Lynne Brum - Vice President of Strategic Communications Ian Smith - SVP and CFO John Alam - Chief Medical Officer Joshua Boger - President and CEO Victor Hartman - Executive Vice President of Strategic and Corporate Development

Geoff Porges - Sanford Bernstein Jason Zhang - Prudential Hari Sambasivam - Merrill Lynch Joshua Schimmer - SG Cowen Rachel McMinn - Piper Jaffray Richard Smith - JP Morgan Steve Harr - Morgan Stanley Meg Malloy - Goldman Sachs George Fulop - Needham Yaron Werber - Citigroup Howard Liang - Leerink Swann

Good afternoon. My name is Todd, and I will be your conference operator today. At this time, I would like to welcome everyone to the yearend financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Miss Brum, you my begin your conference.

Thank you, Todd. Good afternoon. This is Lynne Brum, Vice President of Strategic Communications. And welcome everyone to Vertex 2006 yearend conference call. Our accomplishments in 2006 have positioned us very well for 2007. Highlights of 2006 include significant progress in the global Phase IIb telaprevir clinical program, which enrolled approximately 600 patients in the second half of 2006. A landmark agreement with J&J to support the development and commercialization of telaprevir and a strong funding platform for the future of the program. Clinical advancements in our pipeline first-in-class investigational drug for cancer, CF and inflammation. And continued productivity from our research efforts. As we move into 2007, we have tremendous opportunity to establish Vertex as a company with potential breakthrough investigational drug in HCV, with a clinical pipeline of first-in-class drug candidates and a capability to produce further drug candidates from its own research efforts. Today, we'll cover financial strength to support the growth of the Company; telaprevir clinical development and our initial commercial steps; and third, pipeline of first-in-class compounds. These topics will be discussed and expanded upon during today's call by Ian Smith, John Alam, Joshua Boger, and Victor Hartman, who is also here with us and will be available for the Q&A portion of the today's call. Before I turn the call over to Ian, I'll remind you of the following. Information discussed in this conference call may consist of forward-looking statements and as such are subject to the risks and uncertainties discussed in detail in our reports filed with the Securities and Exchange Commission including our 10-K. Also, GAAP and non-GAAP financial measures will be discussed on this call. Information regarding our use of non-GAAP financial measures and a reconciliation of those measures to GAAP is available in our fourth quarter and full year 2006 financial press release, which can be accessed on our website, at www.vrtx.com. Unless otherwise noted, all 2006 expenses and 2007 guidance discussed in this call are inclusive of stock-based compensation. As always, you can visit vrtx.com to listen to the conference call, view a PowerPoint presentation, or download a podcast. Lastly, after our prepared remarks, we'll accommodate as many questions as time permits. Once the call concludes, our IR team joined by Ian will be in the office to answer any additional questions you may have. I'll now turn the call over to Ian.

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Thank you, Lynn. I'll first provide you with a financial summary of 2006 and then themes for 2007. 2006 was a year of continued execution on our main two financial drivers. First, we drove significant revenue in cash flows through our R&D collaborations from both existing and new relationships. This revenue funded a major portion of our increase in development investments. And second, we continued to strengthen our balance sheet to enable future investments. We completed an equity offering and reduced our outstanding convertible debt. These activities were directed towards creating an operating balance between our R&D investment and our total operating investment in creating a strong financial platform to support the Company's future investment requirements -- that is a strong financial balance sheet. Now, in 2007, we'll be directing our capital as a priority on -- one, establishing the profile of telaprevir; two, initiating the build of commercial product inventory for telaprevir; and three, initiating the build of a commercial organization. Now, to 2006 financial results. The results are characterized by revenue growth that funded an increase in development investment and a strong yearend balance sheet. The 2006 non-GAAP loss before certain charges and gains was $171 million compared to a prior year non-GAAP loss before charges of $142 million. The increased loss was due in large part to an increase in development investment and an expansion of our business, as we moved product candidates through development. Specifically, total operating expenses before stock-based compensation and restructuring charges increased by approximately $100 million in 2006. This increase was offset in large part by revenue growth and from income from investments, which enabled us to maintain our non-GAAP loss at $171 million, only $29 million higher than the prior year. Our 2006 GAAP net loss was $207 million compared to the prior year net loss of $203 million. The 2006 and 2005 GAAP net losses include charges for restructuring, stock-based compensation, equity exchange in convertible notes, and gains from the sale of investments. Total revenues for 2006 were $216 million compared to $161 million for 2005. The increase in revenue was primarily driven by collaborative R&D revenues. We had substantial contributions from our new collaboration with the Janssen Pharmaceutica for the support of development of telaprevir and from our existing collaboration with Merck, as a result of the advancement of VX-680 into a pivotal trial. In 2006, our collaboration revenues were mainly derived from activities focused on our development stage efforts. We expect this to continue. In particular, we look forward for continued revenue growth, while moving away from research collaborations and towards development-based collaborations. This transition, if successful, will enable us to control and selectively retain the output from our research efforts, while still funding our increasing development investment. This will be an important change in our business. Now, for the R&D investment. Our total R&D expense was $372 million compared to $249 million in 2005. This significant increase reflects our commitment to telaprevir, as we expand our clinical program and initiate investment into commercial product supply. The expansion of telaprevir development and investment into commercial supply will continue to be key themes in 2007. Our SG&A expense was $58 million compared to $44 million in 2005. The increase was a result of infrastructure build to support our business and the initial commercial steps we have taken to support telaprevir. Other income net was $15 million compared to prior year net interest costs of $5 million. Increased cash balances and reduction in debt service costs added to our investment returns. Now, turning to our balance sheet. We ended 2006 with approximately $762 million in cash, cash equivalents and other investments. An equity offering and funding from our Janssen collaboration were major contributors to this strong cash position. Interestingly, even when you remove our equity financing, our cash flow was positive for the year. Our financial position is also supported by an improved debt profile. Consistent with the prior two years, we continue to reduce our convertible debt obligation and ended the year with $42 million in convertible debt due in 2007 and $60 million of convertible debt due in 2011. Continuing the trend, we've announced our intention to call the 2011 debt, which has a conversion price of $14.94. Now, to our full year 2007 guidance. Before I start, I'd like to provide you with an overview to help you understand our projection of a significantly increased loss for 2007 compared with the prior year. The projected non-GAAP loss reflected in our 2007 loss guidance is financially and operationally similar to our 2006 non-GAAP loss with the exception of a relatively new for us investment requirement, building of commercial inventory for telaprevir. Commercial inventory for the markets we control is not funded by R&D collaborations, and we will expense, as we build inventory in 2007. Without this investment, our projected non-GAAP loss would be similar to that of 2006. Operationally, we continue to balance our R&D investment with revenue from collaborations and other sources. Thus, our 2007 financial guidance reflects the advancement of telaprevir and our intention to build the Company on telaprevir. We expect our full year 2007 loss excluding certain charges and gains to be in the range of $300 million to $330 million. This projection includes $110 million to $130 million of commercial inventory investment. We expect full year 2007 GAAP loss in the range of $360 million to $390 million. The GAAP loss is expected to include $55 million of stock-based compensation. We expect the growth in revenue from existing R&D collaborations and increased development investments, as we broaden the telaprevir program. Additionally, we expect the quarterly losses will decrease as we move through 2007. This is the result of the expected timing of milestones and new deal revenue, as we expect our R&D investment to be relatively even on a quarterly basis. We will continue to sustain a strong balance sheet to support this investment profile, and we expect to end the year with cash and equivalents in excess of $450 million maintaining a position to enable future investment. We are forecasting total revenue in the range of $280 million to $320 million. This is a significant increase from 2006 revenues of $260 million and is mainly driven by revenue derived from development-based collaborations. The components of the 2007 revenue guidance are as follows. HIV product royalties of approximately $45 million. Collaborative R&D revenue of approximately $200 million to $240 million. Specifically, these revenues include development cost reimbursement and milestone revenue based on the advancement of compounds. The milestone component could be up to $80 million, primarily dependent on the advancement of telaprevir. New collaborations will account for approximately $35 million. Our revenue profile is different than in prior years. We're less reliant on new collaborations. The achievement of our revenue targets is directly linked to do our development investments, through development reimbursements and the advancement of development compounds through milestone achievements. Now, to the R&D investment. We forecast that in 2007, the R&D investment will be in the range of $560 million to $600 million for the full year, which includes approximately $45 million of stock-based compensation. Also, the R&D investment includes the commercial supply investment of 110 to $130 million. Apart from the new investment requirement of the commercial supply, our R&D increase is primarily a result of the advancement of the Telaprevir program. Anticipated investment includes cost per completion of PROVE 1, 2 and 3 and a Phase III start in the latter part of the year and an expansion into HCV subpopulations to say enhance the breadth of our market opportunity. The commercial inventory investment in 2007 is primarily focused on stocking of raw material components. This investment is required to create a base volume of raw materials to support the future commercial products and to create supply flexibility to meet demand. This investment is required to be expensed and had not capitalized into inventory due to the stage of development of the product. We expect SG&A expenses to be in the range of 80 to $90 million in 2007, including $10 million of stock-based compensation. This increase is in line with our efforts to build the infrastructure to support our expanding business and early commercial activities required for Telaprevir. These will be focused on disease awareness, market analysis and also the internal organizational build-out. From a balance sheet perspective, we expect to end 2007, maintaining a strong financial position with more than $450 million in cash, cash equivalents and other investments. As I mentioned earlier, we expect to continue to reduce our outstanding convertible debt obligations. In summary, 2007 is a year in which we are building the Company on telaprevir. Our strong financial profile entering 2007 and our funding from collaborations continue to be important enablers to managing our business investment profile. I'll now turn the call over to John.

Thank you, Ian. In 2006, we made substantial clinical progress across our pipeline. Telaprevir led the way. In a little less than two years, we have advanced telaprevir from first in man to 1,000-patient Phase II program. We're now in the lead position to improve HCV treatment options and potentially provide a new treatment for millions of patients. In 2007 we expect to substantially define the product profile and initiate Phase III. I'll start my prepared remarks with an update on PROVE 3, the start and design of which we announced today. PROVE 3 is a four-arm placebo-controlled trial designed to enroll 440 genotype-1 infected patients who have not achieved a sustained a viral response with a previous pegylated interferon and ribavirin treatment. The trial is planned for more than 50 centers in the US, Europe and Canada. PROVE 3 is the first trial of telaprevir combination therapy for patient who have failed prior treatment. It is also the first trial that would dose telaprevir through 24 weeks. As I walk through the PROVE 3 trial design, it may be helpful to refer to slide 14 on our webcast presentation. Patients in this trial will be randomized across four arms. In the three telaprevir containing arms, telaprevir will be dosed at two 375-milligram tablets every eight hours. In this trial there are two 24-week treatment arms and two 48-week treatment arms. Each arm varies from the others as follows. The first 24-week arm will be a 12 weeks -- will be 12 weeks of telaprevir therapy dosed in combination with pegylated interferon and ribavirin followed by another 12 weeks of pegylated interferon and ribavirin. The second 24-week arm will be 24 weeks of telaprevir in combination with pegylated interferon. This arm will not contain ribavirin. The third arm will be a 48-week arm. This arm will be 24 weeks of telaprevir in combination with pegylated interferon and ribavirin followed by 24 weeks of pegylated interferon and ribavirin. The fourth arm is 48 weeks of pegylated interferon and ribavirin and is a control arm. This arm is unique since patients who do not respond to the standard of care for week four or beyond, based on protocol defined criteria, we'll have the option to roll over onto telaprevir-based combination therapy. This option provides additional incentives for patients who enroll in PROVE 3. Additional details about this trial can be found on "clinicaltrials.gov." I'd like now to talk about the Phase II program as a whole. PROVE 1 and PROVE 2 began last year and together with PROVE 3 will build telaprevir's profile. Each trial in this Phase 2b program has been carefully designed to do answer questions regarding 12 and/or 24-week regimens of telaprevir in combination with pegylated interferon in both treatment naive and treatment failure patients. PROVE 1 is a 250 patient trial in the US in treatment naive patients. This trial will answer questions regarding the safety of telaprevir combination through 12 weeks of treatment in comparison standard of care, and also to compare the response rates after varying durations of combination therapy. All patients in PROVE 1 have completed their telaprevir doses out to 12 weeks. Data from these patients will be analyzed together with SVR 12 data from all patients who has stopped all treatment at 12 weeks or earlier. This next analysis in PROVE 1 will occur towards the end of first quarter of 2007. PROVE 2 is a 320 patient trial taking place in Europe also in treatment naive patients. We initiated the trial in the third quarter and completed enrollment on schedule in the fourth quarter of 2006. This trial will address the same questions as PROVE 1, plus it will provide information about the role of ribavirin, since one arm in this trial does not include that drug. We plan to initiate Phase III clinical development of telaprevir in the sending half of 2007. We expect that clinical results from PROVE 1 and PROVE 2 -- from the PROVE 1 and PROVE 2 clinical studies will provide important information supporting the design and initiation of the Phase III trial. The timing of when efficacy data from the Phase III program will become available is dependent on a number of factors including the trial design, which includes treatment duration and the time required to enroll patients into the program. We believe that the current Prove clinical program Prove 1, 2 and 3 along with safety data from Phase III has the potential to generate sufficient safety and efficacy data in a broad range of genotype-1 HCV infected patients to support an NDA filing in the fourth quarter of 2008. An NDA filing in that timeframe would also be dependent upon successful completion of all required chemistry manufacturing controls or CMC requirements for registration. If efficacy data from the Phase III program is required in the NDA, the filing maybe later than 2008. Discussions with regulatory authorities that are planned from mid-2007 will define the registration pathways and timelines for regulatory filings worldwide. At this point, I would like to review our communications strategy around telaprevir program. The principle objective of the PROVE program is to provide insight that will allow us to design and initiate Phase III and to generate data that will support an NDA filing. Consistent with this objective and with a significant amount of antiviral and safety data we've already disclosed around telaprevir. Our focus in 2007 will be to communicate data from the telaprevir program principally in medical forums when and as is appropriate. This strategy is consistent with the stage of development of telaprevir. We plan to build on the PROVE trials with a number of additional trials in 2007 including evaluation of telaprevir in HCV subpopulations such as genotype-2 and genotype-3 HCV infection. Also in 2007, we plan to explore twice daily dosing of telaprevir in combination with peg interferon and ribavirin. These trials are designed to support larger programs that have as an objective the expansion of the product label to cover these areas of medical need. I'd now like to take a few minutes to bring you up to date on our other pipeline programs. In addition to telaprevir, we have other first-in-class product candidates in our pipeline utilizing near approach to say target serious diseases. The sustained product candidate pipeline would allow us an opportunity to build a pharmaceutical company. Briefly, in addition, to telaprevir, we have three additional compounds where Vertex's leading development including VX-770 an oral drug that could address the underlying defect in cystic fibrosis, which is on track to begin in the second quarter of 2007 a Phase II clinical trial in patients with cystic fibrosis. VX-702 a lead oral p38 MAP kinase inhibitor is being investigated for the treatment of rheumatoid arthritis. We announced today that we've initiated thorough QTc study under an open IND. Already under way is a 12-week 120 patient Phase II, a clinical trial in patients with rheumatoid arthritis on a background of methotrexate. Depending on the results from the Phase 2a trial and the QTc study we plan to advance to a larger six-month Phase 2b study on a background of methotrexate. VX-883 is a novel investigational antibiotic that we'd expect to advance to Phase I clinical development later in 2007 upon successful completion of certain preclinical studies. Now to VX-680, which is being developed by Merck in a broad range of cancers. The first clinical data emerged last year. VX-680 which Merck designated MK-0457 is the most advanced cancer compound targeting Aurora kinases. This compound has made rapid progress. It entered the clinic approximately two years ago and just last month Merck initiated a pivotal trial in treatment resistant leukemia's. This pivotal trial is designed to support registration of VX-680 in one or more hematologic cancer indications. VX-680 has also the potential to treat a broad range of cancers including solid tumors where Merck is already conducting clinical trials. We look forward to an eventful 2007 with presentations reporting clinical data at major medical meetings. I will now turn the call over to Joshua.

Thank you, John. Since the founding of Vertex our goal has been to bring transformational drugs to the marketplace. Telaprevir could enable us to realize part that far corporate goal, but more than that it is the type of clinical opportunity that cams along in our industry just one every decade. That's an exciting opportunity. We're not there yet. We're very pleased with the progress we made in 2006. We began the year with the first results for telaprevir in combination therapy, and we initiated a large Phase 2b program that would enroll more than 1,000 patients. 2007 starting out with very strong developmental momentum. This year we expect to start Phase 3and we're focused on our goal of filing an NDA in 2008. But more than that, in 2007, we're truly building a company on telaprevir. The dedication and commitment of everyone in Vertex is making this happen. We have a lot of work ahead of us. We're taking well considered aggressive step to say build a company dedicated to improving medicine and benefiting millions of patients. I thank you. Lynne, back to you.

Thank you, Joshua. We'll now open up the call to your questions. Todd?

[Operator Instructions]. Your first question comes from Geoff Porges with Sanford Bernstein. Geoff Porges - Sanford Bernstein: Thanks very much for taking my question and congratulations on PROVE 3. A couple questions about PROVE 3, John. Could you give us a sense of what the endpoints and what the statistical analysis will be? Will it be the control arm versus the other three arms or the arms individually? And then, I just had a related question for Josh on R&D. Even if I backed the 110 to 130 out of the 560 to 600, it's still a pretty big number, probably bigger than most people were expecting in aggregate. And that's a lot of growth over the 250 you had in 2005 before telaprevir really got going. Where does this end up once telaprevir, sort of, goes through the pipe, and do you come back to the 250 or do you think that it's likely that your R&D is going to stay at that kind of level? Thanks.

Thanks, Geoff.

The endpoints in PROVE 3 are as would be the case sustained virologic response in comparison to the standard of care arm. There is enough statistical power within the trial for any of the arms to say demonstrate statistical superiority relative to standard of care, obviously, depending on the specific treatment effect. But beyond that, at this point, we haven't disclosed the specifics of primary endpoint interim analysis, et cetera. And Geoff, to your second question, we appreciate your second question, because as Josh mentioned in his remarks, we are looking way out into the future in terms of building the company. To provide guidance on whether R&D investment would go in two or three years from now is a little premature. But what we can tell you is consistent with our model is we want to launch telaprevir, we want to have a full pipeline, and therefore, R&D investment should continue. And as you know research has been what's generated in our product. So we remain committed to research.

And Geoff, this is Josh. I do think that's a good question. I think there is a change in how I would answer that question now. I won't give you any more specific numbers than Ian did. But five years ago, we're not building R&D because we're building a base upon which we can then choose a winner out of. We -- the future R&D spending particularly the D side, which drives the big costs, will be based totally on success of compounds. So the best thing that can happen to us three years from now is that our D is higher. But it will be totally success driven. Geoff Porges - Sanford Bernstein: Okay. Thanks very much.

Thank you, Geoff. Todd, can we have our next question please.

Yes. Your next question comes from the line of Jason Zhang with Prudential. Jason Zhang - Prudential: Hi. Thanks for taking my question. Question about the timing for filing, and also your position to spend more than 110 million into raw materials. So if for any reason -- if the efficacy from a Phase III is required -- as you said in the press release, you might actually have to delay the filing -- could that change your decision today to make raw material? Or the decision is already made, no matter what will happen you have to have raw material made way before when the filing and approval of this drug will be in place?

Thank you, Jason.

Thanks, Jason. Thanks for the question. It's an important question, and it's something as we planned out 2007, how we look at our investment is clearly risk based. And if the timing of the filing was to move, sure, yet we would reduce our investment. However, at this point we have to plan for success, and at this point we are committed to $110 million to $130 million of investment into our supply chain. However, if our time lines do change, we have the ability to pull back. And that's how we'll conduct our business in 2007, risk based and clinical data based. Jason Zhang - Prudential: Thank you.

Your next question comes from the line of Hari Sambasivam with Merrill Lynch. Hari Sambasivam - Merrill Lynch: Yes, thank you. Perhaps a question for John. John, just in terms of your Phase III requirements, could you maybe talk a little bit about what your control arm might be? I know you sort of talked a little about in the press release about filing with the efficacy data from PROVE 1, 2 and 3, and just the safety component from the Phase III arm. But I'm just wondering what type of -- how long would the control arm have to go? Would that be one year of safety that you would need with the control arm as with the pegylated ribavirin and interferon -- sorry -- pegylated interferon and ribavirin, or would that be a shorter look there? I'm just wondering the timing of the safety would probably depend on your control arm as well, so I am just wondering what your thoughts are at this point in time on that one.

Larry, I think at this time I probably can't go into that -- I really can't go into that level of detail. Our plan through the first half of this year is to obtain the data from PROVE 1 and PROVE 2, which is going to really drive the design of the Phase III program as well as really the registration program and how we approach the FDA. And depending on the specific discussions with the FDA, that would really define both from an efficacy and a safety standpoint, which sets of clinical data would go into the first NDA filing. Hari Sambasivam - Merrill Lynch: That's great. Just one follow-up question from the prior questioner. In terms of the actual inventory build or the raw material build that you're doing, how long of a stability do you have on these products at this point in time just in case your Phase III does extend beyond, you know, your scheduled time period?

A good question, Hari, and also building into how we're building our supply chain. The investments in 2007 is, as I mentioned in my prepared remarks, is principally in raw material. And so as we come out of 2007, we're stocking raw materials that then provide us the flexibility to build commercial product when we have a better understanding of product profile. But the raw materials that we build in 2007 have shelf life measured in years, so we don't face that risk. Hari Sambasivam - Merrill Lynch: Thank you.

Thanks, Hari.

Your next question comes from Joshua Schimmer with SG Cowen. Joshua Schimmer - SG Cowen: Hi. Thanks for taking my questions. I guess first question if you did start to see a high relapse rate in the PROVE studies, would that affect your decision to build the commercial supply over 2007 and how may we see that reflected?

Well, we're taking -- hi, Josh. It's Ian. We're taking data all the time from our studies to the extent that it is available to us and then to the extent it becomes blinded. So we're always going to take that information. It affects our decisions on the supply that's required at launch. We understand what the capacity is in our supply chain, and we're always adjusting that. So the answer to your question is broadly yes. There is more data that's available to us. We plan more appropriately. Joshua Schimmer - SG Cowen: Is it unreasonable then to conclude that from your comments and plans to begin building a fairly large commercial supply that you may not be seeing a high rate of relapse in the PROVE studies?

I think it's premature to conclude that at this point. Joshua Schimmer - SG Cowen: Okay. And then, John, how are you defining non-responder in PROVE 3 and is that a definition the FDA has agreed upon for potential registration purposes?

For this -- for PROVE 3, we're actually -- we are enrolling a very broad range of patients. And it's defined effectively as anyone who did not achieve an SVR, after previous course of pegylated interferon and ribavirin. So that would include, by other people's definitions, non-responders so that non-response is defined by did not become HCV-RNA undetectable during previous course of therapy as well as patients who have relapsed, so did have a response on treatment but relapsed after the end of treatment. And we're including both groups of patients stratifying during randomization. So there are equal numbers of proportions of non-responder versus relapse is similar across the treatment arms. And this protocol, yes, was submitted to the FDA in December for review. Joshua Schimmer - SG Cowen: Does it exclude patients who were not able to complete a full course of therapy due to issues with tolerance or the peg [ph] -- about ribavirin?

It does exclude those patients. Patients have to have met non-response criteria in a previous course either after 12 or 24 weeks or relapsed after a full course of 48 weeks of treatment. These are all genotype -- HCV genotype 1 infected patients. Right? Joshua Schimmer - SG Cowen: Thanks very much.

Thank you, Josh.

Your next question comes from the line of Rachel McMinn with Piper Jaffray. Rachel McMinn - Piper Jaffray: Hi. Thanks very much. Just a couple of questions. One, again on the PROVE 3 trial design, I am curious, given the history so far responses from living ribavirin and the treatment experience group setting, just curious what's driving your thinking here with a no-ribavirin arm? Is this colored at all by anything you're seeing out of PROVE 1 or just kind of an extension of the philosophy that went into PROVE 2?

I think it's a continuing philosophy in terms of that whether or not ribavirin in the context of a potent agent, such as Telaprevir, whether or not ribavirin would in fact contribute to the overall antiviral activity of combination therapy. So it's very much consistent with having that no-ribavirin arm in PROVE 2. Yes. Rachel McMinn - Piper Jaffray: Okay. And just a quick follow-up. I am curious when do you expect to initiate any type of viral kinetic studies that assess Telaprevir with a direct anti-viral from a different drug class and are you in discussions with any potential collaborators over such a study.

So very high level. The way we're viewing it is that the area of most opportunity would be Telaprevir with a preliminary inhibitor, which as a whole are earlier in clinical development than is Telaprevir. So it's hard at this stage to make a precise call on which agent and whether we're, you know -- and any of the agents are quite at the stage where it would make sense for us to combine with Telaprevir. But we're very much evaluating all of the possibilities. We're tracking all of the clinical data with the agents that are in clinical development. You know, you should look for us down -- you know, down the line to the in fact conduct -- potentially conduct particularly proof of concept trials with one or more preliminary inhibitors, but the timing of that I think somewhat uncertain right now. But it's not many years away. Rachel McMinn - Piper Jaffray: Okay. So is that different than I think we had heard from you before that you'd like to see something by the end of '07 and kind of based off what you're seeing now?

It may well be within this year that we initiate a first clinical trial, but it is, you know, not in our plans as such because it does depend on having an appropriate other compound for us to run that first study with.

I think, Rachel, I probably was a source of that particular comment, and that was really a statement of '04 optimism for the other agents, so nothing would please us more than to see the kind of progress in preliminary, it would enable us to be in a study sooner rather than later so really the uncertainty here is not in our hands. Rachel McMinn - Piper Jaffray: Okay. That's fair. Thanks very much.

Thank you, Rachel.

Your next question is from the line of Richard Smith with JP Morgan. Richard Smith - JP Morgan: Yes, good evening. Two quick questions. One just related to the prior one. What kind of criteria would you like to see in a preliminary inhibitor, viral load drops or phase development before you look into combination trials? And second, do you ever talk about the statistics around the PROVE trials? I am not sure if you have in a statistical analysis, I mean.

In terms of criteria of a IND it is really multi-factorial. It's antiviral activity. It's clinical safety profile. It is toxicology profile. It is metabolic pathways, and whether there might be any potential for interactions. And all of those things have to be factored in, and there is no simple algorithm which one would plug into. In terms of the statistics of the various trials, we have not on any of the specific trials to this point, we have not talked about the specific statistics, but I think as we go out into the middle and second half of the year and have had some of those discussions with the FDA had terms of registration path, as any of the statistics impact our NDA filing strategy ahead of that we would communicate. Richard Smith - JP Morgan: They're already not into the trials, some estimates?

Yes. There are estimates not into the trial, and there are sample size calculations in the various trials. Richard Smith - JP Morgan: All right. Thank you.

Thanks, Richard.

Your next question comes from Steve Harr with Morgan Stanley. Steve Harr - Morgan Stanley: Good afternoon, guys. Two questions. The first one is I guess if you point to the SVR 12 data as an important data point for a long time, when so we expect that data EASL or would you -- are you going to wait to show that at a medical meeting this year?

I can't comment today on such a specific as meeting EASL because that -- you know as with any scientific meeting there is a process of abstract submission, acceptance, etcetera, that we're not at the point and the meeting is not at the point that we could actually discuss any specific meetings. In terms of SVR 12 data, the data we're going to be really focused on is relapse rates. And the first set of data, which internally we expect analysis occurred near the end of the first quarter will really be we're viewing it as, you know, where our focus is. It's dialing up or down in terms of the duration f or 12 and 24 weeks. And it really will be most helpful in the extremes of either a very low or very high relapse rate. It's obviously the numbers of patients involved won't gives a precise number in terms of either SVR rate or relapse rates. But it will give us that guidance, in terms of how to go forward. Steve Harr - Morgan Stanley: But given how important you stress these data to be, in you unblind them internally, isn't that a material event that you need to disclose to us or do you think you can wait for a medical meeting?

I am going to let, maybe, Ian comment on the disclosure policy.

Sure. Thanks, Steve. We've always been very clear on where what we want to do. We want to protect the integrity of the study we're running. I think that's very important given the importance of the studies. We're going it use medical forms to provide the data. In terms of asking us whether it's material, that's a completely separate question. We'll provide the data in a forum appropriate for the data, and that's a later conference in towards the first quarter, and end of the first quarter to begin the second quarter of this year. Steve Harr - Morgan Stanley: And the second question a pretty simple one. When you're defining the dropouts from the PROVE 1 trial, is that patients that completely dropped off therapy or are patients able to drop-off of either study drug or placebo and remain on Peg and Ribavirin and still be counted as part of the study?

Steve, in the December analysis which was a very, very specific analysis and not a broad ranging analysis, in that analysis it was the dropout rate that we cited were specifically stopping telaprevir or placebo. Basically the telaprevir or placebo pill they were taking, and they could, in fact, have continued on Interferon and Ribavirin. Steve Harr - Morgan Stanley: Very helpful. Thank you.

Thanks, Steve.

Your next question is from Meg Malloy with Goldman Sachs. Meg Malloy - Goldman Sachs: Thanks. Just to follow up and clarify Steve's first questions, can we take it your goal would be to be able to present the SVR 12 data in the second quarter?

Yes. Meg, I will take the question again. A lot of this is depends on the timing that we receive the data and the type of data we receive. Our intention is to use medical forms as we go forward to disclose this data as I said in my first comment. We want the appropriate forum to protect the integrity of the study. We believe medical forums are more appropriate. We're at a very different stage as a company now than where we were in the prior year, and we want to respect that. We want to respect our communications with the FDA. So the way we're looking as disclosure for 2007 is actually rolling up the data, using the medical forum, if the data is available, coming out of the first quarter into the early second quarter. There is a medical conference that's available for us, and we'll use that, but to ask us to commit to that at this point is a little premature. Meg Malloy - Goldman Sachs: Okay. And then just switching gears a little bit in terms of your twice daily study you're contemplating later this year, how are you thinking that in terms of drug dosing, would that be same 375 meg tablets but two times daily or are you looking at different loading dose of tablets?

We would be looking at three tablets twice a day, so that we have I think a very consistent data set in terms of daily dose that what we're giving right now is obviously very active from an antiviral standpoint and based on all of the analysis that we've done is the appropriate dose level. Just to be clear, the dosing regimen we have today with the two tablets three times a day I think particularly for the range of duration we're looking at since it's not a chronic treatment is in fact a very practical and dosing regimen that we can definitely be going forward. The intent of this upcoming study is really it is an exploratory study. We'll see, if there is a further opportunity to simplify -- either simplify the dosing regimen and/or give options to patients and physicians who for whatever sets of reasons may have a strong preference one-way or another. But we do believe the regimen we have today is one we could definitely take forward to the market and we would be fine with most patients and physicians. Meg Malloy - Goldman Sachs: Yes. If I may follow-up on that. In terms of assessing trough levels, if you were to do twice daily dosing and three pills a shot, have you done preclinical work to suggest that puts you in the ballpark?

The based on the data we have had, previously and if you just look at the clinical data, with the three tablets twice a day. We can achieve trough levels that are well into the targets that we define in our initial dose ranging work as monotherapy. Remember that since then with the tablet formulation given with food we actually do get higher blood levels. And so all in, we actually can in fact get to the, to our target trough levels with that dosing regimen. Meg Malloy - Goldman Sachs: Great. Thanks a lot.

Thanks.

Your next question is from the line of George Fulop with Needham. George Fulop - Needham: Thank you for taking the question. My main questions have been answered, but I was wondering if we can take that the initiation of PROVE 3 that we can assume that reaction and other adverse events are insignificant or self-limiting in.

I think the way, I would look at it is that the safety data that we obtained in December, which the primary objective of that analysis was to be able to support initiation of PROVE 3. And that's clearly what the data showed that it was supportive of our profile, and that the data, safety data overall supported initiation of PROVE 3 continuing as planned with PROVE 2 and overall continuing with the clinical plan and, yes, the initiation of PROVE 3 supports that conclusion. George Fulop - Needham: Okay. Thank you.

Thank you, George. I think we have time for about two more questions.

Okay. Yes, ma'am, your next question is from Yaron Werber with Citigroup. Yaron Werber - Citigroup: I have two quick questions, John. The first one has to do with we've been getting lots of questions to understand the blinding of both PROVE 1 and PROVE 2. So are you blinded by treatment with a placebo or 950 and by arm or do you know exactly, which patients and which arms. And how do you take the data to the FDA? What kind of unblinding we have you have to do so you can you can maintain the integrity of the some of the study. And then second question is PROVE 2. What are your plans there in terms of doing interim analysis or would you let that study continue all the way to the end before you unblind it?

We absolutely do not know the treatment assignments by individual patients. Any data reported to us is reported at a higher level than that, in particular the December analysis in PROVE 1, all of the analysis there was at a -- the analysis that we reported that was made available to us was at a group level. PROVE 1 all the patients are blinded to placebo or telaprevir because the background regimen across all of the first twelve weeks in particular is the same with pegylated interferon and ribavirin. Prove 2, the patients are blinded to treatment assignment in three of the four arms because they're receiving pegylated interferon and ribavirin plus telaprevir or placebo. The arm that does not contain ribavirin in that study, those 80 patients know that they're assigned to that treatment. But the RNA data to the -- to those -- from across the study and across both studies are blinded to -- they're not made available to the patients, physicians, anyone during the course of the treatment including ourselves. That data is all going to be analyzed. It is pre-specified points as in during specific inter -- analysis time points, and only then would be made available to us. For Prove 2 at this point we have not disclosed the specific timing of when those interim analyses would occur. Again, to protect the scientific integrity of the studies, to not introduce any kind of the bias in the conduct of the study, to make -- to not give any kind of signals to the patients or physicians the trial as when those interims may be occurring. Yaron Werber - Citigroup: Just to understand a follow-up, when you say for Prove 1 the analysis was in a group level back in December, what do you mean by a group level whether?

So it's preparing for example it was the analysis of antiviral activity at week 12 which was 88% undetectable in -- we grouped all of the patients who received telaprevir together. And 65 out of the 74 patients were undetectable compared to the control arm in which approximately 50% of the patients were undetectable at week 12. But it was not on an individual patient basis patient-by-patient whether the report undetectable or not. It was in the group combining all the telaprevir patients versus the control arm. Yaron Werber - Citigroup: I see. And at this point from when you noted the 9% discontinuation rate that, Steve asked about before. Do you -- you don't know at this point how many patients have dropped out of 950 and or placebo remained on the background regimen?

That's correct. That analysis again was a very specific analysis that was pre-specified, and that provided data at a high level and there were limited number of analysis that were conducted again, to basically support initiation of PROVE 3 continuation PROVE 2 and to see whether there were any specific information that needed to be provided to the investigators across a clinical trials. And those objectives were all successfully met, and as you know, we completed enrollment in PROVE 2. We're going forward there. I mean at this point we have, several hundred patients on telaprevir between PROVE 1 and PROVE 2 and PROVE 3 is now initiated and will be -- we're planning on enrolling it by the end of the second quarter. Yaron Werber - Citigroup: Great. And just a final question. When you look at the end of treatment response and ultimately SVR, are you calculating that on an ITT versus based on or is this last observation carried forward? I'm trying to ascertain, what happens to the patient who drop out only the placebo 950 and continue in the background. How are they going to be calculated at the end?

So for the next analysis, our focus is on the relapse rate, which is the analysis of SVR 12 data of which is basically, have patient who stopped at 12 weeks or earlier in PROVE 1. Stopped all treatment including interferon ribavirin and telaprevir. What the rate of relapse is out to 12 weeks of follow-up, and that is a very specific question again, we're asking to try to understand whether it's 12 weeks of, in fact, the interferon and ribavirin is sufficient or whether our focus should be on in that study and the PROVE program overall on the -- in particular the 24-week arm, which is 12 weeks of the three drugs with 12 weeks of follow back 12 weeks of pegylated interferon and ribavirin. And we're really looking at the -- you know it's dialing in or dialing up what the duration of the peg interferon and ribavirin would be. In terms of the final analysis, if your question is in PROVE 1, PROVE 2, PROVE 3, SVR rates when we put everyone together -- in the final analysis, which will be occurring much later in 2007 and in case of PROVE 3 into 2008, that will be absolutely an ITT analysis. Yaron Werber - Citigroup: So if a patient -- I am sorry, just to clarify, let's say if your patient in arm 1 of the study and week six, you dropped out either with the placebo or 950, but you remain in the background regimen. Do you and you showed-up for your blood test of 12 weeks. Is this patient at an ITT and what happens if they don't show up after 12 weeks? Do you take their last observation carry forward? I'm talking about the drop out within each arm before you get to the end of treatment.

Yeah. I have to respect the other people that are on the line, with questions. Can we take this question offline? Joe could be available right after the call, and we would be happy to answer it. But given the detail of the question, let's move on to the next question out of respect to other people waiting. Yaron Werber - Citigroup: Thank you. I appreciate it.

Thank you, Yaron. And we'll take our last question.

Your last question is from Howard Liang with Leerink Swann. Howard Liang - Leerink Swann: Thanks very much. So the question about funding on Phase II under what circumstances duration be able to file on Phase II? Is there an SVR hurdle?

It would be based on the level of efficacy and it's just efficacy and safety and how compelling the data are and it would be to a great extent how compelling they are both not only to us but to the FDA, and, you know, at this point it's really hard to tell, but it is the totality of the data and what the profile of telaprevir in combination with interferon plus ribavirin looks like at that point. But it's an analysis, I mean it's, you know, as I said in PROVE 1 and PROVE 2, that type level of analysis will not occur until much later on to 2007. Our plan is to initiate Phase III in advance of when we would really know with any level of confidence that whether the Phase II data would support filing by itself or not. Howard Liang - Leerink Swann: Okay. Also just wanted to get a sense to what we might see during the course of this year. I think, the SVR data from the six months treatment arm in PROVE 1 and the SVR data from the 80 patients on the 3 are arm from PROVE 2 but they're both scheduled in second quarter. Can you talk about you want to present at a medical meeting. Does that mean that we're not going to see the data until maybe late in the year ASLD perhaps?

I mean, that is our strategy would be to communicate around the major liver meetings, and as you know, it's really, it's the meetings across the Board, there is Easel in April and there is DDW and ASLD, and where specifically we would be presenting any type of data depends on when those data emerge and again it's the process of the meetings that we would have to work through. Howard Liang - Leerink Swann: And just finally on the -- you talked about the focus is going to be on the relapse rate. Are we going to see any type of SVR data prior to the completion of the study?

You know, again, it's maybe a little bit early to try to get into that because it's a -- you know, our focus right now just, again, to be clear is to get to Phase III, is to get the data to design Phase III, to initiate Phase III. I think, you know, beyond that of how we really communicate around the data, it's just a little bit early. And it depends really on a variety of different factors that it's just hard to predict right now. Howard Liang - Leerink Swann: But if, you know --

Thank you, Howard. And thank you everyone for joining us this evening on the Vertex 2006 and outlook for 2007 conference call. We would be happy to take any additional calls tonight in our offices. Call any of the IR group or at your convenience either tomorrow or next week. Thanks again.

This concludes this evening's conference call. You may now disconnect.

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