Vertex Pharmaceuticals Inc (VRTX) — Q2 2017 Earnings Call Transcript

Good evening. This is Michael Partridge, Vice President of Investor Relations for Vertex. Welcome to our Second Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will open the lines for questions. This call is recorded and a replay will be available later on our website. Dr. Jeff Leiden, Chairman and CEO, and Ian Smith, Chief Operating Officer and Chief Financial Officer, will provide prepared remarks this evening. Stuart Arbuckle, Chief Commercial Officer, will join us for Q&A. We will make forward-looking statements on this conference call. These statements are subject to the risks and uncertainties discussed in detail in today's press release, our 10-K and other filings with the Securities and Exchange Commission. These statements, including those regarding the ongoing development and commercialization of KALYDECO and ORKAMBI, Vertex's other cystic fibrosis programs and Vertex's future financial performance, are based on management's current assumptions. Actual outcomes and events could differ materially. Information regarding our use of GAAP and non-GAAP financial measures and a reconciliation of GAAP to non-GAAP is available in the financial results press release. I would also refer you to slide 3 of tonight's webcast. I will now turn the call over to Dr. Jeff Leiden.

Thanks, Michael. Good evening. 2017 is an important year for Vertex and we've made significant progress towards achieving our long-term vision of treating all people with CF. As we enter this year, we are focused on continuing to increase the number of people eligible for and being treated with our approved medicines, as well as generating important data from multiple combination medicines across our CF pipeline. Let me briefly review our recent progress in meeting these objectives. First, the FDA recently approved KALYDECO for more than 900 people with CF, ages 2 and older who have one of 23 residual function mutations. And we continue to work closely with the FDA to obtain approval for more than 600 additional people who have other residual function mutations responsive to KALYDECO. KALYDECO continues to be a transformative medicine and has now been labeled to treat approximately 5,000 people with CF globally. Tonight, we are reiterating our KALYDECO revenue guidance. Second, we've now reached reimbursement agreements in Ireland and Italy for ORKAMBI in people ages 12 and older with two copies of the F508del mutation. We continue to discuss reimbursement with other countries, including France, the Netherlands, and the United Kingdom and remain committed to expanding the eligibility for and access to ORKAMBI globally. Tonight, we also reiterated our guidance for ORKAMBI. Third, based on the positive Phase 3 data we announced earlier this year, we recently submitted an NDA to the FDA and an MAA to the European Medicines Agency for the tezacaftor/ivacaftor combination in people with CF ages 12 and older. We anticipate acceptance of the NDA and the MAA later this year. Fourth, we recently shared positive Phase 1 and Phase 2 results from three of our triple combination regimens in people with CF who have at least one F508del mutation. These results included the first data to demonstrate the potential to treat the underlying cause of CF and included many patients who have a severe and difficult-to-treat type of this disease. We also demonstrated that the addition of a next-generation corrector to tezacaftor and ivacaftor significantly increases FEV1 in F508del homozygous patients. Throughout the rest of this year, we will be evaluating additional data from these and other studies and I look forward to updating you on our plans for pivotal development of our triple combination regimens that may have the potential to treat up to 90% of CF patients. We expect to begin pivotal development in the first half of 2018 for one or two of our four next-generation correctors. Lastly, earlier this week, we added CTP-656 to our pipeline of CF medicines through completing our asset purchase agreement with Concert Pharmaceuticals. CTP-656 has the potential to be used as part of future once-daily combination regimens that treat the underlying cause of CF and we are already working to integrate the potentiator into one of our triple combination regimens. Based on our significant progress this year, we are well positioned to achieve our longstanding goal to create medicines that fundamentally alter the progression of CF for all patients, and in doing so, meet our financial goal of delivering sustainable long-term revenue and earnings growth for Vertex. With that, I'll now turn the call over to Ian to discuss our financials.

Thanks, Jeff, and good evening to everyone. Tonight, I will discuss the key aspects of our second quarter 2017 financials and I will also review our 2017 full-year financial guidance, starting with revenues. Total CF product revenues of $514 million in the second quarter of 2017 represent a 21% increase compared to the $426 million we recorded in the second quarter of 2016 and a $33 million increase compared to the $481 million we recorded in the first quarter of 2017. We continue to see revenue growth as we treat more patients with our approved medicines. For ORKAMBI, we reported second quarter 2017 product revenues of approximately $324 million, an increase of $29 million compared to the first quarter of 2017. This increase was driven by continued uptake of the medicine globally as well as the timing of both patients and pharmacy orders of approximately $10 million in advance of the 4th of July holiday. These shipments will likely impact revenues in the third quarter of 2017. Second quarter KALYDECO sales were $190 million compared to $186 million for the first quarter of 2017. We estimate there was approximately $5 million of inventory stocking at quarter end in advance of the July 4 holiday. Our second quarter 2017 non-GAAP combined R&D and SG&A expenses were $333 million, compared to $306 million in the second quarter of 2016 and compared to $313 million in the first quarter of 2017. These increases are primarily due to the continued acceleration and broad advancement of our CF medicines in development, and in particular, our portfolio of triple combination regimens. This revenue-expense profile resulted in a non-GAAP net profit for the second quarter of 2017 of $99 million or $0.39 per diluted share, compared to non-GAAP net profit of $58 million or $0.24 per diluted share for the second quarter of 2016, and compared to a $101 million or $0.41 per diluted share for the first quarter of 2017. The significant growth year-over-year in net profit was largely driven by the strong growth in total CF product revenues. During the second quarter of 2017, the company generated significant cash flow and ended the quarter with approximately $1.67 billion in cash, cash equivalents, and marketable securities. Now, turning to our full-year financial guidance. We continue to expect total CF product revenues of $1.84 billion to $2.07 billion in 2017. For ORKAMBI, we continue to expect $1.1 billion to $1.3 billion in net product revenues. Our actual revenues will be determined by the continued uptake of ORKAMBI in the markets where it's reimbursed, as well as the completion of additional reimbursement agreements throughout Europe. If we are successful in gaining reimbursements in France by the end of 2017, it would be a large contributor to our revenue growth. There continues to be uncertainty about the timing of when these discussions will be completed. As for KALYDECO, we continue to expect $740 million to $770 million in net product revenues, which includes the recent approval in patients with residual function mutations. We continue to have productive discussions with the FDA to obtain approval for more than 600 people who have other residual function mutations responsive to KALYDECO. Regarding operating expenses, we have made significant investments and generated compelling data across our CF pipeline this year, and we now expect combined non-GAAP R&D and SG&A expenses of $1.33 billion to $1.36 billion for 2017. This updated guidance reflects the progression of our CF portfolio, including the acceleration of Phase 2 studies for VX-659 and VX-445, preparation for pivotal studies for our portfolio of triple combination regimens, and investment to develop CTP-656 as part of future triple combination regimens. With our continued revenue growth and the management of our operating expenses, we are well on track to deliver a financial profile that includes high operating margins and sustainable earnings growth. With that, I will open up the line to questions.

Great. Thanks very much for taking the question. I'd just like to ask about the progression of pricing and reimbursement in Europe. You've obviously made some progress with some countries and yet, some of the large ones, including France, seem to be taking longer. Can you just talk about the extent you are willing – what items are still needing to be discussed and what we should think about in terms of the nature of the question here is that you've obviously got ORKAMBI now but there's visibility towards tez/iva and then triple combos, and does that influence any of the conversation and perhaps take longer to complete? Thanks.

Great. Thanks, Matt. It's Stu here. I'll try and address your question, which has a number of different elements to it. As you said, we have made good progress in the first half of this year reaching pricing and reimbursement agreements in Germany, Ireland, Italy, Austria, Luxembourg, and Denmark. And as you said, we're in active negotiations with other countries, including France, the UK, and the Netherlands. Where we are in those discussions, I'll refer you back to the comments we've made previously. These discussions tend to have three phases. There's a clinical benefit assessment, the pharmacoeconomic assessment, and then you're into the pricing discussions. We're through those first two phases. There's really no debate in those markets in Europe about the clinical benefits of ORKAMBI. We're really in the pricing and reimbursement discussions. As Ian mentioned in his prepared remarks, unfortunately, the exact timing of when those are going to conclude is uncertain just because they're not directly within our control. In terms of the potential impact of newer agents in development on those discussions, we're very pleased that in Ireland and Italy, where we reached agreements in May after the tez/iva data was available, those countries still saw fit to do what we think is the right thing, making a transformative medicine like ORKAMBI available to patients as soon as possible because it treats the underlying cause of the disease, and we know, therefore, that it's important for patients to be treated as early as possible. We're certainly going to continue to make that case to the existing authorities who are still not providing access for patients in their countries.

Hey, guys. A couple of questions for you. Obviously, with the data thus far in the triple, you can expand the addressable population, but I wanted to ask you about the nonsense mutation and some of the splicing mutations. I know clearly, you guys have the alliance here with CRISPR to look at some of those, but maybe just talk a little bit about what the strategy is there. Do you have technologies in-house to look at more nonsense mutation patients or is it just going to focus on delta-F single and double? And then I have a follow-up.

Yeah. Thanks, Geoff. This is Jeff Leiden. I'll take two parts of your questions. We actually view splice and nonsense quite differently. As you know, and as Ian said, I think we're in very productive discussions with the FDA around the splice mutations. Most of those produce normal CFTR protein but in much lower amounts. Our in vitro data and clinical data has clearly shown that they respond to KALYDECO, and, by the way, also to tez/iva. The imperative there is to get KALYDECO monotherapy approved for those patients as soon as possible, and then follow that with tez/iva, and we're confident that we will be able to do that. Nonsense mutations, as you point out, are quite different. They obviously won't respond to CFTR modulators because there is no protein there. We have several approaches there, the first of which is the ENaC inhibitor. One of the reasons we're interested in studying the ENaC inhibitors, that's VX-371, is because they, as you know, function by a different mechanism that doesn't require functional CFTR protein. We will have a look at the first data, as you know, in the second half of this year. But that's sort of mechanism number one to get at the nonsense mutations. And as you point out, the second approach involves genetic technologies, such as CRISPR and Moderna. We're making some nice progress in cell lines. We do have cell assays that allow us to look at those in both HBE cells and other cells. The key issue there is going to be delivery. I actually think that gene editing and the ability for RNA to make CFTR is a relatively straightforward problem. The tough problem here is delivery, and we're working on that in parallel. As we've said, we do think that's going to take a number of years to bring forward into the clinic.

Okay. And a follow-up question more on the commercial side. I have asked you guys this a couple of times before, but I just want to see if there's any update. Clearly, the market is U.S., Western Europe, and Australia, but I wanted to see – I think at one point you guys talked about opening an office down in Latin America or other countries that may have a founder effect, where you have populations that are well beyond the 70,000 that everyone puts up as the number. So, is there – maybe just help us with kind of where you are with that kind of more global piece.

Yeah, Geoff. You're correct. We have established an office in São Paulo in Brazil as a potential regional hub for Latin America, and you're right, there are numbers of patients there. The level of newborn screening and the maturity of registries there is perhaps, as you might expect, not quite as advanced as it is here in the U.S. and in parts of Western Europe. The exact numbers of patients, and indeed, their specific genotypes, which we would anticipate being different in terms of distribution than it is in the U.S. and Europe, is not as well defined. Much of our efforts over the last year or so has been working with various CF societies and physicians in those markets to better understand the size of the potential patient population there, and the specific genotypes that they have, so that we can work out which of our medicines is best placed to help those patients. That's kind of where we are with that, and I would say stay posted. We'll update you as we make more progress from a commercial point of view.

And from a regulatory point of view, Geoff, it is our intention to go ahead and get these products registered there. There's a very formal way to do that, and we're well into that process.

Hi, thanks for taking the question. I was just wondering if you guys could comment on the thoughts on the uptake of tez/iva into the F508del homozygous patients with low baseline function. I know there has been some concern around the use of ORKAMBI. Do you think tez/iva will be used there, or do you think those patients would most likely wait until the triple combo is available? Thanks a lot.

Terence, hi. It's Stu here. Thanks for the question. Let me first talk a little bit more broadly about how we see tez/iva fitting in. We think tez/iva, because of the benefit-risk profile that it has, really has a great opportunity to allow us and physicians to treat more patients with CF. Given the benefit-risk profile where we know the efficacy is very good, but also the safety and tolerability are also very good, we think it will be applicable to a number of populations. Firstly, those who have discontinued ORKAMBI, many of whom discontinued due to adverse events. We think that's a population that physicians and the patients themselves will be very keen to be retreated with a CFTR modulator. We also know those patients who have never been treated with ORKAMBI, some of whom because the patient and/or physician were concerned about the benefit-risk profile of ORKAMBI. Thirdly, outside the U.S., particularly the residual function population where we don't have KALYDECO monotherapy that is approved is another population where, based on the Phase 3 data that we showed in March with tezacaftor/ivacaftor, we believe we'll also be able to get additional patients on a CFTR modulator. So overall, for tez/iva, we see the biggest benefit for patients and physicians is being able to offer CFTR modulator to more people with the disease. In terms of exactly how it might be considered for those with low FEV1s, clearly, one of the major concerns physicians and patients have there was the bronchoconstriction side effect that we see from lumacaftor. We've known about that for a while and the result, we've been very diligent in looking at whether tezacaftor has that same property. We know from all of our Phase 2 data and our Phase 3 data that show no evidence of bronchoconstriction. Therefore, I think it's going to be a very popular option for patients with a low FEV1.

Great. Thanks a lot.

Thanks very much and thanks for the questions. A couple of strategy questions. First, Stuart, could you just talk about what success you're having with the full portfolio contracts and more or less fixed pricing? As you look ahead to now multiple generations, potentially five different product offerings over time, is that a model that you think that you can deploy globally or is it just in very selected markets? What sort of reaction are you getting? Secondly, Ian, your balance sheet is shaping up nicely and we expect it to continue to improve, and you are diversifying your portfolio across products. Is there a possibility that you might be able to take on some leverage and sort of free up additional capital from your balance sheet in that way? Thanks.

So Geoff, I'll take your first question. Just for everybody's clarity on the call, the approach that Geoff's referring to is an agreement that we reached earlier this year in Ireland where essentially we have an agreement which is a long-term agreement covering populations of patients, in this case, those who are homozygous for the F508del mutation, or those who are one of the approved KALYDECO mutations and essentially looks at that patient population all the way down to age zero. This includes in the agreement both the currently approved medicines, KALYDECO and ORKAMBI, and will include patients for ORKAMBI when the indications are extended to lower age groups, but will also include new Vertex medicines for that specific patient population. Since that agreement was put in place, and in particular since both the tez/iva data and now the next-gen data which makes it very clear to everybody how close we are to being able to develop medicines that treat the underlying cause of disease in 90% of patients, there's been a lot of interest in discussing similar types of patient and/or portfolio contracts. So we're certainly very keen to be flexible if that's what countries want to do. As we've demonstrated in Ireland, we're very open to that. I personally believe it's a real win-win-win arrangement. It's a win for the Irish government, it's a win for Vertex, and most importantly, it's a win for patients in Ireland. We're certainly very open to that kind of agreement in any country. We're in early stages of discussions with newer countries along those lines and certainly there's a lot of interest there. Whether we'll actually be able to turn that interest into an agreement, time will tell. I think Ian will handle the question on balance sheet.

Yeah. So hi, Geoff. How are you doing? First of all, to the cash, just to give you a couple of points of where we are regarding our financial position. We have cash of close to $1.7 billion and we are cash flow positive each quarter now, so that balance continues to increase. I'd also point out that we actually do already have a revolver facility, so we have access to up to $800 million. It currently stands at $500 million, but we can expand it to $800 million. So when you have the $800 million debt capacity at the moment on the balance sheet that we have not yet drawn down on, plus the $1.7 billion of cash and a positive cash flow, we're in a very nice position to think about how we allocate that cash and how we apply it. We're already making choices of our revenue stream to allocate internally. That revenue is going into R&D and it goes beyond CF these days. It goes into other disease areas, and I'm sure before we finish this call, there will be a number of questions about how we are progressing beyond CF. As I've said on the call previously, that cash can now – that's on the balance sheet and also the leverage and the increasing leverage and the increasing availability of cash, we can apply outside the company. We have three basic strategies there and we're very active, as shown actually by the announcement yesterday. One of those strategies and the priority is still, let's take a look at everything that's complementary in cystic fibrosis to our approach. We just closed on this acquisition of CTP-656 yesterday. Another strategy is for us to look at other scientific footprints or scientific platforms or modalities and how they may allow us to treat diseases in different ways than just through small molecule approaches, and we've done both Moderna and the CRISPR collaboration in the last year or so, which have advanced our approaches in those areas. What is also emerging is how we may simply broaden our pipeline beyond CF with earlier-stage type deals that relate to asset acquisitions or targets in IP acquisitions and knowledge and assays and small M&A-type ideas that we look at as well. We're very sensitive to our capital structure. We're still progressing and I think our focus is on earlier stage assets of high science in disease areas that are consistent with cystic fibrosis.

Great. Thanks very much. That's very helpful, Ian.

Great. Thanks for the question. My question was on the Concert molecule which, of course, you just closed on yesterday. What are the next steps? How are you thinking about developing that? Could that be ready for one of the triples to start next year or what are the things you need to do there in discussions with the FDA? Additionally, in terms of your ongoing triples you have now in Phase 2, how confident do you feel about the therapeutic window in terms of going up and seeing higher efficacy without the risk of any undue side effects? Thanks.

Yeah. Hi, Michael. It's Jeff. Welcome back, by the way. Nice to hear your voice again on the call. So, I'll take both of those questions. CTP-656, as you'll remember, is deuterated ivacaftor, and the rationale there was to potentially get to a once-a-day regimen – triple regimen because both VX-659 and VX-445 are consistent with once-daily dosing from what we know now about their PK. Of course, tezacaftor is also consistent with once-daily dosing. We're very pleased to have closed the transaction. We've already been working very hard on incorporating this molecule into a triple. It's a little early for me to give you a precise date but if you ask me whether we could have a triple regimen containing CTP-656 ready to begin a pivotal trial in 2018, I would say the answer from what I know today is likely yes. I want to emphasize that we're not going to wait for that certainly. Our intention is to get the best regimen to patients as quickly as possible. The first regimen almost certainly will use ivacaftor, KALYDECO, and be a twice-a-day regimen, and we'll follow that likely with a once-a-day regimen. We also have the opportunity to bridge back later to substitute in the ivacaftor. All of that, as you say, requires some discussion with regulators and a little more data on our part. We're certainly not going to jump into a Phase 3 trial of the ivacaftor until we have enough efficacy, safety, tolerability, and PK data to ensure that we know the dose and how to put it together with the other agents. But again, we think that's a relatively short journey and that we could have such a regimen in pivotal trials next year. Your second question regarding therapeutic window: One of the things that was most important for us to see in all four regimens was the very favorable safety and tolerability profile. This means that we could begin to expand dosing upwards. We are doing that in at least three of the regimens. In VX-152, the initial data was at a 100-milligram and 200-milligram dose. We are expanding that up to 300 milligrams. Those patients are being dosed. We are looking to see if we can essentially gain more efficacy from VX-152 with the same safety profile. There seems to be a clear dose response in FEV1 between 100 milligrams and 200 milligrams. With VX-659, we're currently at 120 BID, and the Phase 2 trial of VX-659, which is just beginning, will incorporate higher doses up to 400 milligrams a day. The VX-445 dosing will also go up. We are trying to increase the dosing of these three molecules and look for maximum benefit while maintaining a favorable safety and tolerability profile. As we said last week, we hope to have all that data converge towards the end of this year and early next year. This will allow us to select the best regimen or regimens, along with the optimal doses.

Thanks.

Good afternoon. Thanks for taking my question. It's actually kind of a follow-up to the last one on data disclosure. I think Concert had guided to you getting monotherapy data for CTP-656 out by the end of this year. Is that still likely now that's in your hands? Secondly, Jeff, your answer to the question you just gave indicates there'll be more disclosures on VX-152, VX-659, and VX-445 either late this year or early next. Is that a correct interpretation? Is that when we'll see the next data, or are there interim releases that are possible?

Yeah. Thanks, Phil. I'll take the first part and Ian can take the disclosure question. With respect to CTP-656 for monotherapy, we're actually not planning to develop CTP-656 for monotherapy. Given that we believe that 90% of the patients will go on to a triple regimen, we're really interested in it as part of a once-a-day triple regimen. We will get some interesting PK data potentially from that study, but for us, it's all about incorporating it into triple therapy and figuring out how to do that – which dose, making sure there's efficacy in the safety-tolerability profile. It doesn't require a lot of patients, but we will be doing that before we jump into pivotal trials. I wouldn't focus on the monotherapy trial because I don't think that's the direction we're headed. Ian, maybe you can talk about the disclosure?

As we disclosed a couple of weeks ago, we're looking at our next-generation triple combination as a portfolio of medicines. Given we are choosing to complete each of the Phase 2 studies of each molecule, we see our next disclosure as when we've completed all the studies in Phase 2. Once we finish the Phase 2 for VX-440, VX-152, VX-659, and VX-445, we anticipate that being early 2018. We will be able to not only provide you with the data, but we will also be able to discuss how we're thinking about which molecule to take into Phase 3 in the first half of 2018. We continue to view it as a portfolio, so we'd like to keep it to a portfolio disclosure and anticipate that being early 2018.

Thanks. That's very helpful and congratulations again on the progress.

Thank you, Phil.

Hey, good afternoon, guys. Thanks for taking the question. Ian, you alluded to more questions on BD and I do, in fact, want to follow up on the bigger picture question on this front. Recognizing this is still quite fresh, but there's the recent progress in substantial de-risking on the triple front. How does this impact the company in terms of investing outside of CF? In other words, do you have more confidence or perhaps change the approach to building outside of your core franchise, given the more predictable future track of CF revenues or are these kinds of topics mutually exclusive? Thanks.

Cory, this is Jeff. It's a great question. I would certainly give you two different types of responses. Let me step back. We've actually been working on what's next after CF for quite hard now for a couple of years. We view it as a two-part approach. First of all, what's beyond CF in trying to find disease areas really is – we've been consistent with what we've learned in CF. We're really only interested in transformative medicines and serious diseases that we can sell into the specialty areas with relatively low SG&A, which will then allow us to recycle most of our OpEx back into R&D. That's the model and we're going to stick to that model as we move beyond CF. We view internal research and BD as essentially complementary, often even looking at the same diseases using some internal programs and some external programs. For instance, we've talked about sickle cell disease as a program that we're interested in because it fits that profile. We have an internal small molecule program or several of them, actually, in sickle cell disease. We have our collaboration with CRISPR in sickle cell disease, and we may even look at additional outside programs. This hybrid combination of inside investment and outside investment is the way we're going to tackle the majority of diseases. Regarding the strengthening financial position and how that changes our perspective, I think the key word that you said, which is the word we use, is confidence. As our financial position strengthens, we have more confidence not only in our balance sheet today but in our balance sheet tomorrow. This will allow us to add more firepower, enabling us to do more deals and potentially larger ones. As Ian said, we're not in the business of buying revenue in 2019 or 2020, but we're very interested in diversifying our earlier stage pipeline with transformative medicines. You can expect more of that as our confidence continues to grow significantly.

Great. That's helpful. Thank you.

Hi, guys, good afternoon. Thanks for taking the question, and congrats again on all the progress. I guess, as a segue to beyond CF – a question for Jeff or David. ClinicalTrials.gov says the VX-150 Phase 2 study is supposed to read out in 4Q. I guess, one, is that the right timeline, and two, how should we be thinking about what you want to see to advance into a Phase 3 in acute pain? Thank you.

Thanks for asking. Let me again just take a step back for those who aren't familiar with VX-150. This is our NaV 1.8 inhibitor. This is a novel mechanism – pain mechanism, as you know. We recently reported positive Phase 2 data in osteoarthritis, which was the first proof-of-concept for this mechanism in pain. We don't view pain as one disease mechanistically; we view it as several different diseases. There is the inflammatory pain we saw in osteoarthritis, there's acute pain, and there's neuropathic pain, particularly. We have the positive readout in OA and we're currently involved in an acute pain study which is a bunionectomy study, and we do hope that'll readout later this year or early next year. The third study will be a neuropathic pain study, which will likely start later this year. That takes a little longer, so it'll probably be 12 to 14 months more once it starts before we read that out, depending on enrollment. Once we have the profile of the molecule, then we can really decide how best to bring it to patients, which patients to target, if we need a partner for some of these, and how to best monetize it for Vertex. As we build the profile of the compound, we will keep you informed with each of these trials leading to our decision on how to move forward.

Hi, guys. Thank you. Given that you've spent almost $1 billion on R&D, and I know you said a majority of that is CF, can you quantify right now what percentage is non-CF? If you're thinking about – you're starting to think about expanding beyond CF, when do you think the CF spend might begin to taper, given that even clinical trials are running a little smaller than before? Can you help us understand how you expect the R&D spend to evolve a little bit? Could you see an expansion in the non-CF sooner than what we anticipate? Thanks.

Yeah. Thanks for the question, Robyn. Some of the – let's say, the number that I'm about to give you might surprise you a little. First of all, if you take R&D, let's split it up into R and let's split it up into D. Firstly, R, we have three research sites. One of these sites is focused on cystic fibrosis, and there it is focused on other targets as well but is primarily our cystic fibrosis site and they've done excellent work, as you know, out in San Diego. There are two other sites that are not focused on CF. We are already spending well beyond 50% of our research investment on diseases beyond CF that also have a research strategy that goes beyond CF. We've been doing that now for a couple of years, and we hope to start seeing some productive results in taking molecules into clinics for diseases that you may be familiar with, and they should start coming out later this year and into the early part of next year. For development, it is a little bit of a different story. 80% of our development spend is towards cystic fibrosis. That covers not clinical trials; there is heavy support for formulation, manufacturing, medical affairs, and regulatory. I wouldn't see the investment in cystic fibrosis tailing off significantly for another 3, 4, maybe even 5 years. Once we get approval for medicines in 12 and older, we immediately think about how we get approval for medicines in 6 through 11, then in 2 through 5, and we're thinking about how we gather longer-term data, and build our registry data to support the long-term outcomes of our medicines for treating this disease long-term. I'll see we maintain our focus in CF while we grow beyond CF with complementary opportunities.

Operator, we have time for two more questions.

Hi. Thanks for taking the question. Maybe a follow-up on the QD KALYDECO you got from Concert. It doesn't sound like it's ready for Phase 3 when you start the triple combo next year, but once that compound is ready, do you think you have to run a head-to-head study versus the BID KALYDECO? Do you have to show the comparability? Do you think the FDA would want to see that data or do you think it's just a completely different separate study just to get that QD of KALYDECO approved? Secondly, for Ian, if I add the Q1 ORKAMBI and then Q2 ORKAMBI revenue, just flatline for the rest of the year, we're already at the high end of your guidance. Does that mean this is still very conservative for the $1.1 billion to $1.3 billion guidance for ORKAMBI? Thank you.

Yeah. Maybe I'll take the first one and Ian will take the second one. With respect to CTP-656, I would think about it as two stages. Stage 1 is really more us accumulating sufficient internal data to be confident both about the efficacy, tolerability, safety, and dose. That's a small set of studies which supplements what Concert has already provided, so that we can feel comfortable before we go into Phase 3 that we know the profile of the drug and the appropriate dose as part of a triple. So, we're planning to do those kinds of studies over the next months, and once we accumulate that data, we will make a decision about taking that triple with CTP-656 forward. Regarding the question about the FDA, I would think about that quite simply as are we going to need a Phase 3 trial there with ivacaftor, and is it our intention to do that. If we incorporate it into a new triple, we would then run pivotal trials there to get that approved by the FDA. If we already have a triple approved and later want to substitute it back, that's a different story. It's probably more of a bioequivalent story. Regardless, we're going to need data, both efficacy and some safety-tolerability data, dosing data before we dive into Phase 3.

Thanks for the question. So as you saw, we are continuing to reiterate our guidance at $1.1 billion to $1.3 billion for ORKAMBI. But you're correct; if you do the math, we've had a strong first half of the year, and if you double up that revenue rate without growth, it does put you in the mid to slightly in the upper part of our range. I can confirm that we do not anticipate being in the low part of our range. However, where we fall in the mid up to higher part of the range is a function of several things. We did note in the prepared remarks that Q2 was benefited by some inventory stocking pre-July for the holiday. On ORKAMBI, in particular, it was $10 million, so that means you're taking $10 million out of Q3 adding it to Q2, but that equals a $20 million difference between Q2 and Q3. These things matter when you're trying to pro rata quarters to achieve a full-year run rate. One thing that is crucial for us to consider is that we saw a summer slowdown last year. There were compliance issues which resulted in reduced revenues. We need to see how that story plays out. We have programs in place that we're trying to help patients with compliance this year, but we need to evaluate that. More importantly, our launches in the new markets of Ireland and Italy, as well as whether we gain reimbursement in countries like France, will determine where we fall on the range. We don't anticipate being in the low end; rather, we expect to be at mid-range or higher based on performance.

Thank you.

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