and payers. including our recently completed application for a new technology add-on payment, or NTAP, for Medicare patients in the US. In addition, Reshma mentioned our XSL-MAA submission in the Kingdom of Saudi Arabia, or KSA. Our team is engaging with the Saudi health authorities and working on the processes to support ATC activation, access and reimbursement, with the aim of bringing XSL to the thousands of patients with severe disease in KSA. We look forward to providing you with more information on future calls about this important additional opportunity. As we prepare for approval and launch, it is important to understand the XSL patient journey, which can be broken down into three key phases, each of which can take several months. First, pre-treatment. Initially, when a potential Exacell patient and their haematologist decide the therapy is right for them, the patient is then referred to a transplant physician at an ATC. Once that referral is scheduled, the patient then undergoes a full workup to determine whether they are fit for treatment with Exacell. Second, cell collection and manufacturing. This phase involves mobilization to move the blood stem cells from the bone marrow into the peripheral blood where the cells can be collected through apheresis. The patient's cells are then sent to our manufacturing facilities where they are edited and then tested for quality control. Cell collection takes longer for sickle cell disease patients given the need for two months of red blood cell transfusions prior to mobilization and, on average, two rounds of mobilization and apheresis. In contrast, TDT patients do not require pre-mobilization transfusions and typically only require one round of mobilization and apheresis. The final phase is treatment. Once the edited cells are ready, the patient starts the treatment phase, which includes myeloablative conditioning, infusion of the edited cells, at which point we will recognize revenue for the therapy, and then waiting for engraftment and post-infusion care. A critical timing factor in this phase is the patient's preferred timing for treatment, as they must choose a time that works best for their lives, given that this step involves an approximate one-month hospital stay. This patient journey is consistent across all geographies. Given the multiple steps and the duration of the journey, we expect 2024 to be a foundational year for Exacell, as the first patients begin this journey and Vertex works to deliver transformative patient outcomes with the possibility of a lifetime of benefit. Shifting now to VX548, our highly selective NAV1.8 inhibitor for pain. Given the program's rapid pace of clinical advancement, we have developed our go-to-market strategies and are actively planning for a potential near-term launch. I'd like to share an outline of some of the work we've done to size each market opportunity. Overall, the pain opportunity is massive. In the US alone, each year more than 90 million patients are treated for acute or peripheral neuropathic pain. Both acute and PNP are each multi-billion dollar markets today, despite the fact that essentially all prescriptions are generic. And we see additional upside to these opportunities given the challenges of currently approved treatments. The unmet need in pain stems from the suboptimal benefit-risk profiles of existing agents, such as the adverse effects and addiction potential of opioids and the lack of consistent efficacy for anticonvulsants like the gabapentinoids prescribed for neuropathic pain. We believe the innovation of VX548 and its overall profile could provide a transformative option for millions of patients. In acute pain, we estimate approximately 80 million patients are prescribed a medicine for their moderate to severe acute pain every year in the U.S. More than two-thirds of patients receive acute pain treatment driven by an institution, either during a hospital or ambulatory surgery center visit or at discharge. As hospital-driven prescribing is concentrated amongst some 2,000 hospitals and 200 IDNs, we can reach a large proportion of the patient opportunity with a specialty sales force. As Reshma mentioned, the peripheral neuropathic pain study in DPN is completed, and the LSR study is about to begin. PNP is an exciting commercial opportunity, given that approximately 10 million patients are prescribed a medicine for a PNP condition every year in the U.S., with chronic dosing but limited treatment options. PNP fits our Vertex specialty model perfectly. PNP is a collection of chronic conditions in which nerve impairment causes pain. DPN and LSR are two of the largest patient segments. LSR represents over 40% of all PNP patients, while DPN represents approximately 20% of all PNP patients. Specialists play a critical role in treating PNP as patients can be on multiple treatments and are often in search of more effective pain control given the limited therapeutic options. Therefore, we believe the PNP segment is addressable with a specialty sales force and we look forward to bringing innovation to PNP patients. In conclusion, it's an exciting time at Vertex. We continue to make progress treating more CF patients and are on the verge of bringing a potential functional cure to patients with sickle cell disease or beta thalassemia with Exacell. We're also preparing for multiple additional near-term launches, including the Vanzacafta Triple in CF and VX548 in acute pain. both of which have the potential to dramatically improve patients' lives and represent significant market opportunities for Vertex. I will now turn the call over to Charlie to review the financials.

Thanks, Stuart. Vertex's excellent results in the third quarter of 2023 demonstrate once again our consistent strong performance and attractive growth profile. Third quarter 2023 revenue increased 6% year-over-year to $2.48 billion. U.S. revenue grew 7% year-over-year following the recent FDA approval of Trikafta in patients ages 2 to 5, and outside the U.S., revenue grew 6% year-over-year on continued strong uptake of Trikafta-Caftrio in markets with recently achieved reimbursement as well as label extensions in younger age groups. As anticipated, in Q3 we saw the drawdown of inventory in certain international markets in contrast to the increases in inventory that we experienced in the first half of the year. Year-to-date revenue of $7.35 billion represents 11% growth over the corresponding prior year period, including an approximate 150 basis point headwind from changes in foreign currency. Overall, the primary drivers of revenue growth in 2023 have been in line with our expectations. Third quarter 2023 combined non-GAAP R&D acquired IP R&D and SG&A expenses were $993 million compared to $758 million in the third quarter of 2022. Q3 2023 results include $52 million of acquired IP R&D charges compared to $29 million of such charges in the third quarter of 2022. Operating expense growth was driven, as expected, by continued investment in research and our pipeline. Throughout 2023, the most significant areas of increased investment versus prior year included the clinical studies for VX548 in acute pain, the VanzaCaptor Triple in CF, and for type 1 diabetes, as well as the build-out of capabilities for our expanding pipeline. In addition, we continued our pre-commercial activities for Exacel and other anticipated near-term launches. Third quarter 2023 non-GAAP operating income was $1.17 billion compared to $1.29 billion in the third quarter of 2022. Third quarter 2023 non-GAAP earnings per share were $4.08, representing 2% growth compared to $4.01 in the third quarter of 2022. We ended the quarter with $13.6 billion in cash and investments. Our priorities for cash deployment remain unchanged as we continue to prioritize investment in innovation, including external innovation via business development. Year to date, we have completed nearly 10 transactions with total consideration of over $500 million. We've also continued to allocate cash to share repurchases, and year to date we have spent approximately $285 million to repurchase approximately 900,000 shares. Now switching to guidance. Given our strong year-to-date results and our consistent execution, we are increasing our 2023 revenue guidance as detailed on slide 17. For the full year 2023, we now expect CF net product revenue of approximately $9.85 billion versus our prior range of $9.7 to $9.8 billion. Note that this revenue guidance continues to include an expected approximate 150 basis point headwind to our revenue growth rate from changes in foreign currency. We are maintaining our 2023 guidance for combined non-GAAP R&D, acquired IP R&D, and SG&A expenses in a range of $4.1 to $4.2 billion. We continue to invest a majority of our operating expenses into R&D, given the momentum in our multiple mid- and late-stage clinical development programs. We are also funding the expansion of our commercial capabilities in anticipation of the multibillion-dollar opportunities represented by our programs with near-term launch potential, while continuing to leverage an attractive business model afforded by our focus in specialty markets. Due to an increase in our current year U.S. R&D tax credit estimate, we are lowering guidance for our projected full year 2023 non-GAAP effective tax rate by 100 basis points to a range of 20 to 21 percent versus the prior range of 21 to 22 percent. In closing, Vertex delivered excellent results yet again in Q3-23, achieving strong revenue growth, important regulatory milestones, continued clinical trial progress, and ongoing investments both internally and externally. As we continue to advance our programs to close out 2023 and head into 2024, we anticipate further important milestones as highlighted on slide 18 to mark our continued progress in multiple disease areas. We look forward to updating you on our progress on future calls, and I'll ask Susie to begin the Q&A period.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. And at this time, we'll pause momentarily to assemble our roster. And the first question will come from Jeff Meacham with Bank of America. Please go ahead.

Thanks so much for the question.

Hey, Jeff.

Jeff, sorry. You are garbled. We can't understand you. I'm sorry, is that better? Yeah, that's better. Thanks.

Yep. So, first question on AAT. Seems like a much more difficult indication than initially thought. You know, at a high level, what would you characterize that as? Is it just a mechanism? Is it the bar for, you know, risk benefit? Or is it the molecules itself? And the second question is, when you look to Vantacaptor in the data, Maybe help us with how rapidly you think you could roll reimbursement out across Europe and OUS indications. I know I wasn't sure if this was part of your portfolio agreements or if you had to renegotiate that. Thank you.

Yeah, sure thing. This is Rachel. Let me break that into two questions. I'll take the first part on AAT and I'll ask Stuart to comment on the Vanzecafter and our plans for launching globally. You know, Jeff, the particular issue with the VX864 molecule in AATD is a non-serious rash. That's it. That's what it is. And when you see this, it's almost always molecule-specific. So, no, it's not the mechanism of action. This is where the portfolio strategy is really important and comes into play. VX634 and VX668, which are the next two molecules, they remain in phase one development. And we're looking forward to getting those results. And the data event will be a 24-day event when we get to see those results and select a molecule or molecules and settle on next steps. Let me turn it over to Stuart to talk about VANSA. And to clarify, the study is a global study. And the intent is for global regulatory submissions and for a global launch. Stuart.

Yeah, Jeff. So on expectations for access and reimbursement outside of the U.S., as Reshma said, importantly, this study is a head-to-head comparison with Trikafta. To your specific question, was Vanzacafta imagined when we embarked on some of our portfolio agreements? It was. Some of them do include clauses to include increasingly better and better medicines, which is our anticipation of what Vanzacafta will prove to be. It isn't in all of our reimbursement agreements, just to be clear. But if the product can deliver the kind of profile that we expect, I would expect, like we did with Trikafta, that we will beat the kind of industry benchmarks for getting to access patients across XUS markets.

Okay. Thank you, guys.

The next question will come from Robin Kornoskis with Truist Securities. Please go ahead.

Thanks, guys. It sounds like 24, 25, it's going to be a breakout year for Vertex, transformative in many ways. Two questions for me. One on pain. Reshma, thanks for clarifying you're in blinding at the same time. But we get all these investor questions saying, are you having concerns about the abdectomy trial? Maybe help us understand a strategy for why doing that at the same time and if there's any risks. My second question is on TNP. So, you know, you said you'll have a specialty sales force. How do you market it in the context that Lyrica exists, even though it's now a scheduled drug? Maybe set expectations for what you're looking for for that data. Thanks.

Yep. Robin, two questions on VX548, one on the acute pain side and one on the neuropathic pain side. Let me tackle acute pain, and I'll ask Stuart to comment on our commercialization approach on the neuropathic side. So to ground everyone, the acute pain program is in its entirety three pivotal trials. One is the abdominoplasty RCT. The second is the bunionectomy RCT. And the third is a single arm safety and effectiveness trial. And the reason we are planning to unblind, analyze, and share the results all at the same time is because our goal is to secure a broad, moderate to severe acute pain label. And in order to do that, we need the results from all of these trials. So that's the reason for sharing the results all at the same time. With regard to PNP, I'll just frame it up with what we are looking to do and how you may want to think about the profile, and then I'll turn it over to Stuart for commercialization. The phase two study, that's the study we have completed and expect to share the results before the end of this year. It is a study that has a Lyrica reference arm. So it's not a comparison, but it's there so that we can assess the magnitude of the treatment effect. And our goal here really is to have a medicine that can compete effectively and bring a better benefit-risk profile than Lyrica for this patient population. And just so that it's not missed, one of the comments I made in my prepared remarks is we're now expanding our progress into the peripheral neuropathic pain area with a study that we will initiate before end of year in what's called LSR or lumbosacral radiculopathy, another kind of neuropathic pain, Stuart.

Yeah, just to expand on that, Robin, very briefly. So PNP is kind of an umbrella term, which is used to describe a collection of conditions, all which have as their cause nerve impairment, which causes pain. DPN, which as you know, is the study which is ongoing with 548. Obviously there, the standard of care has been the GABA pentanoids. And as Reshma said, what we're looking to do there because there are approved therapies there which are generic, is demonstrate an improved benefit-risk profile to be able to compete successfully in that market segment. And phase two study is obviously going to be very revealing in that regard. LSR is very different. And DPN, I should say, accounts for about 20% of all patients in the U.S. with PMP. That's 20% of approximately 10 million people LSR accounts for over 40% of patients with PNP. There, there are no products which are specifically approved for LSR. So we see that as a very significant opportunity as well. There, obviously, with no approved therapies, it's likely that the comparator is going to be can we demonstrate effective pain relief versus placebo.

And one follow-up if I can. Do you have to look better? I know Lyrica is just a sidearm. but I know a lot of doctors want it looking better for reimbursement. Do you have to look better or just safer? We obviously know the issues with safety with Lyrica.

Yeah, yeah, yeah. The point you make about the safety tolerability issues with Lyrica are real. What we're looking for in this phase two program is change from baseline at the various doses with Lyrica as a reference arm, not a comparator. But our goal here, to be clear, is to have a product, VX548, that is a better benefit risk profile than Lyrica.

Great. Thanks, guys.

The next question will come from Salveen Richter with Goldman Sachs. Please go ahead.

Good afternoon. Thanks for taking my questions. One here on the on the pain side with the LSR trial. Can you help us understand why start this trial now versus waiting for the DPN trial to read out and get a better understanding of the profile there? And then a second question on the cells and device program here. That seems to be partial dose with staggered enrollment again, and I'm just wondering why in the context of maybe the de-risking that you saw in the naked cell approach. Thank you.

Sure thing. Let me start with the VX264 question and I'll go back to pain. The reason that we are at a partial dose with staggered dosing in the Part A part of the 264 program is because the cells plus device is a first in man program. And we are doing that to go slowly and ensure that we have sufficient time between patients to be able to assess safety. And it is the way that the protocol is designed in consultation with global regulators. So that's the reason. It's because cells plus device is a first in man trial. Let me go back now to VX548 and LSR and why now. It's really a very good question. The reason we started with DPN is because DPN, or diabetic peripheral neuropathy, has and has had an established regulatory pathway as well as an established commercial marketplace. So that's why we started with DPN. We started with it actually when we did the 150 program, and that's the first PNP, or peripheral neuropathic pain indication, we pursued when we started with VX548. As the VX548 study has gotten started, and frankly, as we near that completion, we've turned our attention to LSR. It was always our intention to to pursue a broad peripheral neuropathic pain label for VX548, just like we're pursuing a broad label in the acute pain setting. We recently completed our regulatory discussions on the LSR pain type and gained confirmation that LSR, from a regulatory perspective, is a PNP pain type, as Stuart said. medically, scientifically falls under that umbrella of a peripheral neuropathic pain type. And we completed our discussions with the regulators and confirmed that it is indeed, from a regulatory standpoint, also a PNP type. That's why we're starting the LSR phase two study now. And I got to tell you, I'm terribly excited about that.

The next question will come from Phil Nadu with TD Cowan. Please go ahead.

Hi. Good afternoon. Thanks for taking our questions. A couple of follow-ups from us. First on pain, investors saw the New England Journal of Medicine editorial over the summer that was somewhat skeptical of 548 and its topic of debate. Could you respond to that editorial? What do you think the author got wrong or where do you disagree with the author? And then a second follow-up on Vanza. In the prepared remarks, you mentioned that Vanza was going to drive intermediate growth of the franchise. Can you elaborate on those comments a bit more? What new patient populations or opportunities could Vanza explore that Trikafta currently can't? Thanks.

Yeah, sure thing. You know, Phil, when I think about the distillation of the editorial, I think it comes down to This is the holy grail of pain in terms of targets. There looks to be very promising results. It's a phase two study. How should we think about the magnitude of the treatment effect? How should we think about it in terms of the effect and the potential not only versus placebo, but versus opioids, and then maybe a desire to learn a little bit more about the secondary endpoints. And what I would say is we're going to have a far bigger study, 2,000 people in all. There's 1,000 people in the abdominoplasty study, another 1,000 people in the bunionectomy study, and another 250 people in the safety and effectiveness study. And we'll have all the data we need to make a full assessment in this phase three trial. So I think the best answer is let's look towards the phase three trial. And I agree, the phase two results are very promising. Let me turn it over to Stuart to talk about VANZA.

Bill, on VANZA, I would really think about the opportunity for patients to be initiated on VANZA to be threefold. One is people who are currently on an existing CFTR modulator, but if we deliver the sort of profile with Vanser that we're hoping to versus Trikafta, they may want to be switched on to Vanser Kafta. Then you've got patients who have not yet been initiated on a CFTR modulator. That's a relatively small number of patients, but really the big opportunity for growth is there's about 6,000, just over 6,000 patients globally now who've actually discontinued a CFTR modulator. So they've wanted to be on a CFTR modulator, but for a variety of reasons have had to discontinue. As I say, that's over 6,000 patients now around the world. We don't often talk about discontinuations from our CFTR modulators because it's actually a relatively small percentage compared to any other sort of chronic medication, but it's still a sizable number of patients. We know they would like to be on a CFTR modulator because they've previously tried, and so we think they could be patients who are very interested in VANSA if we deliver the kind of profile that we're expecting.

That's very helpful. Thanks again for taking our questions. The next question will come from Mohit Bansal with Wells Fargo. Please go ahead.

Great. Thank you very much for taking my question, and congrats on all the progress. One question, again, staying on DPN study. So could you remind us how prevalent is the opioid use in this setting? Because from our reading, it seems like it is more a third-line agent. And is the thought to replace Lyrica in that setting, or is it more like to replace opioid in that setting? I mean, how do you think about the profile of the drugs? Thank you.

Sure thing. I'll have Stuart talk about that. the what is being used in DPN today?

Yeah, Mohit, there is a lot of polypharmacy going on in DPN right now, largely because the efficacy of the various classes of pain medicines which are available today is pretty variable. So you do see patients who are on nonsteroidals. You see a lot of people who are on the gabapentinoids, which have been studied and approved there. And you also do see parents' patients on opioids as well. So it really is a disease characterized by sort of polypharmacy, largely due to either variable efficacy and or the adverse events of the currently available therapies. That's why we're so excited about the prospect of 548 being able to establish a new standard of care for these patients. Excellent.

Thank you.

The next question will come from Jessica Fye with J.P. Morgan. Please go ahead.

Hey, guys. Good afternoon. Thanks for taking my questions. The press release makes mention of Vertex's portfolio approach to R&D and additional NAV 1.8 and 1.7 inhibitors you're working on. How far along in development is the next most advanced inhibitor behind BX548, and do you have any dual 1.8 and 1.7 inhibitors? Hey, welcome back, Jess.

Really terrific question. The portfolio strategy, as you've seen it play out in CF, is authentically and reproducibly extended across our R&D pipeline. So as it pertains to pain, the next NAV1.8 inhibitors are already in the clinic in phase one trials. And we have more after that making their way through the research part of our organization. In terms of NAV1.7, they are in the research stage and making very good progress and we see the NAV1-7s as potentially for use as a single agent, and we also see the real opportunity for combining NAV1-7s and 1-8s. And just for all of the others who are following along, the reason I say that and the reason I think it's an excellent question is that the way that the action potential in the periphery in transducing the pain signal is that there is a stimulation of the action potential and then the propagation. And NAV 1.7 works on that stimulation of the action potential, and NAV 1.8 works on that propagation. So we see a lot of opportunity in the combination, but we also see opportunity of NAV 1.7 in and of itself.

Thank you.

The next question will come from David Rissinger with Laring Partners. Please go ahead.

Yes, thanks very much. I have two questions, please. First, if the X548 succeeds in phase two in DPN in coming months, how do you plan to conduct phase three? Do you plan to go it alone? And could you complete phase three in 25 or likely not until 26? And then regarding VX548 acute pain phase three studies, how should we expect rescue medicine use to potentially benefit patients in the placebo arms, and how will rescue medicine use be disclosed? Thanks very much.

Okay. Hey, David. Let me start the answer to both of these questions, but The PNP question has a component of can we go at it alone, and so I wanna make sure that Stuart touches on it. Let me cut to the punchline. For acute pain and for neuroplastic pain, both in terms of diabetic neuropathy and in terms of LSR, this lumbosacral radiculopathy, we are going to do the development by ourselves, and we are gonna commercialize by ourselves. Both of these, acute pain and neuropathic pain, are absolutely vertexian diseases, if I can call it that, in terms of commercialization. I'll ask Stuart to comment a little bit more on commercializing neuropathic pain, and I'll come back to tell you about acute pain, rescue meds, et cetera.

David, so kind of building on what I said about this being a disease state, which unfortunately for patients is characterized by polypharmacy. And so patients are often seeking superior pain relief to what they are getting. It is heavily influenced and or treated by specialists for DPN and indeed for LSR as well. And so for both of those pain states within PNP overall, we believe we can achieve success commercially with a specialty sales force. As a result, of wanting to go alone commercially, we're going to be doing the studies in DPN and hopefully in LSR phase three studies are successful in phase two ourselves as well.

And David, to round it out with your questions on acute pain, we have thought through very carefully as we did in the phase two portion of the study, the same in the phase three portion of the acute pain studies. about the use of rescue medicines and how to consider the statistical analysis plan in that light. And it's been very well considered in there. So I don't have much more to say other than the use of Rescue medicines, of course, will be disclosed in the publications and when we share the results. But how to think about it has been deeply considered and well accounted for, just as it was in phase two. I think there was a question in there about phase three and the peripheral neuropathic pain structure. I'll focus my comments on DPN. That one will be will be designed with the FDA we haven't yet had our end of phase two meeting and therefore I can't give you specifics on what that program will look like but that's exactly what will be the next step once we have the phase 2 DPN results assuming they are positive thank you you bet the next question will come from Evan Sigerman with BMO capital markets please go ahead

Kyle, thank you so much for taking my question, and congrats on the progress as always. So I wanted to talk about the implications of the recently released UK NICE appraisal of Trikafta, essentially indicating that it was not cost effective for the UK system. So I was under the impression that this was settled in 2019. Could you maybe expand on the impact to your UK franchise and steps to resolve to ensure access in the UK? Thank you.

Yeah, Evan, so the first thing I'll say about the ongoing NICE review is that this was an expected part of the contract that we negotiated with the NHS in 2019. So this isn't a surprise that NICE is reviewing our medicines after four years on the market. So that's the first thing to say. As a part of the original contract, we agreed with the NHS and with NICE that we would collect and submit data after a period of being on the market. And we have done just that. We submitted clinical trial data, open label extension data, and real-world data from the UK. And I think it's unusual, I think, to see a medicine, which is what I think we've seen with Trikafta, that performs perhaps even better in the real world than you expected having seen the phase three results. Because the results we've seen in the real world, as you well know, are absolutely extraordinary, including things like reductions in exacerbations, increases in life expectancy, reductions in hospitalizations, a virtual elimination of lung transplants. So we're pretty disappointed, it's fair to say, with the draft guidance from NICE. It is just that, though. It's draft guidance. There was a period of consultation. There's going to be a second. nice committee meeting, and I certainly feel confident that the full value of our medicines will be reflected at the end of this process. Great. Thank you.

The next question will come from Lisa Baco with Evercore ISI. Please go ahead.

Hi there. Thanks for taking the question. I wanted to circle back to pain. And just two questions for me. First of all, the article, so the editorial in the New England General Medicine did focus in on overwhelmingly more females in the two acute pain indications that you're using as examples. So maybe you can just speak to that in addressing sort of the underrepresentation of males. And then finally, just if you could comment on any capabilities that you've been working on developing. This is obviously a much different market to commercialize into than CF with, you know, a lot of generic competition and the need to get a possible formulary, et cetera. And how are you building sort of the capabilities as you're waiting for data? Thanks.

Sure thing. Lisa, this is Rachel. Let me start and then I'll pass it over to Stuart. You know, most companies, including our own, want to ensure that we have more people of color in our trials, more women in our trials, and I guess we have succeeded. So I see the fact that 548 has many women as a positive. Perhaps one point to make underneath, just underlying that comment, is remember in the acute pain study, one was an abdominoplasty study. And abdominoplasty is a procedure involving fat in the belly kind of surgery. Some people call it a tummy tuck. And that is a surgical procedure that more women undergo. With regard to the commercialization of pain, I'll turn it over to Stuart, but I want to frame up the following concept. In the acute pain setting, one of the most important elements that VX548 could address is effective pain relief without the addiction potential of opioids. And that part of it, this addiction potential of opioids, is something that is not only of interest to Vertex, but it's of interest to the community, to policymakers, to physicians. And we see a lot of tailwinds. And so as I turn it over to Stuart, I'll ask him to comment on our commercialization efforts, but also the tailwinds we see. Stuart.

Yeah, so to your question about capabilities, I think we're trying to get the best of both worlds. We are trying to leverage the capabilities that have made us be successful to date. And much of that is based around our ability to get reimbursement and access for our medicines and also work with policymakers with guideline institutions, et cetera, to support the appropriate use of effective medicines like ours. And as Reshma said, we're already seeing tailwinds, if we can call them that, in the pain market with people looking to kind of move away from the sort of restrictions that they've previously put in place for things like opioids in terms of who can prescribe them, for how long, for which patients in which settings. to people looking at policy changes like the No Pain Act, which we highlighted a couple of quarters ago now, where people are looking to make sure that there are no financial barriers or disincentives to people doing the right thing and using a non-opioid effective pain medicine just because there are generic medicines available. So that's something that we're going to be looking to build on, some of the capabilities that we've used to help us be successful. Having said that, we are going to be selling into a different segment of the market. This is obviously going to be a very hospital institution-driven sale. And so we are looking to bring in and have brought in new capabilities as we've brought on our paying business unit, people who are experienced in that kind of institutional setting. So I would say we're trying to get the best of both worlds, leverage what we've been good at in the past while bringing in people who bring new knowledge, skills, and experience to the company as well.

Thanks. The next question will come from Michael Yee with Jefferies. Please go ahead.

Hi, guys. Thank you for the question, and congrats on a great quarter. We had a follow-up question on pain and then a question on VANZA. On the acute and chronic pain, can you just remind me, since you've never disclosed doses, should we expect that it's the same doses used in the Phase II and also the Lyrica and Vicodin doses? Doses as a control are basically the doses from the label, and is that pretty well understood? And then from a safety tolerability standpoint, I think there was a QT study that I had completed, so was there anything to disclose there? That would be great to hear if that was the case. That would be a positive. And then on VANSA, I know that there was questions around non-inferiority and superiority, and I know it's powered potentially for superiority, but can you just remind us Is there a magnitude of clinical meaningfulness on FEV, et cetera, that you would deem to be meaningful? Or is it more the totality of everything as well, like sweat chloride and the benefits that that may provide? Thank you so much.

Sure thing. Hey, Mike, let me start, and then I will ask Stuart. the market research that Stuart and the team have done on VANZA and what is valued vis-a-vis sweat chloride, et cetera. But I'll go back to 548 to start, and then I'll set up the clinical trial structure for VANZA. So to confirm, on the VX548 acute pain phase three trials, it is exceptionally similar to the VX548 Phase 2 trials. Same pain conditions, abdominoplasty and bunionectomy. We selected the high dose, the dose that showed the benefit in the Phase 2 trial for the Phase 3 trial. And you are correct, standard labeled doses for the opioid. And on the phase two diabetic peripheral neuropathy trial, correct. The Lyrica is standard doses from the label. The doses in the peripheral neuropathy phase two study are different than the acute pain doses, obviously, because one has chronic dosing and one is acute, and we need to make the appropriate adjustments so that we have the exposure we seek. But with regard to the reference arm, correct. It is the standard dosing from the label. Lastly, on vanzecaftor, this is, remember, this is a study that is head-to-head versus Trikafta. The primary endpoint is PPFEV1 because that's the regulatory enabling endpoint. And recall, we have a key secondary endpoint that is on sweat chloride. And this is very important because sweat chloride is the direct, it's the most direct readout of CFTR function. You know that there have been great debates about whether or not there is a ceiling on PPFEV1. We can't have better than normal lung function, right? But in terms of sweat chloride, that is how patients are diagnosed with the disease, and it is very well understood that if we provide better CFTR function benefit that would show up in terms of sweat chloride. That is a secondary endpoint in the phase three trial, and that's what we've already studied and reported out in a variety of phase two trials, and it does indeed look to be the case that the vanza triple is even better than, I know that's a tall order, but it's even better than Trikafta. Over to you, Stuart, on the marketplace with that in mind.

Yeah. So, Mike, just as Reshma said on the study, the primary endpoint is non-inferiority versus Trikafta on FEV1, which, as we know, is an incredibly high bar. But we will be able to see how Vanzacafta does versus Trikafta in the study. So, that's the first thing just to remind you. As Reshma said, we're also looking at measures of superior CFTR function in patients. And when we've done research with physicians, even if the FEV1 benefit is the same with vanzecaftor. If we can demonstrate improved CFTR function, which as Reshma said, the pharmacodynamic measure of that is sweat chloride, there's a lot of enthusiasm from physicians for a product which has that profile. In addition, just to remind you, vanzecaftor is also going to be a once a day regimen as well, which is also considered to be a benefit, particularly for those patients who have compliance challenges as well. So we're very much looking forward to the phase three results and think there's going to be, if the results come out as we expect them to, a high level of enthusiasm for Vanzacafta.

Super helpful. Just to clarify on the QT, that was a study that's up. Can you say that that was completed and all set?

Yes, nothing new to report there. The QT is a study we do for cardiac function. It's one of our standard studies that we do in the clinical pharmacology realm. Got it.

Thank you. Last question, please, Chuck. The last question will come from Terrence Flynn with Morgan Stanley. Please go ahead.

Hi. Thanks for taking the questions. I was just wondering if, let's say the theoretical situation where one of the randomized controlled phase three acute trials is positive and the other is not, can you still file for approval on that data set or do you need two positive trials And then, Stuart, I just wondered if you could clarify your comments on 2024 being a foundational year for XSL, you know, what that means. Does that mean you're comfortable with consensus where it stands, or you think it's going to be a somewhat more measured launch? Just want to clarify what foundational means. Thank you.

Yeah. Hey, Terrence, this is Reshma. Let me comment on the Q pane, and then I'll turn it over to Stuart. You know, we are very close to having the results from the acute pain program, and I'll just leave it at our goal is to have a positive set of three studies, and our goal is to file for a broad moderate to severe acute pain label. Stuart?

Yeah, and on XSL and the comment we made about it being a foundational year, that has been Nothing to do with consensus. I actually couldn't tell you what consensus is for 2024 for XSL, to be perfectly honest with you, Terrence. It was really a response. We've been asked a lot of questions about what the launch dynamics will look like for XSL. And so we thought it was important to remind people of what the patient journey is. And that's obviously going to begin, hopefully, later this year when we get regulatory approval. And it was really to try and provide some context around that multistage journey that patients need to go through to get XSL. So that was really the reasons for the comment. It was responding to questions we've had about launch dynamics. I do want to reiterate something which I said in my prepared remarks as well. You know, whatever the journey to get there, you know, we see this as being a very large commercial opportunity. There are tens of thousands of patients with severe sickle cell disease and beta thalassemia. who could benefit, and despite the journey being relatively long, this is a journey at the end of it that has the potential for a lifetime of benefit. So we feel very optimistic about the XSL opportunity, and we're looking forward to launching.

Thanks, Chuck. If you could give the details, please, for callback.

Yes, ma'am. Replay of today's event will be available shortly after the call concludes by dialing 1-877-344-7529. or 1-412-317-0088 using the replay access code 2047491. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.