Michael Partridge - VP, IR Jeff Leiden - Chairman & CEO Jeff Chodakewitz - CMO Ian Smith - COO Stuart Arbuckle - CCO Tom Graney - SVP & CFO

Geoffrey Porges - Leerink Michael Yee - Jefferies Geoff Meacham - Barclays Phil Nadeau - Cowen and Company Alethia Young - Credit Suisse Ying Huang - Bank of America Merrill Lynch Terence Flynn - Goldman Sachs Brian Abrahams - RBC Capital Markets Matthew Harrison - Morgan Stanley Cory Kasimov - J.P. Morgan Brian Skorney - Robert Baird Robyn Karnauskas - Citigroup Neil Carnahan - Stifel Carter Gould - UBS Navin Jacob - Deutsche Bank

Good evening. This is Michael Partridge, Vice President of Investor Relations for Vertex. We're pleased to be able to talk with you tonight about our Fourth Quarter and Full Year Financial Results for 2017 and about our continued progress with the long-term leadership in the treatment of cystic fibrosis. Dr. Jeff Leiden, Chairman and CEO; Dr. Jeff Chodakewitz, Chief Medical Officer; and Ian Smith, Chief Operating Officer, will provide prepared remarks this evening. Stuart Arbuckle, Chief Commercial Officer will join us for Q&A. We recommend that you access the webcast slide as a supplement to the information from today's press release. These slides are available for download on the Investor Relations Page on our website. This conference call is being recorded and a replay will be available on our website. I will remind you that we will make forward-looking statements on this call. These statements are subject to the risks and uncertainties discussed in detail in today's press release and our filings with the Securities and Exchange Commission. These statements including without limitation those regarding the ongoing development and financial commercialization of any combination management of cystic fibrosis, Vertex's other cystic fibrosis programs, and Vertex's future financial performance, are based on management's current assumptions. Actual outcomes and events could differ materially. I will now turn the call over to Dr. Jeff Leiden.

Thanks, Michael. Good evening everyone. Today is a special day for everyone at Vertex and for the CF community, as it marks the sixth anniversary of the FDA approval for our first CF medicine KALYDECO. When KALYDECO was first approved in 2012, only 1,200 people worldwide were eligible for medicine to treat the underlying cause of their decease. Today, the number of people eligible for one of our CF medicines has grown to 34,000 worldwide and we will continue to expand the number of eligible patients in 2018, and beyond. In the past few years, and especially in 2017, we have made remarkable scientific progress that has moved us closer to achieving our ultimate goal in CF. We developed highly effective medicines for all people with the decease. In today's announcement that we have selected two next-generation correctors to advance into Phase 3 development as part of two different triple combination regimens, we've taken a significant step towards achieving that goal. I'd like to begin by acknowledging everyone who has helped to bring us to this important milestone in our more than 15 year journey to develop new CF medicine. I would especially like to thank the patience, families, and CF caregivers, for their unwavering support, as well as employees at Vertex for their commitment to this program. The data announced today are remarkable and demonstrate the potential for significant and consistent clinical benefits in patients with one F508del mutation and a minimal function mutation when treated with a triple combination regimen containing either VX-659 or VX-445. We remain focused on bringing forward the best triple combination regimen to patients as quickly as possible. Based upon the totality of the data collected today from four different triple combination regimens, and more than 200 people with CF, we believe that both the VX-659 and VX-445 regimens have highly compelling profiles for late-stage development. Therefore we have decided to advance both regimens into Phase 3, one of which we plan to evaluate at a once-daily regimen. We're having productive discussions with the FDA regarding Phase 3 programs for both triple combination regimens. We look forward to finalizing the design of these programs and remain on track to begin the first Phase 3 studies of a triple combination regimen in the first half of this year. As I look back over the past year, we had made tremendous progress across all parts of our business and have positioned the company for further success. We continue to increase the number of patients eligible for and treated with our approved medicine which is driving significant revenue. We expect this revenue growth to continue which will in turn also drive significant earnings growth. We reported positive Phase 3 data for the combination of tezacaftor and ivacaftor and are awaiting FDA approval for this important new treatment option which will be a significant contributor to revenue growth beginning this year. The day we provided further hope for those still awaiting a new medicine, the cause of their CF with the selection of two next-generation correctors to move into Phase 3 development as part of triple combination regimen. And beyond CF we are preparing to begin clinical development of CTX001 in two devastating disease Beta Thalassemia and Sickle cell disease, with our partner CRISPR Therapeutics. We also expect to move one or more potential medicines from our internal research programs into clinical development in other diseases this year. I look forward to updating you on our continued progress over the coming year and will now turn the call over to Dr. Jeff Chodakewitz to review today's announcement in more detail.

Thanks, Jeff, and good evening. I'm very pleased to share the initial results from the ongoing Phase 2 studies of the VX-659 and VX-445 triple combination regimen and to review our plans to advance these two different triple combination regimens into Phase 3 development. The initial Phase 2 data reported today are extraordinary from both an efficacy and safety perspective. Collectively, our Phase 2 studies in more than 200 CF patients provide compelling evidence of the significant clinical benefit that triple combinations may provide the CF patients. All four of our next-generation correctors were advanced into development out of our own labs based not only on their in vitro efficacy profile, but also on their drug like property, including PK profiles, minimal drug interaction potential, ability to be co-formulated with tezacaftor and ivacaftor and others. All of the Phase 2 data generated to-date has validated the rigorous selection criteria we use. We are today reporting top-line safety and tolerability data as well as efficacy information as measured by mean absolute within group change and percent predicted FEV1, sweat chloride, and CFQR data for the patients with a minimal function mutation from each study. First to the Phase 2 data for the VX-659 triple regimen. This study evaluated VX-659 in combination with tezacaftor and ivacaftor or triple placebo for four weeks. 53 patients received one of three doses of VX-659 in combination with tezacaftor and ivacaftor. Across the study the combination was generally well tolerated and the overall safety profile was favorable. The majority of adverse events were considered mild or moderate. There were no discontinuations due to adverse events. One patient interrupted triple combination dosing due to a rash which resolved following interruption of treatment. The patient restarted and completed triple combination dosing without any further rash. In the patients who received this triple combination, we observed significant improvements in lung function of 10.2, 11.6, and 13.3 percentage points across the three dose groups that were evident by the second week of the treatment period and sustained through the four-week dosing period. These data are shown on Slide 10. With sweat chloride, we saw significant decreases of 45.8, 43.7, and 51.4 millimol per liter for the triple combination dose groups. These were the largest decreases in sweat chloride observed for any of our triple combination regimens to-date, these data are shown on Slide 11. We also observed significant improvements in patient reported respiratory symptoms of 24.6, 19.8, and 21.8 points for those on the triple combination regimen as reported in the CFQR respiratory domain score, these data are shown on Slide 12. I will now turn to the Phase 2 data for the VX-445 triple regimen. This study evaluated VX-445 in combination with tezacaftor and ivacaftor or triple placebo for four weeks. 53 patients received one of three doses of VX-445 in combination with tezacaftor and ivacaftor. Across the study, the combination was generally well tolerated and the overall safety profile was favorable. The majority of adverse events were considered mild or moderate. There were two discontinuations from the treatment groups due to adverse events and none in the placebo group. The treatment discontinuations occurred in the VX-445 100 milligram dose group. One of the treatment discontinuations was due to increased bilirubin with concomitant transaminase elevation which was observed on the final day of dosing. The patients' bilirubin levels returned to baseline during the safety follow-up period after discontinuation of treatment. The second discontinuation was due to rash and following discontinuation of treatment the rash resolved. In those who received the VX-445 triple combination regimen we observed significant improvements in lung function of 11.1, 7.8, and 13.8 percentage points that were evident by the second week of the treatment period and sustained through the four-week dosing period, these data are shown on Slide 15. With sweat chloride, we saw significant decreases of 38.2, 33.2, and 39.1 millimol per liter for the triple combination dose groups, these data are shown on Slide 16. We also observed significant improvements in patients reported respiratory symptoms of 20.8, 15.4, and 25.7 points for those on the triple combination regimens as reported in the CFQR respiratory domain score, these data are shown on Slide 17. I would also note that we conducted post dose spirometry evaluations for both of the triple combination regimens in these studies. And so no evidence with Bronco construction. The Phase 2 studies of the VX-659 and VX-445 triple combination regimens are currently ongoing in patients with two F508del mutations. An additional part of each study is evaluating a potential once daily regimen that contains the once daily potentiator VX-561 in place of twice daily ivacaftor in patients with one F508del mutation and one minimal function mutation. These parts of the studies are fully enrolled and the remaining data from each of the Phase 2 studies are expected in the first half of 2018. Data from across our portfolio of next-generation correctors received to-date show that the potential benefits of treating the cause of CF with triple combination regimens are clear, and support the rapid advancement of the VX-659 and VX-445 triple combination regimens into Phase 3 development. Our strategy of advancing both VX-659 and VX-445 into Phase 3 gives us the opportunity to generate data from two different triple combination regimens, including one that maybe dosed once daily and picked the best regimen to bring to patients as quickly as possible. Our discussions with the FDA regarding our Phase 3 program for triple combination regimens have been productive and we have already shared with the FDA the available data for the VX-659 and VX-445 triple combination regimen. We are now focused on finalizing the design of the Phase 3 programs and we remain on track to initiate the first Phase 3 program in the first half of 2018, upon completion of these discussions. We plan to conduct two separate studies for each triple combination regimen, a study of each regimen in people with CF who have one F508del mutation, and one minimal function mutation, and a study in those with two F508del mutation. Following the initiation of the Phase 3 studies with the VX-659 triple combination regimen in the first half of 2018, we plan to initiate the Phase 3 studies for the VX-445 triple regimen in the middle of the year. We plan to evaluate VX-445 in combination with tezacaftor and the once daily potentiater VX-561 as a potential once daily triple combination regimen, pending the Phase 2 data for this regimen, and also the completion of a long-term non-clinical toxicology studies for VX-445. In addition to evaluating each triple combination regimen in the studies I just discussed we also plan to evaluate each of these triple combination regimen in patients who have one F508del mutation and a second gating or residual function mutation. These studies are planned to begin in the second half of 2018. Once our FDA discussions are complete, we look forward to updating you with more details regarding the specific designs of the study. Before I close, I'd like to thank everyone who took part in these studies for their commitment to helping us advance the treatment CF. I'll now turn the call to Ian.

Thanks, Jeff, and good evening to everyone. 2017 was an outstanding year for Vertex and tonight I'm pleased to review our fourth quarter 2017 financials, and our 2018 full-year financial guidance for combined non-GAAP R&D and SG&A trends. Revenues first. Total CF product revenues of $621 million in the fourth quarter 2017 represented 37% increase compared to $454 million we recorded in the fourth quarter 2016. Our product revenues grew each quarter throughout 2017, as we increased the number of patients treated with our approved medicine. Today, we estimate we have initiated therapy in over 17,000 of the 34,000 patients eligible for our medicine. We expect eligibility and the number of patients we treat to continue to grow throughout 2018. ORKAMBI we reported fourth quarter 2017 product revenues of $365 million, 32% increase compared to the fourth quarter of 2016. The growth in 2017 was driven by the continued uptake of the medicine globally, particularly in children ages 6 to 11 in the U.S. Fourth quarter 2017 KALYDECO revenues were $206 million, a 44% increase compared to the fourth quarter 2016. This significant growth in 2017 was driven by the rapid uptake of the medicine by patients in the U.S. with residual function mutation following the label expansion of these patients in mid 2017. Our fourth quarter 2017 non-GAAP combined R&D and SG&A expenses were $355 million compared to $295 million in the fourth quarter of 2016. This increase was primarily due to the continued acceleration and advancement of our portfolio of triple combination regimens with CF and the investments to support the treatment of patients with our medicines globally. Non-GAAP net profit for the fourth quarter 2017 was $158 million compared to non-GAAP net profit of $88 million for the fourth quarter 2016. The increase in non-GAAP net profit was largely driven by the strong growth in total CF product revenue. Our financial performance in 2017 has resulted in a full year non-GAAP operating margins of 26% compared to 17% for the full-year of 2016. And as we continue to increase the number of patients that we treat with our medicines we expect our operating margins to continue to expand in the future. We also strengthened our balance sheet during the year, as we ended 2017 with approximately $2.1 billion of cash, cash equivalents, and marketable securities compared to $1.4 billion at the beginning of the year. This increased cash position was after we paid down $300 million in the first quarter 2017 that was outstanding under our revolving credit facility. Now turning to guidance. We today provided financial guidance for combined non-GAAP R&D and SG&A expenses. As we have stated previously, we expect to provide 2018 revenue guidance when we received FDA approval for the tezacaftor/ivacaftor combination. The FDA action date is February 28, 2018. When we provide revenue guidance it will be for total CF product revenues and will not include guidance for individual products. We do expect significant CF product revenue growth in 2018, driven by the launch of tezacaftor/ivacaftor in the U.S for eligible patients 12 and older and who treat more patients with ORKAMBI in countries outside the U.S. As we think about the first quarter 2018, we anticipate revenues will be impacted by higher gross to net revenue adjustments that we experienced in the first quarter of each year and by channel inventory build that occurred in the fourth quarter 2017. Now to operating expenses. In 2018, we expect combined non-GAAP R&D and SG&A expenses of $1.5 billion to $1.55 billion. The key investment drivers are the execution of pivotal studies for two triple combination regimens, supply chain investment for the potential commercial success of the triple combination regimen, and incremental investment to support the planned launch of tezacaftor/ivacaftor. As we anticipate our revenue growth will significantly exceed the increase in our operating expenses, we do expect operating margins and earnings to continue to expand in 2018. 2017 was a transformative year for Vertex and the continued execution across all parts of our business has positioned us to deliver sustainable revenue and earnings growth, as we significantly increase the number of patients we treat with our medicine. With that, I will now open the line for questions.

[Operator Instructions]. Our first question comes from the line of Geoffrey Porges from Leerink. Your question please.

Thank you very much and congratulations guys on the expected results and the spectacular Phase 2 data. I was particularly struck by one number which was a 51% sweat chloride response which was quite remarkable. Perhaps Jeff could you comment a little bit about what appears to be the difference between 51% and 39% sweat chloride response and is that suggesting to you that 659 might be a little bit more active and potent? And then, could you also comment on why no 561 plan with 659 since it looks as though 659 is a little bit cleaner, a little bit more active, why wouldn't you want to be planning on doing a 561 combination? Thanks. Appreciate it.

Yes, Geoff, this is Jeff Leiden. Thanks for both questions. Let me answer the second one first actually it’s really a strategic portfolio question. And I just remind you that our approach here is to make sure that we get the best regimen to these patients as quickly as possible. And that's one reason we're taking two regimens forward into Phase 3 because as you pointed out both of them look really quite good, both of them are -- in fact all four of our regimens we feel showed results that were certainly significant enough to take into Phase 3. But we're taking two forward because that's one way of modifying one risk and that's the risk of some rare off target toxicity due to the next-gen corrector in one of these regimens and obviously by taking two forward, we mitigate that risk. And then to your question why take one forward with Iva, one forward potentially with VI and I say potentially because we still need to confirm that with our VX-561 results and that is our plan to take 6594 with Iva and if it's supported by the data 445 with VI, but. And the reason is the same it's a way of mitigating risk, right. VI although is obviously very similar to Iva, is a different chemical compound. We have only seen it in tens or less than 100 patients. And so I would hate to put all my eggs in that basket and find out there is some very rare tolerability or safety issue with the Iva that would set both programs back. So mitigate that risk and the way we feel better about that is let's assume that at the end of the day, we decide VX-659 and Iva as the best regimen that's the one we're going to take forward and commercialize. We have the opportunity we believe to quickly bridge over to VX-6561 into a once a day regimen simply with some bioequivalent type of data. And so I think we're just trying to use a portfolio approach to hedge both of those risks and we have a strategy for eventually getting to that once a day regimen whether it's 659 or 445, it turns out to be the winner at the end of the day.

Great, thanks Jeff. And anything in the difference between the sweat chloride and the FEV1?

Yes, so thanks for pointing sweat chloride. As you know, we always talk about FEV1 and sort of sometimes nor a sweat chloride. One of the things that's really impressed to me about the next-gen data in general is the sweat chloride drops we are seeing. Remember this is an augmentation the most difficult to treat patients with only one 508 allele and we're seeing 40 to 50 and north of 50 millimol drops of sweat chloride which is truly remarkable. And I think it suggests that we are really very effectively getting at the underlying cause of this disease which is what is so reassuring about the consistency of all these data. I don't think there are differences honestly between 40 and 50 millimol in this number of patients' that we put ahead on if they're both really profound. And I would just remind you with respect to picking regimens, it's really not any one value, it's not just sweat chloride, it's not just the FEV1 response, it's the totality of the profiles. The good news is they all look very, very good. So we are picking a bit between sirloin steak and filet mignon here but it will take these in the end to take the winner based upon the totality of the profile, both efficacy and safety, tolerability.

Thank you. Our next question comes from the line of Michael Yee from Jefferies. Your question please.

Thanks for the question and congrats on all the announcement of data today, it's two part question. First was maybe just comment on the dose response and the tolerability profile of the two programs, it seems like there's sort of a dose response but also maybe not really clinically meaningful? And then the second part of that is maybe just comment on the Bilirubin case and then as it relates to the Phase 3 design rather than ask about the duration of efficacy of Phase 3 maybe just remind us what's the precedent is for filing on duration of safety and how much safety you would need to file these types of things or win these types of things? Thanks so much.

Thanks Mike. I'll answer the first part on the tolerability of dose response, maybe Jeff can talk to the Bilirubin, and I will come back and talk about safety and timing question there. First of all with respect to dose response, again one of the things that's very impressive to me is we look at four regimens, we look at multiple doses, and we look at that totality across those four regimens they did remarkably well to hey considering we are talking about 20, 22, 40, 50 patient study. I mean every case but one that will come back to is a pretty clear dose response whether you're looking at sweat chloride, whether you're looking at FEV1. So the compounds are quite well behaving that way. The one outlier which I think you're pointing out is the 100 milligrams dose of the 445 in which the FEV1 response and sweat chloride response look pretty similar to the 50 milligram dose. And then when you go up to 200, you see the jump again. So we were interested in that trying to understand it and of course what we are really interested in the end is the exposure response, right, not just the dose response. And so we went back and we looked at exposures in that -- in all the studies but in particularly that one and what you see is interesting if you look at the 50 and 100 milligram doses of 445 the exposures are quite overlapping and the FEV1 and sweat chloride, sweat chloride is quite overlapping, if you look at those confidence intervals. When you move up to 200, you see a clear differentiation a jump in exposure and you see a clear jump in FEV1 and sweat chloride. And so actually 445 turns out to be well behaved too as long as you are looking to relevant thing which is exposure versus response. And with respect to tolerability I will let Jeff talk about Bilirubin in a second. One of the things here that is very reassuring is that across all the doses, we are seeing excellent tolerability. There is really no evidence of a dose or exposure tolerability pattern or problem here with any one of these compounds which is what makes us feel good about the therapeutic index or window, it's going to make it I think easier for us to go in and look at these doses and pick the best doses for each compound which we will between the process of doing. Now maybe Jeff on the tolerability?

Sure. I do think that consistency across the dose range is really very, very telling. Mike in terms of your specific question on Bilirubin, I think the really key point here is that this was an isolated finding. There were no evidence of transaminate elevations or any other findings about the liver as you heard actually with interruption that rapidly resolved and the one patient actually restarted and continued on without any further elevation. So that's really a pattern that isn't clinically concerning. So we don't see it as an issue.

And then finally, your duration of Safety day question, as you know, we don’t really speculate on that's an FDA or European Regulator decision at the end of the day. I can point you to our just some of our historical data where we've been between six months and a year of safety data in most of these studies, but these are the sessions we’re having with FDA. I think the important point is this is a medicine, these medicines would be things are asking children to take for the rest of their lives. And so we do want to make sure that we have a complete safety dataset that we're comfortable with and that regulators are comfortable with. And it will be that efficacy, the ratio of course of efficacy and safety at the end of the day will be the decision making.

Thank you. Our next question comes from the line of Geoff Meacham from Barclays. Your question please.

Hi guys, thanks for the question. I also wanted to offer my congrats. Just ask two questions a little bit different way, I know the goal here ultimately is to maximize FEV1, but it's also obviously to get to a positive risk benefit as quickly as possible. So how do you guys balance those two and what do you think the upper end of an FEV1 could be. I'm just trying to think down the road competitively when you have perhaps new therapy or other combination available in development? Thanks.

Let me answer they are a bit related, Geoff. So first of all just to be clear while FEV1 is an important indicator of acute benefit, our goal is actually bigger than that and we measure efficacy in this disease not only by FEV1 but by long-term efficacy results that we have been seeing very clearly with both KALYDECO and ORKAMBI and that includes decreases in the slope of the decline of the lung function curve, it includes hospitalization, pulmonary exacerbation, IV antibiotics all which are very favorably impacted by both KALYDECO and ORKAMBI. And at the end of the day it's really the combination of what the acute response you can get what all of those chronic things that we would create as success to CF. And that's particularly true as you move back to the younger age patients. Remember there may be and likely will be a ceiling on acute FEV1 in a 30-year-old patient who starts with an FEV1 at 50 because they have a fair amount of structural lung disease and you are not going to be able to reverse that. It's a very different story in a young two-year-old or one-year-old who is starting with an FEV1 at 95 or 100 and you are really trying to do something different there, you are trying to prevent the disease or modify the course of the disease and that of course is our ultimate goal. So acute FEV1 is one measurement, it depends a little bit on who you are treating as to what the ceiling will be, I don't think we have explored yet fully that ceiling, one of the things we want to do. But I do want to be really clear that the long-term goal is much more than acute FEV1, it's really modifying the course of the disease long-term, as measured by all the things that I just told you about. One of the reasons we want to look at that with the triple is this maybe the last time that anyone can do a placebo-controlled trial of a CFTR modulating therapy and obviously those longer-term endpoints are going to be very, very useful and very interesting and important I think for us to measure.

And Jeff just as a follow-up to that as you guys have great technology looking at cellular assays and pulmonary assays, I mean what's the once you get into the clinic with these Phase 3s what is the interest or focus level on getting some proof-of-concept data and things like IVF or COPD or something pulmonary but not quite CF or have you guys not gone down that path yet?

Yes. I thought you're going to actually ask me a different question. I thought you're going to ask me are you still going to work on getting better correctors. So let me answer that question and the answer is yes. And the reason is because we know from sort of an experiment of nature that if you are a carrier and which means you have one mutation, but a normal allele, you have chloride transport in yourselves of about 80% of normal somewhere right around there. And we know you don't get the disease. And so if we can drive everybody to carriers' data with a triple regimen and we are getting pretty close with some of these regimens now, we believe and treat early that we can actually turn patients into carriers which of course is the ultimate goal. So we are going to continue to work on better and better next-gen correctors because we’re seeing that we can still up the efficacy. With respect to IVF and COPD, we are totally focused here on finishing the journey in CF right now. We want to get these triples to everybody who has one 508 or two 508 alleles and that's going to be plenty of work over the next couple of years and when we finish that journey of course we will consider other things that we might use these medicines for. But right now we are pretty focused on CF.

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

Good afternoon. Maybe I would add my congratulations on good data in the quarter, first scientific one then a financial one. On the scientific side you mentioned that the compounds are well tolerated but you did note some pulmonary type side effects in the adverse events. Can you talk a little bit about the characteristic of those pulmonary side effects, were those kind of like where you have seen with KALYDECO where it’s clear that the lungs have been cleared and that's what gives rise to the sputum and coughing or are they were different characterization?

So thanks, it's Jeff Chodakewitz. No I think you have it exactly right that in fact it was things like cough and sputum clear that really they reported as adverse events but we actually think of them almost as a marker potential effects of the underlying pharmacology that we're trying to get. So that's really the way. I would say just one other comment that we look very specifically as we mentioned in the prepared remarks right from the beginning in these studies to be -- to look for any kind of post-dosing decreases in FEV1. We've got all that data and there is nothing there. So it’s the pattern is exactly what you're describing.

Okay. Then second one on the side effects you mentioned that there is really nothing concerning about the Bilirubin or rash. Was there anything confounding in those patients that could have giving rise to those side effects that was not trigger-related?

No. You have to remember, which is a good thing, very small numbers of people with any of these adverse events we're talking about. I think to say were there any other confounders I think it’s really too early to tell. But again the important thing is that they were generally mild to moderate, they resolve quickly, and as we told you the safety profile very favorable.

Great, thanks. And Ian one last question for you on finances. I know you are not going to give guidance until tez/iva is approved hopefully next month. Could you give us some general sense about how you feel about the current consensus estimates for 2018 based on my math, you seem to assume about 9% year-over-year growth versus Q4's run rate. Is that the same kind of reasonable; can you discuss maybe what the drivers of growth will be for the franchise in 2018?

Sure. Thanks for the question, Phil. When you look at consensus coming to the call even though we won't any give guidance we thought that question may come up. And so firstly I would say that the number that we see in the consensus for 2018 does reflect growth which is consistent with how we think about 2018. Obviously we are waiting on the approval of tez/iva that will be the major growth factor of the 2018 revenue line. And so as we look at that consensus number we like where it is, it's consistent with how we’re thinking about it, we will give you greater clarity once we get the approval in tez/iva. I would take this opportunity to remind those who are on the call, that it is our intent to give 2018 revenue guidance but it would be a total CF revenue guidance. With the approval of tez/iva we should see switches from ORKAMBI to tez/iva, we should see going from KALYDECO to tez/iva. So for us the guidance will be a total CF revenues. And then also consistent with some of my remarks, I made on the prepared remarks, I would just ask people to work with our IR Group after the call to think about the models through the year. Q1 we do anticipate being affected by the inventory build that would have occurred in Q4 of 2017, although we're still committed to a growth area driven by the approval of tez/iva.

That's helpful. Could you give us sense of the size of that inventory build?

Yes, but it wasn't very big, but I'll give you comment on the nature of it. So in the U.S. given how the New Year felt there was some inventory stocking in the U.S. and overseas there was some forward buying around Europe that would not normally have occurred in Q1 that was actually pulled forward into Q4. The size of it, it's around $10 million to $15 million. So if you think about how that gets pulled into Q4, it's has a double impact in terms of helping Q4, but offsetting in Q1. Obviously we still have a great Q4 number so the demand is strong more, more patients are going on drug and compliance is good.

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

Hey guys. Thanks for taking my question. Congrats on the very, very telling data maybe we'll start with a triple. Just when you talk about European reimbursement and the portfolio deals, do you think the long-term data that you're kind of generating overtime in real world experience will drive this combinations or is the kind of combination of all things? And then the second question is just as far as the sickle cell program with CRISPR what is the most step may be taken in the U.S. for an IND filing and can you give us any updated thoughts around design things?

Yes, Alethia it's Stuart here. I'll take the first question and then Jeff Leiden will take the question on sickle cell so. I think one of the driving factors between but behind governments being interested in these portfolio arrangements is the rapid progress they can see that we are making in developing treatments that treat the underlying course of the disease in up in 90% of patients. And so yes that's been one of the most compelling things to governments around the worldwide they've been interested because they can see the rate of progress we're making in and just how good the results are that we're seeing in these patients. So that's been a certainly a very strong drive to them wanting to talk about portfolio type arrangements.

And it’s Jeff Chodakewitz just quick follow-up on the sickle cell. As you know we commented we filed the -- with CRISPR, the CTA for beta thalassemia, at the very end of 2018. We're in process with CRISPR of putting together that IND and we expect to file that IND during this year and then will be looking to initiate those studies in people with both sickle cell and Beta thalassemia. Exactly when that will happen and the timing we're going to have to be further along in that process and then we'll be able to give you a better sense.

Just follow-up on that I mean is there any kind of different conversation around bringing these programs into the clients between U.S. and Europe?

The Beta thalassemia program will be done Europe and the sickle cell will program will be done primarily in the U.S.

Thank you. Our next question comes from the line of Ying Huang from Bank of America Merrill Lynch. Your question please.

Hi, thanks for taking questions. Congrats on the quarter. Maybe can I ask to you little bit differently on the FDA requirement on the Phase 3 given the data you have seen so far including today's efficacy in Phase 2 as well as the Phase 2 designation, do you guys think the FDA will require the same amount of safety data as well as same duration for efficacy analysis in the Phase 3. And then also on rash and bilirubin, did that happen in the lower dose or higher dose of those two trials. Thank you.

Yes, it’s Jeff Leiden I’ll answer your first question. And I think we learned a lot about during these CF trials as the FDAs as we worked together over the last six or seven years through a number of different medicine. As you know, as an example we tend to see the full FEV1 effects within 48 weeks and everything that we're seeing here suggest that is going to be true as well. So I think that in general the efficacy time points can be on the shorter side, in other words, you don't need six months on your data. On the other hand safety is obviously very important here as well and you don’t get a read on safety data in four weeks or eight weeks, so it’s likely going to be longer and that’s exactly what we’re discussing now which is what is the length of each one of those endpoints and in particular that safety database, how big should it be and how long should it be as soon as we know that we will let you know.

And it’s Jeff Chodakewitz in terms of your question about dose actually with mixed across doses and so -- and an exposure there was no real linkage.

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

Hi, thanks for taking the question. May be two for me just I was wondering at a high level if you can just give us some framework for how to think about teza/iva pricing, what are some of the key inputs. And then as we see the data today again does this change that discussion at all as you guys think about potential pricing? And then on the triple combo Phase 3 program and homozygous patients is will it definitely include a control arm and what will that control arm will be, can you tell us at the point? Thank you.

Terence, on tez/iva pricing obviously not going to comment specifically on it, we'll do that at the point that we get approval from the regulators. But in terms of the considerations we're taking into account they really are the same as we've taken into account consistently for KALYDECO and ORKAMBI and that is the magnitude of the clinical benefit that we are able to deliver. And as you know, we believe we’ve got a very strong profile with the tezacaftor/ivacaftor and then consideration is the size of the patient population we're going to able to benefit. We will be taking those same considerations into account when we come to making the pricing decision on tez/iva pending regulatory approval.

With respect to the homozygous trial we're still discussing that but will there be a control on almost certainly yes. And at that point remember most of these homozygous patients will be on either on ORKAMBI or tezacaftor/ ivacaftor and so it will likely not be a placebo control on.

Thank you. Our next question comes from the line of Brian Abrahams from RBC Capital Markets. Your question please.

Hey guys thanks for taking my questions and my congratulations on the data and the quarter as well. On the triple I guess I’m wondering broadly speaking what primarily drove your selection of these next-generation correctors over 440 and 152 and what did you see with the additional dosing of 152 and could 152 and 440 still service as backups? And then on the Phase 3 plans I know these are still under discussion but just wondering if the right way to think about this is for the het/mins group to potential, for het/mins potentially upcoming through first just given the unmet need and possibly different regulatory barb as to homozygous or should we expect those to sort of follow through concurrently. Thanks.

Yes, so with respect to -- this is Jeff again -- Jeff Ledien again. With respect to choosing between the four different regimens I mean those really totality of the data and that means the acute FEV1 and sweat chloride on the efficacy side, certainly the tolerability and safety profiles on the other side, but some additional factors as well co-formidability the dose that we need to give and could we get that in one pill manufacturability all those went into the decision. As I said that it was little bit of a hard decision they were all quite good. We could have taken any of them into Phase 3 and that’s obviously a good problem to have, but there were some differences. I'll give you one just as an example 659 and 445 have potentially to be once a day whereas 152 and 440 were clearly going to a twice a day. Well once a day in our mind is an advantage should put a check in that box 440 in it's preclinical data, as you know, had some 659 and 445 didn't, so you can put a check in that box on the side of 659 and 445. As we went down the whole list of benefit and efficacy standpoint safety and tolerability co-formidability and manufacturability these two went out, it was a little bit of horse race, they went out by 10 lanes, but we feel that they have the best overall profile from an efficacy, safety, and formulation standpoint. And then your other question was about het/mins versus homozygous. I just want to step back and remind you again that we believe the data that we have strongly supports the notion that these triple should be used in any one who has one 508 or two 508 alleles in het/mins or homozygous and our plan has to pursue a clinical course to make sure that we get that done as quickly as possible. You're absolutely right that the het/mins has the biggest unmet need because today they don't have any CFTR modulation. But I would also remind you that when we looked at the triples in the homozygous patients that was a very, very significant incremental effect on FEV1 when you add an next-gen corrector to tezacaftor/ivacaftor. And so while the acute need may not be as great we feel that the benefit may be every bit as great in those patients so we don’t want to leave any patients behind or slowdown in one of these populations and we’re just talking with regulators about how do we get that done most effectively and most quickly.

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

Great. Thanks very much for taking the question. I guess I just wanted to ask one follow-up on safety tolerability here you saw some rash across both studies you commented before about GI tacts I guess what I was wondering is can you just talk us a little bit about some of the clinical side effects you’ve seen versus what you’ve seen preclinical with these components and do they match up at all? And I guess the basis for the question is pre-clinically you some of the chest patients before with ORKAMBI and then I was unclear you didn’t see it at a high frequency in some of the initial studies, so I’m just trying to understand your comfort around some of these issues? Thanks.

Hey it’s Jeff Chodakewitz. Maybe a couple of comments. One at a big picture, I think that the adverse events profile that we have talked about tonight I hope it comes through that no matter how you look at it, whether you look at SAE’s clinically, labs all those things it's a profile from both of these regimen is actually very favorable and that's great combining with the efficacy we’re really excited about moving them forward. There is really nothing that particularly standout we try to give you a sense of the information. I do want to go to your question and the comment about Bronchoconstriction that was actually something that we saw clinically in ORKAMBI and that's why I wanted to be sure we highlighted that even though we had no expectations about it. We think we don’t see it in tezacaftor/ivacaftor, we did look for it very specifically in our Phase 1 and Phase 2 studies and there was no evidence of that. So we feel very good.

Thank you. Our next question comes from the line of Cory Kasimov from J.P. Morgan. Your question please.

Hey good afternoon guys and thanks for taking my questions. I guess I would want to ask the question regarding potential duration of the Phase 3 studies another way, I'm curious if it’s possible if there could be different durations from the standpoint of the tez/iva safety data, you've already amassed relative to Tez 561. So might the first one be shorter from that standpoint? And then my second question I apologize if I missed there already on today’s call but how should we be thinking about the company’s tax rate in 2018 and beyond given the tax reform, thanks.

No with respect to your first question Cory, in terms of tez/iva and how does that influence the duration here. The clean finding that we have seen with tez/iva are certainly major deriskers of the safety profile of the triple but as in any combination when you add a new agent, the key is what about the new agent that what drives the length and size of the safety database. And that won't be affected by the fact that tez/iva turns out to be very good -- of a very favorable safety and tolerability profile. So the discussion is really about we have a new combination with a completely new agent basically two of them 659 and 445 what's the appropriate safety database timing and duration to look at that new combination.

And Cory on the taxes kind of just walk you through this. First of all I remind you that we do have operating losses within the U.S. so as we create profits right now those operating losses offset those profits. So we have minimal tax liability, minimal cash tax liability. And at this point we are not recording an effective tax liability either. As we work through those NOLs and we get and the accounting allows for, we will stop reporting in tax and pay taxes. And we had set up our tax structure within the company that matches our global operations and that actually results in having a tax rate that would be in the low 20s once we start to pay. And so we have been benefited like many other companies that have a U.S. presence with the tax reform and the lowering of the domestic tax rate but that benefit is smaller because we also accumulate profits outside of the U.S. as well.

Thank you. Our next question comes from the line of Brian Skorney from Robert Baird. Your question please.

Hey good afternoon guys. Thanks for taking my question. Just based on your commentary around plans to start pivotal programs for 440 and 152 should we take I don’t understand that you have now completed chronic talks at this point and is there anything to speak of there and can you comment on what species and duration you have seen and what, if any, end organ talks there is?

Brian could we just clarify the question, you asked about 440 and 152, could you --

Sorry, sorry.

So could you just reask the question again?

Yes, yes sorry, so on the two new ones, I was wondering your chronic talks is it now complete, is there anything in terms of what you’ve seen in pre-clinic studies how long have you gone out and what end organ parts are you seeing for those two outlets?

So the chronic talk is complete for 659 and was nothing there that in anyway affected our plants take it forward to Phase 3. The chronic talks for 445 is not yet complete but it will be very shortly.

And then just also want to confirm on the go-forward strategy of combining 659 with ORKAMBI. This is a risk mitigation strategy for 561 right. There is no concern about it acuity or you looking at as acuity drug on top of tez/iva in Phase 3?

Yes correct. So this is all about KALYDECO being twice a day both 659 and 445 have clear once a day PK profile.

Thank you. Our next question comes from the line of Robyn Karnauskas from Citigroup. Your question please.

Hi guys, thanks for taking my question and congratulations with I don’t know why whenever we have great data, I'm working from home and my children with candy and consider to take on this call unlike last time. So I just want to ask --

So do you have any questions, we are happy to take those two Robyn no problem?

They are really expanding right now, they're lost to deposits.

You shouldn't have said that on a public call.

I shouldn't have said that on a public call. So I want to ask -- a big picture question for you. So even waiting for the state, I'm sure for like a long time and this is clearly remarkable, so exciting. When you think about your company big picture now knowing this data, knowing likely that Phase 3 could replicate this, you have two goals. How do you run the company differently does it change your -- you just gave the guidance M&A $1 million to go out and size up the deal? And secondly how you start planning for converting results? Do you -- everyone is going to go on this sort of eventually, what you do now to make that conversion fast once the sales are done?

Yes, great questions, good questions that we ask ourselves and we are working on for a little while now certainly as we see this data, they become quite relevant as you point out. I will sort of I will give you my impression and how I think about it rather than I hope my management team agrees. First of all we need to finish this journey in CF and as you point out that is largely an execution task where we need to move as quickly as possible to get these Phase 3 up and running fully enrolled, get the data out there, and when we finish this journey for 90% of CF patients. And that's a very responsibility; we take very seriously for this community. As I said, we continue to work on even better next-gen connectors, at some point we need to make a decision about whether when to take those into clinics it's a good carrier like effects for everybody. And as we said before there is still 10% of patients with CF who won’t be amendable do a CFTR modulatory therapies because they have minimal soft comedones they don’t have any protein and those patients are going to need generic approach and we are working on that as well although we feel that that is considerably further out. So the first mission was finished the journey in CF, see if we can get some generic therapies for 10% of patients and really just change the course of this disease or prevent this disease. The second part of the journey is what's beyond CF. Can we do this again? And as I said at JPMorgan, I sometimes get after the question well why do you think you can do this in another disease you're sort of CF company and sort of why we start to invest in other diseases and my answer is we have already done perform many times in this company, so starting with HIV or an HCV, oncology, fluid you may seen some of the news about the fluid compound in the release today, it’s obviously now with CF multiple times. So this is a company that has a very special innovation engine and can create -- can create these kinds of breakthrough drugs and although we haven’t talked about it as you know we have been working on that in four or five diseases including sickle cells and AAT and [indiscernible] or more ones, some others that we’ve been talking, starting to talk about, those are moving on very nicely. So we want to use some of the revenue we have here to reinvest in our internal search programs. And then also we want to use this because as you plan out we will have a lot of financial firepower to supplement our innovation through external BD kinds of programs of many flavors. You've seen us do CRISPR; you've seen us do Moderna. You will see more of those deals and you could see some bigger ones but still focused around the same strategy, making transformative drugs for serious diseases of specialty markets, expanding our therapeutic modality capabilities and to things like gene editing and gene therapy and other kinds of modalities and supplementing our early stage pipeline. And so that's really the plan in many ways the strategy has gotten simpler, it's gotten to be more execution, we are really pleased with the way the team executes and is why we feel so confident about the future of the company.

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

Hey guys, this is Neil on for Adam. Just wondering about what kind of preparations you guys are doing to ensure a successful launch of tez/iva and then if you guys can just talk for a minute about how you expect to launch curve to play out and what you expect as far as uptake?

Yes thanks Neil. Yes the commercial team I would say here has got pretty good at launching products. We have had the benefit of, as Jeff just described that incredibly productive research and development engine here, which is in CF has generated new products, new indications, new age groups, time and time again. So the team is I would say a pretty much well-oiled machine when it comes to executing these launches so they're ready to go, the teams are trained, we have scaled up here in the U.S. in our case management group because one of the most important things we can do in ensured patients are onboarded effectively that group has been trained and expanded to account for the additional patients who are anticipating seeing. So we are as ready as we can be and we’re eagerly anticipating the approval in the near future. In terms of the launch trajectory really difficult to say exactly how that’s going to play out, it's going to depend on the -- obviously the timing of the approval, it's going to depend on us being able to secure access and reimbursement which I’m confident we will do here in the U.S. we have done for KALYDECO and ORKAMBI and then we will have to see how some of those launch dynamics play out in the real world in terms of persistence and compliance certainly everything about KALYDECO and ORKAMBI would tell us we should expect to see great uptick, great for systems and great compliance and that's what we are anticipating.

All right. And then I just had one other one for Tez/Iva and the EU how do you think the agreement is going to work out with those countries, they already have agreements on ORKAMBI, how should we think about that?

Well I think that really goes to the kind of the different process or the different countries, it's hard to give you one answer for kind of Europe as a whole in countries where we have an individual pricing reimbursement agreement around ORKAMBI. There is really going to be two parts either kind of the stand into the sequential approach where you apply products by product and obviously we are preparing to do that in line with getting our regulatory approval for tez/iva in the second half of this year which is what we're planning for in the EU. In some markets for instance like an Ireland where we have a portfolio agreement there we are anticipating in line with that agreement that we will get access for those patients at the time we get the regulatory approval for tez/iva. And that to me is one of the great benefits for patients and physicians of these portfolio agreements. And I think as I mentioned earlier an answer to somebody else’s question I think that tez/iva data and now the triple combination data is only going to further interest in these kind of portfolio agreements.

Thank you. Our next question comes from the line of Carter Gould from UBS. Your question please.

Good afternoon guys. Congrats on the data. Thanks for taking the question. First on the pivotal triple combo studies can you maybe just talk about your level of comfort that U.S. and e-regulators will be aligned on the safety duration you need to see? And then just on the internal non-CF pipeline beyond the VX150 data, and acute pain, are there any internal clinical data we should expect come out over the course of 2018. Thank you.

Carter, this is Jeff Leiden. So we’re talking with both European regulators and U.S. regulators about all the same issues that we discussed in the call. And of course our goal is to aligns those studies as much possible between those when we get agreement with both of them let you know exactly how they'll look. And with respect to the non-CF pipeline as you know, we’ve said that we expect to start Phase 1 studies in Sickle cell and beta thal program this year those regimen patients. We expect one or more other programs from our Internal Research Group to also enter the clinic this year. It's a little early to predict exactly when we will start to see the first clinical data.

Thank you.

Operator, we've got time for one more question.

Certainly. And our final question then comes from the line of Navin Jacob from Deutsche Bank. Your question please.

Hi, thanks for taking the question. Navin Jacob, Deutsche Bank. May be two quick questions here if I may. The first is which does of 659 and 445 are you taking into Phase 3 and then I have a follow-up commercial question.

Yes, we haven’t yet finalized the doses that’s the one of the things that we're discussing with regulators. One of the reasons that we did the studies the way we did and that we're actually very pleased with the results. We do feel we have a very dosing exposure response that occurs for both of these compounds that will make it easier for us to pick the best dose.

And then very quickly on commercial if I may, my apologies but how do you think about the value that you’re going to be generating here for het/min patients, often times people think that as you expand populations in orphan disease you have to cut price but yet at the same time Vertex has spent significant amount of capital investing in brand new drugs for these severe diseases. And so I guess the question is that how should we be thinking about the economic value that you’re providing especially given the actual efficacy that you’re showing here. Should our base case assumption be flat pricing versus KALYDECO or even a discount or is there do you actually see the value that you’re providing here to patients?

Well, having just released the Phase 2 data announced that we're moving forward into clinical development, we're not about start speculating until specifically about pricing. Obviously the data we release today demonstrate that we think these triple combinations have the opportunity to provide tremendous value certainly for patients in the first instance based on the efficacy and safety profile that we've shown. In terms of the economic value for them, clearly that's something that’s going to be considered way down the line we’ll taken into account the same considerations that I've said we always have which is the magnitude of the benefit that we’re providing and the number of patients that we are able to benefit and those are the two considerations that we will continue to take in consideration as we move forward. The most important thing is with the data we released today it gives us a clear path to begin with provide CFTR modulators throughout the 90% of patients and that’s our primary goal.

Thank you. And this does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Michael Partridge for any further remarks.

Thanks. I'll actually turn it over back to Jeff Leiden.

Yes, thanks Michael. Nick may be just two remarks one an internal remark and one an external remark and I'll start with the external one. I do want to come back and just remind you that in CF we have been working with this community of patients and caregivers and the foundation for almost 20 years now. It's been an incredible journey. And to me this is a special day because it’s one more important step forward towards finishing that journey which we are absolutely committed to and I just want to thank again all the people, parents and families and caregivers and Vertex employees who stuck with us for 20 years to get to where we are today. It's a very special thing, and you don't see that often in one disease. And then from an internal standpoint may be just echo what I said before. I do think and I'm pleased with the fact that we’re seeing the strategy really play out nicely here. Meaning the investment in scientific innovation leading to further understanding disease, leading to breakthrough products that get better and better and then being able to reinvest revenues that we make those breakthrough products into more medicines in different diseases and that’s a model that all of us had as a dream six, seven years ago when we started the strategy. I was certainly done with that but I think you can see the progress and we are very pleased because we think it bodes very well for the future in other disease.

Thank you, Jeff. This concludes tonight’s call. I'd like to thank everybody for joining us and for your question. The Investor Relations team is in the office tonight to answering the additional questions that you have. Have a good evening.

Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.