Ryan Asay - Head, IR Jeff Marrazzo - Co-Founder, CEO & Director John Furey - COO Kathy High - Co-Founder, President & Chief Scientific Officer Stephen Webster - CFO

Co Michael Yee - Jefferies Phil Nadeau - Cowen and Company Gena Wang - Barclays Capital Cory Kasimov - JPMorgan Salveen Richter - Goldman Sachs Martin Auster - Credit Suisse Vincent Chen - Bernstein Carter Gould - UBS Dae Gon Ha - Leerink Partners Matthew Luchini - BMO Capital Markets Raju Prasad - William Blair Mohit Bansal - Citigroup Kennen MacKay - RBC Capital Markets Bin Lu - Raymond James Difei Yang - Mizuho Securities

Good day, ladies and gentlemen, and welcome to the Q1 2018 Spark Therapeutics, Inc. earnings conference call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Ryan Asay, Head of Investor Relations. You may begin.

Thank you, Gigi. Welcome, everyone, to the Spark Therapeutics' first-quarter 2018 conference call. With me today from the Company are Jeff Marrazzo, Chief Executive Officer; Dr. Kathy High, President and head of Research and Development; John Furey, Chief Operating Officer; Federico Mingozzi, Chief Scientific Officer; and Stephen Webster, Chief Financial Officer. Jeff, Kathy, John and Stephen will have prepared remarks and Federico will be available for Q&A. Please note that this conference call will include forward-looking statements regarding our products, programs and product candidates. Because such statements deal with future events and are subject to many risks and uncertainties, actual results may differ materially from those in the forward-looking statements. For a full discussion of these risks and uncertainties, please review our annual report on Form 10-K and our quarterly report on Form 10-Q that are filed with the US Securities and Exchange Commission. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, May 8, 2018. Spark undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. The conference call is being webcast and will be archived on a website for approximately 1 week. Earlier this morning we released financial results for the quarter ended March 31, 2018, and recent business progress. This news release is available in the Investors section of our website at sparktx.com. I'd now like to introduce Jeff Marrazzo, Spark's CEO.

Thank you, Ryan, and good morning, everyone. On this morning's call I will start by providing some introductory remarks. I will then ask John to share an update on the LUXTURNA launch and Kathy to touch on our pipeline before turning it over to Stephen to review our first-quarter 2018 financial results. I will then have some brief concluding comments before opening the call up your questions. In the first quarter we continued to demonstrate strong execution across our portfolio. With LUXTURNA, we achieved a historic milestone. The first patients were treated with a gene therapy for a genetic disease in the United States. This is the culmination of years of hard work and breakthrough innovation, all the way from the research lab to the patient bedside. We could not be more pleased that patients are now benefiting from this remarkable therapy. In January we finalized an agreement with Novartis to commercialize voretigene neparvovec in markets outside the United States once it is approved in those markets. As we described on our year-end call in February, we believe Novartis is well-positioned to leverage its substantial global, commercial and medical infrastructure in ophthalmology, as well as its commitment to commercializing genetic-based medicines. We expect this to result in a broader and timelier rollout to patients outside the United States, potentially increasing the value of this strategically important product. We continue to make progress with the marketing authorization application for investigational voretigene neparvovec in Europe. The recent European Medicines Agency's inspections of our manufacturing facility and contract testing labs were successfully completed and we are on track to receive our good manufacturing practices certifications. The successful completion of this inspection reconfirms our expectations for a third-quarter regulatory action by the European Medicines Agency. This inspection, in addition to FDA approval of our commercial manufacturing facility, is another indication of our differentiated manufacturing capabilities. We view these manufacturing capabilities and broad technical expertise as a compelling competitive advantage. In hemophilia, with SPK-9001, our product candidate for hemophilia B, we have completed enrollment of the Phase 1/2 study and expect to complete the transition of the program to Pfizer this summer. Further, we expect to deliver a batch of drug substance to them in the third quarter, enabling them to begin Phase 3 thereafter. With SPK-8011 for hemophilia A, we continue to expand enrollment as we work towards completing our Phase 1/2 program and now anticipate providing an update on this program in the third quarter of this year. Our Phase 3 preparations are also ongoing. In addition, we continue to execute on earlier stage program that are moving towards the clinic. Notably, investigational SPK-GAA for Pompe disease. Now let me turn it over to John to discuss LUXTURNA.

Thank you, Jeff. Good morning, everyone. As Jeff mentioned, we are thrilled that patients are now benefiting from LUXTURNA. We are pleased with the initial interest from patients, from treatment centers and from payers. Our early launch execution has been strong and gives us confidence that we are laying the necessary groundwork to continue to drive a successful launch in the quarters ahead. In the first quarter, three patients were treated. As the first gene therapy for a genetic disease in the United States, we recognize the significance of this milestone, not only for those of us at Spark but also for the broader gene therapy field. Substantial progress has been made in this revolutionary area of medical research and we are proud to be at the leading edge of bringing this innovation to patients. The three patients treated in the first quarter were all treated in different treatment centers, Massachusetts Eye and Ear Institute in Boston, Bascom Palmer Eye Institute in Miami, and The Children's Hospital of Los Angeles. We now have agreements in place with nine treatment centers. We have established a patients' assistance program designed to make the patient journey from identification, through enrollment and consultation to treatment and follow-up as seamless as possible. We are able to assist patients and their caregivers in navigating the insurance process and provide options to support costs and logistical needs. As well as assistance with other out-of-pocket costs related to the treatment. While it's still very early in the launch, we are pleased to say that our launch observations regarding coverage are aligned with our prelaunch assumptions, including that initial coverage would disproportionately come from commercial payer channels, while government payer channels would take longer. We estimate that the LUXTURNA patient mix is made up of approximately 50% commercial and 50% government payers. From a commercial payer perspective, as of the end of the first quarter, more than 60% of commercial lives had satisfactory medical policy coverage, which we define as coverage that is consistent with LUXTURNA's product labeling in all material ways. This more than 60% metric is ahead of internal prelaunch expectations. Our discussions with commercial payers continue to be positive and we are well positioned for coverage expansion as we move forward. Additionally, commercial plans that have not yet made coverage determinations generally are showing a willingness to consider case-by-case allowances for treatment, which was the case in the three patients treated in the first quarter. Our innovative contracting and distribution model, branded Spark Path, pioneering access to healthcare, includes options for direct-to-payer contracting and outcome-based rebates. Payers for all three patients treated in the first quarter utilized direct-to-payer element of the Spark Path -- rather than the traditional buy and bill approach, each on a one-off basis. The commercial payer community is becoming more aware of, and engaged in, reviewing the Spark Path payment option and is gaining traction with payers. Successfully establishing the Spark Path model with LUXTURNA is strategically important for us as we lay the groundwork for innovative pricing models for future gene therapy products. Spark Path is a new and innovative model that requires unique contracting for us, for payers, and for treatment centers. And in important task for us in the second quarter will be to finalize these contracts with payers and for payers to independently complete the necessary agreements with treatment centers and the designated specialty pharmacy provider. Turning for a moment to the government payer channel, as expected, the government channel has been slower than that commercial channel in adopting coverage, as the state Medicaid agencies work through their processes for determining coverage and reimbursement. We expect to see an uptick in government coverage, particularly Medicaid, where the majority of our government patients are, later this year and into the early part of next year. This is tied to the budgetary cycle on a state-by-state basis. As we've described in previous calls, current government price reporting requirements do not enable us to offer an installment payment offer or to offer more substantial outcomes-based rebates than under our current pay-for-performance option utilizing Spark Path. Our discussions with the Centers for Medicaid and Medicaid Services, or CMS, on our proposal to address these limitations are going well and we remain encouraged by CMS' willingness to engage with us in exploring a new model. We continue to work through the modalities of how this model will work and expect more clarity in the second half of this year. Now I will touch briefly on our patient identification efforts. While we are not providing a specific number of patients identified, our genetic testing initiatives are progressing well. In addition to the patients already known to treatment centers, we are identifying a number of potential new patients directly through our genetic testing initiatives. As expected, the majority of currently identified patients are individuals who have early-onset vision loss and are being clinically diagnosed as Leber congenital amaurosis, or LCA. Because the majority of retinitis pigmentosa, or RP, patients, patients who typically have later onset of vision loss are not actively managed in the healthcare system. We will be more dependent on a cycle of their physician visits to drive genetic testing. These physician visits generally take place, at best, on an annual basis. While we're pleased to have treated three patients in the first quarter, I would caution not to read too much into these initial treatments. There was strong enthusiasm among several treatment centers to be the first to treat with this novel therapy and the payers allow treatment on a case-by-case exception basis. As we move forward, payers will need to implement formal medical policy decisions and put contracts in place. We expect significant progress in this respect in the second quarter. Because LUXTURNA is the first treatment for an inherited retinal disease and the first treatment using a novel one time therapeutic approach, clarity on launch metrics will evolve as we progress through the year. We look forward to providing additional updates as we progress with the launch. Now let me turn you over to Kathy.

Thanks, John. I will provide some brief comments on our hemophilia program. Starting with hemophilia B, as you recall, we previously agreed with Pfizer to enroll additional participants in our Phase 1/2 clinical trial using SPK-9001 generated from an enhanced manufacturing process designed to support commercial manufacturing. As Jeff indicated, we have successfully completed that milestone. We will continue to follow these participants and plan to share an update from the Phase 1/2 study in hemophilia B, including the additional participants enrolled using the enhanced manufacturing process at the World Federation of Hemophilia later this month. We expect to complete the transition of the program to Pfizer around mid-year. Moving on to hemophilia A, as we announced in February, FDA granted breakthrough therapy designation to SPK-8011. We continue to prioritize enrollment and are confident in our ability to deliver a competitive profile with safe, durable and predictable clinical outcomes with our SPK-8011 candidate for hemophilia A. We are continuing enrollment and pleased with the progress we've made. We look forward to sharing an update on the data and have narrowed our guidance for that update to the third quarter of this year. As we've previously described, our desire with the next hemophilia update is to ensure we have a meaningful and robust data set rather than targeting a date-specific venue. I will note that we are advancing our Phase 3 preparations in parallel to our ongoing Phase 1/2 work. Let me now turn it over to Stephen, who will provide an update on our first-quarter 2018 financial results.

Thanks, Kathy. In the three months ended March 31, 2018, we recognized $15.7 million in total revenue, of which $2.4 million was net sales of LUXTURNA and $13.3 million was associated with our agreements with Pfizer. In the year ago quarter we recognized $1.3 million in revenue associated with our Pfizer agreement. Cost of goods sold in the three months ended March 31, 2018, was $0.1 million, which consists of manufacturing, shipping and other costs, as well as royalties on LUXTURNA. A substantial proportion of the production of our current inventory was completed prior to FDA approval and therefore was expensed as R&D last year. Cost of contract revenue in the three months ended March 31, 2018 was $0.9 million, which consists of manufacturing and other costs associated with our agreements. R&D expenses for the three months ended March 31, 2018 were $30.1 million, versus $32.7 million for the year ago quarter. The $2.6 million decrease was due to a $0.7 million decrease in internal R&D expenses and a $1.9 million decrease in external R&D expenses. The internal expense decrease primarily was due to a decrease in salaries and other related costs associated with LUXTURNA, which were allocated to inventory following FDA approval. The $1.9 million decrease in external R&D expenses primarily was due to a $3.3 million decrease in LUXTURNA expenses as well as other clinical programs, and a $0.3 million decrease in programs in preclinical development, which were offset by an increase of $1.7 million in expenses related to our hemophilia A program. SG&A expenses for the three months ended March 31, 2018, were $33.5 million versus $21.4 million for the year ago quarter. The $12.1 million increase primarily was due to an increase of $7 million in salaries and related costs, including stock-based comp, due to increased headcount primarily to support the LUXTURNA launch. Also an increase of $1 million in launch activities and $4.1 million in legal and patent expenses, professional fees and other operating costs. Our net loss applicable to common stockholders for the three months ended March 31, 2018 was $46.4 million, or $1.25 basic and diluted net loss per common share compared to a net loss applicable to common shareholders of $52.3 million or $1.70 basic and diluted for the year ago quarter. Please see our press release from earlier this morning for additional details on the first-quarter financial results. At March 31, 2018, we had cash, cash equivalents and marketable securities of approximately $587.5 million. In addition, on April 30 we announced an agreement with Jazz Pharmaceuticals to sell the priority review voucher we received in conjunction with the approval of LUXTURNA for $110 million. We expect these cash, cash equivalents and marketable securities to be sufficient to fund our needs into 2021. I'll now hand it back to Jeff for his closing remarks.

Thanks, Stephen. I will conclude our prepared remarks by again noting the significant progress we made across many areas of the Company in the first quarter. No progress is more important than the significant milestone of treating the first patients with LUXTURNA. Our vision at Spark is to challenge the inevitability of genetic disease by discovering, developing and delivering potential treatments in ways unimaginable until now. We could not be more pleased that we are now in a position to improve patient outcomes by delivering a life-changing treatment to patients with our first commercial product. In the end, improving patients' lives is why we are in business. LUXTURNA is only the beginning. We are highly confident in our ability to continue to challenge the inevitability of other genetic diseases. We have numerous important milestones in the coming quarters and look forward to providing additional updates soon. Last month we celebrated Spark's five-year anniversary, which is quite remarkable. It has been an incredible five years for the Company, marked by tremendous progress across many areas. We look forward to the next five years being even more transformative for Spark and, more importantly, for the patients we serve. We are now happy to take your questions.

[Operator Instructions]. Our first question is from Michael Yee from Jefferies. Your line is now open.

Congrats on all the progress in the first patients treated. My question was for Kathy. You suggested that you would have an update on the hem A program in the third quarter. At ASH perhaps you presented the data and perhaps expectations were perhaps too high from Wall Street. So I guess maybe you could just talk a little bit about your expectations for the data update. And just specifically, is it the follow-up time and the wider dose window that gives you confidence you would have a competitive product and that the data initially was just not long enough follow-up? Maybe you could talk about that and why you feel confident about your competitive profile. Thanks so much.

Well, as you know, Michael, the data presented at ASH reflected the first two dose cohorts and, as you indicated, a relatively limited follow-up time. And for the third quarter we would expect to have of course a much longer follow-up time and an additional dose cohort. And so, we feel that we'll be in a much better position to delineate the therapeutic benefit of our gene therapy for hemophilia A.

Our next question is from Phil Nadeau from Cowen and Company. Your line is now open.

Just first on LUXTURNA, then a follow-up on the pipeline. On LUXTURNA, can you give us a sense of the number of patients who have been identified thus far? And what is gating to the LUXTURNA launch? Is it that identification of patients or is it more getting insurance agreements in place?

Thank you. It's John here. So firstly, obviously we're thrilled with treating our first three patients. At this point we're aware of a reasonable number of previously diagnosed patients, but we are not yet ready to share specific numbers. The size of the bolus population is not truly meaningful until we have more experience regarding how many will actually be medically eligible, what if any medical coverage they have, and their intent to seek treatment. Since approval we have been engaging with treatment centers to understand the specific circumstances of the previously identified patients and the process is still ongoing. We need more time to understand how these and other things will impact the ultimate number from the bolus we're ultimately able to treat. However, from the work we've done, we're confirming that the majority of the patients in the bolus are LCA patients. And we also continue to believe that roughly 50% are commercial and 50% are government payer patients.

Our next question is from Gena Wang from Barclays. Your line is now open.

Thank you for taking my questions. Just one regarding hemophilia A. Kathy, you comment that you will report the data in 3Q. Just wondering what led to the decision a 3Q update. Was that because the more patient enrollment that you wanted to wait for longer time? And also when do you expect to start the Phase 3 trial?

Gena, this is Jeff. First of all, I think just going back to what we said at ASH, our goal for the next data update was to have a robust set of data. And between the -- as Kathy said, the additional time that has passed in the patients that we discussed at that point -- we mentioned at that moment there were seven patients that had been infused. In addition to additional follow-up in those patients, as well as the continued enrollment that has occurred since that time which we referenced in the call; based on that, we believe that in that window in the third quarter we will have a robust data set that we'll be able to reflect where we are and our next steps. We're not providing specific guidance on our Phase 3 study start at this point, but I will say that, as we indicated in the call, we're making very good progress across clinical, regulatory and manufacturing activities that are preparing us for subsequent studies.

Our next question is from Cory Kasimov from JPMorgan. Your line is now open.

Good to see all the progress made across the Company. So I have any questions on hem A and then a follow up on LUXTURNA. So the hemophilia A question is I'm curious, if there are any triggers to further increase the dose from where you are now, is that an option that's built into this protocol? And what do you want to see to move to a pivotal trial at a certain dose? And then the follow-up for LUXTURNA is -- just curious if you can speak to the logistical process for the first few patients that were treated approximate -- in terms of approximately how long it took to secure reimbursement? And then just the treatment itself, like how long are patients waiting between treating the first and the second eye? Thanks a lot.

Okay. So first of all on the first part of your first half of the question was about the protocol. So on the protocol, the protocol was designed for hemophilia A to have three dose groups. Those where 5e11, 1e12 and 2e12. As we indicated previously and at ASH, we obviously presented at ASH data from the first two patients at 5e11, the first two patients at 1e12, and that we indicated that we would expect to be expanding the data that we would be collecting in either of those -- either or both of those top two doses, so 1e12 or 2e12. As we said in our calling February and still consistent today, we do not have plans to modify the protocol and increase the dose above that. We do, if we ever wanted to, hypothetically, have safety data to support that, but we don't have plans to do that today. So we are expanding enrollment -- or have expanded enrollment at those doses that we have in the protocol, meaning the top two. With respect to what we are looking for, I think we discussed in the past that it is important, first and foremost, that we have a clear safety profile for a gene therapy for hemophilia. And that includes not only the absence of serious adverse events but also the absence of inhibitors, as well as no thrombotic events. And our belief of wanting to increase the risk of thromboembolic events with levels that are too high in something that is continuously active. In terms of on the efficacy side, as we've stated before, we've been very pleased with -- and the response we've gotten back from the medical community would confirm this -- very pleased with the clinical outcomes that we've seen and we reported on at ASH, including the substantial reductions and, frankly, the near elimination of bleed rates and infusion rates. And what we have noted and mentioned before in our market research that we've done -- mentioned this February -- from a factory level perspective, what we've really heard from the market is not a particular target mean level that people are aiming for. But frankly that people are looking for you to exceed a threshold that they know will have a correlated elimination of the bleed rates, but not to exceed too high a level. And we've talked for now more than about two years about this 12% level being important from a natural history study. We believe that having room above that, and sort of headroom above that, is important and not being too high and exceeding the 100% level, which Dr. George spoke about at the ASH presentation as having the potential to create increased risk of thromboembolic events. And so, it creates a window and what you want to do is predictably get patients in that window and that is the critical piece we think. As we step back, you could see that the reaction in something like our hemophilia B program in terms of the types of data we've gotten has been very effective. And that should give you a frame of how we're thinking about it. So I think that answers the first question that you had. John, do you want to take the second one?

Yes. Thanks, Jeff. Cory, thank you for the question. I think I would caution reading too much into the initial three cases. These were very much one-offs by the coverage by the payers, so it's hard to extrapolate that into -- on a go forward basis. Look, as I said on the prepared remarks, we're very, very happy that we got 60% of commercial lives covered on the basis of medical policy. We have significant interest from payers in our Spark Path contracting model. We're actively engaged with payers in writing unique contracts to support that arrangement. And that's our focus now in quarter two.

Our next question is from Salveen Richter from Goldman Sachs. Your line is now open.

So, just with regard to hem A, in the context of your ASH data and the competitive landscape here, where we saw variability in patient curves with regard to factor activity levels, is that just a go-forward assumption here for your drug? And then do you have plans to study patients with pre-existing antibodies?

Salveen, Can you reiterate the first part of your question? Were you asking about -- when you're asking about variability in patients, are you asking about intra-patient variability? Meaning that a single patient's level goes up and down? Or are you asking about differences between patients in the same group? Is there a way to bring Salveen back on the phone?

[Operator Instructions]. Salveen, your line is now open.

Hi. I was wondering about patient variability for patients between -- between patients in the same group.

Well, I think probably the hemophilia B experience that we spoke about even at ASH is a good example. So again, remember that all those patients were at the same dose of 5e11 vector gms per kilogram, and you saw patients ranging anywhere from around 20%-ish to upwards of 75%-ish. So whether you call that a three-ish or so fold delta within the same cohort, I think that's relatively -- should be relatively expected when you just think about all the steps that are involved with AAV transduction and expression of the trans-gene from the cell. So, obviously we all have different characteristics that would allow that to happen differently at different rates. And so that type of variability within a dose cohort is something that we think is inherent and natural. And what was the second part of your question?

Just any plans to treat patients with pre-existing antibodies.

So at a high level, we are -- you can imagine that we're looking at the SPK-8011 product candidate and thinking about a variety of different ways that we might address various populations. And so, we will certainly come back to that as we get further into this year and may be something we provide in update in the third quarter.

I would just say, Salveen, that for our approach to Phase 1/2 studies we typically try to enroll broadly to determine the performance of the vector in a range of different subjects.

Our next question is from Martin Auster from Credit Suisse. Your line is now open.

Maybe just following up a little bit on Salveen's question. Kathy, I appreciate that you guys are attempting to develop a meaningful, robust data set to share with us in Q3. Hoping I could get maybe some more insights into how you -- what level of comfort and confidence you've got if -- I am assuming a meaningful, robust data set, may be something in the range of 5 to 10 patients in a given cohort. How do you get comfortable that you are fully understanding the full range of potential activity levels in a given cohort with a sample size at that level? And then a second question, if I may, to Stephen. Just wanted to clarify on the SG&A expense rate, is that something we should think about as a run rate going forward? Or do you expect there to be a decent amount of lumpiness as you manage through the LUXTURNA launch and then other activities? Thanks.

I think your question about how many patients are required to give you confidence in the performance of the vector. As you know from most of these Phase 1/2 studies for genetic disease, typically you don't have more than 5 to 10 patients at the dose you propose to take forward. And so, you may see additional findings when you got to Phase 3 with an expanded data set, but our experience over the years has been that with a number like 5 to 10 in the dose that you intend to move forward you have pretty good boundaries for what you're going to see a Phase 3.

And Martin, on the SG&A number -- yes, I'm sorry. Typically what we've seen is Q1 has been a high spend quarter due to a number of one-time items like bonus payouts that you know we accrue throughout the year but the actual cash goes out. The SG&A number includes John's commercial and medical teams -- excuse me, not the medical teams. But that field force is pretty much fully sized for launch right now, and I guess we'd expect to see incremental growth but nothing dramatically changing.

Our next question is from Vincent Chen from Bernstein. Your line is now open.

First is, could you provide a little more color on what it would take to move into Phase 3 for the hemophilia A program beyond reading out the current Phase 1/2 and picking a dose? What are the manufacturing things you prefer to that need to happen and what could timing for these potentially look like? And a quick second if I may. CMS recently proposed a separate code for CAR-T therapy to reimburse hospitals for treating patients with CAR-T. Is this something that could make sense for AAV gene therapies or something the AAV gene therapy field is likely to move toward?

Vincent, first on your first question, as we made mention in our prepared remarks, we are pleased with the progress we're making in preparing for Phase 3 and for hemophilia A. There are a series of different things that that involves. I mentioned progress on the clinical front, regulatory front and manufacturing front. On the regulatory front, for example, as you know, as we announced in our February call, we received breakthrough therapy designation and we are now in the midst of and engaging with the regulatory agencies in the US about a variety of different questions that we think we can get clarity on to plan our subsequent study. So that is activities that are ongoing. On the manufacturing front we are -- we've spoken in the past about the fact that we have developed a suspension cell culture based process, upstream process, with a corresponding downstream process, and have moved that from the bench now into initial scale and are continuing to prosecute against that as we move through this quarter and subsequently. And so, those are activities that we are also progressing. And on the clinical front, as you can imagine, we've been very pleased with, not only for the Phase 1/2 trial, the fact we've been able to expand the number of sites very meaningfully over the last quarter, but we've also been able to engage with discussions with those sites, and obviously other potential sites, for their inclusion in a Phase 3 study. And so, beginning to prepare for a Phase 3 study in that context with site recruitment. So those are the three major areas of activities, along with a of course building out parts of the organization that would support the eventual launch of a product if we were approved. And so, a lot of activities going on there as well, whether that be on the medical, patient advocacy and the commercial development front.

What do you see as potential gating factors of the different ones you've mentioned?

Well, I think at this point it's probably premature to say what's gating. There are -- discussions with the regulators will elucidate certain things, further progress and work on the manufacturing front. But we feel good about where we are and are on track with our internal timelines.

Vincent, John here. Good morning. Just wanted to follow up on your question regarding CMS proposed policy revisions on CAR-T therapies. We don't see a direct or significant near-term impact for CMS proposed CAR-T policy revisions to either LUXTURNA or our pipeline programs -- as the current proposal is related to drugs administered in the hospital inpatient setting, which isn't applicable to our products. However, we would say that we see this as another indication of CMS' willingness and interest in working with companies like ours to make much-needed adjustments to existing pricing and reimbursement policies.

Our next question is from Carter Gould from UBS. Your line is now open.

I kind of want to go a different direction and ask Jeff a strategic question. Clearly you've got a lot on your plate with LUXTURNA and hem A, but you've also got a strong cash position in -- a leadership position in gene therapy. And there's no shortage of exciting gene therapy-related technologies. So, is there any consideration about supplementing your platform with additional technologies through in-licensing or partnership and taking advantage of your positioning right now? Thank you.

Good question. The short answer is yes and sure, and we do spend and have spent a fair amount of time thinking about the technology landscape and what technologies are evolving that could support a portfolio of products that ultimately have the same similarity from a patient perspective, which is something that is transformative and potentially one-time. So the short answer is we have various perspectives on what these technologies might be and are progressing work in the background in that context. And we certainly are aware of things even beyond specific technologies. And I think you've seen us in the past take advantage of great work that's being done, for example, in an academic organization like Genethon and bringing a program like the one we did last year in Pompe disease. And that has now progressed in our hands to now be a candidate that we will provide an update on as we near completion of our IND-enabling studies. And so, that's one very good example of a technology that involved a bioengineered transgene and research that had showed proof of concept and taking advantage of bringing that in and optimizing it and now moving it forward towards the clinic.

Our next question is from Joseph Schwartz from Leerink Partners. Your line is now open.

This is Dae Gon dialing in for Joe. One question for Kathy and one for John. Kathy, so just going back to a publication that you and Federico had back in 2003 on Factor IXs, is there any reason to believe that potentially 2e12 vector genome for kg is maybe a little low to induce long-term induction of immune tolerance to Factor VIII that you're producing from your liver specific promoter? And the second question, John, with regards to the payer discussions, I guess in your discussions currently with LUXTURNA how are you seeing the Harvard Pilgrim framework sticking with them? Is that sort of the accepted norm? You mentioned that there is obviously read through to subsequent products in gene therapy. So to the extent that maybe you have engaged some of these payers on hemophilia or choroideremia or other products, what do you think is a read through from LUXTURNA's initial as well as the durability follow-up for the rebate process? Thanks.

Well, let me start with the question about whether a dose of 2e12 was too low to produce long-term tolerance. So, I guess the good news is compared to the data we published 15 years ago, the expression cassettes now are actually driving much better levels of expression. And the induction of tolerance really correlates with the level of fact of clotting factor that you produce. And so, I think that was probably an accurate statement when we made it in 2003, but I'm happy to say that the current constructs are actually driving much higher levels of expression. And so, I think we can feel comfortable on that point.

Thank you, Dae Gon. Firstly, the pay for performance component of the offering that we have is an integral part of the Spark Path arrangements we're entering into with payers. We do see a degree of interest from payers in that regard. However at this stage are probably not in a position to update the percentage of payers who are adopting that, obviously because we haven't formally contracted with a significant number at this point. But we'll continue to work on that through quarter two, as I mentioned previously, and we hope to make a lot of progress in quarter two. In terms of a read through to other programs, I think that's probably early for us to be able to draw any conclusions. And I think at a later stage, once we get into the modalities of these agreements, we'll be able to maybe to provide some color for future programs.

Our next question is from Matthew Luchini from BMO Capital Markets. Your line is now open.

Thanks for the questions and congrats on the progress. So wanted to just get a little bit more color, if I could, on the current state of discussions with CMS. Obviously it's something new for them, but if you could just give some perspective or color on what maybe the gating factors are or the contours of those discussions such that you'll be able to provide more color in the second half of the year. And then secondly, obviously the increase in number of approved LUXTURNA sites is great. Just curious if you could share a little bit of color on now the geographic mix or geographic overlap of the expected sites going from I think sort of seven was the target for the end of 2Q, now up toward nine. And if we're going to be looking at any sort of multi-sites in the same geographic area that could potentially be competing with each other or anything like that. Thank you.

Thank you very much. Just in regard to the CMS, let's take the CMS item first. I just want to sort out frame again why we're talking to the CMS in regard to this matter. Due to current government price reporting requirements, it's not feasible to offer installment payments or to offer more substantial outcome-based rebates. As we mentioned previously, we are in discussions with the CMS on a proposal that would enable commercial and government payers to have the option to spread payment over multiple years while providing flexibility for greater outcomes-based rebates. We are still working through the modalities of how this model will work, but we are encouraged by CMS' willingness to engage with us on exploring a new model. And I would expect that we'd give more clarity in the second half of this year in regard to progress on those discussions. In regard to the treatment centers, we have nine treatment centers in total. We have them geographically spread across the country. Bascom Palmer Eye Institute in Miami, Baylor Eye Center in Houston. We have KCI in Portland. As I mentioned previously, Massachusetts Eye and Ear Institute in Boston, and the Children's Hospital of Los Angeles. We also have treatment centers in the University of Iowa in Iowa City; Cincinnati Children's Hospital; and CHOP and Shay [ph] here at Penn in Philadelphia. So, you can see there is a geographic spread right across the country. We don't expect to see a huge amount of overlap. It depends on the referral networks associated with each of those treatment centers. But I think we're well placed geographically to be able to support patients that may arise anywhere in the country. And we're pretty pleased with where we are in terms of our network.

Our next question is from Raju Prasad from William Blair. Your line is now open.

On hemophilia, I believe the FDA Commissioner that a speech earlier this week noting desires to push for accelerated endpoints in gene therapy. I think he may have even specifically mentioned hemophilia. So I guess my question is, in discussions with the regulators with your BTD, have you seen any shift towards potentially allowing for factor level based endpoint instead of ABR? And do you still think a Phase 3 design is likely to need a run in? Or do you think that there's more flexibility now given the FDA Commissioner's comments?

Well, you've asked a question that is being extensively discussed in the hemophilia gene therapy community. And as you know, for protein therapeutics, traditionally people have used the annualized bleeding rate. And the question is for gene therapy, where you attain some constant level of expression, and because we have so much experience in hemophilia with using factor levels to understand exactly what a patient's risks are, is it reasonable to then use the factor level as a primary endpoint? And I think the discussion that goes back and forth among the regulators and the sponsors and the hemophilia community and the patients and the physicians, is -- is factor level a surrogate or is it actually the real endpoint? And I think these issues will not be quickly and easily resolved, but you are putting your finger directly on an issue that's a critical one for this novel class of therapeutics.

Great. And just in your discussions with BTD, is there something that you are seeing shift in the regulator community? Or is this just something that needs to be taken over time to look at further?

Well, I would say not just through breakthrough, but really through discussions with regulators at a series of meetings. As I said before, this is an issue that many people are discussing now. And among both -- among sponsors, among regulators, among physicians who take care of these patients, you find out range of opinions. So, I wish I could tell you there's one opinion and everyone agrees with it, but it's really an area -- and I think you see -- I think what's important about this is that gene therapy will open up these kinds of discussions. And there may be changes in endpoints compared to what's been developed for protein therapeutics. So I don't think you should think of this as something isolated to gene therapy. We may see this for other types of enzyme replacement as well.

Our next question is from Mohit Bansal from Citigroup. Your line is now open.

If I could drill down more on manufacturing from the previously answered question. If you could help us understand in terms of FDA requirements, what kind of steps you will have to take or some kind of bridging study to get your new manufacturing approved for the pivotal trial? Because if I understand it correctly, you are using Bremer as your manufacturing partner. And then maybe a follow-up on the same question. Thoughts on having your own manufacturing for a pivotal trial? Because, if I understand correctly, you will be using your own manufacturing for commercial purposes. So taking a leaf out of maybe [indiscernible] or AveXis' page, do you think that is -- that would be time-consuming to do it one way right now and another way for commercial? Thank you.

Well, first of all, Mohit, let me say thanks for initiating coverage recently. With respect to your questions, one of the activities that you can imagine that we're doing -- and keep in mind we have some -- we have a fair amount of experience that we're leveraging to get from where we are today to the points that we're talking about in the future. I want to reiterate what we said briefly in the prepared remarks, that we now have the only facility that is approved that is our own facility for manufacturing AAV commercially in the United States. We also successfully completed the inspections for that same facility with the European Medicines Agency. And even just last quarter, although we didn't mention it in our prepared remarks, we signed two agreements that I think are further illustrative of the expertise of the organization, of our quality systems, of our manufacturing systems, including with Pfizer to make an initial batch for Phase 3 as well as a global supply agreement with Novartis that was a part of our license agreement where we are making supply for them for LUXTURNA outside the US upon its approval there. And so, the bottom line is we have quite a bit of experience. I would argue sort of first-in-class experience of knowing how to not just deal with manufacturing but, just as importantly if not you can argue more importantly, analytical methods in development of those, the validation of those and the establishment of the entire CMC package. As well as doing activities like bridging from one facility to another, which we did in the context of LUXTURNA, which was from CHOP to the Spark facility. We also have experience going from one manufacturing process in hemophilia B to a second one where we established and are showing data to early that we presented previously that shows encouraging comparability in that context. And so there's a fair amount that we're leaning on in that context. The relationship -- I want to clarify one thing you said, though. The relationship with Bremer does enable us to launch commercially with them from their facilities, as well as enable us in the future to come back and move to our own facility if we wanted. So we have the full option set available to us, and I do want to make sure that I clarified on that one point.

Our next question is from Kennen MacKay from RBC Capital Markets. Your line is now open.

This is one, sort of goes back to I guess expectation setting for the next hem A update. Just wanted to get a perspective again as to what sort of Factor VIII level goals should be for the program are broadly. It seems like the goal has evolved as these gene therapies have evolved, from initially sort of 8% to 10% to stop bleeds, to 12% to 14% to really stop all bleeds on an annualized basis. But now it seems like competitors are trying to push the goal more towards normal. So just wanted to get a perspective from you, if you can help us understand from your physician and KOL conversations sort of what the goal is for Factor VIII level expressions as a percent of normal. And then had one quick follow-up question on something from the ASGCT abstract.

So, as I said a few minutes ago, I want to go back to what the market research clearly said to us, which is that safety is first and foremost paramount from the physician's perspective, and that includes the lack of SAEs, no inhibitors, no thrombotic events. And we heard resoundingly concerns about raising risk of thromboembolic events. And that the focus will, despite the unique nature of gene therapy providing a continuously active level of factor, the focus is still going to be very much on bleed rates and infusions. On the factor levels, what we've heard in our market research and in discussing is that there is a threshold that people are looking for you to exceed. I would certainly grant the fact that if you go back five years ago, people were generally looking to see if you could move people to 5%, and I think that bar has certainly moved. Two years ago we talked about this 12% level being driven by the natural history study data. I think we would say that you need to have meaningful headroom above that, whether you call that 20% or some number of slightly above from that, that you are trying to achieve -- exceed that. But given the context and understanding of some variability that's going to happen naturally within a cohort, and the fact that you don't want to exceed that 100% level as we see it, we think that there is a wide range there that you are looking to get people into predictably. And that that is the goal, exceeding that threshold predictably if you can with nearly everybody or everybody, and not aiming for a particular mean level.

Got you. That's really helpful. And then, again, just going back to the ASGCT abstract. It looked like a couple of the patients there had slight declines in their mean Factor VIII expression levels. Am I to interpret that that potentially suggests some of the intra-patient variability there has stabilized a little bit and we're not seeing those spikes that were driving up the mean in a couple of those patients?

I think what -- my understand was there might have been a slightly different way that the data was calculated, but I will say that our statement from February still holds, which is that we believe that as we capture and eventually present a robust set of data on -- in Factor VIII like we've done in Factor IX, that you will see that the pattern of initial rises in levels occurring at around that 12-week give or take mark, and that then it's steady after that, that we would expect that to occur and be consistent in Factor VIII.

Our next question is from Reni Benjamin from Raymond James. Your line is now open.

This is Bin Lu on for Ren. Congrats on the progress in the past quarter. Thank you for taking my questions. I have two quick ones here if you don't mind. The first one is on LUXTURNA. So given the limp sales of $2.4 million for the quarter, and three patients treated, so is the $800,000 per patient net price -- that's the price we should be expecting for this direct contracting model going forward? And my second question on hem A is, so if -- let's say if you're entering a lot cell idea scenario you get a profile that physicians do not think are differentiated enough as compared to other products. How do you think about the commercial opportunity for your hem A product given the competitive environment? Thank you.

Well, I'll take the gross to net one quickly, Reni -- I'm sorry. Yes. With the innovative contracting model that, as John mentioned, all three of these initial patients were treated through that on a one-off basis, we've designed to see a gross to net in that mid-single-digit range. The buy and bill, the traditional purchase method, is still going to be available to people. And what we've guided the Street to is under buy and bill and, through some of the government contracts, we'll see a gross to net in the 20% to 30% range, probably in the middle, very traditional with many specialty pharmaceutical companies.

So on your second question, I think we'd be getting ahead of the data to make any determinations on that. I think I would still go back to the general perspective that we have, which is that we believe that gene therapy as a class over the long term will have a major and significant competitive advantage over existing therapies or potentially new therapies may come to market because they basically mimic the production of factor. And so, we think that as a class it will be highly competitive compared to existing modalities and take significant market share over time. And we believe we are in a good position and are continuing to invest in the program because of that belief and what we've heard from -- as feedback from the market.

Our next question is from Difei Yang from Mizuho Securities. Your line is now open.

So, just a very high level question on gene therapy in general and probably a naive one as well. So, if we think about hem A and hem B, there are other options. So, the gene therapy comes -- is a permanent fix, but it comes with this convenience, but it also comes with the irreversibility of the treatment. So, can you think of any scenario that the treatment needs to be reversed, that if -- when that happens, what are the options out there?

Well, I think the scenario that I think you are speaking about is one of the reasons why we've stepped methodically and carefully in our dose escalation work. Because we have said a couple times in this call and many times before, that for a therapy that is constantly turned on, if you will, and has we believe long-term permanency, you want to make sure that you're in the right sweet spot and you don't want to be too high because there is obviously clear published data about the increased risk of thromboembolic events when you go too high. So I think it's a good example of why you need to step methodically through a dose escalation study, as we've been executing against. As far as turning it off today -- and I know there are certainly technologies people are working on, but it's not something that is available commercially. And I don't believe anyone is testing it in the clinic today.

Thank you. Then just a quick follow-up on the financial side. Should we expect any major payment from the Pfizer collaboration agreement in the remainder of 2018?

We don't give guidance on when we would expect to get milestones. We've disclosed in our K and Qs what milestones are remaining under the original Pfizer milestone and the Pfizer agreement in the amendment, but we don't give guidance on what and when we expect to hit those.

Thank you. At this time I am showing no further questions. I would like to turn the call back over to Jeff Marrazzo, Spark's CEO, for closing remarks.

Thanks, everyone. We appreciate you joining us this morning and look forward to providing additional updates as we progress throughout the year. See you along the way. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.