Michael Partridge - VP, IR Jeff Leiden - Chairman, President and CEO Ian Smith - EVP and CFO

Geoff Meacham - Barclays Capital, Inc. Matt Roden - UBS Securities LLC Samir Siddhanti - Goldman Sachs & Co. Matthew Harrison - Morgan Stanley& Co. LLC Michael Yee - RBC Capital Markets Ying Huang - Bank of America Cory Kasimov - JPMorgan Brian Abrahams - Jefferies Alicia Young - Credit Suisse Liisa Bayko - JMP Securities Phil Nadeau - Cowen and Company Adam Walsh - Stifel Nicolaus Mark Schoenebaum - Evercore ISI Tony Butler - Guggenheim Securities LLC

Good evening. This is Michael Partridge, Vice President of Investor Relations for Vertex. Welcome to our Fourth Quarter and Full Year 2015 Financial Results Conference Call. All participants are in a listen-only mode until we will open the lines for questions. As a reminder, this conference call is recorded. A replay will be available following the conclusion of tonight's call. Dr. Jeff Leiden, Chairman and CEO; and Ian Smith, Chief Financial Officer, will provide prepared remarks this evening. Stuart Arbuckle, Chief Commercial Officer; and Dr. Jeff Chodakewitz, Chief Medical Officer, will join us for the Q&A portion of the conference call. We recently presented at the Annual J.P. Morgan Healthcare Conference where we provided a comprehensive update on our business and had the opportunity to meet with many investors and analysts. As such, our remarks tonight will be brief. We expect to conclude the call by 5.45 P.M. On tonight's call, Jeff will review key priorities for our business in 2016. Ian will review our fourth quarter and full year 2015 financial results and discuss our 2016 financial guidance which we provided also earlier this month. As always, you can access the webcast slides on our website. I will remind you that we will make forward-looking statements on this conference call. These statements are subject to the risks and uncertainties discussed in detail in today's press release and our 10-K which has been filed with the Securities and Exchange Commission. These statements, including without limitation those regarding the ongoing development and potential commercialization of our drug candidates, Vertex's other cystic fibrosis programs, and Vertex's future financial performance, are based on management's current assumptions. Actual outcomes and events could differ materially. Information regarding our use of GAAP and non-GAAP financial measures and a reconciliation of GAAP to non-GAAP is available in today's financial results press release. Please also see slide four of tonight's webcast. I will now turn the call over to Dr. Jeff Leiden.

Thanks, Michael. Good evening, everyone. Earlier this month I met with many of our investors and analysts at the Annual JP Morgan Healthcare Conference and talked about the important transition has Vertex has made in the last few years. As we enter 2016, Vertex is on a path toward sustained earnings and revenue growth, driven by an increasing number of people being treated with our two approved medicines for cystic fibrosis, KALYDECO and ORKAMBI. We have a broad and deep pipeline of investigational medicines for CF that we believe may allow us to reach our goal of treating all people with CF in the future. Additionally, our pipeline of medicines for other serious diseases, including cancer, pain and other neurologic diseases, continues to progress through early stage clinical development. In short, we're a very different Company than we were just four years ago. This evening I will briefly review our key priorities for 2016 and provide some insight into upcoming milestones in CF and other parts of our business. Our number one priority has been and continues to be to increase the number of people eligible for and treated with KALYDECO and ORKAMBI and to develop potential new medicines that may provide even greater benefit for all people with CF in the years ahead. At this time last year, just over 3,000 people were eligible for treatment with KALYDECO. Today approximately 25,000 people are eligible for KALYDECO or ORKAMBI and we expect the vast majority of these people will begin treatment with these medicines to treat the cause of their CF. We also expect to increase the number of people eligible for these medicines in 2016 through label expansion efforts that could include younger patients or patients with other mutations in the CFTR gene. Our second key priority for 2016 is to continue building a financial profile of sustained revenues and earnings growth and a strong balance sheet. In 2015, the continued expansion of the KALYDECO label and the approval of ORKAMBI resulted in a significant increase in the number of patients being treated with our medicines which led to a significant increase in revenues. Our progress in 2015 has positioned us for continued growth and we believe we are on the right path to achieve our goal of building a financial profile consistent with that of other global biotech companies. And finally, our third key priority is to invest in our business to create future medicines for other serious diseases. Continued investment in our pipeline is essential for creating additional breakthrough medicines for patients. I'll spend just a few minutes reviewing our recent progress and upcoming milestones that reflect these three priorities. Our first CF medicine, KALYDECO, was approved by that FDA in January 2012 and since then our goal has been to bring this medicine to as many people as possible who may benefit. KALYDECO addresses the underlying cause of CF and is a significant medical advance for people with certain mutations in the CFTR gene. Today approximately 4,000 people are eligible for treatment with KALYDECO in North America, Europe and Australia. We're committed to bringing this medicine to even more patients who we believe may benefit in the years ahead. We are awaiting a decision from the U.S. FDA on our application for approval of KALYDECO in people ages two and older with CF who have certain residual function mutations. There are approximately 1,500 people ages two and older in the U.S. we have the residual function mutations represented in the supplemental new drug application for KALYDECO. While our submission for approval in these mutations is primarily based on preclinical data, and on a Phase 2a clinical study in only 24 patients, we believe that KALYDECO would be beneficial to these patients, given the underlying science behind this precision medicine approach of using genetic markers and predictive assays to identify patients who are likely to benefit. Importantly, we chose to seek this approval knowing that these patients would otherwise have to potentially wait years before potential approval based on Phase 3 data. With more than four years of safety data, we believe that this path toward potential approval is in the best interest of people with CF. However, we also recognize that the application is based upon limited available clinical data in these rare mutations. The PDUFA date for a decision from the FDA is February 7. With ORKAMBI, we are working to bring this medicine to more patients who we believe would benefit, specifically children with two copies of the F Delta 508 mutation similar to the approach we took with KALYDECO. With the approval in the European Union at the end of last year, approximately 20,500 people, ages 12 and older, are now eligible for treatment with ORKAMBI in the U.S. and Europe. Today we announced that a Phase 3 study of ORKAMBI in children ages six to 11 met its primary safety endpoint and supports our planned submission of a supplemental new drug application in the second quarter of this year in the U.S. If approved, an additional 2,400 people in the U.S. with CF would be eligible for treatment with ORKAMBI. While this was primarily a safety study, we also saw encouraging improvements in secondary and exploratory efficacy endpoints, including a statistically significant change in the exploratory endpoint of lung clearance index or LCI. Changes in LCI are also the primary endpoint of an ongoing Phase 3 study to support approval of ORKAMBI in this age group in Europe. There are approximately 3,400 children, ages six to 11, who have two copies of the F Delta 508 mutation in the European Union. Additional information on these data was provided in today's press release. Today KALYDECO and ORKAMBI are approved to treat approximately 25,000 people in North America, Europe, and Australia. We believe that there are many more people who may benefit from these medicines and we have trials ongoing or planned that could expand the number of people eligible for treatment to approximately 44,000 in the years ahead. Beyond our approved medicines, we have a pipeline of investigational CF medicines from early-stage research programs such as gene editing with CRISPR, to late-stage development programs evaluating combinations of our CFTR modulators. This pipeline represents hope for the CF community and our goal is to one day treat all people with CF. We have a broad Phase 3 program underway evaluating the corrector VX-661 in combination with ivacaftor. And we are also advancing the development of two next-generation correctors that would be combined with the VX-661and ivacaftor as part of a Phase 2 study of triple combinations planned for later this year. Both approaches are asking the same fundamental questions. First, can we enhance the benefit for patients already receiving KALYDECO or ORKAMBI? And second, can we provide benefit to new groups of people with CF not currently helped by KALYDECO or ORKAMBI, including a very large group of patients with one F Delta 508 mutation and a second mutation known to result in minimal CFTR function. The VX- 661 program includes four Phase 3 studies in different groups of people with CF who have at least one copy of the F Delta508 mutation. We will begin to see the first results from the VX-661 program by early 2017 and, importantly, this program is also meant to provide a significant amount of safety data to support evaluation of a next generation corrector with VX-661and ivacaftor as part of an investigational triple combination regimen. At the end of 2015, we initiated clinical development of two next generation correctors; VX-152 and VX-440. Phase 1 studies of each compound are ongoing in healthy volunteers and are evaluating single and multiple doses of VX-152 and VX-440, as well as triple combination with VX-661 and ivacaftor. Together with the safety data from the VX-661 program, these studies are designed to support the planned initiation of Phase 2 studies to evaluate triple combination regimens in patients in the second half of 2016. Our business model is unique. The success we have achieved in CF allows us to reinvest in the discovery and development of new transformative medicines. In parallel with CF, we are advancing a number of additional development programs for cancer, pain, and other serious diseases. We have significant flexibility in how we may advance these programs, either independently for those diseases we believe are aligned with the focus of our business, specifically specialty diseases where G&A expenses are low, or in collaboration with other companies that we believe would be best suited to rapidly bring these potential medicines to patients. We believe our pipeline represents both potentially transformative future medicines for patients and significant value for our business. We have begun to provide some additional insight and data for our pipeline programs and I look forward to providing updates on our progress throughout the coming year. I mentioned at the start of my remarks that Vertex has undergone an important transition in recent years. We are now a global biotech company that has independently brought forward two breakthrough medicines to people with CF worldwide and is on the path to delivering significant earnings and cash flow. Our financial performance in 2015 and guidance for 2016 are metrics of the kind of company that we want to become, a company that consistently creates transformative new medicines for patients, generates significant value for shareholders, and reinvests in scientific opportunities to create future medicines. This is our business model and I am pleased by our success to date and with our outlook for the coming years. With that I'll turn the call over to Ian.

Thanks, Jeff. In my remarks today, I will review our fourth quarter and full year 2015 financial results, and discuss our 2016 financial guidance for total KALYDECO net revenues and non-GAAP operating expenses, excluding cost of revenues. I will also discuss our expectation for providing ORKAMBI guidance in 2016. Financial results first. Our 2015 net CF product revenues were approximately $983 million. This includes KALYDECO net revenues of $632 million and ORKAMBI net revenues of $351 million. Total CF product revenues increased by more than 110% compared to 2014. In the fourth quarter of 2015, we reported total net CF product revenues of approximately $401 million, including KALYDECO net revenues of $181 million and ORKAMBI net revenues of $220 million. Fourth quarter KALYDECO sales of $181 million were up 45% versus the fourth quarter of last year and up 9% versus the third quarter of 2015. This included approximately $6 million in inventory stocking that occurred at the end of the fourth quarter. Growth in KALYDECO was driven by both label expansion efforts which increased the number of eligible patients to approximately 4,000 and by the completion of key reimbursement discussions in Europe. With ORKAMBI, more than 1,500 patients started in the fourth quarter, resulting in sales of $220 million, up 68% versus third quarter of 2015. As expected, we saw a very rapid uptake for ORKAMBI in the period immediately following the FDA approval with more than 3,000 people starting treatment in the third quarter. Demand from patients and physicians has been strong. But, as expected, fewer patients started treatment in the fourth quarter compared to the third quarter, in line with our prior statements regarding expectations for the rate of uptake for ORKAMBI. We expect this trend to continue through the end of 2016, by which time we expect the vast majority of the 8,500 eligible patients in the U.S. to have initiated treatment with ORKAMBI. Growth to net adjustments were largely unchanged from the third quarter and were in the high single-digits due primarily to a greater proportion of patients within commercial plans initiating treatment in the first six months following the approval of ORKAMBI as compared to government paid plans. Each of the 50 state Medicaid programs has now paid a claim for ORKAMBI, thus we expect gross to net adjustments will increase to the mid-teens by the end of 2016 to reflect an increase in patients treated being covered by Medicaid. As we enter 2016, we are pleased with the launch of ORKAMBI to date, and remain focused on working to ensure those who need the medicine have access to it, educating healthcare providers and supporting adherence to ORKAMBI. Now to operating expenses. Our fourth quarter non-GAAP operating expenses were $282 million, including R&D expenses of $204 million and SG&A expenses of $78 million. The increased R&D expensed in the fourth quarter 2015 compared to 2014 were primarily the result of increased costs related to the pivotal Phase 3 program for VX-661 in combination with ivacaftor. The increased SG&A expenses were primarily the result of an increased investment in global commercial support for the launch of ORKAMBI. And tonight I am pleased to report that for the fourth quarter 2015 we recorded a non-GAAP net profit of $43 million, or $0.17 per diluted share compared to non-GAAP net loss of $132 million or $0.55 per share for the fourth quarter of 2014. Our 2015 non-GAAP net loss was $268 million, or $1.11 per share, compared to non-GAAP net loss of $511 million or $2.17 per share for the full year 2014. From a balance sheet perspective, we started 2016 with a strong cash position of $1.04 billion. Vertex also has $300 million outstanding from a credit agreement that provides for a secured loan of up to $500 million. Now, let's turn to the 2016 financial guidance, which we first provided on January 10th. We expect 2016 KALYDECO net revenues of $670 million to $690 million. Our guidance for KALYDECO revenues reflects the continued use of KALYDECO as was seen in the fourth quarter of 2015, which resulted in revenues of $181 million, and the expectation for up to approximately 200 patients with a gating mutation to enroll in a Phase 3 clinical study of VX-661 in combination with ivacaftor who would otherwise have received KALYDECO, which will thus reduce 2016 KALYDECO revenues. There was also an approximately $6 million inventory stocking that occurred at the end of the fourth quarter 2015. That is not expected to recur in future quarters and is thus accounted for in our guidance. Importantly, our current guidance excludes any potential revenues from the approval of KALYDECO for people with residual function mutations. We will update our KALYDECO guidance should we receive FDA approval for residual function mutations. With ORKAMBI, more than 4,500 people have begun treatment in the U.S. by the end of 2015. There are four primary pieces of information regarding the launch that will inform our decision regarding ORKAMBI guidance. First, since all patients who initiated treatment with ORKAMBI in 2015 have been on treatment for approximately six months or less, we are waiting additional information on the compliance rate for patients taking ORKAMBI. While we continue to expect that the vast majority of eligible patients in the U.S. will begin treatment with ORKAMBI by the end of 2016, we're waiting additional information on the specific rate of uptake and on the specific proportion of the 8,500 eligible patients who begin treatment with ORKAMBI in 2016. And finally, additional information on the persistence rate, defined as how many patients remain on treatment will also be taken into account. These four factors, the compliance rate, the rate at which patients begin treatment, the total number of patients who initiate treatment, and the persistence rate, all are important in considering our guidance for ORKAMBI. In 2016, we expect to recognize revenues from sales of ORKAMBI in the U.S. and Germany. In Germany, there are approximately 2,500 people with CF, ages 12 and older, with two copies of F508del mutation. In Europe, country to country reimbursement discussions are underway. However, we do not anticipate any significant ORKAMBI revenues from countries other than the U.S. and Germany in 2016. The final component of our financial guidance is non-GAAP operating expenses, which are comprised of R&D and SG&A expenses and exclude cost of revenues. We expect our total 2016 non-GAAP operating expenses of $1.18 billion to $1.23 billion. As a reminder, our guidance for 2015 operating expenses was for $1.05 billion to $1.1 billion, and we reported 2015 operating expenses at the low end of this range of $1.06 billion, largely as a result of costs related to VX-661 that will now occur in 2016 as opposed to 2015. The increase in expense expected operating expenses for 2016 as compared to 2015 is primarily a result of expanded development efforts related to the pivotal Phase 3 development program for VX-661 in combination with ivacaftor and for multiple Phase 1 and two studies of Vertex's early stage of mid-stage pipeline of potential CF medicines and anticipated SG&A costs to support the launch of ORKAMBI in new global markets. The components of Vertex's non-GAAP operating expenses include non-GAAP R&D expenses, which we expect to be in the range of $850 million to $880 million, and non-GAAP SG&A expenses, which we expect will be in the range of $330 million to $350 million. Vertex's expected non-GAAP R&D and SG&A expenses exclude stock-based compensation expense and certain other expenses. In summary, we are in a strong financial position as we enter 2016. We remain committed to delivering a financial profile that is similar to many of our large cap biotech peers, which includes sustainable revenue and earnings growth, high operating margins, and most importantly, continued investment to create future medicines.

Thank you. Operator, we are now ready to take questions.

[Operator Instructions] Our first question comes from the line of Geoff Meacham of Barclays. Your line is open.

Hey guys. Thanks for the question and congrats on profitability. I got a commercial and clinical question for you I guess I will start with commercial. Wanted to know if you can go into a little bit more detail about persistence rates over time with KALYDECO and whether this should be a real benchmark for ORKAMBI. I'm just curious if you guys have tracked people who have discontinued, but later comeback to therapy.

So, Geoff maybe Stuart will take a question. So, thanks for the comment.

Both quarter.

Stuart is going to take the question might also comment on some of the other features that are affecting how we're thinking about the launch as well.

Yes.

Yes. Geoff, hi its Stuart here. So, yeah, let me reiterate a couple of things that Ian said about ORKAMBI and the factors we are taking into account when thinking about the launch in the way of tracking very closely. One is obviously the peak penetration so the number of eligible patients in total that get initiated over therapy over time and we continue to expect the vast majority of 8,500 patients will. Then there's a rate of uptake, how quickly we get to that peak penetration as you know at the end of December we had about 4,500 patients on therapy about 55% of the total and we expect that we'll get to peak penetration during the course of 2016. And then as you said one of the other key components is persistence, the number of patients who stay on therapy. And obviously it's pretty early days because whilst we've only been on the market for six months, we really don't have long-term experience with very many patients yet. In the Phase 3 studies for ORKAMBI, at about 24 weeks in traffic and transport about 5% of patients have discontinued, the 48 weeks in the open label extension with ORKAMBI, we were at 15% of patients had discontinued. So, that's in the ORKAMBI clinical trials and time will tell whether we see a higher number or lower number, but probably a higher number who are discontinuing in the real world. With KALYDECO, in the studies we looked at, it was about 5% of patients again who had discontinued in the KALYDECO clinical trials. It was actually slightly higher than that in the real world, it got closer to 10%. So, in the real world, over time and largely that was a longer period of time, we did see a slightly higher number -- higher percentage of patients on KALYDECO discontinue versus the clinical trials. The last thing we're going to be thinking about that is obviously compliance and that's the percentage of patients who actually take the pills that have been prescribed by their physician. As you know KALYDECO is very, very high at 85%, certainly the highest I've ever seen personally for a chronic medication. Obviously medicines are roundabout the 60% range, I would anticipate ORKAMBI is going to be in that range probably towards the higher part of that range, but somewhere in that range. The only other question we will have to look at very closely and again we just don't have data on it, we don't have data on it in the clinical program Geoff and we'll have to see how it plays out in the real world is whether physicians and patients choose to reinitiate therapy if they have discontinued for some reason. And we just have no information from the clinical trials because they just weren't set up to look at that, if a patient discontinued they would then excluded from further therapy. So, we just don't have data on that right now Geoff. Hopefully that gives you some perspective on what we're thinking.

No, that's helpful. And just real quick on the clinical side, when you look at the 152 and 440 study and healthy, has there been any evidence of drug/drug interactions with KALYDECO and 661 and I guess I'm trying to figure out whether you guys expect to take multiple doses of those to correctors into CF patients when you look to this back half of the year. Maybe just help us with the design of that 28-day study as you see it at this stage. Thanks.

Hi Jeff, it's Jeff Chodakewitz. So, in terms of the Phase 1 studies for VX-152 and 440, we're really in the midst of those studies and we obviously can't comment on the ongoing trials. Maybe just a comment on [Indiscernible] Phase 2 and we're in early days in terms of those designs, but I do think it's likely that we would look to take multiple doses of the compounds into those Phase 2 studies to learn as much as we can.

Got you. Okay. Thanks a lot guys.

Thanks Geoff.

Thank you. Our next question comes from the line of Matt Roden of UBS. Your line is now open.

Great. Thanks very much for taking the question. I also wanted to congratulate you on the milestone of turning back to profitability. So, regarding the pediatric study I understand the primary endpoint is safety and the LCI data look really good, which in the latter point being important for what's going on in Europe. But just wanted to get your perspective on the sort of 2.5% improvement in FEV. Have you talked to any experts or the FDA about that? I can't imagine that's going to be any kind of issue for you, but just wanted to see if there's anything to add on that side. And then on the commercial side, wanted to ask, you have left the residual function mutations out of the KALYDECO guidance, but just trying to get a sense for if that were to be approved, how should we think about the onboarding of those patients on to commercial drug? I'd imagine you have a conversion of those that are on trial to commercial, but apart from that, would you characterize this is a highly motivated subset of patients or because they have a milder phenotype could this be a slower rate of penetration? Thanks very much.

Hi Matt, it's Jeff Chodakewitz, maybe I'll start. So, in terms of the pediatric study, we were pleased with the results of the study, really meaning both endpoints for exposure for PK and then for safety as you said, so that was a nice outcome. The expectation with the FDA is that once you have established efficacy in the same disease in older children that as you move to younger age groups -- really -- it's really about that exposure and safety consistent with the design of the study. I will say that I think we were also quite pleased with the evidence of efficacy in the population where it gets harder to actually demonstrate that. And I think actually the FEV1 showing that strong trend was actually quite favorable remembering that these kids started any pretty high FEV1 percentage of baseline and actually you noted the fact that the LCI measure, which is in its earlier days, was nicely positive and that's our primary endpoint in the European study and lastly the BMI kind of measures as well. So, I think overall we were quite satisfied with the results of the trial.

Matt, its Stuart here just to comment on the residual function. So, as you said, residual function is not included within the KALYDECO guidance that we have provided. There's about 1,500 patients with the 23 mutations that we've asked for within our filing. In terms of patients transferring from clinical trials, clearly the article trial on which the application is based or which included in the clinical trial is very small. So, it's not as if the huge bolus of patients to transition from clinical supply to commercial supply. In terms of rate of uptake, the best analog of think for you there would be R117H which by definition is a residual function mutation. And so both in terms of peak penetration and rate of uptake, I think that's probably the best analog for you to think of in terms of the rate of uptake we might see if we're approved. And then just to illustrate what Ian said in his prepared remarks, if we're approved in residual function, our anticipation is that we update our KALYDECO guidance to reflect that.

Great. Thanks very much.

Thank you. Our next question comes from the line of Terence Flynn of Goldman Sachs. Your line is open.

Hi, this Samir on for Terence. Thanks for taking the question. Have all ORKAMBI clinical trial patients in the U.S. transition to commercial drug? And if not, how many are left to transition? Thanks so much.

I'm not going to comment on exactly how many, but the vast majority of the patients who were on clinical trial supply have now transitioned to commercial drug. Just to orient you there was approximately 500 in total of the patients in traffic and transport were in the U.S.

Okay, great. Thank you.

Thank you. Our next question comes from Matthew Harrison of Morgan Stanley. Your question please.

Great. Thanks for taking the question. So, I just had two quick ones. So, one, just Ian can you go back to the KALYDECO stocking comment that you made and just tell us if you think we should see some of that inventory come out of the channel this year and how that's in your guidance? And then separately just on the EU pediatric study, how will data from that influence maybe FDA perception of the filing that you guys have? And also how is timing of that related to when you would expect to have a PDUFA date for the label expansion in the U.S.? Thanks.

Yes, so I'll take the first one and then Jeff Chodakewitz can take the second question. So firstly, the stocking question that you ask is for all people we estimated there was a proximally $6 million of inventory stocking in the fourth quarter for KALYDECO. What we mean by that is the inventory was higher at December 31 compared to September 30 by $6 million. That will then sell out of the channel, so it does impact future sales because it was in inventory. We have removed that from our guidance, so when we made an estimate for our 2016 KALYDECO guidance, we removed that. In fact I think when we all met in JPMorgan, San Francisco I gave people a simple calculation to think about how we got to our guidance for 2016. I'll refer to the again which is in the fourth quarter of 2015, we did approximately $180 million of KALYDECO revenues, $181 million to be precise, but approximately $180 million. If you multiply that -- if you take $6 million out of that and you get $174 million worth of fourth quarter run rate revenue and then multiply that by four, you then actually deduct the patients from that annualized number and you get to approximate range of the guidance that we provided which was $670 million to $690 million for KALYDECO. So, we did take account for that stocking.

Great. And this is Jeff, I think in terms of your questions around pediatrics, maybe starting with the U.S., as we said we expect to submit our file in the second quarter of this year, we haven't yet had those discussions with the FDA of course, but we're operating under the assumption of a six-month review time. The European study is still ongoing, it's enrolling and I don't really see there being much interaction in terms of those processes.

Operator, we're ready for the next question.

Thank you. Our next question comes from the line of Michael Yee of RBC Capital Markets. Your line is open.

Hi thanks, good afternoon. As it relates -- guidance for Ian I know there is no formal guidance for ORKAMBI, but is the key message here when I look at the consensus of 1.6 billion, is the key message to think about the discontinuation is a little bit higher in compliance a little bit lower based on the comments that Stuart made in the U.S.? And then on OUS, Ian do I need to be clear that Germany is the only country being launched? Are there other things I need to think about when I look at the consensus of 345 million? Maybe they make a common of that and how consensus is modeling just so I'm clear on that. And then second question is just a quick clinical question, on 152 and 440, in the Phase 1 even though it's healthy, is there anything quite hard or any other biomarkers you're looking at that you will disclose that could give any hints of efficacy? Thanks.

Thanks for the questions Mike, Jeff Chodakewitz has actually just stepped out while you asked that second question.

Might be able to tell, Jeff has a pretty bad cold.

I just want to make sure he heard your question. I'll take the first question and so Jeff will take the second question. So, first of all, know we are not trying to say discontinuation is a bigger issue than compliance. I actually appreciate asking the question so we can clarify that. That's not what we are trying to say and it's not actually what we are saying even early on in this launch. But I appreciate the opportunity to comment on how people are thinking about the ORKAMBI launch and how we're seeing at reflected in sell-side models and specifically 2016, let's say forecasted that are in the sell-side models. So, obviously, when you look at consensus, there a number of different models that are out there, a number of different numbers and so there's some extreme numbers and then there are some that are more towards the normal. What I would say, I don't know the assumptions that are being put into other people's models, but I would ask you to listen carefully to Stuart's comments, where we touch on when do we believe we're going to get to peak penetration, the rate of uptake of ORKAMBI and then importantly, the persistence and compliance because specifically compliance if people take six pills out of every 10, it straightforward, you get $6 out of every $10 of your gross price. And obviously there is a gross to net discount based on whether you've got Medicaid patients versus private payer patients. And so I just -- the opportunity to comment on this call to all people that wanted, I want to make sure that people are giving thorough consideration to all this aspects of the launch and would be happy to talk to you after the call as well. As far as your question regarding Germany, Germany is the only country that we expect any significant revenues from outside of the U.S. And just to give you the background of Germany, Germany has an estimated 2,500 patients. We believe it could take 12 to 18 months to reach the peak penetration in those patients and we provided people with a price in Germany. And it is one aspect of the sell-side models that I do struggle with, because when I look at and ex-U.S. consensus of the sell-side model, a number that's close to $300 million; I find it very challenging for us to accrue that much revenue from Germany alone. And so I do appreciate you calling that out and so I just hope that people are giving consideration to all these features when modeling the ORKAMBI launch. And then --

Yeah -- 152.

Just very briefly about 152 and 440 I really can't tell into the details of the ongoing studies, but as you know the main focus for Phase 1 study is there's got to be exposure and safety and we learned a lot from those ongoing studies.

Okay. Thank you.

Thank you. Our next question comes from the line of Ying Huang of Bank of America. Your line is now open.

Hi, good afternoon, thanks for taking my questions. Maybe first one is for Stuart. So, ORKAMBI you can look at a much larger eligible patient population here. I know you guys have this clinical [Indiscernible] reimbursement agreement with Australian government for KALYDECO. Do you expect government payers to ask for some similar arrangement for ORKAMBI besides Australia? And then the second one I have on clinical side is maybe for Jeff, talking about the preclinical data you have, what's the metabolism and also secretion route for the two next generation CFTR correctors? Do expect any drug-drug interaction at all based on the way the drugs are metabolized and secreted with ORKAMBI? Thank you.

Ying Stuart here, I'll take your first question. Thanks for the question on reimbursement and kind of I have to cut to the chase, I really can't speculate on exactly what our arrangements are going to look like with governments around the world because we really are just at the beginning of that process and just to remind people, in most countries it is really a three-step process. There will be a clinical assessments of the risks and benefits of the agent, then as a pharmacoeconomic assessment and that really then is the sort of starting point for than the price and contracting negotiations and until we kind of work our way through that process it's really impossible to speculate on exactly what the nature of any relationship that we might come to with the various governments around the world. And for the cynical question, I will hand that over to Jeff.

Sure. Briefly, you are asking about metabolism and so forth and as you know, it's very hard from preclinical data to speculate especially in Chile really understand exposures and so forth. We are going to understand that much better from our Phase I study. I would point back to what we have said all along about our NextGen molecules that we wanted to get molecules that weren’t just look good in Vitro but actually could be medicines and that's the way we've approached it.

All right. Thanks.

Thank you. And next question comes from the line of Cory Kasimov of JPMorgan. Your line is open.

Hey, thanks. Good afternoon, guys. I wanted to go back to the topic of ORKAMBI outside of U.S. obviously there's a lot of talk about reimbursement and time to rollout in Europe but wanted to go to other regions such as Canada and you just mentioned Australia but following the approval in Canada -- I noticed 1500 patients that meet the label criteria, can you remind us of the market size in Australia as well? And once you do have the reimbursement in place, what would you expect the anticipated pace of uptake and really just the overall relevance of these markets to be from a commercial standpoint. Thanks.

Yeah, Cory, Stuart here. As you said, the eligible patient population of F508del home as I get in Canada is about 1500 patients and that’s out of about 4000 total CF patients that we estimate in Canada. Now that we've got the kind of regulatory approval we can now begin to seek public reimbursements for ORKAMBI in Canada and as you know as I’ve just described the process there is again a clinical assessment. There will be a pharmacoeconomic assessment and then there will be a price negotiation, probably through the pan-Canadian pricing alliance process that we went through with KALYDECO. In terms of rate of uptake, much as we are seeing here in the U.S., I do anticipate that the relative rate of uptake will be slower for ORKAMBI than it was with KALYDECO in Canada and indeed other markets outside of the U.S. for the same reason. It's just the sheer volume of patients as much larger than it is for KALYDECO and it's just more of an administrative burden to initiate patients. So much like we’re seeing here in the U.S. I'd expect the relative rate of uptake for ORKAMBI to be less than it is for -- less rapid than it was for KALYDECO in Canada and are indeed other markets outside of the U.S.

Cory, this is Jeff Leiden. Maybe just to add one comment obviously we’ve heard a lot from Ian and Stuart and some of the questions about the kinetics of the launch and some of the short-term modeling. I do think it's important to stand back as well and remember what the total opportunity is which I think is where your question is going. So if you think about where we are today versus where we were even six months ago, right? Today, we have approval for 8500 patients in the U.S. and we have a launch that we are really pleased with more than 4500 or 55% of the patients already on drugs in the U.S. which I think is remarkable. We have reimbursements in the U.S. that’s gone actually better than we have been expected meaning every state Medicaid is now reimbursing the drug and the majority of the private insurers are. We have approval in Europe and are starting a launch in Germany as you heard in the press release and ATU in France. Now we have approval in Canada which gives us access to 1500 private patients and the ability to negotiate reimbursement as Stuart said to an additional like 2500 patients or so. And so when you look at the total opportunity, it's actually every bit of what we thought before we have made significant progress and nothing of that has changed. It's impossible to predict the exact kinetics what's going to happen in the first quarter versus the second quarter but at least the way we look at it is we look out over the next couple of years we see that opportunity intact and progressing really nicely and I think it's important to sort of see that in the big picture as well as the short term model. So I hope that helps.

Yeah, helpful perspective. Thanks.

Thank you. And next question comes from the line of Brian Abrahams of Jefferies. Your line is open.

Hi. Thanks for taking my questions. Two questions, first, on the clinical side on the 6 to 11 year-old population. I was wondering if you could talk a little bit about the natural history of untreated patients on the lung clearance index and points. Where does it typically go over a six months period in children of this age? I guess balancing disease progression versus normal growth. Does it typically worsen our stay flat? And then on the clinical/commercial side, can you give us anymore granularity on the ongoing Phase III B study in low FEV1 patients the doses timeline and potential impact that data might have to help these patients manage through the initial side effects and stay on therapy?

Hi, Brian. It's Jeff Chodakewitz. So let’s -- maybe start with the LCI and as we talk about little bit it is an early measure. So the information I could give you is somewhat imperfect just so you know and the advantage we think is being able in children who have relatively normal FEV1 that as you know they have significant underlying disease. Their pulmonary function really is far from normal. It allows you to measure that. And over reasonably short periods of time sort of like a six-month period as we go in our clinical studies, there could be small decreases but we think overall that should be relatively stable. There may be modest shift over time but we think we would be able to have a reasonable baseline for assessing it. So actually that’s part of why the data that we had coming out of our pediatric study even without the control arm was encouraging to us. Maybe I will take a comment on the study in patients whose FEV1 are less than 40. We are still -- actually in the process of collecting all that data. We are still in rolling but we think that there is some useful information there just in terms of the experience that we have accrued. We did to your specific question did give hard way through give investigators the opportunity to start with a lower dose and then step up to full dose. That would be -- it's not a perfect evaluation of that but we were really trying to do what you said which is to help explore what could help patients get through those early weeks of dosing. We're going to summarize all that data and present it and use it from an education perspective as well.

Great. Thanks very much.

Thank you. Our next question comes from the line of Alicia Young of Credit Suisse. Your question please.

Thanks guys for take my questions and squeezing me in and congrats on the non-graph in the Green. Maybe just a couple. One if something happens with the residual where the FDA may request information do you guys have a strategy on how you might pursue that population going forward? And then also with the potential kind of chest tightness that sometimes happens, our text kind of suggest if that happens earlier rather than later like in the first couple of weeks but is there a dynamic where it could happen later and did you see similarities and differences though you probably titrated in the safety in the younger populations?

Yeah, hi, Alicia. It’s Jeff Leiden. Maybe I'll take the first one since it's a bit of a science and a policy question, strategy question I think then Jeff see if you can take the second question on the chest tightness. So maybe just to give you a little background, I know you are aware of this but the RF application is a little bit unusual compared to the other applications. That Vertex has submitted on KALYDECO and ORKAMBI which are always based on large Phase III studies. This one is different. It’s basically aimed at about 1500 patients with 23 different mutations resulting in residual function. And it’s based predominantly on preclinical data. That is cell-based data from cells that have been engineered to have those 23 different mutations supported by a very small Phase 2a study of about 24 patients that comprised eight or nine of those 23 mutations. And so what we are really asking the FDA to look at is both the science and the medicine. That we are submitting but also there is a policy question here which is how do extend the label of a drug like KALYDECO to very rare populations of mutations? Some of these mutations only have four patients in the last or ten patients in the U.S. and that's a very important policy question in precision medicine that as you know the FDA is considering much more broadly even just in CF. And so part of the reason why it’s little difficult to handicap this one is because of this combination of clinical and policy sort of things. We feel very strongly it is the right thing to do for patients that's why we did it. There are 1,500 patients in the U.S. but today don't have any CFTR correction therapy of any sort. And it would be years before they could get them based on large Phase 3 trials. For us this is definitely the right thing to do for patients and we believe in the science strongly and in the clinical support that we have but handicapping with the FDA is going to do obviously is a bit more difficult we will know by February 7 and then based upon what we do we have obviously come up with a strategy but again our goal is to try to get this medicine that has four years of safety data to these patients as soon as possible.

Great. And it’s Jeff Chodakewitz. Just to comment on your question about the chest tightness. Maybe first step back to our Phase 3 results which I think are the most definitive information. And as you noted those adverse events did occur very early. They were manageable in the vast majority of people and they did decrease overtime. Usually the average duration was approximately two weeks. So I think all of that really comes out of our Phase 3 data and suggested is an early event and the experience in our pediatric study was actually completely consistent with that. It was a small number, it happened early and in fact nobody discontinued because of that.

Great, thanks.

Thank you. And next question comes from the line of Liisa Bayko of JMP Securities. Your line is open.

Hi. Thanks for taking my question. I just wanted to better understand what you are describing with Canada in terms of the private payers. I know there are 1,500 patients that are -- would be eligible for ORKAMBI. Can you break that down into how many of those would be private?

Yes. Lisa, it’s Stuart. There is 1500 patients in total who are 12 and over who are homozygous for the F508del mutation. And we estimate there is about 30% of those would be covered by some form of private insurance. Private insurance may take some time to kicking in Canada; it is not necessarily quite as rapid for them to come to a decision certainly that was our experience with KALYDECO. But approximately 30% of the 1500 patients we estimate will have some form of private insurance.

Okay, thanks, that’s helpful. And then the data on the kids look really impressive with the LCI. Can you maybe comment on the clinical meaningfulness of that number? Obviously, we are not as used to seeing that number as we are with FEV. So I would be curious if you could put some context on that. Thanks.

Sure. It’s Jeff Chodakewitz. And I will say that in terms of that kind of validation of saying what the minimally clinically important differences it doesn't exist for that tool. I will say based on our discussions with people who are experts in the methodology, we were -- we kind of targeted a 0.7 decrease. Remember in this measure, actually a negative number is an improvement because of the way the test is done. So, I can't give you an exact number, but hopefully that gives you some context in why we were pleased with the results.

And Liisa, this is Jeff. Maybe to reiterate one thing that Jeff C. said before because I think it's important. And I remember you and I talking about this at one point, that we are very interested in some of these alternative endpoints for a couple of reasons. One, as Jeff said, these may be much more applicable to populations in which it is difficult to measure FEV1, like the kids, particularly as they get younger. But also because, as you know, FEV1, which is a measure of midsize airway resistance, is quite a bit downstream or upstream, if you will, from the problem in CF, which is really a distal airway gas exchange problem. And actually LCI is probably a much more sensitive measure closer to the actual physiology of what is going on in CF. And so we have been very eager to start to see results from these kinds of studies to tell whether LCI could actually turn out to be as good or better an endpoint than FEV1. And obviously we need to provide agencies with clinical data to support that and this is the first step in that process.

Okay. Thanks a lot.

Thank you. Our next question comes from the line of Phil Nadeau of Cowen and Company. Your line is open.

Jeff and Ian thanks for taking my questions. Just to -- as we begin to model the younger kids -- the penetration of ORKAMBI to the kids age six to 11, are there any issues with compliance persistence or uptake in that population that you want to point out or do you expect similar rates of those elements in the younger kids as in the older? And then second, on the pipeline, I think we are expecting the ENaC monotherapy data midyear. Can you give us some idea of where you are looking for in that data set and what would be proof of concept? Thank you.

In terms of modeling the kids, were we lucky enough to get an approval this year, I'd certainly recommend that people take into account the same considerations that's the peak penetration, time to peak, persistence rate and compliance, and model those each individually. In terms of what we have seen with KALYDECO, we have seen that the worst compliance we see tends to be in that teenage to young adultsville. And so because kids -- our assumption because kids are very closely monitored by their parents, particularly in that six to 11 year age group, perhaps not surprisingly, we see high levels of compliance with that particular patient group. We tend to see a bit of a dip, perhaps unsurprisingly, in the teenage to young adults group. So, we might anticipate in the six to 11 group that that would be our best complying patient population and that is certainly what we have seen with KALYDECO.

And it's Jeff Chodakewitz. Just maybe a couple of comments on the ENaC program. First of all, there is an ongoing Phase 2 study that Parion has the lead on. That study is across all different types of genotypes in terms of the patient population and so we're going to be really looking for early evidence of activity in that study. And not just looking overall, but we're going to be trying to learn looking among the different subpopulations and we still expect the results of that to come out around midyear. At the same time, we're going to be starting our study, which is very complementary to the study that's ongoing this quarter and that study is going to be in 508 homozygous patients who already are going to be receiving ORKAMBI. And then looking to see whether the ENaC inhibitor can add to the efficacy for that population. And actually the preclinical data in our hands actually suggests that that may be the best way to get activity and benefit for patients from that mechanism. And so ultimately it's going to be learning from both of those trials as we better understand what the potential for that mechanism may be.

That's very helpful. Thank you.

Thank you. Our next question comes from the line of Adam Walsh of Stifel. Your line is open.

Adam, are you there?

Yes, I'm here. Hi. Thanks a lot for taking my question. I really appreciate it. I guess I have two questions. The first one is for Jeff Leiden. We have been out talking to docs and, according to them; your GPS reimbursement support program is really terrific. I'll start with that, but some of these docs also note that the total out-of-pocket cost burden for a lot of CF patients is really quite high, even before they try to get on ORKAMBI or KALYDECO. And I'm just curious in terms of -- with that in mind, how do you think about how far you can go to support patients, given the fact that if a co-pay is, say, 20%, and that adds quite a bit of out-of-pocket expense, where is -- how far can you go in supporting the patients there both with your own medicines and thinking about this in the context of the portfolio medicines they may already be on? That's one. And then I have a question for Jeff Chodakewitz as well. It mentioned in the press release that two patients discontinued treatment in the ORKAMBI six-to-1 study because of adverse events. If you could comment briefly on those two patients, that would be great. Thank you.

Thanks for the questions. This is Jeff Leiden. I'm actually going to turn that one over to Stuart, because he is really responsible for the GPS program and he will also be able to describe the patient assistance program that has allowed us to help patients who do have high co-pays.

Yes, Adam, thanks for the question and thanks for the positive feedback. The GPS program, just so everybody is aware of it, is a service which is there to help patients and help them navigate the reimbursement process and there to provide them with ongoing education if they choose to opt in. It is great to get the feedback on that. Now dealing with the question you raised about out-of-pocket costs. For both KALYDECO and ORKAMBI, we have comprehensive patient assistance programs in terms of co-pay assistance for eligible patients. The program is such that no patient who has a co-pay who is eligible for the program would have a monthly co-pay for either KALYDECO or ORKAMBI about $15 per month. And then for those patients who have coinsurance, we will cover coinsurance up to 30% of the price of the medicines. And the program is to keep things simple for people, identical for both KALYDECO and ORKAMBI.

And it's Jeff Chodakewitz. In terms of the pediatric study, as we pointed out, the overall profile was actually quite favorable. If there were two patients who discontinued, one of them was because of abnormal liver function tests and one of them was because of a rash.

Great. Thanks a lot.

Operator, we have time for two more questions.

Yes, sir. Our next question comes from the line of Mark Schoenebaum of Evercore ISI. Your question please.

Hey, guys, first question is on guidance. Should we assume your financial guidance is more or less conservative than Partridge's statement that this call would end by 5:45? Because you missed that pretty badly, so I'm a little concerned here. Anyway, just really quick ones. I know it's getting late. Number one, can you just tell us when to expect data from the Phase 2 triple combo that you are going to start this year? I assume that is a mid-2017 event? Let me know if I'm wrong on that. And then, number two, I apologize if you addressed this. If you did I missed it. But can you confirm the timing and your disclosure intentions around the -- what I believe is the futility analysis in the HETMIN trial?

So, Mark its Ian. I'll take both of those questions.

I want an answer to the Partridge question, please.

In his prepared remarks he said the call would be brief as well. So, he was wrong there as well.

Pretty embarrassing.

Luckily he doesn't give financial guidance for us.

So, your first question was regarding the triple. And so -- first of all, the timing of getting data from the triple or disclosing the data from the triple is really subject to how fast we move through the Phase 1. And we've mentioned this before, the longer our Phase 1 takes, actually the better it is because it means we're escalating the dose and we're getting greater exposure of the drug into the healthy volunteers. And based on where we expect this to go, we anticipate in the second half of the year we will be in the proof-of-concept triple studies, which will probably push us into early 2017 to get that data. So, that's how we are trying to set a timing expectation. And then your second question was on the disclosure regarding which -- futility. The HETMIN futility. So, the HETMIN in terms of recruitment to that trial is actually going very nicely, as you might anticipate, given that these patients have no other alternative medicine. And so we anticipate that we will be completed enrollment around the middle of the year. And, therefore, we do expect the futility study to be done in the second half of the year. Obviously, we won't be disclosing that unless we have to curtail the study. So, no news would be good news on that assessment.

Got it. Okay. Thanks a lot. And congrats on the Pat's loss.

Now you're hurting us.

Thank you. Our next question comes from the line of Tony Butler of Guggenheim Securities. Your question please.

Yes, thanks very much for allowing me to squeeze one in. There are number of respiratory articles that actually support the use of LCI as an endpoint because it does demonstrate greater sensitivity. I guess the question is really what is the correlation between LCI and FEV, given that LCI apparently becomes abnormal earlier than spirometry and yet, in the later stage disease, it seems to correlate. And then, therefore, can you only use LCI in children? My last question -- I guess that's for Jeff C. And my last question really for Jeff L. Are you going to publish the kinetics and functionality of 152 and 440 soon? Or I guess ever, in a peer reviewed journal? Thank you.

Jeff -- I'll take the first question. And then -- I'll quickly say we will make the appropriate steps in terms of where we publish data regarding our molecules as we move forward. Obviously you've seen a lot of publications at NACF, which is in the fall and then overseas the ECFS conference, so you'll probably expect to see more data at those conferences. And then to your other question, Jeff.

Maybe a couple more comments on LCI. And as you point out, they do have overlapping but somewhat different sweet spots, if you will, in terms of the best way to use them. And I do think, as a field, this links back to Jeff Leiden's comments that we're continuing to learn the best way to use each of them. Obviously LCI has that potential sensitivity advantages in children. But right now there are only some centers that actually have the expertise to do that well. And, of course, a great tool used poorly doesn't really help anybody. So, I think there are still -- there is still a lot of work to be done. And then there is the other part of your question about regulatory recognition. And I can't speak for the regulators, but I think it was encouraging that in Europe, LCI was accepted as our primary endpoint in our study. So, I think there is, in general an openness to continue to advance the field and hopefully we can contribute to that.

Thank you both.

Great. Well, thank you again for joining us tonight. Apologies for running over; it was all Michael's fault. At the risk of running for one or two more minutes, I did want to make a couple of concluding remarks. And, again, I always like to do this sort of in retrospect and say where are we today as a company as compared to where we were six or 12 months ago. And I must say, from a personal standpoint and from the standpoint of CF patients, I'm very, very encouraged with the progress that we've made. I think we -- it's now clear that KALYDECO and ORKAMBI together are approved for about 25,000 patients or almost a third of all patients -- CF patients in the world. As we discussed at JPMorgan, there's a fairly straightforward strategy through label expansion in the younger populations and others to take that number from 25,000 to 44,000 patients in the next couple of years. And then we have a clear strategy with multiple prongs, actually, to get to the vast of majority patients. And they include the ENaC inhibitors which are in Phase 2, so they can move very rapidly if we see positive results there in combination with ORKAMBI. They include the NextGen correctors, which are moving along in Phase 1 and which we hope to have in patients in the second half of this year. And we think those have the potential to both increase the efficacy for the patients we're treating today, but also to let us get to that large subset of HETMIN patients that don't have anything today. And then finally the progress we have made with some of our deals, particularly the CRISPR deal here. And although that's the Holy Grail, 10 or 15 years down the road, we do have a vision of potentially correcting the underlying mutation and curing patients with CF. And so as I look at the world from our perspective, obviously, I'm tremendously encouraged about the future opportunity and particularly the future opportunity for patients. And I'm pleased with the progress we're making and we'll look forward to updating you over the next year as we continue that.

Thanks very much, everybody. That concludes tonight's call. The IR team will be available in our offices for additional questions if you have them. Thank you.

Ladies and gentlemen, you may disconnect your lines…