Vertex Pharmaceuticals Inc (VRTX) — Q4 2021 Earnings Call Transcript

Good evening. This is Michael Partridge. Welcome to the Vertex Fourth Quarter and Full Year 2021 Financial Results Conference Call. On tonight's call, making prepared remarks, we have Dr. Reshma Kewalramani, Vertex's CEO and President; Stuart Arbuckle, Chief Operating Officer; and Charlie Wagner, Chief Financial Officer. We recommend that you access the webcast slides as you listen to this call. This 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 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 select financial results and guidance we will review on the call this evening are non-GAAP. I will now turn the call over to Dr. Reshma Kewalramani.

Thanks, Michael. I'm pleased to discuss our performance and progress in 2021 and to share our vision for where Vertex is headed. 2021 was a very important year for the company, during which we expanded our leadership position in CF, significantly advanced the mid- and late-stage pipeline and further strengthened our financial position, and one which sets us up for high-value milestones in 2022 and a very bright future for years to come. Our revenue and earnings continue to reflect the significant growth of our global CF franchise. And based on our success in treating more CF patients, we again delivered exceptional financial results, generating nearly $7.6 billion in product revenues, representing 22% growth year-on-year and 27% growth over Q4 2020. Also in 2021, we initiated 2 global Phase III studies with our next-in-class CF regimen VX-121/tezacaftor/VX-561; completed enrollment in the pivotal studies of CTX001; delivered proof-of-concept with VX-147 in a type of APOL1-mediated kidney disease known as FSGS; delivered early but very promising results with VX-880 in type 1 diabetes; and advanced VX-548 into 2 proof-of-concept studies in acute pain, the results of which are expected this quarter. These advancements span small molecules, gene editing and cell therapies and 6 disease areas, including CF. Fueled by our success in cystic fibrosis, our financial profile and balance sheet have been further strengthened, enabling both continued investment in internal and external innovation and industry-leading operating margins. We provided a detailed overview of Vertex at our webcast 2 weeks ago at the JPMorgan Conference. Tonight, our prepared remarks will recap the high points around our CF franchise and our pipeline and also review our commercial performance and financial expectations for 2022, starting with CF. For the 90% of CF patients who can benefit from a CFTR modulator, we see continued significant growth ahead as we have more than 25,000 patients who could benefit from TRIKAFTA and our other CF medicines but who are not yet on treatment. Stuart will discuss the opportunity ahead of us and our high confidence that we will reach these patients in his prepared remarks. Approved first in the U.S. in October of 2019, TRIKAFTA set a high bar in terms of both clinical trials and real-world data and has become the standard of care for patients with CF today. To recap, in late 2021, we shared 96-week data from the extension of the TRIKAFTA pivotal trial, where we saw no decline in mean lung function. This was a first for any CFTR modulator. We now have the first real-world data for TRIKAFTA from the U.S. CF Foundation registry. Across approximately 16,000 patients treated with TRIKAFTA and represented in the registry in 2020, relative to patients eligible for TRIKAFTA in the year prior to approval, we see an 87% reduction in the risk of lung transplant, a 77% reduction in pulmonary exacerbations and a 74% reduction in the risk of death. Nonetheless, if it is possible to deliver better clinical outcomes in TRIKAFTA, we are determined to be the ones who do so. And our next-in-class triple combination of VX-121/tezacaftor/VX-561, which holds that potential, is already in pivotal development. We expect completion of enrollment in both Phase III SKYLINE trials in late 2022 or early 2023. This combination has the potential for greater clinical benefit, more convenient once-daily dosing and a significantly lower royalty obligation. For the last 10% of CF patients who do not make any CFTR protein, with our partners at Moderna, we've now demonstrated that we can not only efficiently deliver full-length CFTR mRNA to human bronchial epithelial cells in vitro, but also to bronchial epithelial cells in nonhuman primates, solving a long-standing delivery challenge and marking a significant step forward in bringing a treatment for the last 10% of CF patients. Based on these results, IND-enabling studies for our CFTR mRNA program are now underway. We plan to file the IND this year with clinical trials beginning thereafter. Beyond CF, we have a pipeline that is broad and deep and delivering and considerably more advanced compared to a year ago. I'll review a few of our clinical stage programs, each of which is a first-in-class or best-in-class program has the potential to serve a large number of patients and represents a multibillion dollar opportunity. Beginning with CTX001, our onetime gene editing treatment with the potential to provide a functional cure for sickle cell disease and beta thalassemia. This is our most advanced program outside of CF, and we expect this will be our next commercial launch. We're wrapping up discussions with regulators to finalize our submission data package for CTX001, including the number of patients and duration of follow-up. This program accelerated significantly last year based on strong physician and patient interest. We completed enrollment in both Phase III studies, both were oversubscribed. And to date, we've dosed more than 70 patients. We look forward to sharing more clinical data with CTX001, longer-term follow-up and many more patients at a medical forum later this year, on the way to our planned global regulatory filings by year-end 2022. Moving on to VX-147 and the APOL1-mediated kidney disease program. In renal medicine, one of the most important genetic discoveries of the last decade was the realization that mutations in the APOL1 gene are a key driver of significant kidney disease. VX-147, our small molecule inhibitor, specifically targets this APOL1 protein and in so doing, targets the underlying cause of APOL1-mediated kidney disease. In the Phase II single-arm study of 16 patients with APOL1-mediated FSGS, VX-147 demonstrated unprecedented reductions in proteinuria, a marker of kidney damage, and was generally well tolerated. Importantly, the 47.6% mean reduction in proteinuria was on top of standard of care. These Phase II results propel the advancement of VX-147 into pivotal development. Our next step is an end of Phase II meeting with the FDA, and our goal is to initiate pivotal development, targeting the broad AMKD population of approximately 100,000 patients including, but not limited to those with APOL1-mediated FSGS later this quarter. Turning to type 1 diabetes and VX-880. Type 1 diabetes results from autoimmune destruction of pancreatic islet cell, and we have known for some time that whole pancreas or cadaveric islet cell transplantation can be curative. The challenge has been quality and quantity of donor tissue. We believe we've overcome this challenge. We are the only company that has shown we can make allogeneic, stem cell-derived, fully differentiated, insulin-producing islet cells and make them at industrial scale. Our goal with our type 1 diabetes program is to develop a functional cure for this disease, including for the more than 2.5 million people living with type 1 diabetes in the U.S. and Europe. We shared day 150 results approximately 2 weeks ago from the first patient treated with VX-880. This patient had severe, long-standing type 1 diabetes and prior treatment with VX-880, had difficult to control sugar levels and multiple severe hypoglycemic events with no detectable endogenous insulin as measured by C-peptide. He had a hemoglobin A1C of 8.6% and was taking 34 units of exogenous insulin daily. The results from this first patient treated with half the targeted dose of VX-880 are remarkable. Fasting C-peptide, a measure of endogenous insulin production, is now over 400 picomole. Hemoglobin A1C is down to 6.7%. And the patient is on minimal exogenous insulin. VX-880 was generally well tolerated and the patient remains free of symptomatic hypoglycemic events since the periodic operative period. I mentioned at the JPMorgan Conference earlier this month and it bears repeating why these results are so foundational. Achieving durable results in type 1 diabetes requires 2 things: high-quality insulin-producing islet cells, we have that; and a method to protect these cells from the immune system. We can address the immune response in several different ways. Today, with VX-880, we're combining the stem cell islets with standard immunosuppression in the Phase I/II study. We can shield the same stem cell islets with an immunoprotective device. In this approach, immunosuppressives would not be needed. This approach is in IND-enabling studies, and we expect to file the IND later this year with clinical trials beginning thereafter. And in earlier stages, we're using gene editing technology to make so-called hypoimmune pancreatic islets, yet another approach that eliminates the need for immunosuppressive. The VX-880 Phase I/II clinical trial is up and running at multiple sites. The trial continues to enroll in dose patients. We anticipate sharing data from more patients and longer duration of follow-up this year. I'll conclude the pipeline overview with VX-548, a novel selective inhibitor of NaV1.8, which is in clinical proof-of-concept studies for acute pain. Two proof-of-concept studies in acute pain were initiated in the second half of 2021, one in patients following abdominoplasty surgery, and one in patients following bunionectomy. These studies are dose-ranging, placebo-controlled studies and both include an opioid reference arm. The abdominoplasty study has now completed enrollment and dosing, and the bunionectomy study will complete in the coming weeks. We anticipate having results from both studies this quarter and announcing both results together.

Thanks, Reshma. I'm pleased to review tonight our continued strong commercial performance. Our CF business performed exceptionally well in the fourth quarter and for the full year in 2021. Our Q4 global revenues were $2.07 billion. Full year revenues were $7.6 billion, an increase of 22% over 2020. U.S. CF product revenues grew 10% to $5.3 billion in 2021, driven mainly by the launch of TRIKAFTA in the 6- to 11-year-old patient population following its approval last June. Our product revenues outside the U.S. increased 66% over 2020 to $2.3 billion. We signed more than 15 new reimbursement agreements in 2021. And following these agreements, we have seen strong uptake of KAFTRIO and TRIKAFTA matching the launch dynamics in the U.S. Looking to the future in 2022 and for the next several years, we expect significant continued revenue growth as there are more than 25,000 patients remaining who are addressable with our CFTR modulators, but who are not yet treated. These patients fall into 3 categories. Patients who have not yet initiated treatment, largely in countries where we are recently reimbursed and therefore, are early in the launch curve. This includes countries such as Canada, Spain and the Netherlands. Patients in geographies where we are not yet reimbursed such as Australia. And finally, younger patients who will be addressed through ongoing label expansions. We continue to make progress in addressing younger and younger patients. As examples, we secured approval for KAFTRIO in 6- to 11-year-old patients in Europe and the U.K. just a few weeks ago. And our submission for approval of TRIKAFTA in these younger patients is also currently under review in Canada. And in 2022, we plan to file for approval for ORKAMBI in patients 12 to 24 months of age in the U.S. and Europe based on the recently completed Phase III study. In addition, with our mRNA program in IND-enabling studies, we are making real progress in developing a medicine for the additional 5,000-plus patients that we cannot address with our current CFTR medicines, but who are potentially addressable with the successful development of an mRNA therapy. The recent long-term and real-world data, as discussed by Reshma in her prepared remarks, have significantly strengthened our competitive position and highlight the benefits of our medicines for CF patients. For a genetic disease like CF, where patients start medicines at an early age and take them chronically over their lifetime, long term and real-world data like these are incredibly important to patients and physicians. They take many years and thousands of patients to generate and set a very high bar for any future therapy to meet. I would now like to provide a commercial perspective on 2 programs that are in or entering pivotal development that highlight our future diversification beyond cystic fibrosis. I'll start with CTX001, our CRISPR-Cas9-based gene editing therapy for hemoglobinopathies, which we plan to file for regulatory approval before the end of this year. In terms of market opportunity, we see tremendous potential for CTX001. We estimate that there are more than 150,000 patients in the U.S. and Europe who have beta thalassemia or sickle cell disease, approximately 32,000 of whom have severe disease. 25,000 of these are patients with severe sickle cell disease, and the vast majority of these are in the U.S. Published physician surveys in the U.S. consistently indicate that they expect 1/4 to 1/3 of their sickle cell disease patients would be good candidates for a onetime, curative approach using the current busulfan-based conditioning regimen, which is in line with our own estimates of the numbers of severe patients. With global regulatory submissions planned for CTX001 toward the end of this year, our launch preparation activities are well underway, including building our market access, patient support and health care professional-facing teams as well as finalizing our manufacturing and supply chain network. Finally, as Reshma noted, we plan to advance VX-147 to pivotal development this quarter. So I would like to comment on the opportunity we see in APOL1-mediated kidney disease or AMKD. In the Phase II study, we enrolled patients with 2 APOL1 mutations who had focal segmental glomerulosclerosis, FSGS, as demonstrated by biopsy. This was an ideal population to test the clinical hypothesis of APOL1 inhibition. There are approximately 10,000 patients with APOL1-mediated FSGS. However, we estimate that the population of people with 2 APOL1 mutations and kidney disease primarily driven by APOL1 is much larger, approximately 100,000 patients. This is the initial target population that we will seek to address with VX-147, and so this represents a multibillion-dollar opportunity. Awareness of diagnosis and genotyping of patients with AMKD are all low. So in parallel with the planned progression of VX-147 to pivotal development in 2022, we expect to begin increasing awareness of APOL1-mediated kidney disease with treating physicians with a focus on the importance of genotyping. I'll close by noting that we are about to celebrate the tenth anniversary of the approval of our first CF medicine, KALYDECO. It has been an extraordinary 10 years as we have developed and launched not only KALYDECO, but 3 additional transformative medicines to address the underlying cause of disease for CF patients. I'm excited for the opportunity in 2022 to bring TRIKAFTA, KAFTRIO to even more patients around the globe and the potential to commercialize multiple potentially transformative therapies outside of CF in the near future, starting with sickle cell disease and beta thalassemia.

Thanks, Stuart. In the fourth quarter of 2021, Vertex continued to demonstrate very strong financial performance. Fourth quarter total product revenues were $2.07 billion, a 27% increase compared to Q4 of 2020. I would note that it is typical for channel inventory to fluctuate from quarter-to-quarter. And in Q4 2021, revenues benefited from moderately higher channel inventory. We expect these inventory levels to normalize in Q1 of 2022. Our full year revenues of $7.6 billion, represents an increase of 22% compared to 2020 revenues of $6.2 billion. 2021 revenue growth was driven by strong international uptake of KAFTRIO and 6 to 11 uptake of TRIKAFTA in the U.S. And with full year sales of $5.7 billion, TRIKAFTA, KAFTRIO now represents 75% of total company revenues. Other notable milestones are that the U.S. CF product sales exceeded $5 billion for the first time and ex-U.S. CF product sales exceeded $2 billion for the first time. Our fourth quarter 2021 combined R&D and SG&A expenses were $703 million compared to $539 million for 2020, and our full year expenses were $2.33 billion compared to $1.98 billion in 2020. Increased expenses were driven by investment in our research pipeline, advancement of multiple mid- and late-stage clinical programs, incremental costs for our growing CF business and investments in precommercial activities for CTX001. Our continued revenue growth, combined with disciplined spending, resulted in a 2021 operating margin of 57% and non-GAAP operating income of $4.34 billion, an increase of 24% compared to 2020. Our non-GAAP tax rate for 2021 came in at 21%. With continued revenue growth and profitability, we finished 2021 with $7.5 billion in cash. And consistent with our corporate strategy, our top priority for capital deployment is reinvestment in innovation both internally in our R&D programs and externally with business development aligned to our R&D strategy. We have invested approximately $3 billion in collaborations and acquisitions since 2019. Additionally, we have made more than $2 billion in share repurchases to offset dilution over that same time frame. Now to guidance. Our 2021 performance reflected strong uptake for TRIKAFTA in the U.S. and for KAFTRIO in multiple countries around the world. For 2022, we project that we will achieve total product revenues of $8.4 million to $8.6 billion. At the midpoint, that's an increase of nearly $1 billion or 12% growth over 2021. I'd like to remind you, as is our practice, this guidance reflects our expectations for approved products in countries where we have already secured reimbursement. For non-GAAP OpEx, we are guiding to a range of $2.7 billion to $2.75 billion. Consistent with our innovation strategy, we expect to continue to allocate greater than 70% of our OpEx to R&D with year-over-year growth largely driven by investment in our pipeline in order to advance key programs through mid- and late-stage development. Finally, we expect our non-GAAP tax rate for 2022 to be in the range of 21% to 22%. In closing, 2021 was a very important and successful year for the company. We significantly expanded our leadership position in CF by treating more patients, generating key long-term and real-world data, advancing the next-in-class CFTR modulator program into Phase III and continuing to innovate for all CF patients. We also accelerated our R&D pipeline in 2021 and obtained key data readouts across multiple programs and multiple modalities. We further strengthened our financial position, enabling continued investment in internal and external innovation while delivering industry-leading operating margins. Most importantly, these advances set the foundation which positions us for multiple milestones and significant value creation in 2022 and beyond. We look forward to updating you as we progress through the year. Let's now open the call to questions.

Thanks, operator. I would just want to note to everybody before we start the Q&A that our conference audio has cut out. We're all on our cell phones and we'd like to proceed with Q&A, so please bear with us. Thank you.

Congrats on a great year-end. We had a question on APOL1. I know that you are certainly meeting with the FDA soon and trying to start a pivotal study. So you must have some thoughts around both the design, the endpoints, and what you expect out of the FDA and what you plan to do. Maybe you could give some color on that, both on primary and key secondary endpoints you'd expect to be in agreement with the FDA.

Thank you for the question and the kind words about the year. Regarding the VX-147 program, we focused on studying APOL1-mediated FSGS during Phase II, which is a specific type of APOL1-mediated kidney disease. The broader category of APOL1-mediated kidney disease includes around 100,000 patients in Europe and the U.S., while the FSGS segment we investigated consists of about 10,000 patients. We chose this specific group intentionally, as they represent a severe patient population with significant proteinuria, a quick progression to end-stage renal disease, and no available treatment options. Our rationale was that if we could make a difference in this group, we would have confidence in moving to Phase III with the broader AMKD patient population. The results from our Phase II study are remarkable, showing a 47.6% reduction in proteinuria alongside standard care in the APOL1-driven FSGS group, which is an impressive achievement. As for the design of the upcoming study, we are preparing for our end of Phase II meeting with the FDA soon. We have had some discussions with the agency but have not yet held that formal meeting. Important metrics to consider include proteinuria, which we measured in Phase II and serves as an indicator of kidney damage. This has been discussed as a potential regulatory endpoint for accelerated approval in homogeneous proteinuric kidney diseases. We are also considering endpoints like time to end-stage renal disease, a decrease in the GFR slope, and mortality rate, which typically form a composite endpoint for the hard endpoint. We are very enthusiastic about the program and are aiming to have our end of Phase II meeting with the FDA shortly, with plans to begin our pivotal development towards the end of this quarter. I hope this information is helpful.

I wanted to follow up on Michael's comment regarding the specific endpoint you mentioned, which is proteinuria, along with the composite endpoint involving more clinical results. Recently, the renal division of the FDA has been hesitant to endorse surrogate markers and is directing companies toward more clinical endpoints. Could you elaborate on your optimism for using proteinuria as a primary endpoint? Would you consider seeking a Special Protocol Assessment if you receive agreement on that endpoint to secure FDA endorsement? Additionally, what is the likelihood that you will need to conduct a trial based on clinical endpoints, and if that's the case, how lengthy do you expect the study to be?

Yes, thank you for the follow-up question. Regarding the likelihood of proteinuria being the endpoint, we are awaiting our end of Phase II meeting, which will happen soon. There is no need to speculate at this point. The meeting will provide clarity. It's worth noting that the agency has long considered proteinuria as an acceptable surrogate for accelerated approval in homogeneous kidney diseases. However, continuation of the trial is necessary to achieve the hard outcome. We will be discussing these matters moving forward. Additionally, the degree of proteinuria is crucial because it not only could serve as a potential accelerated endpoint but is also directly related to the hard outcome. An improvement in proteinuria of nearly 50% is very promising for various reasons.

Just wanted to shift a little bit to sickle cell. And I know, obviously, you guys are heading towards kind of a submission hopefully. But can you talk a little bit about where you stand on conditioning regimens and some of the work that you may be doing going forward to kind of make them less onerous for patients with sickle cell?

Yes, that's an excellent question. Let me take a moment to update everyone on the status of the CTX001 program and our plans to enhance conditioning regimens. Currently, we've completed enrollment in our sickle cell and beta thalassemia programs, exceeding our initial goal of 45 patients in each. In fact, we've dosed over 70 patients, and as mentioned earlier, we aim to file by the end of this year. This program utilizes a busulfan-based, single-agent myeloablative therapy, which we believe could benefit around 32,000 individuals in the U.S. and Europe with sickle cell and beta thal. Out of those, approximately 25,000 would be sickle cell patients, mostly located in the U.S. However, to fully reach the estimated 150,000 patients in these regions, we believe that gentler conditioning regimens are essential. At Vertex, we are working on this internally and have assembled a leading team in our Vertex Cell and Genetic Therapies division. Our partners at CRISPR are also advancing their own programs for improved conditioning, alongside several academic and biotech companies. I am confident that this issue will be resolved for two main reasons. Firstly, we have a clear understanding of the biology involved, including the cell surface markers and ligands necessary for selectively depleting certain cell types. Secondly, this gentler conditioning approach could extend benefits beyond sickle cell and beta thal in the oncology field. Therefore, I believe we will successfully address this challenge.

I have a couple also on CTX001. The first one is from a regulatory perspective, what would you highlight, Reshma, that regulators may need to see? Is it stuff like number of patients, median follow-up? Or is it better clarity on things like manufacturing scale up? And then on the commercial front, I'm just trying to think of the arguments you can make with the curative approach and the cost savings you can make. So is there an evaluation ongoing on treatment costs that you're doing maybe in parallel to support reimbursement? Things along those lines.

Yes, sure thing, Geoff. Geoff, I'm going to start, and then I'll turn it over to Stuart to tell you a little bit about how we see the burden of this disease with regard to the regulatory next steps. The most important thing to share with you is that we are the beneficiaries of almost every regulatory designation you could imagine on both sides of the pond. PRIME, Orphan, RMAT, which is the cell and genes for breakthrough designation, so we've had the benefit of having discussions with the regulators over time. You are right about the 2 outstanding items. It's about the number of patients and the duration of follow-up. With regard to your question on manufacturing, in the grand scheme of things, Geoff, this is an easier manufacturing approach. I don't mean to suggest it's easy, but it is easier because it's an ex-vivo approach and it requires just the Cas9 enzyme and the guide RNA. Our partners at CRISPR were very thoughtful. And from the start, we planned for the manufacturing that we are using in clinical trials to be the same process that we use in our commercial program. And not only that, it's also the same site, the same exact sites that we are using to manufacture in our clinical trials program are the same sites that we expect to use when we commercialize. So that all is proceeding to plan. I'm going to ask Stuart to comment on the burden of disease and how we see that. Stuart?

Yes, Geoff, so you asked a great question; these are obviously lifetime conditions and have a significant clinical but also economic burden on patients and on the health care system. There are some published data on this topic. They're not terribly up to date, many of them. So as you might expect, we are working to develop updated estimates of the economic impact of sickle cell and beta thalassemia. It is very, very significant. It's obviously impacted by things like in sickle cell disease, the cost of the vaso-occlusive crisis, particularly if they lead to hospitalizations and the other medications that patients take. In thalassemia, it's obviously the burden of transfusions and then also some of the additional care that patients can require because of the transfusion such as iron chelation and other supportive care. So we are working to generate updated estimates of the economic and indeed, social burden of sickle cell disease and thalassemia, and that will be an important part of the context to demonstrating the cost effectiveness of a onetime curative therapy like CTX001.

Congratulations on the quarter and the year. You've clearly demonstrated very promising data from the first patients using VX-880 for diabetes. I'm curious how consistent we can expect the effects to be from one patient to another with this approach. How are you feeling overall about the safety profile as you continue to enroll patients? What will be your goal as you transition from half to full doses? Will it be to generate a more rapid response than you've already observed or to potentially achieve complete normalization of some key parameters?

That's a great question with several parts. To address your foundational inquiry, we're optimistic about the progression of this program and what you can expect when we reach the full dosage. The data we shared from the first patient at half dose is quite remarkable. First, it's worth noting that this patient, who has had diabetes for 30 years and has not produced any endogenous insulin, showed impressive results, particularly in terms of endogenous C-peptide levels. Additionally, we observed a significant decline in hemoglobin A1C and insulin levels, which is why we decided to share those findings. Such results are unprecedented in this field. Our goal is to achieve a functional cure for this disease, which means we anticipate consistent increases in C-peptide levels, decreases in hemoglobin A1C, and ideally, a reduction or complete cessation of exogenous insulin. Regarding safety, I can only speak to the data we've already disclosed, and I noted in my remarks that the therapy was well-tolerated. Importantly, as we see hemoglobin A1C decrease, we must consider the risk of low glucose levels, which this patient has not experienced; they have been free of severe hypoglycemic episodes since the initial treatment period. Looking ahead, the study is currently active across multiple sites, and we aim to enroll and treat more patients. We are advancing to full dose because we are pursuing a curative strategy. Historical data from cadaveric islet transplants indicates that the quality and quantity of cells used are crucial for the durability of treatment responses.

What is the bar here for the 2 Phase II acute pain programs that are reading out this quarter in terms of moving forward? And then separately, could you speak to your capital allocation plans?

Yes, sure thing, Salveen. Let's take the pain studies first. We are in 2 acute pain studies, 1 in abdominoplasty, a model of soft tissue pain and 1 in bunionectomy, which is seen as a model for pain in a 'hard tissue.' Both studies are very similarly designed. They are dose-ranging studies with a placebo control arm and an opioid reference group. What we're really looking for here is therapeutic pain relief without the side effects of opioids. And obviously, the most important one of that is the addictive potential. I don't have to tell you about the opioid epidemic raging in the U.S. and we have very high confidence in VX-548 on the safety side and the lack of addictive potential because there are simply no receptors for NaV1.8 in the central nervous system. On the efficacy side, we go into this with confidence for 3 reasons; one, this is a genetically validated target; two, this is also a pharmacologically validated target with our own VX-150 data that you'll remember had positive proof-of-concept across acute, neuropathic and, let's call it, musculoskeletal pain; and three, this particular molecule, VX-548, amongst its other properties is also multifold, more potent. So that's really what we're expecting, and that's how we are looking at the 548 program. With regard to capital allocation, Salveen, we've been very consistent as we've talked about our capital allocation strategy that we believe that the greatest value we can create is by investing our capital in innovation, both internal and external. We've never invested more than we are today in internal innovation. And you see the results of that with VX-147 with the Phase II results and its progress into pivotal development. With the 2 Phase II studies we just spoke about in the pain program, not to mention the VX-121/561/tezacaftor program in CF in Phase III. And you also see it with our investments that we've made in business development with the Semma acquisition and the really terrific results, albeit early from the VX-880 program. And going forward, what you can expect is the same. Our strategy is working, and we expect that we will continue to invest in both internal and external innovation.

Congrats on the quarter and the strong '22 guide. Not to sort of flog a dead horse, but we're obviously getting closer to a competitor CF trip at readout. And I'd love you to remind us specifically, what is it that gives you comfort around the level of competitive threat or the lack of? And then just a quick one on your type 1 diabetes one, the 880, on the encapsulation device, you said you've overcome fibrosis and vascularization issues. Is there a drug-eluting component to this device?

Yes, Colin, thank you for the kind words and the question. Let’s first address type 1 diabetes, and then we'll move on to the CF landscape. We discussed the results from patient Number 1, the progress towards full dosing, and our primary objective, which is to advance a functional cure for this condition. The significance of those results in the initial patient is heightened by the fact that those exact same cells are being used in the cell plus device program, which is currently in the IND-enabling study phase. We anticipate filing that IND this year. I’ll keep my comments regarding the encapsulation broad. What I can share is that the device has been specially designed to facilitate vascularization and the exchange of oxygen and nutrients, allowing for the back-and-forth movement of insulin and glucose while excluding the immune system. It's not solely about the materials; the geometry also plays a crucial role. Our studies thus far, including those conducted with large animal models, indicate that we have addressed the longstanding issues related to foreign body response and the challenges of properly oxygenating and nourishing the cells. Now, regarding the CF landscape, we've touched on this before, but I want to emphasize that TRIKAFTA has established an extremely high standard. More patients worldwide are currently being treated with a VERTEX CFTR modulator than ever before, primarily with TRIKAFTA. The clinical trial data for TRIKAFTA is outstanding, including the 14% ppFEV1 improvement from the trial results. However, it’s not just about the short-term changes in lung function. As I mentioned in my prepared remarks, TRIKAFTA has now shown long-term data from the 96-week follow-up study of the pivotal trials, demonstrating no decline in mean lung function over time, which is a first for any CFTR modulator. We also have real-world data from the CF registry showing improvements in critical metrics such as transplantation, pulmonary exacerbation, and mortality. When you combine all this information, it becomes clear that any medication intending to compete with TRIKAFTA must do so directly in clinical trials. That’s precisely our approach with 121/561/tezacaftor, which needs to demonstrate improved benefits and have long-term data. Vertex is the only company that possesses such data, and our most advanced competitor to TRIKAFTA is our own 121/561/tezacaftor, currently in Phase III studies.

I have a quick question. For molecule 548, does it have the potential to be effective in treating neuropathic pain? I noticed there wasn't a trial conducted for this molecule. Regarding the type 1 diabetes program, there will be patient data released from Viacyte and CRISPR related to their edited embryonic stem cell program. I am interested in your perspective on how this data might inform us about the efficacy of your edited program without the use of immune suppressants. I understand that your approach may not be as differentiated as either your cell line or the iPSC cell line, so I'm trying to grasp how you anticipate interpreting that data when it's available, especially in terms of its implications for the potential of using an edited version without immune suppression in your program.

Thank you for the great questions, Robyn. Let’s start with the neuropathic pain question regarding VX-548 and then move on to type 1 diabetes. The NaV1.8 axis is an exciting target for us due to both genetic and pharmacologic validation with VX-150, which showed positive outcomes in both acute and neuropathic pain. I do believe VX-548 has potential for neuropathic pain. In contrast to acute pain, which is brief, neuropathic pain is a chronic condition. Therefore, the preclinical data and the work required for this differ, and that's what we are currently focusing on. I anticipate that the NaV1.8 axis will play a significant role in neuropathic pain, and the results from NaV 150 provide strong evidence for this. Regarding the development of fully differentiated, allogeneic, insulin-producing pancreatic islet cells that can evade the immune system, it is crucial to have the cells first. The editing process, the device, and off-the-shelf immunosuppressants are three different strategies to protect the cells from the immune system, but the focus must remain on the cells themselves. Vertex is the only company that has allogeneic, fully differentiated pancreatic islet cells capable of producing insulin in industrial quantities. We are exploring various strategies to protect these cells from the immune response, including VX-880, which utilizes off-the-shelf immunosuppressants, and VX-264, which combines cells with a device for protection. Additionally, we are working on editing the cells as well. Ultimately, the critical aspect is having the right cells.

My congratulations as well. Maybe another one on VX-147. How well understood is the homogeneous nature of APOL1-mediated kidney diseases with proteinuria being the key marker here? I'm asking it because genetic testing is not routinely performed in these patients. So trying to understand if there is a lack of data that could be a gating factor for the FDA from making the leap from FSGS to broader APOL1-mediated kidney diseases.

Thank you, Mohit. I’d like to provide some background on APOL1-mediated kidney disease, which will clarify our current status and future implications. You are correct that testing rates are low, and we must do more to encourage patient testing. However, it's important to note that when there's no available therapy for a disease—such as APOL1-mediated kidney disease—the motivation for both patients and physicians to seek a genetic diagnosis is understandably diminished. The story of APOL1 is quite recent, emerging over the past decade or so, as we've begun to recognize that much of the kidney disease seen in patients of African descent is due to APOL1. This understanding has developed only in the last 10 to 12 years. It's evident that the disease has a clear homogeneity, which is characterized by the presence of 2 APOL1 alleles in patients suffering from proteinuric kidney disease. Studies show that those with 2 APOL1 alleles have consistently worse outcomes and experience faster progression of kidney disease. Regarding the awareness and understanding of this condition, since our grasp of the genetics is relatively new, we are actively working on education initiatives. Additionally, we are developing a diagnostic tool, 503c, to complement VX-147. Our efforts include collaborating with patients and physicians to ensure they receive support in obtaining a proper diagnosis.

One for you, Reshma. So from your view as a nephrologist, how important is EGFR as the measure of kidney disease progression? Is this change in proteinuria confirming the same measurement in your view?

Yes, that's an excellent question, Evan. What stands out for me is that VX-147 represents a truly novel and significant advancement in the renal community. This treatment targets one of the few genetically defined kidney diseases that we have a clear understanding of, marking it as one of the first precision medicine approaches for a genetically driven kidney disease by addressing its underlying causes. There is a link between proteinuria and GFR, with GFR serving as an indicator of kidney function, similar to how ppFEV1 indicates lung function. Specifically, proteinuria signals kidney damage, indicating that protein, which should remain on one side of the membrane, is leaking into the urine. As this condition progresses, it leads to a decrease in GFR, which further signifies impaired kidney function. Unfortunately, the progression can ultimately result in the need for transplantation, dialysis, or death. These measures are interconnected and provide important insights into a patient's condition. Clinically, when we encounter a patient with a proteinuric kidney disease, our primary goal is to reduce proteinuria, as there is a well-established correlation between proteinuria levels and serious outcomes such as transplantation, dialysis, and mortality.

Operator, we'll take two more questions.

I'll ask Stuart a question to give you a quick break, Reshma. Stuart, regarding cystic fibrosis, you're expected to reach close to $9 billion by the end of this year. You've penetrated about 60% to 75% of the population by that time. How should we think about your potential to reach over 90% penetration with our CFTRs, aside from Moderna's approach? Additionally, assuming you receive approval for sickle cell disease and beta thalassemia, what are your expectations for uptake? Will there be initial warehousing, or not? Will the uptake still be part of the study? Any insights would be appreciated.

Great, Hartaj, thank you. So yes, our guidance for 2022 is $8.4 billion to $8.6 billion, as Charlie said in his prepared remarks, and that is a reflection of the momentum we have coming into 2022 from 2021, where we launched 6 to 11 TRIKAFTA in the U.S. and also secured numerous reimbursement agreements outside of the U.S. So our guidance incorporates that momentum and countries where we already have reimbursement agreements. As you said, though, we still have a lot of the CF population who could potentially benefit from a CFTR modulator, who are not yet being treated, somewhere north of 25,000. And we have a lot of confidence that we're going to get to the vast majority of those patients because they are in sort of 3 categories that we've demonstrated that we can address. The first one is patients who are in countries where we have reimbursement agreements but patients haven't been initiated. And that's largely because we're early in the launch curve, so think of countries like the Netherlands and Spain. The second category is countries where we have regulatory approval, but don't yet have reimbursement. So think countries like Australia. And the third category is younger patient groups where we've demonstrated with KALYDECO and ORKAMBI, but we can develop our products down into younger and younger age ranges. And as I said, TRIKAFTA is now approved for 6 to 11 here in the U.S. Very recently, KAFTRIO was approved for 6- to 11-year-old patients in both the EU and the U.K., and we're continuing to look at developing it for even younger patient group. So we have a lot of confidence that we're going to be able to get to the vast majority of those 25,000 patients over the next few years, and that's going to drive significant revenue growth for several years to come. And then as you mentioned, in addition to that, there's an additional 5,000-plus patients who aren't going to be able to respond to CFTR modulators because they produce no protein. And those other patients, we're seeking to address with our mRNA therapy. And as Reshma said in her prepared remarks, we've made good progress with that. So we have a lot of confidence. There's a lot of growth left in our CF franchise over the next several years. In terms of the sickle cell and transfusion-developed thalassemia patient populations, again, we see a very significant opportunity there. As Reshma mentioned, approximately 32,000 patients who have severe disease between the U.S. and the EU. So we see a significant multibillion-dollar opportunity just treating those severe patients. Obviously, this is a different type of condition. This is a different therapy, and so I wouldn't be thinking of an uptake curve like we've seen in CF. It's not going to be anywhere as dramatic as that. But certainly, in that severe sickle cell and thalassemia populations, we see a multibillion-dollar opportunity ahead of us.

I want to go back to VX-147 with a three-part question. Number 1, has the agency signaled a threshold for proteinuria reduction for accelerated approval? Number 2, if I understood your prior comments, the hard endpoints will be collected in the same study and will convert the subpart edge to a full approval? And Number 3, does the broader high-risk APOL1 proteinuric kidney disease population, is this also a double-hit disease? And do they progress to ESRD at the same speed at FSGS?

Yes, Debjit, you asked three important and related questions to the 147 program in AMKD. So let me try to answer them in this way. When we talk about the 147 program and targeting our pivotal development so that we can address the 100,000 people with 2 APOL1 alleles and proteinuric kidney disease, these people already have kidney disease, these are not people at risk for kidney disease. So the double-hit hypothesis is a good point. That's for 'at risk to develop' disease. These people we are talking about already have disease. The second question is a related question around proteinuria, its potential use as a surrogate endpoint for accelerated approval, and then how you do these studies in terms of the hard endpoint. As I said before, we simply haven't had our end of Phase II meeting. We'll have it soon enough, and then I can share details of the program with you. But generally speaking, the way that studies are done when proteinuria is the endpoint for accelerated approval is in the same study. The study continues and you go on to the composite endpoint of change in GFR, time to ESRD or death. And that's how you collect that hard endpoint.

Operator, thanks very much. We appreciate everybody joining us tonight, the Investor Relations team in the office tonight. And happy to talk to you if you have additional questions. And you may now disconnect. Thank you very much.