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April 30, 2007

Vertex Pharmaceuticals Q1 2007 Earnings Call Transcript

Filed under: Conference Call Transcript — Tags: — admin @ 12:00 am

Executives

Lynne Brum – Vice President of Strategic Communications

Ian Smith – SVP and CFO

John Alam – Chief Medical Officer

Joshua Boger – President and CEO

Analysts

Geoffrey Porges – Sanford Bernstein

Steve Harr – Morgan Stanley

Brian Abrahams – CIBC

Phil Nadeau – Cowen and Company

Rachel McMinn – Piper Jaffray

Richard Smith – JP Morgan

Jason Zhang – Prudential

Annabel Samimy – UBS

Meg Malloy – Goldman Sachs

Yaron Werber – Citigroup

Howard Liang – Leerink Swann

John Watkins – BOA Securities

Vertex Pharmaceuticals, Inc. (VRTX) Q1 2007 Earnings Call April 30, 2007 5:00 PM ET

Operator

Good afternoon. My name is Anthony, and I will be your conference operator today. At this time, I would like to welcome everyone to the Vertex Pharmaceuticals First Quarter 2007 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions). Thank you.

Miss Brum, you may begin your conference.

Lynne Brum

Thank you, Anthony. Good Afternoon. This is Lynne Brum, Vice President of Strategic Communications. And welcome everyone to Vertex first quarter 2007 conference call. 2007 is important year for Vertex. It’s a year, where we are building Vertex on telaprevir. In the first quarter, we advanced to telaprevir global clinical development program. In particular, we made progress towards realizing our vision for telaprevir of eradicating HCV in most patients with shorter treatment duration.

As we moved forward in HCV, we are building Vertex into a pharmaceutical company with the potential to bring forward new drugs, targeting areas of unmet medical needs.

On today’s call we’ll cover, first quarter financial results, telaprevir developments and our pipelines. These topics will be discussed and expanded upon during today’s call by Ian Smith, John Alam, and our CEO, Joshua Boger.

Before I turn the call over to Ian, I’ll remind you of the following. Information discussed in this conference call includes forward-looking statements, which are subject to the risks and uncertainties discussed in detail in our reports filed with the Securities and Exchange Commission including our 10-K.

GAAP and non-GAAP financial measures will be discussed on this call. Information regarding our use of non-GAAP financial measures and a reconciliation of those measures to GAAP is available in our first quarter 2007 press release, which can be accessed on our website, at www.vrtx.com. Unless otherwise noted, all 2007 expenses and guidance discussed in this call are inclusive of stock-based compensation.

As always, you can visit vrtx.com to listen to the conference call, and view a PowerPoint presentation, or download a podcast.

Lastly, after our prepared remarks, we’ll accommodate as many questions as time permits. Once the call concludes, our IR team joined by John and Ian will be in the office to answer any additional questions.

I’ll turn the call over to Ian.

Ian Smith

Thank you, Lynne. Our remarks today will be brief and we will focus on two areas, the first quarter results and our financial strengths to support late stage development of telaprevir. We continued to execute on the key financial themes within our business, specifically long, made a significant increase in revenue from our R&D collaborations, which provides support to our R&D investments. And two, we improved our balance sheet through the conversion of debt-to-equity. We are maintaining long-term financial strength, which supports our investments due to the R&D opportunity.

That’s the first quarter 2007 financial results. The first quarter non-GAAP loss before certain charges was $53 million compared to the first quarter 2006 non-GAAP loss before charges and gains of $42 million. The increased loss was due in large part to an increase in development investments for telaprevir, including investment into our commercial supply chain.

Our first quarter GAAP net loss was $81 million compared to first quarter 2006 net loss of $50 million. Total revenues for the first quarter of 2007 were $69 million compared to $39 million for the first quarter 2006. This significant increase was primarily driven by collaborative R&D revenues and more specifically, the contribution from our J&J collaboration.

Now for the R&D investment; our total R&D expense was a $133 million compared to $75 million in the first quarter of 2006. This increase reflects the advancement of telaprevir and a $32 million investment into commercial supply for telaprevir. Our investment into drug discovery remained relatively consistent to the prior year.

Our first quarter SG&A expense was $70 million compared to $30 million in the first quarter of 2006. This increase was a result of infrastructure build to support our business and the initial commercial steps we have take to support telaprevir.

Other income, net, was $8 million compared to the first quarter 2006 of $2 million. Increased cash balances and the reduction in debt service cost added to our investment return.

Now turning to the balance sheet; we ended the first quarter with approximately $690 million in cash, cash equivalent and marketable securities. And we have $42 million of convertible debt remaining which is due in September 2007.

Now to guidance; we are reiterating our guidance for our 2007 GAAP and non-GAAP loss and our cash, cash equivalent and marketable securities that we originally provided on our year-end 2006 conference call on February 1st. Throughout the year we will be focused on building the company on telaprevir.

We are prioritizing our investments in late-stage development, commercial supply of telaprevir and building Vertex’s commercial organization. We’ll continue to focus on maintaining strong financial profile enabling us to pursue these objectives.

I will now turn the call over to John.

John Alam

Thank you, Ian. I would like to begin today by reviewing some of the key telaprevir results presented at EASL earlier this month. In light of the fact that we have discussed these data at several recent events, I will be brief in my remarks, and will focus my discussion on how these data would form the future development of telaprevir.

On April 14th we presented the interim data from the PROVE 1 clinical trial in a late breakup presentation at EASL. These data had significant implications in guiding our understanding of the opportunities for and the development strategy for telaprevir. A total of 250 patients were enrolled in PROVE 1 with 175 patients enrolled in the telaprevir arm and 75 in the control arm. At the time of the interim analysis, all patients had reached at least the 12-week time point on the study.

The interim antiviral data from PROVE 1 indicated a high rate of rapid viral response to RVR in the telaprevir group, a low rate of on-treatment viral breakthrough and suggested that 12 weeks of telaprevir-based therapy enabled some patients to clear the virus completely.

The key conclusions out of interim analysis in our take-aways are planning and executing late stage development and are as follows: One, it is possible to treat some treatment-naive, genotype-1 HCV patient successfully with 12 weeks of telaprevir-based combination therapy.

Two, clinically meaningful improved SVR rates may be achieved with the 24 week treatment regimen.

And three, we will focus on improve management of side effects to increase the number of patients who successfully complete therapy.

We are looking forward to safety and antiviral data, including additional SVR data on the 12 and 24 weeks telaprevir-based regimens in PROVE 1 and PROVE 2 to allow us to design optimized treatment regimens and durations for Phase 3 development of telaprevir.

We expect to meet with regulatory authorities in mid-2007 and plan to initiate Phase 3 clinical development in the fourth quarter of 2007. We expect to report further data at upcoming major medical meetings.

In summary, we are on track to initiate Phase 3 development in the fourth quarter and have increased confidence in our strategy to evaluate telaprevir with short treatment duration of 24 weeks or less.

In addition to the data presentation at EASL, we have continued to advance the global Phase 2b development program for a telaprevir in the first quarter.

In January, we initiated PROVE 3 a four-arm placebo-controlled trial designed to enroll 440 genotype-1 HCV infected patients who have not achieved a sustained viral response with a previous pegylated interferon and ribavirin treatment.

This was an important advancement in that PROVE 3 is the first trial of telaprevir combination therapy for patients who have failed to clear virus with prior treatments with an interferon.

It’s also the first trial that would dose telaprevir through 24 weeks. More than half the patients are currently enrolled in PROVE 3 and we are on track to complete enrollment within the second quarter

In summary, the development of the product profile for telaprevir, continues on track and at a rapid pace.

Now, to our other developing opportunities; first, I’ll update you on VX-770, an oral drug we have in development that may address the underlying genetic defect in cystic fibrosis. We are on track to initiate in the second quarter, the Phase 2 clinical trial of VX-770 in patients with cystic fibrosis. We expect that the Phase 2 randomized double-blind, placebo-controlled study of VX-770, will evaluate the safety pharmacokinetics and biomarkers of CFTR activity in approximately 35 patients.

We are also advancing VX-702, a lead oral p38 MAP kinase inhibitor targeting rheumatoid arthritis. Within the first quarter, we completed enrollment in a 12-week, 120 patients Phase 2a clinical trial being conducted in patients with RA, on a background of methotrexate.

We expect to have data from the Phase 2a study in the third quarter and depending on the results on the Phase 2a trial and Thorough QTc study which is also underway, we may advance to a larger Phase 2b study of VX-702 on a background of methotrexate.

Now, to our Aurora kinase program; our collaborator Merck is developing the most advanced Aurora Kinase inhibitor MK-0457 or VX-680 in a broad range of cancers. This drug candidate is currently being evaluated in a potentially pivotal trial in treatment resistant leukemia’s. Currently, nine US and international centers are enrolling patients in this clinical trial.

In 2005, Merck selected MK-6592 or VX-667, a second drug candidate for the inhibition of Aurora Kinases, which emerge from a joint research effort between Vertex and Merck. MK-6592 is in Phase 1 clinical development for advanced solid tumor. Merck has now selected from a joint research collaboration, a third Aurora kinase inhibitor, VX-689 for development. We received a $9 million milestone in the first quarter in connection with this drug candidate selection.

We look forward to continuing to update you on data coming out of our programs throughout the year. I’ll now turn the call over to Joshua.

Joshua Boger

Thank you, John. Already this year, we’ve moved decisively closer to defining a product profile for telaprevir. The global Phase 2b PROVE program is doing what it was designed to do. Specifically, we are collecting data that allows us to evaluate telaprevir’s potential to enhance SVR rates with a short treatment duration, with a dosing combination with pegylated interferon and ribavirin or with pegylated interferon alone.

Program is data driven, what we are learning from this comprehensive development program is something has designed a Phase 3 plan for telaprevir that will maximize and potentially change the HCV treatment landscape.

Bringing a major drug to the market is no easy task. It takes time, money and an eye for developing innovative processes and the most important part, the human talent to move our efforts forward. We are readying the company for this progression, and in some way, it involves every person at Vertex.

We hope that at the end of day, telaprevir could have a major positive impact to the life of HCV patients and on Vertex as well. That’s the reason we are in this business. I look forward to keeping you update on Vertex and telaprevir as I move forward.

Lynne, back to you.

Lynne Brum

Thank you, Joshua and Anthony would like to start the Q&A portion of this call.

Question-and-Answer Session

Operator

Thank you ladies and gentlemen. (Operator Instructions)

Our first question comes from Geoffrey Porges from Sanford Bernstein.

Geoffrey Porges – Sanford Bernstein

Thanks very much for taking a question. Just a couple. First on the telaprevir program Joshua or John, could you give us a sense of how many patients are actually on telaprevir today in the Phase 2 program? And, when the treatment you estimated likely to end, meaning when the patients were all rotated off telaprevir? And may be you can just say, how many have already been treated and exposed to the drug in that program that were all clear.

And then, just on VX-770, could you give us a little bit more sense of that the Phase 2 program that you envisaged, particularly when you are saying that you will have an answer in terms of the activity, and how much we can infer into that answer about the true clinical utility given that you just talked about this sort of biochemical end points? And then perhaps a little bit more about the size of the population out of the total CF population, how big is the actual population you’re targeting? Thanks.

John Alam

Thanks Geoff, this is John. On the Phase 2b program, as you know, in PROVE 1 there were a 175 patients who were on telaprevir, who received telaprevir at least one dose of telaprevir, and all those patients have completed their telaprevir dosing.

In PROVE 2, there were 240 patients who were to be enrolled into that 32 received telaprevir, 320 altogether, 80 in control, 214 on telaprevir controlling arm. At this point, all patients have completed their telaprevir dosing in that study and are either on pegylated interferon and ribavirin or on further follow-up.

And then, as I provided an update in PROVE 3, we are more than half the patients are now enrolled into that study. And the randomization of four treatment arms, one control and three of whom, and then three study arms with telaprevir in it. So, all told by the time PROVE 3 is enrolled, more than a 1,000 patients who have been enrolled into those studies of which approximately 750 will have received telaprevir.

And then on VX-770, this first study is a proof of principal study, really looking to determine whether we can modulate CFTR activity with VX-770. And we will be looking to get the first readout from that study near at the end of the year.

In terms of clinical utility, I think, it’s hard to say we are going to be looking at some clinical markets there as well, so the real goal here is to look at CFTR activity where we do expect that there is a close tie in between CFTR activity and clinical outcome. But what’s uncertain is the timing if you are able to modulate CFTR in a particular patient population when that improvement would translate in terms of timing is that days, week, months of treatment that would translate toward actual clinical benefit and I think there is no way to predict that at this point.

In terms of the size of population, it really depends on the underlying; again, there are a number of uncertainties there, which I think we can talk to after. We actually have the biomarker results to be able to talk to that.

Geoffrey Porges – Sanford Bernstein

Thanks very much. That’s helpful.

Lynne Brum

Next question?

Operator

Your next question comes from Steve Harr from Morgan Stanley.

Steve Harr – Morgan Stanley

Yes. Ian after last quarter, I think there were a lot of discussions about the company’s burn-rate and without trying to box you in on longer-term guidance beyond ’07, obviously, making a lot of one-time investments in upgrading the manufacturing capabilities for ’09, telaprevir. Can you give us just some thoughts on the trends, you should be expecting on your burn-rate as you go into ’08 and ’09?

Ian Smith

Hello Steve, how are you doing? As you know, it’s difficult to give you guidance beyond 2007, just given out of certain restrictions of providing financial guidance. Just to clarify one point there on the manufacturing. Our manufacturing investment is into product and validation of process. We are not actually investing into manufacturing capabilities for the company. It really is a virtual manufacturing chain. So, we are investing into commercial product supply. As we look into the future years, we do anticipate greater investments into the business but that will principally be driven by the need to continue to invest in commercial supply, while running our core business of R&D. Beyond that, I cannot give you further guidance in terms of level of burn that we will have.

Steve Harr – Morgan Stanley

[C&P] are comparably the same, this is a one year anomaly $10 million or $15 million or this is a patent that we expect to continue for a couple of a years around this range. Is that getting too specific for you?

Ian Smith

Yes, it is too specific. But consistent with what we talked about at the beginning of the year. We are actually operating our business to the level its being consistent with our prior year burn-rate and that is a level that’s been similar to a $200 million investment. The incremental investment that takes you to the guidance that we’ve provided for this year, there is an additional $130 million into the commercial supply. We are going to continue to operate our business in that manner, as we move forward. And I think one of the biggest variabilities in our business is the rate of investment into commercial supply

Steve Harr – Morgan Stanley

Great, that’s helpful. I appreciate that.

Operator

Your next question comes from Brian Abrahams from CIBC.

Brian Abrahams – CIBC

Hi, guys thanks for taking my question and congratulations on the progress this quarter. Based on what you are seeing from the ongoing Phase 2b program, I was just wondering if you had any changes to your thoughts about filing an NDA at the end of next year based on efficacy data from the Phase 2b programs or if you thought that there might be any efficacy data from certain norms of the pivotal program that might be necessary for filing?

John Alam

Brian, this is John. We are, as I stated in my comments, we are on track and expect to begin Phase 3 development of telaprevir in the fourth quarter. The current focus of the Phase 3 program is the use of what we called the 12 plus 12 regimen which is 12 weeks of telaprevir pegylated interferon and ribavirin followed by 12 weeks of Pegylated Interferon and Ribavirin.

Now this is to be confirmed with additional data from PROVE 1 and PROVE, 2 but that data along with discussions we expect to initiate with the FDA in the middle part of this year will determine the specifics of the regulatory path and the timeline for a telaprevir NDA. Otherwise in today’s call, we are not going to comment and more specifically on the NDA strategy and timing.

Brian Abrahams – CIBC

Okay. That’s fair, and just real quick if I can have a quick follow-up. What are your thoughts in terms of what the control arm might look like for the pivotal study or for the purposes of NDA filing, I should say, would you potentially compare the SVR 24 rates from the 12 plus 12 arm in the Phase 3 to say the SVR 24 data that you are able to get from the PROVE 1, 2 and 3 program, or might you compare that to maybe end of treatment response at 48-weeks in the phase 3 study?

John Alam

We do expect to have a control arm with pegylated interferon and ribavirin for 48 weeks in the Phase 3 study. But the specific patent study design including what types of comparisons we would make as for the primary endpoint and specifically for NDA’s filing, we’ll talk to you about that after we have had more specific discussions with the regulatory authorities, which again, we are expecting to initiate in the middle part of this year.

Brian Abrahams – CIBC

Fair enough, and thanks a lot.

Lynne Brum

Thank you Brian.

Operator

Your next question comes from Phil Nadeau from Cowen and Company.

Phil Nadeau – Cowen and Company

Good afternoon, and thanks for taking my question. John, first to you. Could you tell us more specifically what data you hope to have on hand when you schedule the FDA meeting?

Do you think that you have enough data on hand now or will you wait until you have the 12 plus12 data, the SVR rates from the12 plus 12 arm in PROVE 1?

John Alam

Thanks for that question Phil. We’ll — the key, two additional pieces of data that we are that we expect to submit to the FDA will be the interim data from PROVE 2, which will be 12 week end of telaprevir dosing data, both safety and anti-viral data, and along with that, and in addition the SVR 12 data from the 12 plus12 arm in PROVE 1.

Phil Nadeau – Cowen and Company

Okay. And after this FDA meeting, what will you disclose to investors, will you disclose the details of the Phase 3 or will you simply say at that time that the results of the meeting are consistent with prior guidance, that you are going to start the Phase 3 around Q4?

John Alam

I’m going to let talk Ian about this — there is some more in terms of disclosure, but in terms of the discussion with the FDA, I do want to be specific, this type of discussion with the FDA is not a one-time event and it will be an ongoing dialog which as said, we do expect to initiate in the mid-part of 2007. And there is a flow of data that’s obviously going to support that broadly. My initial comment was really for the initial discussions with the FDA that’s the data we would expect to have. And then, in terms of disclosure of what we might talk through along the way, I’ll let Ian comment on that.

Ian Smith

Hi Phil. As you probably know, this has been a common question throughout 2007. So, we appreciate the opportunity to reinforce where we are as a company. But we are at a very different stage of the company and as we go into these late-stage studies.

Coming out of these, so we believe we provided the key message to how we think this drug can be developed and hopefully ultimately approved, which is to be commenced at Phase 3 program before the end of this year being treatment duration that is no longer than 24 months with a primary strategy of 12 plus 12. And as long as we maintain that strategy as we continue to roll-up the data from the PROVE studies. Till then, we do not see a need for disclosure and therefore, we will be providing data within the medical forums which helps us with the integrity of the studies. And also helps us with our relationship with the FDA in this very important time.

Phil Nadeau – Cowen and Company

Okay. So, its possible that you could have these meetings with the FDA and not really disclose anything to investors after as long as your development plan as goes to the same as you’ve already disclosed.

Ian Smith

That’s the way that we are moving forward, yes.

Phil Nadeau – Cowen and Company

Okay. And last question Ian is for you and I kind of say you issued in February you said that can be up to $80 million a milestones from the development VX-950 in ’07. Have you ever disclosed what your assumptions are underlying $80 million. What would need to happen in development this year in order for you to recognize $80 million in milestone?

Ian Smith

So, we have not been specific on the milestones and the timing of achieving those milestones, but we have talked about they are consistent with the development plan within 2007 of telaprevir and those milestones are focused on the commencement of studies.

Phil Nadeau – Cowen and Company

Okay. Thank you.

Operator

Your next question comes from Rachel McMinn from Piper Jaffray.

Rachel McMinn – Piper Jaffray

Hi, thanks very much. Can you talk about the rationale for including those stringent RVR definitions in PROVE 1 for the 12 plus 12 arm. Is this something that the FDA is requiring and I guess if so do you expect the FDA over priority RVR in a Phase III trials defined?

John Alam

Hey Rachel, this is John again. It is good to have achieved an RVR which is to be at less than 10 IU per milliliter at week four in order to stop treatment at 24 weeks in the 12 plus 12 arm is specific to PROVE 1 and its there because its the first trial in which we were or anyone was attempting to shorten the treatment duration from this current 48 weeks down to 12 or 24 weeks and its part of the design that we came to in our discussions and came to an agreement with FDA around that. We don’t expect with additional date but the data that we derived from here that we would require in subsequent trials. Ultimately, what even the first set of data from PROVE 1 demonstrated that it is possible to shorten the treatment duration in genotype-1 HCV which was the objective and having done that, we don’t necessarily expect to have that type of criteria in subsequent studies. As you know a PROVE 2 does not contain that criteria.

Rachel McMinn – Piper Jaffray

And I guess, just a follow-up on that, why wouldn’t the FDA need a SVR data for PROVE 2 just to get comfort that you are inside the RVR that’s an issue here or I guess special to require in continuing on or short treatment wouldn’t actually buy us patients. Well, I’ve said in a positive way?

John Alam

I think the data overall will — I mean, we are going to get a full set of data that will support that, in fact, there isn’t an overt bias towards this. I think one other thing you need to keep in mind is it that, a very high proportion of patients do achieve an RVR with telaprevir. And at the end of the day, it’s a small percentage of patients who — very small percentage, who don’t achieve an RVR and most of those, in fact, have the 7% as you know, developed a viral breakthrough. And so, in essence that there is a — if you look at the overall set of data from PROVE 1, most patients are achieving an RVR and they should benefit from the 24-week treatment duration. And what does FDA otherwise, we have in terms of discussion with something that will — we think that the data will support that for the great majority of patients, 24 weeks will be a appropriate duration.

Rachel McMinn – Piper Jaffray

Okay. And just two other question, that the $32 million investment in 1Q, is that raw material or finished product? And then on the Aurora kinase can you give us any clarity on if any of those are bio –?

John Alam

Sorry, I didn’t hear all of your question, I apologize, but it sounded like you are asking about the $32 million investment into the supply chain?

Rachel McMinn – Piper Jaffray

Yes.

John Alam

So that’s an investment into validation process and also commercial product. To be precise it’s an investment of about $10 million into validation of processes and about $20 million investment into the raw materials of the final product.

Rachel McMinn – Piper Jaffray

Great.

John Alam

And then on the Aurora Kinases, we are not being specific on the profiles of the various Aurora Kinase inhibitors other than for watching around VX-860. We and Merck together are the leaders in this field. There is a lot of information about Aurora Kinases and the biology that is part of our competitive advantage here. And so we are not disclosing specifics beyond that at this point.

Rachel McMinn – Piper Jaffray

Okay. Thanks very much.

Lynne Brum

Thank you, Rachel. Our next caller?

Operator

Your next question comes from Richard Smith from JP Morgan.

Richard Smith – JP Morgan

Yes good evening everyone. Just a couple of quick questions. One with the Phase 3 design, now you’ve comment too much at the moment, but would you consider doing something like Peg Ribavirin run-in period before treating long triple combination, is that something you would consider?

John Alam

No, we would not. And the reason is just that the rate of viral breakthrough that we saw was low in PROVE, 1 and so we don’t think that something we need.

Richard Smith – JP Morgan

Okay. And with 770 the focus is on the G551D variant, is there any data on activity in the Delta F508?

John Alam

Yes. We do have in-vitro data that it is active in a Delta F508 context. In the clinical context, and it will depend on the amount of expression of CFTR on the surface itself in patients who have the Delta F508 mutation and then will depend in many cases on second allele and how that determines amount of actual expression on the cell surface. And it’s very hard, our priority to know what percentage of patients would have enough and that was my prior comment that we’ll have to see what kind of biomarker results we would see in the initial study, and then subsequently, how much of an effect we could have on it and it looks like a broad group of patient with Delta F508 mutation, to see what percentage we can address. But I think, today, I can’t predict what percentage we would be able to address.

Richard Smith – JP Morgan

All right. Okay, thanks.

Lynne Brum

Thank you Richard. Next question please?

Operator

Your next question comes from Jason Zhang from Prudential.

Jason Zhang – Prudential

Hi, thanks. John, I have question about RVR definition in PROVE 1. And also I have a follow-up question about the discontinuation risk. So, the question on RVR is not only you have to have a patients who achieve, undetectable, will explore and these patients will also have no, I guess, you have to have that responses 10-Q industry otherwise this patient would take off the treatment and put back into the 48-week treatment arm, is that how it is designed or defined?

John Alam

I think the PROVE 1 criteria, we shouldn’t spend too much time on it, because it is our intent. There was a one time, we reduce that criteria and this is not at all the idea behind what the treatment paradigm we’re setting up. And so, we should be focusing on based on the data we’ve attained from PROVE 1 that we can shorten treatment duration and that a 12 plus 12 regimen was a 24 week total duration you’d really will not require any other criteria for patients to go on to that treatment and our objective is to demonstrate that, that’s the one decision a clinician will have to make in order to be able to achieve an improvement in SVR rates with from the current standard of care.

Jason Zhang – Prudential

Okay. And then on discontinuation, so you reported that the AE related discontinuation recognize 52 patients were about 11% but you haven’t read them out, talk about total discontinuation that includes no stock related though. Do, you have the number? And the following question to that is now, that you have this data particularly the profile of patients with discontinued treatment. What do you know physicians are doing in the substance Phase II to help patients stay on the drug and do not drop-out unnecessarily due to other reasons.

John Alam

So, in PROVE 1, in the results we reported there were 11% of the patients in a telaprevir continuing arms discontinued because of adverse events they were an additional approximately 5% of patients who withdrew for either non-compliance or withdrawal of consent but did not have a specific adverse event that led to that discontinuation.

In terms of subsequent trials, I think in particular, as we look towards Phase 3, there are two levels of management one of them is continuing to understand further the side effect profile and the data that we’ve received to this point as well as to PROVE 2 data to keep patients on telaprevir through to 12 weeks.

But in addition to that if we are not, if patients do need to discontinue because of adverse events, is it should stop the telaprevir and continue to either interferon or interferon and ribavirin. If it does come to that, in PROVE 1 its again first Phase 2 trial and we and the investigators had to take a particularly conservative approach when patients stop, they stop all three therapies in general.

In subsequent trials and again in particular in Phase 3 we think most of the patients who stopped in their current trial, many of those patients, I should say, will be able to continue the pegylated interferon and as long as they received a majority or nearly all of their telaprevir they should still have a very good shot at reaching an SVR, and then the last comment remember that, the great majority of patients in fact did complete 12 weeks of telaprevir. So we are really only talking around what’s the optimal SVR rate we can achieve when we are talking about side effect management. It does and it’s not at the core of why we believe we are going to be able to increase SVR rates.

Jason Zhang – Prudential

I just a have one quick follow up here. For those patients who discontinue, and like you said in PROVE 1, when they discontinue they discontinue everything this time. Were you able to actually go after these patient to collect blood samples weekly to give you the weekly R&A status or since they have discontinued from treatment, some of the patients won’t be of available for you.

John Alam

That data will be available to us at the time of the EASL meeting, and today we did not have that data. It was a matter of we needed to go back through all the investigator sites and track down those patients and obtain that data, and that’s an ongoing effort. And we do look forward to putting all of that data together into a clear picture of what the true SVR rated is in that study.

Jason Zhang – Prudential

Thanks.

Lynne Brum

Thank you, Jason.

Operator

Your next question comes from Annabel Samimy from UBS.

Annabel Samimy – UBS

Hi. Thanks for taking my call. Can you tell how do the first three or any of the studies and treatment experienced patients start or enter your development plans. Are you planning on filing for both treatment naïve and treatment experience given the need or the most immediate need as in treatment experience and how might that effect your development plan?

John Alam

The Phase 3 study that we have talked about to this point and the use of the 12 plus 12 regimen as a focus in Phase 3 is around treatment-naive patients and the strategy in treatment-naive patients, and that’s based on the PROVE 1 data and will be confirmed with data from PROVE 2 as well.

In terms of treatment failures, the only study we are running at this point is PROVE 3, which is in fact a quite a large study in — for a treatment failure context with 440 patients. And we believe depending on the strength of the data and the consistency of the data in the study could support having treatment failure patients in the label. But that, again, is part of the discussion that we would be having with the FDA within this year.

Annabel Samimy – UBS

Okay. And can you just remind us how PROVE 3 power one of these assumptions for the control arm?

John Alam

We have not talked about at this point of the specifics of the power calculations, the sample size. I think our assumptions in a rigorously defined population of patients who failed pegylated interferon and ribavirin treatment as that the SVR rate would be very low, on the order of 10% or lower.

Annabel Samimy – UBS

Okay. And then, one final question for, PROVE 1. Can you just clarify again or remind us again on patients who are on telaprevir and dropped out but do happen to achieving that (inaudible) is considered responders or failures?

John Alam

If we have the data that demonstrates that they are an SVR, they will be absolutely counted as a responder.

Annabel Samimy – UBS

Okay, great. Thank you.

Lynne Brum

Thanks Annabel. Next question please.

Operator

Your next question comes from Meg Malloy from Goldman Sachs.

Meg Malloy – Goldman Sachs

Thanks very much. Just two quick ones, first, can you give us an update on the back up compounds for telaprevir, and whether or not we might see anything head towards clinic this year. And secondly John, if you could just review the characteristics that you look forward for a go/no-go decision on 702? Thanks, like I said, date is coming Q3.

Lynne Brum

Yes, Meg.

John Alam

Well, I actually can’t provide you any specifics on the back up on the follow on program. It’s just for let’s say it’s a highly competitive field and we have a research program that’s ongoing. We have a very good eye on which aspects we need to optimize on in order to have the most competitive program. And we are moving forward. But I can’t be any more specific than that.

Meg Malloy – Goldman Sachs

Okay, go/no-go in third quarter?

John Alam

Yes. So, on VX-702, yes that is effectively a go/no-go decision in the third quarter, and that will depend on having a successful study both on the Thorough QTc study and on the rheumatoid arthritis study. And we would really be looking for ATR 20 rates that are competitive with the anti-TNF agents. In a three months study, those are well described in various.

Meg Malloy – Goldman Sachs

And what about markers for liver toxicity potential?

John Alam

We’re certainly following that. Based on our prior results, we would expect actually a low potential for liver toxicity at this point.

Meg Malloy – Goldman Sachs

Great, thanks very much

Lynne Brum

Thank you, Meg. Next question please.

Operator

Your next question comes from Yaron Werber from Citigroup

Yaron Werber – Citigroup

Yes, hi good afternoon. John, maybe, I don’t know if you can comment on this. But help us understand a little bit, the 12 plus 12 data when it comes out, what would you like to see, to feel comfortable that this development proceeded plan with the 12 plus 12 strategy? What’s the ended treatment that needed to be confident versus one that leaded to believe that you might need to treat longer?

Ian Smith

Thanks Yaron. The main thing we’d be looking at is looking at the relapse rate in patients who complete 24 weeks of treatments the 12 plus 12 regimen and stop all treatment at that point. And a low rate of relapse would support that. There is no further potential benefit by extending the treatment duration for Interferon and Ribavirin.

Yaron Werber – Citigroup

And so we understand a little bit, so at this time you have the 12 plus 12 data, the end of treatment data at the end of the second quarter. At that point, what would — do you need to see another 12 weeks for similar talking about the drop-out rate or award point, I am just trying to understand the relative to what -

Ian Smith

We are talking HCV RNA results at 12 weeks of follow-up after they have completed all treatment at 24 weeks, and this will define what the relapse rate is because almost all patients who relapse after stopping treatment with their HCV RNA coming back in the blood, that happens within 12 weeks of follow-up after stopping treatment. And that data we do expect to have in time to meet with the FDA in the middle part of this year.

John Alam

And Yaron, just to reemphasize that this is very similar to how we looked at the small arm D — if you look at way to the end of treatment do a post treatment follow-up and look at the relapse rate of the post treatment.

Yaron Werber – Citigroup

Thanks and presumably the Phase 3 study, I would imagine, would be superiority study, can you and I know you, you probably would not want to share with us too much on the Phase 3 design as you noted. But can you just help us a little bit understand if what if the placebo arm would be expected to do 45% to 50% SVR, when treated for 448 weeks. What’s the superiority margin that you would be comfortable with, again to say, we would be comfortable with a — an absolute 10% be enough. Being 10%, let’s say, going from 45 to 55 or is the 5% good enough given that you are shortening the treatment duration?

Ian Smith

I think it’s a little premature to actually talk about the specifics of the Phase 3 really. The margin is dependent on it just has an impact on the size of the study and then how much risk we take on and will design that appropriately, and we are working on this internally and obviously we’ll be discussing that with the FDA. But we are, as you have heard, through our various sections, we are confident that the 12 plus 12 arm can increase the SVR rate to form Standard of Care, substantially from what the standard of care does and based on that we can design a Phase 3 trial in which we can be successful.

Yaron Werber – Citigroup

And maybe just a final question. You noted that you are considering doing a twice daily 950 study. Would that be boosted with Ritonavir or is that 950 by itself?

Ian Smith

So we are expecting, we are on track to initiate an exploratory study using a b.i.d. regimen of telaprevir in combination with pegylated interferon and ribavirin, starting that study within this year. We have completed the analysis of a multi-dose study of ritonavir and telaprevir in healthy volunteers and based on the results of that study we do not expect this b.i.d. study to include ritonavir.

Yaron Werber – Citigroup

Thanks. Did you see a drug interaction there? Is that what the issue is?

Ian Smith

The study results do not support based on the PK data of telaprevir that blood level increase that we saw did not justify going forward, which Ritonavir as a strategy for boosting telaprevir levels in a non-HIV co-infected patient population. The good news in many ways was that there was in fact not a substantial drug-drug interaction at the end of two weeks. And based on that, it may actually make it simpler and more straightforward to conduct studies in a HIV/HCV co-infected population that is on Retonavir containing regiments.

Yaron Werber – Citigroup

Okay. Great. Thanks John.

Lynne Brum

Thanks Yaron. Next question please.

Operator

Your next question comes from Howard Liang from Leerink Swann

Howard Liang – Leerink Swann

Thanks very much. Just a follow-up on the previous question. So, is the twice a day dosing with a new formulation of telaprevir?

John Alam

No, it’s the formulation that we are using in PROVE 3 and would in fact commercialize with. But, the regiment that we are using in PROVE 3 and will go into Phase 3 with is two tablets every eight hours, three times a day. In the b.i.d study we would use three tablets, twice a day. So, same daily dose and divided twice a day instead of three times a day.

Based on the PK data that we’ve obtained in our studies to this point, we believe we can indicate our targets for top concentrations with such a dosing regiment, but it clearly is remained to be proven that we are able to be successful with that regiment of three tablets, twice a day and that’s why we are calling it an exploratory study.

Howard Liang – Leerink Swann

Okay. Just you mentioned 1 kg with the telaprevir program is to better manage the side effects. Can you talk about your initiative there? And also, I was wondering is there any indication that side effects might be related to the weight of the patient, so that higher dose per kilogram may give you more rash, for example?

John Alam

So, there are I would say two categories, the most straight forward way to manage is how I discussed it earlier is given that particularly the severe rashes starting relatively late in the course of telaprevir dosing. The median data of onset of severe rash was 62 days, so more than 8 weeks into dosing, so far into the 12 week dosing period. For those patients, the easiest way to manage it is to stop the telaprevir, continue the Ribavirin and pegylated interferon or just pegylated interferon alone. Make sure that duration is 24 weeks, because we do believe that the wild-type virus which is where the bulk of the viruses and it is where telaprevir has its major action and most of the wild-type virus is not all of it is going to be eradicated well within the 12 weeks and in many patients it may be substantially and less than 12 weeks.

The Interferon and Ribavirin are really there for the variants where you need the full 24 weeks. So, that would be the easiest way to manage through. And then, otherwise, I think its all about gaining a further understanding of who and perhaps why they developed a side effects and I think your question is one of the questions that we will be asking when we have the full data set between PROVE 1 and PROVE 2. I think that’s where the PROVE 2 data becomes important because it provide us the numbers to look at questions like, are there anything in the demographics like weight or otherwise in that or blood levels, metabolites, et cetera that may be a key to who is developing the more severe event in order to be able to look out for them and manage the dosing in an appropriate way, but those are still on going questions at this point

Howard Liang – Leerink Swann

If I could just ask a quick question, VX-680, when might we see this pivotal Phase 2 results from the clinical trial?

Ian Smith

Yes. I mean it’s too early in for the study to talk to about.

Howard Liang – Leerink Swann

Great. Thank you very much.

Lynne Brum

Thank you Howard. Given this call is gone almost now we will take one last question.

Operator

Our final question comes from John Watkins from BOA Securities.

John Watkins – BOA Securities

Thanks, I had a quick question around the PROVE 3 stage, I know that you’d mentioned at the analyst days that there is a plan put in place to deal with the rash in PROVE 1 and PROVE 2, and I was wondering if that same plan is in place for PROVE 3, and also what kind of rash do you expect to see do you expect it to increase out as you get well beyond day 62 and what do you think that it is still going to be manageable at that point?

John Alam

The same rash management plan that we instituted in PROVE 2 is in PROVE 3. Obviously, because of the timing of PROVE 1 and PROVE 2, it’s going to have actually the most impact in PROVE 3, because we are still enrolling that study. And everything that we learned in PROVE 1 and PROVE 2 we’re applying in PROVE 3.

In terms of what would happen with continued dosing, there is no way to tell at this point. I think the in the treatment failure context the total varied profile, I think the expectation would be that in general, who would be better than in the treatment-naïve context, because these are patients who have demonstrated and have tolerated pegylated interferon and ribavirin previously. And I think that’s an experience in HIV and many other contexts that the patients tend to do better in than context and obviously, the benefit-to risk ratio is very different.

And so I think the PROVE 3 tolerability and efficacy results will help in the treatment fairly context will have to stand on its own.

John Watkins – BOA Securities

And just to be clear, your patients — you will encourage patients to stay on the Standard of Care they did have to come off of telaprevir in the PROVE 3 study?

Ian Smith

Yes.

John Watkins – BOA Securities

Okay, thanks.

Lynne Brum

Thank you, John and thank you everyone for joining us tonight on the Vertex first quarter conference call. We will take any additional questions directly to our offices. Thank you, and good night.

Operator

Ladies and gentlemen, thank you for participating in today’s Vertex Pharmaceuticals first quarter 2007 financial results conference call. This concludes today’s conference, you may now disconnect.

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