Vertex Pharmaceuticals Inc

NASDAQ:VRTX

Earnings Call Transcript 2021-Q1

[Michael Partridge, Senior Vice President of Investor Relations]

Good evening. Welcome to the Vertex First Quarter, 2021 Financial Results Conference Call. This is Michael Partridge, Senior Vice President of Investor Relations for Vertex. Making prepared remarks on the call tonight, we have Dr. Reshma Kewalramani, Vertex's CEO and President; Stuart Arbuckle, Chief Commercial and Operations Officer and Charlie Wagner, Chief Financial Officer.

We recommend that you access the webcast slides on our website as you listen to this call. This conference call is being recorded and a replay will be available on our website.

We will make forward-looking statements on this call that are subject to the risks and uncertainties discussed in detail in today's press release and in our filings with the Securities and Exchange Commission. These statements, including without limitation those regarding Vertex's marketed CF medicines, our pipeline, expectations regarding the closing of the CRISPR transaction, which is subject to antitrust clearance and Vertex's future financial performance are based on management's current assumptions. Actual outcomes and events could differ materially.

I would also note that we will review select non-GAAP financial results and guidance this evening.

I will now turn the call over to Dr. Reshma Kewalramani.

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Thank you, Michael. Our goal is to continue to transform cystic fibrosis and other serious diseases, and in so doing reach more patients and drive future growth. One quarter into 2021, I'm very pleased with the progress we're making across the board in support of this goal. We are treating more patients with our CFTR modulators than ever before and our clinical pipeline spanning seven disease areas and three modalities has advanced significantly.

In addition, we continue to execute on our strategy to use external innovation to complement our internal innovation efforts, including two new deals announced already this year. I'll start with CF.

Vertex has built an exceptionally strong and durable franchise and earned a leadership position in cystic fibrosis. Our CF medicines have transformed the treatment of this disease and we continue to significantly increase the number of patients we're treating.

Our first quarter revenues totaled more than $1.7 billion, which represents a 14% year-over-year growth, and reflects the high level of treatment penetration of TRIKAFTA in the U.S. and strong KAFTRIO launch in international markets. We're poised for continued significant growth in the coming years as we achieve additional approvals and reimbursement agreements for our medicines globally and as we bring our medicines to younger patients.

The clinical benefit that the triple combination delivers is remarkable, and with this medicine we believe we can treat 90% of all people with CF, but we are not stopping there. We are investing to the new and potentially better regimens such as the VX-121, VX-561 Tezacaftor combination to patients. This new combination is a once-a-day regimen with potential for enhanced patient benefit, as well as enhanced economics with the reduced royalty obligation.

Finally, we remain committed to and are making progress in developing genetic therapies for the remaining 10% of CF patients. In summary, consistent with our strategy to bring transformative medicines to all patients with CF, the combination of label expansion, additional approvals and reimbursement agreements, and the next generation of products will continue to provide significant top and bottom-line growth in the coming years.

Let me turn to our clinical pipeline, which includes programs in seven disease areas and spans small molecules cell and genetic therapies. We have made substantial progress across the breadth of the pipeline and are poised from multiple data readouts in the next six to 12 months.

First, CTX001. CTX001 is our most advanced program beyond CF. In the last year we've generated remarkable clinical data that demonstrates the potential of this therapy to be a one-time functional cure for patients suffering from sickle cell disease and beta-thalassemia. CTX001 has been granted RMAT, Fast Track and Rare Pediatric Disease designations from the FDA for both sickle cell disease and beta-thalassemia, as well as prime designation from the EMA for both diseases.

With the compelling clinical profile and rapid progress of CTX001 toward registration and commercialization, now is the ideal time for Vertex to take the lead for this program and bring the full breadth of our development, regulatory, manufacturing and commercialization expertise, so that we can reach all eligible patients who may benefit from CTX001 as quickly as possible.

As Stuart will discuss in a moment, there are nearly 170,000 patients with sickle cell disease and beta-thalassemia in the U.S. and Europe, of whom 32,000 patients have severe disease and we believe will be eligible for CTX001 therapy with the current conditioning regimen. This number could extend significantly once gentle conditioning regimens are available.

To-date more than 30 patients have been dosed with CTX001 and we anticipate sharing updated data from the ongoing sickle cell and transfusion-dependent thalassemia studies with more patients and longer duration of follow-up at upcoming medical meetings this year. We also expect to complete enrollment in both of these studies this year.

Lastly, while we’ve initiated, we have not yet completed our discussions with regulators regarding filing expectations. Based on conversations to-date, we believe regulatory submissions for approval of CTX001 may be possible in the next 18 to 24 months. We’ll provide further details as we conclude our discussions.

Moving on to the AATD program. Our approach targets the underlying cause of this disease by using a small molecule corrector to appropriately fold the misfolded Z-AAT protein. We believe this is the optimal approach for treating AATD and it is the only approach that addresses both the lung and liver manifestations of the disease. VX-864 is our most advanced molecule in the program. We have completed enrollment and recently we also completed dosing in the Phase II proof of concept study of VX-864. Patients are now in the process of completing the 28-day safety follow-up period. We are on track for data readout later this quarter.

Turning to APOL1-mediated kidney disease. APOL1-mediated kidney disease is a particularly aggressive form of renal disease characterized by proteinuria, declining renal function and progression to ESRD. Our lead molecule in this program VX-147 is being studied in the Phase 2 proof of concept study in APOL1 mediated FSGS, evaluating safety, pharmacokinetics and reduction of proteinuria in patients over the course of 13 weeks. We expect to have the results from this study in the second half of 2021.

Next, turning to our pain program. Earlier this week we announced that we plan to advance VX-548, the next lead molecule in our pain program into Phase 2 development. With VX-150, we were the first to validate the NaV 1.8 target with three positive Phase 2 proof of concept trials in three different pain indications. The recent decision to move the VX-548 to Phase 2 was based on supported Phase 1 data in healthy volunteers, including safety, tolerability and pharmacokinetics. In these studies, the molecule exhibited a favorable profile at doses considerably lower than those required with our previous NaV 1.8 inhibitor.

The Phase 2 studies will evaluate the safety and efficacy of VX-548 in the treatment of acute pain following bunionectomy and also in abdominoplasty. These are well-characterized studies for the evaluation of two broad categories of acute pain, visceral and non-visceral, and we expect the studies to start in the second half of this year.

Finally, in our type 1 diabetes program, we received FDA Fast Track designation for the cells alone study and initiated the Phase 1/2 study in patients with difficult to treat type 1 diabetes in Q1. Screening is now open and we look forward to providing updates on our progress this year.

With those comments, I'll hand it off to Stuart.

[Stuart Arbuckle, Chief Commercial and Operations Officer]

Thank you, Reshma. Today I'm pleased to review with you our Q1 commercial performance and our excitement about the prospects for CTX001.

One year into the pandemic, our CF revenues continue to grow. Our Q1 global revenues were $1.7 billion, driven by continued strong execution in both the US and the EU. Our performance in the U.S. continues to be impressive. To-date nearly all eligible CF patients in the U.S. have initiated treatment with TRIKAFTA based on the original approval in patients 12 years and older with at least one F508 del mutation, and persistence and compliance remain high among these patients.

In December 2020 TRIKAFTA's approval was expanded in the U.S. to include patients 12 years and older with rare mutations. Many of these patients have now initiated treatment as well and we are pleased by the uptake we have seen in this newly eligible group.

Outside of the U.S., in markets where patients have access, the adoption of KAFTRIO is just as impressive as in the U.S. We have seen rapid uptake, particularly in the UK and Germany and persistence and compliance are similarly strong, reflecting the very favorable risk-benefit profile of KAFTRIO.

Our ex-U.S. revenues in Q1 were $470 million, 43% higher than the same period last year, primarily due to the successful launch of KAFTRIO. Earlier this year we shared our updated estimate that there are approximately 83,000 people living with CF in the U.S., Europe, Canada and Australia. Today, we are treating about half of all patients, leaving an additional 30,000 patients who could benefit from our medicines, but who are not yet treated. Going forward, we are very confident that we will be able to reach these patients.

Approximately two-thirds of the untreated patients are 12 and older and we expect we will be able to treat these patients through the ongoing launch, uptake and reimbursements of KAFTRIO outside the U.S. In countries where we have regulatory approval and reimbursement, our teams are working hard to reach all eligible patients who could benefit from KAFTRIO. In countries such as France, Spain and Australia where we have regulatory approval, but have not yet secured reimbursement, our teams continue to make progress to ensure access and we are confident that we will be able to secure reimbursement in the remaining large markets.

For example, TRIKAFTA was recently approved in Australia and we are committed to continuing to work collaboratively with the Pharmaceutical Benefits Advisory Committee there, to ensure all 2,200 patients who can benefit from treatment have government funded access to TRIKAFTA as quickly as possible.

Lastly, in Canada we are still awaiting regulatory approval and we expect approval there in the second half of this year. The majority of the remaining approximately 10,000 patients are younger than 12. Our work to secure approvals for these younger patient populations is ongoing and we are making good progress here. We anticipate approval of TRIKAFTA in six to 11 year olds in the U.S. in mid-2021 and to file the regulatory submission for this population in Europe as well.

In summary, our continued progress in achieving label expansion, new approvals and reimbursements and development of new products will drive continued growth in the years to come. In all of this, we are grateful for the tireless work and continued support of the global CF community.

Let's now turn to CTX001, which is our next medicine that is rapidly advancing toward regulatory submissions and commercialization. Given the tremendous progress of CTX001 that we and our partners at CRISPR have made, as well as Vertex's established expertise in development, manufacturing, regulatory and commercialization in serious diseases, both companies believe that having Vertex lead all aspects of the CTX001 program going forward would provide for the most efficient and expeditious path to bring this medicine to patients. By doing this, we aim to ensure a coordinated global launch, which will maximize the potential of this program for both patients and our shareholders.

CTX001 is a groundbreaking therapy that has demonstrated great momentum, with the potential to be the first approved genetic therapy for patients with sickle cell disease. Sickle cell disease and beta thalassemia represent a multi-billion dollar commercial opportunity.

Today there are approximately 32,000 patients in the U.S. and Europe who would likely be eligible for gene-editing therapy based on the severity of their disease and the current busulfan based conditioning regimen. Vertex, CRISPR, and a number of other companies are actively pursuing gentler conditioning regimens. Such regimens would potentially expand the eligible patient population to approximately 170,000 total patients in the U.S. and Europe.

The commercial opportunity in sickle cell disease and beta-thalassemia fits well within Vertex’s strategic focus on specialty markets. Patients are primarily cared for by hematologists and the treatment will be focused at transplant centers in the U.S. and Europe, which can be covered by a specialist infrastructure.

By taking the leadership role on CTX001, we will be able to leverage our proven expertise in product launches, reimbursement and access to bring the curative potential of this treatment to more patients, more quickly around the world. Given we believe that regulatory submissions could happen in the next 18 to 24 months, our pre-commercial work is under way. CTX001 is breaking new grounds in many respects and I'm very much looking forward to providing more details on this exciting work on future calls.

And now, I'll hand it over to Charlie.

[Charles Wagner]

Thanks Stuart. In the first quarter of 2021, Vertex continued its record of exceptional financial performance. First quarter total product revenues were $1.7 billion, a 14% increase compared to the first quarter of 2020 and these results included $1.25 billion of revenue in the U.S. and $470 million from outside the U.S. The ex-US results represent growth of 43% over the prior year, driven largely by the rapid uptake of KAFTRIO in countries where we have secured reimbursement, particularly England in Germany.

Our first quarter non-GAAP combined R&D and SG&A expenses were $530 million compared to $477 million for the first quarter of 2020. Expenses in Q1 were primarily driven by investment in innovation and we expect our R&D investments will continue to be substantial as we drive toward proof-of-concept data and further clinical and regulatory progress across our broad pipeline.

Our continued growth in revenues combined with carefully managed growth in spending, translates to a first quarter non-GAAP operating margin of 58%. With our strong revenue and profitability, we ended the first quarter with $6.9 billion in cash. Consistent with our corporate and R&D strategy, we're investing more in innovation than ever before, including external innovation. This was most recently exemplified by both our amended collaboration agreement with CRISPR and our new discovery collaboration with Obsidian Therapeutics.

Now, onto guidance. We are maintaining our previously issued 2021 guidance for total product revenues in the range of $6.7 billion to $6.9 billion. Our Q1 revenues were very strong, but they also include an approximately $50 million benefit from channel inventory fluctuations that are not directly reflective of underlying patient demand.

As a reminder, our 2021 guidance reflects our expectations for currently approved products in regions where we are reimbursed, plus an expectation of TRIKAFTA approval for the six to 11-year-old population in the U.S. in mid-2021. It does not include any additional reimbursements that we might obtain this year.

For non-GAAP OpEx, we are reiterating our guidance range of $2.25 billion to $2.3 billion. We expect to continue allocating greater than 70% of OpEx to R&D as we further advance our pipeline programs. We are poised to generate important clinical data from a number of programs over the course of the year, and these data sets will drive decisions on further investment. For our non-GAAP tax rate, we are guiding to a range of 21% to 22% this year.

In summary, I'm very pleased with our performance in the first quarter of 2021 and look forward to updating you on our continued progress over the course of this year.

Now, back to Reshma for closing remarks.

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Thanks Charlie. In sum, we've made significant progress across the business. We have confidence in and continue to execute on our innovation-based growth strategy. Our strategy is working and our investments, both internal and external are driving discovery and development of game changing new medicines. Vertex is delivering exceptional financial performance. Our CF business is poised to continue to grow and our broad pipeline continues to advance.

Thanks, and we'll now open the call to questions.

[Operator]

Thank you. [Operator Instructions] And our first question comes from Michael Yee from Jefferies. Your line is now open. Michael, your line is now open. If your phone is on mute, could you please unmute it?

[Michael Partridge, Senior Vice President of Investor Relations]

Operator, can you please move to the next question.

[Operator]

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

[Phil Nadeau, Cowen and Company]

Good afternoon and thanks for taking my question. I think the most common question we've been getting from investors recently is on AAT program, and it's what service proof of concept in the upcoming data that you're seeing? Can you maybe give us your most recent thoughts on what levels are necessary, what proportion of patients need to be responders and what not?

And then a second [inaudible] question, in the past you've been guiding to moving another AAT molecule into the clinic this year. It did seem like from your prepared remarks that's still the case. Can you confirm whether there has actually been a change there and maybe give us a reason why if the guidance has changed? Thanks.

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Hey Phil, this is Reshma; let me take that for you. I think the questions really are, where are we with the 864 program? What are we expecting? What would be success and a little bit about the portfolio approach and other molecules, so let me take that in pieces.

So you know this, but to review for others on the call, we are taking small molecule correctors to refold the misfolded Z-AAT protein, that's our approach to this disease. And the reason it's important to understand that is that fundamentally this is the only approach that holds the potential to treat both liver and lung, hence our enthusiasm for this approach.

VX-864 is in the clinic. You heard me in the prepared remarks talk about the fact that we've hit some really important milestones. We are done with enrollment. Our patients have completed the dosing period and they are now in the 28-day safety follow-up period.

Here's what I'm looking for from the study and what I would consider success. Really three things: The first safety. This is the first time we've had VX-864 in patients with AATD, so that's obviously front and center; second, a dose exposure or dose response relationship; and third, elevations in functional AAT level. That's really what I'm looking for and what I would be very excited to see.

In terms of the portfolio and molecule beyond VX-864, as with all of the programs in the pipeline Phil, we have a whole portfolio of molecules and that continues to be true for AATD as well.

[Phil Nadeau, Cowen and Company]

That's very helpful. Thank you.

[Operator]

Thank you. And our next question comes from Geoff Meacham from Bank of America. Your line is now open.

[Geoff Meacham, Bank of America]

Hey everyone, thanks for the question. I just have two quick ones. On the updated economics with CRISPR on 001, was the decision based on ongoing data or was there some regulatory feedback or maybe commercial analysis? I know it's always better to lead a program when you can, but wasn't sure what the ultimate catalyst was for the deal?

And then just a follow-up on AAT, just assuming that there is a clean safety profile, Reshma, do you view the corrector approach as kind of the only approach for Vertex or is there a thought that you're committed to AAT and may have other mechanisms of action, even more beyond what you have in the pipeline today? Thanks.

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Yeah, sure. Let me start with the question around the amended agreement with CRISPR. You know Geoff, it's a number of catalysts that happened over the course of you know the last, let's say, six to eight months that led us to amending the agreement.

If you go back to last year, between last year and now we have delivered proof of concept results from both sickle cell and beta-thalassemia. Not only that, but we have data that we've shown from 10 patients and the data is really nothing short of remarkable. We're also at a point now where we've dosed more than 30 people in this program and we are looking to complete enrollment in both beta-thal and sickle cell disease this year.

The program has a lot of momentum behind it and it is progressing overall even faster than we expected. You put that all together and this is really just a perfect time for Vertex to take the leadership role and bring the full weight of our experience and infrastructure and expertise to get to as many patients as possible, as quickly as possible.

With regard to your question on AATD, you know the answer to your question around how committed are we? How do we think about this disease? This disease fits our strategy like a glove and we are exceptionally committed to AATD. With regard to the approach, there is no better approach to AATD than small molecule correction of the misfolded protein, right? The Z-AAT protein that is misfolded in the disease, that is the underlying cause of the disease.

And with the small molecule approach, you have the opportunity to target that underlying cause of disease and in so doing, treat both the liver and lung manifestations. So we are absolutely committed to AATD and to the small molecule correctors.

[Geoff Meacham, Bank of America]

Got you. Okay, thank you.

[Operator]

Thank you. And our next question comes from Michael Yee from Jefferies. Your line is now open.

[Michael Yee, Jefferies]

Can you hear me now?

[Michael Partridge, Senior Vice President of Investor Relations]

Yeah Michael.

[Michael Yee, Jefferies]

Okay, great. I actually have a question about diabetes. I know Reshma likes to talk about this, but actually there is data later this year. Can you maybe just comment about what proof of concept is, would it be surprising to see changes in HbA1c, etc., maybe just talk about the value of what would you see there realizing into the naked cells. Thank you so much.

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Yes, yes. Hey Mike, I think you're asking about the Type 1 diabetes program and just to understand a little bit about the background and maybe a little bit about where we are and I certainly heard your question about when we can expect to see some data.

Okay, so the Type 1 diabetes program is a cell-based program that comes really in two flavors. One, let's call it the naked cell approach, that's the one that had the IND cleared earlier in the year. That's the one that's in patients; the study in patients is ongoing right now, the Phase 1/2 study and that program is in the Phase 1/2 stage.

The second one is the Cell Plus Device program. Now, let me just step back and explain two more things here. There is very little biological risk in terms of the approach that we're taking to Type 1 diabetes, right, because we understand very clearly what the cause of disease is, its autoimmune destruction of pancreatic islet cells. Maybe more importantly, we have known for many years that islet cell transplants lead to great outcome in patients with Type 1 diabetes, that is already known.

Islet cell transplants have been done for years. The issue has been the quality and quantity of cells and that's exactly the solution that Semma and now Vertex are bringing forward. So with the naked cell program, this would be about let's say, 60,000 patients, these are patients with severe diabetes that I think could benefit from this program, which would include chronic immunosuppression.

If we go then to the CELLS IN DEVICE program, there are over a million people just in the U.S. and an equivalent number in the EU with Type 1 diabetes that could benefit from the CELLS IN DEVICE program, that of course would not require any immunosuppression.

And with regard to timing, so the naked program is cleared its IND; it's in the Phase 1/2 now. You recall that we're starting at a lower dose and then just like with CTX001, we would then get to the target dose. And I would say that just like the CTX001 program, you should think of it as an efficient program and a reasonable number of patients will give us a good sense of the profile. And I would say that you should have a mindset toward 2022 for a data readout from that process.

[Michael Yee, Jefferies]

Thank you.

[Operator]

Thank you. And our next question comes from Cory Kasimov from J.P. Morgan. Your line is now open.

[Cory Kasimov, J.P. Morgan]

Hey, good afternoon guys. Thanks for taking my question. On the strategic front, on the heels of the expanded deal with CRISPR, as well as a smaller city in collaboration, just curious if we should be thinking about business development or M&A any differently going forward. I know there is some recent expectation of larger deals to come. Is that still the plan or are we kind of looking at the smaller earlier stage ones where you can add more of your expertise? Thank you.

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Yes. Hey, this is Reshma again. Let me take that one for you. Our business development or external innovation strategy is exactly the same as it has been over the last several years and what I mean by that is, we're looking for assets in CF that complement our internal pipeline, we're looking for tools to expand our toolkit and we're looking for assets that fit our disease areas of interest. And when I say that, I mean assets that we Vertex could add value Research Development Regulatory, etc.

I've been really pleased with the deals that we've done. You could look at Semma or Exonics as examples, but you could also just look back in the last couple of weeks with the amended agreement with CRISPR Therapeutics and the collaboration agreement with Obsidian. That's what you should think about when you think about our external innovation approach and you should expect to see more of the same.

[Cory Kasimov, J.P. Morgan]

Okay, helpful. Thank you,

[Operator]

And thank you. And our next question comes from Salveen Richter from Goldman Sachs. Your line is now open.

[Salveen Richter, Goldman Sachs]

Thanks. On the 11 microMolar threshold for AAT serum levels, how are you thinking about that in the context of dose response and what you're trying to ascertain with the upcoming Phase 2 data. And then just a second question, if you could just remind us where you stand on the in vivo CRISPR/Cas 9 work on Duchenne and DM1?

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Sure Salveen, this is Reshma. I could answer those questions for you. Let me tackle DMD and DM1 first and then I'll come back to AATD.

So we're making good progress on the DMD and DM1 programs that are both in late preclinical development. Obviously, you've seen what's been going on in the field with regard to real setbacks that others have experienced and what we're doing is being very deliberate and very careful about process development, analytical development, dosing, and we are making progress in those regards. I'm eager to share with you when those programs will come into the clinic, but that's for another day.

With regard to the AATD question, you know there is no magic number here. What we're looking for from this proof-of-concept study is the totality of the evidence and as I mentioned, that is safety, that's a dose responsiveness, dose exposure and what I mean specifically by that is that there is an association with higher dose to greater exposure or greater response and certainly elevations in functional AAT levels. I'm eager to talk to you about the data in the next steps and we're very close now. I fully expect that the data readout will be later this quarter.

[Salveen Richter, Goldman Sachs]

Thank you.

[Operator]

And thank you. And our next question comes from Mohit Bansal from Citigroup. Your line is now open.

[Mohit Bansal, Citigroup]

Great, thank you. Thanks for taking my question and congrats on all the progress. Maybe a question again, one other question on AAT. Our checks suggest that AAT levels do fluctuate naturally in human body depending on if you are in acute phase or not and to that end, let's just say if you see some elevation in functional AAT levels from VX-864 trial, is there any reason to believe it could be just due to a chance alone, especially with these patients, rather than being in effect of the drug?

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Yeah Mohit, this is Reshma. I really do understand your question and Mohit what we're talking about when I say, I want to see elevations in functional AAT level is real elevation and when I say we're looking for dose responsiveness, that's part of what we're looking for right. We are looking to see that exposure increases with dose and that responsiveness, the actual functional AAT levels varies with dose. Those are all elements of what we're looking for. But when I say functional AAT levels go up, that's what we're looking for; I mean real elevations in functional AAT levels.

[Mohit Bansal, Citigroup]

Got it. Helpful. Thank you.

[Operator]

Thank you. And our next question comes from Liisa Bayko from Evercore ISI. Your line is now open.

[Liisa Bayko, Evercore ISI]

Hi, thanks for taking my question. I wanted to ask a little bit about the pain program. You started to talk about it a little bit more VX-548. Can you maybe talk about how it's different from VX-150. It’s actually made it quite far into the clinic. And in terms of your kind of intentions clinically, I know you're setting some acute indications that you're going to be eventually set in chronic as well as or is this not suited for chronic? Those are my questions. Thanks.

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Yeah, yeah, sure Lisa. Let me break this up into two parts and I'm going to take the first and I'm going to ask Stuart to comment on the second, I'm going to tackle the things that you need to know from an R&D perspective and I'm going to ask Stuart to comment on the commercial prospects here.

Three things Lisa to know from the R&D perspective. First, the target. The target here is Nav1.8. That is important to note because Nav1.8 is a genetically validated target, but it's also a pharmacologically validated target and exactly right, it was VX-150 that had positive Phase 2 proof-of-concept readouts across three different pain indication, acute, neuropathic and let's call it musculoskeletal pain.

The second thing to know is our approach with VX-548. So VX-548 as it's emerged from its Phase 1 trial, it really has all of the properties that we're looking for, not only in terms of safety and tolerability, but also PK and exposure and at doses that are considerably lower than what we saw with our previous Nav1.8 inhibitors, including 150 and that obviously has significant benefits in a multitude of ways, but including in formulation and manufacturability.

And the last thing I'll say on the R&D side is we're starting with acute pain, bunionectomy will be first and then abdominoplasty. We're doing that because the pathway to registration is a visceral or non-visceral indication. Acute pain as the name implies, it's a very short duration of treatment, it’s a couple of days and we've done bunionectomy studies before. We know how to do it. So that's kind of how I'm viewing that. I am going to turn it over to Stuart to tell you a little bit more about the market size and the opportunity there.

[Stuart Arbuckle, Chief Commercial and Operations Officer]

Yeah, hey Lisa. So in the acute and neuropathic segments of the pain market, they are both currently multi-billion segments of the market, both largely dominated by generic currently and both in need of significant innovation, and so we are looking to bring forward an agent, which is both superior in terms of efficacy and tolerability and as a result of that, we believe it will be used in a great deal of patients in both of those segments and because we are targeting that superior profile, we think we'll be able to compete in a really, really strong way with generic opioids and also genetic pregabalin in the neuropathic segment of the market.

Both of those are markets which are served by a relatively concentrated group of prescribers, and so we feel that those segments in particular play into our overall corporate strategy of focusing on specialty market.

[Liisa Bayko, Evercore ISI]

Okay, thank you.

[Operator]

Thank you. And our next question comes from Gena Wang from Barclays. Your line is now open.

[Gena Wang, Barclays]

Thank you. I will also ask one question on AAT and Reshma, you mentioned that those responses also have one very important criteria. Can you share with us like how did you choose doses in the Phase 2 study? And do you also anticipate further dose escalation if Phase 2 data showing still have some room or either not reaching optimal or the safety looks good, were you planning to dose further up?

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Sure, Gena the way we choose our doses for AATD are really the same as we do for all of our programs. You know our programs in CF very well, and maybe that’s a good example to talk through. What we are really looking at is our in-vitro data and translating what we see in our models into the clinic and into the patients. Obviously, we have a track record of doing that quite well in CF and that is exactly the same methodology that we use here in AATD.

If I just elevate a little bit Gena, what I think your question behind your question might be is Gosh! How confident are you that you're going to be able to bring forward a medicine for this disease? How confident are you in this mechanism and in general, how do we view this? And let me be very clear about that. We are committed to this disease. This disease fits our strategy like a glove. We've been working on this mechanism for many years and we feel high confidence that we have the right approach and I'm looking forward to sharing with you the data. As I said, that's going to be coming out very soon in this quarter.

[Gena Wang, Barclays]

Thank you

[Operator]

Thank you. And our next question comes from Robyn Karnauskas from Truist. Your line is now open

[Robyn Karnauskas, Truist]

Very good. Well done! So two really quick questions. So with the triple, the triple combo 121, I know you haven't talked a lot about it, but what sort of control arm would you need? What is the angle, you know advancing that program? What kind of expectations that you have with that program on patent?

I think my direct question would be, you’ve always said if you get into Phase 2, you did want to partner first to go into Phase 3. So is that still the case? Do you think a partner would want to partner in? Will it be a big deal for you to go into chronic pain and that would be a catalyst for you as well. Is that still the plan for pain and then going back to 121, educate us on what plan is for that? Thank you.

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Sure. Hey Robyn, it's Reshma. Let me do pain first. We are focused on acute pain and neuropathic pain and those are both pain conditions as you heard Stuart say, that we believe to be Vertextian [ph] and to be managed in the specialty markets manner, in which we feel very comfortable. So that's what we are focused on, acute pain first and then neuropathic is what we're looking at.

What you've heard us say in the past is when we get to considerations in musculoskeletal pain for example, that is not something that we would commercialize, but what we're talking about here is acute pain and neuropathic pain.

Going to CF, the next wave of combination of potentiators and correctors is indeed the combination of VX-121, VX-561 and Tezacaftor, and really what we're looking at here is a combination that has the potential to have superior efficacy for patient, once a day dosing and also improved economics, and what I mean by that is going from royalties that are in the low double digits to low single digits. We are wrapping up our conversations with regulators on that program and we are readying that program to go to Phase 3, which I expect will happen later this year.

[Robyn Karnauskas, Truist]

Reshma, how do you get there? That will be a great encasing of this case for your Vertex shareholders? How do you get – convert people to that drug? Do you have a sense of how you would go in that direction?

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Yeah, yeah. You know Robyn when we bring molecules forward into our late-stage development like the 121 Tezacaftor, 561 combination, we are doing so because we have full expectation that we are going to be able to do something that is better for patients. We are all about first-in-class and best-in-class and we aim to out-innovate ourselves. And so bringing this forward to patients is about having better efficacy once-a-day dosing for them.

There is of course going to be a control arm and I fully expect the control arm to be the triple combination and triple combination is a fantastic medicine. It has the potential to treat up to 90% of patients in what we see in the real world in terms of efficacy, has been what we saw in the clinical trials. So yes, indeed this is a very high bar, but that is what we're aiming for.

[Robyn Karnauskas, Truist]

Thank you.

[Operator]

Thank you. And our next question comes from Matthew Harrison from Morgan Stanley. Your line is now open.

[Matthew Harrison, Morgan Stanley]

Great! Good afternoon. Thanks for taking the question. Stuart, I was wondering if I could just get you to comment in a little bit more detail on uptake across the European countries where you do have reimbursement and then maybe give us some sense for the timeline of what you're thinking about in terms of the countries where you don't yet. Thanks very much.

[Stuart Arbuckle, Chief Commercial and Operations Officer]

Yeah, hey Matt, thanks for the question. Yeah, the uptake in the countries outside the U.S. where we do have reimbursement has been very, very strong indeed, almost superimposable on what we saw here in the U.S., both in terms of uptake, but also in terms of the levels of persistence and compliance that we've seen, and that's what's really driven the strong growth of our ex-U.S. revenues in Q1 versus the same period last year and so we've seen a 43% growth over the same quarter last year. So that's very, very impressive as they’re driven by uptake in those markets where we already have reimbursement.

We are continuing to make good progress in getting reimbursement in new countries. Indeed during the first few months of this year, we have added new reimbursement agreements in places like Finland and Israel and Switzerland and we're continuing to work with the countries where we have regulatory approval, but don't yet have reimbursement in Europe. That would be countries like France, Italy and Spain. Obviously, we recently received regulatory approval in Australia. We're working with payback there and obviously we're still waiting for regulatory approval in Canada.

What I can tell you is that we continue to feel very, very confident that we are going to get both regulatory approvals and reimbursement agreements in those countries and that's why we continue to believe that we have very strong growth in our CF franchise in the years to come.

[Operator]

Thank you. And our next question comes from Brian Abrahams from RBC Capital. Your line is now open.

[Brian Abrahams, RBC Capital]

Hey guys, thanks so much for taking my questions. Just a couple of quick ones on AAT. From your ongoing work, do you have a sense for how long it might take to reach steady state levels of functional AAT in the serum? I guess I'm just wondering if we should look at the 28-day data as a snapshot in time or reflecting the full potential agent and then how functional would the corrected AAT detected by our SAB relative to Wild Type? Thanks.

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Yeah. Hey, this is Reshma. I could take both of those for you. From all of the work that we've done preclinically and in our modeling work, 28-days is going to be sufficient for us to reach steady state and I think that data that we get from this Phase 2 proof-of-concept study is going to be very helpful.

With regard to whether or not the AAT, the corrected AAT is functional or not. We are indeed going to be measuring antigenic AAT levels, but we're also going to be measuring functional AAT levels and those assays are reasonably straightforward. So I don't think that that's going to pose any challenge.

[Brian Abrahams, RBC Capital]

Thanks.

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Just to complete the thought Brian, in all of these events that we've done, the corrected protein that we produce with the small molecule approach is the same as Wild Type.

[Brian Abrahams, RBC Capital]

Got it. Thank you.

[Operator]

Thank you. And our next question comes from Alethia Young from Cantor Fitzgerald. Your line is now open.

[Alethia Young, Cantor Fitzgerald]

Hey guys, thanks for taking my question. Congrats on the quarter. I guess I just wanted to talk a little bit about kind of when you think we might start to see some novel conditioning regimens for CTX001, and do you think that's something that possibly could happen relatively soon after potential commercial launch or do you think a couple of years from kind getting into a more kind of tolerable condition and regimen? Thanks.

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Yeah, this is Reshma. Let me address that one for you. You know the conditioning regimen as we talked about earlier is really important in opening up this opportunity for the patients beyond that original 32,000 that we discussed, that I think are severe enough that they would be amenable to busulfan-based therapies, right and that's why I do think at the initial launch will be with current conditioning regimens.

That being said, I do also believe it's a matter of when, not if, gentler conditioning regimens will be here, and the reason I say that is we at Vertex are working on gentler regimens, CRISPR Therapeutics is working on gentler regimens, as are a number of other companies. There are targets that we already know about there are cell surface markers on hematopoietic stem cells that are the specific cells that we wanted to target, those are already known as PD1-17 [ph] for example and the payloads are already known as well.

And remember, this gentler conditioning regimen has potential use for both oncology indications, as well as what we would be looking at in terms of sickle cell and beta-thal. So net some, there is a lot of work in this area. I do think it's a matter of when and not if, and I think that this is something that is in the near future.

[Alethia Young, Cantor Fitzgerald]

Great, thank you.

[Operator]

Thank you. And our next question comes from Paul Matteis from Stifel. Your line is now open.

[Paul Matteis, Stifel]

Hey, thanks so much. I wanted to ask one more question on business development. Might be my mistake, but I kind of get a sense over a couple of prior quarters that you've been more open to doing larger transactions and then when we look at the balance sheet this year, you made close to $10 billion in cash. What's your thought here on deal size and I guess you had said Reshma more of the same. So does that mean we shouldn't really expect a deal that’s say, bigger than a billion or so and maybe more likely a number of kind of smaller strategic transactions? Thanks.

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Hey Paul, you know it's all about our strategy and I laid out our business development strategy a few minutes ago. It's not about deal size and I'm not going to add to the speculation, but you should feel high confidence that the strategy is exactly the same.

[Paul Matteis, Stifel]

Thank you.

[Operator]

Thank you. And our next question comes from Brian Skorney from Baird. Your line is now open.

[Brian Skorney, Baird]

Hey, thanks for taking my question. I was hoping – I wanted to kind of get some of your insights on the gene-editing approach for DMD and how to kind of think about the various mutations that occur in dystrophin and how do you correct it? Well, sort of they are used to the various mutations based on the Exonics skipping the amount of full groups, but even within those areas there seem to be many unique mutations.

So I guess when you think of gene-editing, would you have to tackle each one of these mutations in a separate product or is there something out of the box in terms of an edit that can be done to sort of tackle the whole disease landscape with one product?

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Yeah, yeah. So when you talk about DMD, right, there are two fundamentally different approaches to this. One is this microdystrophin which many others are doing, not us, and our approach which is based in CRISPR gene-editing to reframe the reading of the code on it, so that we can produce full-length or near full-length protein, right.

So when you think about the advantages and disadvantages of each, and there are, the potential advantage to a microdystrophin approach is that it's a singular approach for multiple Exon. The disadvantage of course is that it's a – it’s not anywhere close to a full-length protein.

Our approach is the full-length protein, which has the great benefit of being what is exactly the protein, that is what we are trying to target. So having full-length protein is critically important. And what we see as the approach here is to come forward with the first Exon and then to have an approach and an agreement with regulators that once we have that first Exon that those 2nd, 3rd, 4th would be far more efficient and obviously our intent is to bring those forward on shorter timelines, because the bulk of the work will have been done with the first Exon.

[Brian Skorney, Baird]

Got it. So then just to clarify, would the approach to the added beta like effectively edit out the entire Exon 51 in the case of an Exon 51 amenable mutation?

[Dr. Reshma Kewalramani, Chief Executive Officer, President]

Maybe I could explain it this way. What we're really talking about to get to all of the mutations in DMD, we would need a few vectors, just a few different guides and then we could get to all of the amenable mutations. And remember, the big picture item here really is a bigger difference than whether we need to have one vector or not. It will take a few vectors and a few guides.

But the more important issue is the microdystrophin, a very short-form of the protein that are not expected to provide the benefit of the full-length protein, and you know that in January of this year there was the first readout of a randomized controlled trial using microdystrophin and it was not a positive trial. That's why the bigger picture item to keep in mind here is that our approach is a near full-length or full-length dystrophin.

[Brian Skorney, Baird]

Great, thank you.

[Operator]

And thank you. And now, I would now like to turn the call back over to Michael Partridge for closing remarks.

[Michael Partridge, Senior Vice President of Investor Relations]

Thanks operator. Thank you all for tuning into our first quarter conference call. The Investor Relation team is available tonight if you have additional questions. Have a good night and you can now disconnect.

[Operator]

This concludes today's conference call. Thank you for your participating and you may now disconnect. Thank you and have a great day!