Operator:

Good day! And welcome to the Vertex Pharmaceuticals Second Quarter 2024 Earnings Conference Call. All participants will be in a listen only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Susie Lisa. Please go ahead.

Reshma Kewalramani :

Thanks, Susie. Good evening all. And thank you for joining us on the call today. We've continued our momentum from Q1 with another quarter of excellent performance across the board, including outstanding commercial execution in both CF and the early launch of CASGEVI. Our preparedness for the potential near-term launches of the Vanzacaftor Triple in CF and Suzetrigine in acute pain, as well as the rapid advancement of our broad and deep pipeline. In CF, we continue to reach more patients delivering $2.65 billion in revenue in Q2, and based on this result and our outlook, we are increasing our full-year product revenue guidance to $10.65 billion to $10.85 billion, which at the midpoint represents 9% growth versus 2023. In sickle cell disease and beta thalassemia, we are pleased with the reception from patients, physicians, and payers as we continue the ongoing launch of CASGEVI to bring this potentially transformative medicine to patients across multiple regions, and we are very excited about the multiple near-term opportunities to reach more patients and deliver additional revenue growth from our programs that have completed pivotal development, including the completion and acceptance of two significant regulatory submissions. The Vanzacaftor Triple in patients with cystic fibrosis, six years and older, which has been given priority review designation, and VX-548 or Suzetrigine in moderate to severe acute pain, which has also been granted priority review by the FDA. Lastly, on the mid and late stage pipeline, I am very pleased with our continued rapid progress. I'll call out three specific programs. First, the Suzetrigine LSR Phase 2 Study has significantly accelerated, and we now expect Phase 2 results by the end of this year. Second, in the VX-880 Phase 1/2 trial in Type 1 Diabetes, we have completed enrollment and dosing in the original 17-patient study, and we have secured regulatory endorsement to expand the study to 37 patients in total as we advance towards pivotal development. And third, in the Povetacicept program, having completed successful end of Phase 2 regulatory meetings, we will initiate the Phase 3 pivotal trial in IgA nephropathy later this month. With those highlights, let me now turn to an R&D review limiting my comments this quarter to the programs with the most significant recent updates, cystic fibrosis, pain, type 1 diabetes, and IgA nephropathy. Starting with CF, we are very pleased with the Phase 3 results from the Vanzacaftor Triple program we announced in early February, as we continued to drive towards our ultimate goal of bringing all eligible patients to carrier levels, indeed to normal levels of CFTR function as measured by sweat chloride. The Vanzacaftor Triple demonstrated an even greater reduction in sweat chloride than TRIKAFTA, a very high bar to have crested, and thus sets the stage for the potential to have a new standard in the treatment of CF. The Vanzacaftor Triple also offers the convenience of one-daily dosing and a substantially lower royalty burden. With regard to the vanza global regulatory submissions, in addition to the US acceptance our filings have also been validated by the EMA in the EU, and the MHRA in the UK. With regard to VX-522 our CFTR mRNA therapy in development with our partners at Moderna, it has completed the single ascending dose portion of the Phase 1/2 study and continues in the multiple ascending dose portion. As a reminder, VX-522 seeks to provide treatment for the more than 5,000 people with CF who do not make any CFTR protein and therefore cannot benefit from CFTR modulators. Based on the pace of enrollment and study dynamics, our current expectation is to complete the study and share both efficacy and safety results from the study in the first half of 2025. Moving now to the pain program and our portfolio of novel, highly selective Nav1.8 and Nav1.7 pain signal inhibitors. In acute pain, a few points to highlight. First, we are very pleased that the Suzetrigine submission has been accepted and granted priority review by the FDA with a PDUFA target action date of January 30th, 2025. Second, our next in class Nav1.8 pain signal inhibitor, VX-993, is in the clinic in a Phase 1 trial with the IV formulation and is currently enrolling and dosing healthy volunteers. Third, VX-993 will soon enter a Phase 2 study with the oral formulation in acute pain following bunionectomy surgery. This study is on track to begin later this quarter. And lastly, we continue to make strong progress preclinically with our Nav1.7 pain signal inhibitor program that may be used alone or in combination with Nav1.8 inhibitors. Just as in acute pain, we have multiple programs moving rapidly through development in Peripheral Neuropathic Pain or PNP. Starting with Painful Lumbosacral Radiculopathy or LSR, a condition that impacts more than 4 million Americans. There is a high unmet need in LSR. In the US, there are no medicines approved specifically for the treatment of pain from LSR. As mentioned in my opening remarks, the pace of enrollment in this study has been rapid and significantly exceeded our projections. Study enrollment is now complete and we anticipate sharing Phase 2 LSR results by the end of this year. Also in Peripheral Neuropathic Pain, we are excited to begin the Phase 3 pivotal program for Suzetrigine in painful diabetic peripheral neuropathy or DPN later this quarter. The DPN pivotal program consists of two identical randomized control trials of approximately 1100 patients each, with Suzetrigine at a dose of 70 milligrams, one daily, and evaluating the change from baseline to week 12 in NPRS pain scores relative to placebo. The RCTs also include an active comparator arm of Pregabalin. A key secondary endpoint is changed from baseline at week 12 in NPRS score for Suzetrigine versus Pregabalin assessed for non-inferiority. And if we meet non-inferiority, then we will test for superiority versus Pregabalin. Lastly in PNP, I am pleased to share that we will soon initiate a Phase 2 study with the oral formulation of VX-993 in diabetic peripheral neuropathy, designed similarly to the Suzetrigine Phase 2 DPN study, this trial is also on track to begin this quarter. Turning now to Type 1 Diabetes, VX-880s are stem cell derived, fully differentiated islet cell therapy for people with T1D and impaired hypoglycemic awareness, who experience severe hypoglycemic events despite optimal medical care. At the ADA meeting in June, an oral presentation from the ongoing Phase 1/2 Study included updated data with more patients and longer duration of follow-up, and continued to demonstrate the potential of VX-880 as a functional cure for patients with T1D. The data reflected 12 patients from Parts B and C of the study who received a full dose of VX-880 as a single infusion and had at least 3 months of follow-up. The results are remarkable. Specifically, all patients demonstrated islet cell engraftment and glucose-responsive insulin production by day 90. All 12 patients achieved hemoglobin A1c levels less than 7%, and all 12 patients also had a time and range for glucose levels of 70% or greater. 11 of the 12 patients greatly reduced or completely eliminated exogenous insulin use and the three patients with 12 months of follow-up and therefore evaluable for the primary endpoint each met the primary endpoint of elimination of severe hypoglycemic events with a hemoglobin A1c level below 7% as well as the secondary endpoint of insulin independence. With these results we are planning forward towards the next phase of development for VX-880. To that end we are very pleased to have secured regulatory approval to expand the original 17 patient study which is fully enrolled and dosed to include an additional 20 participants. We look forward to continuing the work with regulators to finalize the requirements for pivotal development and updating you on those discussions. Beyond VX-880 our cells + device or VX-264 program encapsulates the same VX-880 cells in a proprietary device designed to eliminate the need for immunosuppressants. VX-264 is in a Phase 1/2 multi-part global study. We have completed Part A of the study at an initial dose with a stagger between patients. We are currently enrolling and dosing patients in Part B which is at the full target dose also with a stagger between patients. As a reminder Part C of the trial is at the full target dose with no stagger between patients. The last major R&D update pertains to povetacicept the lead asset from our recently closed acquisition of Alpine Immune Sciences where enthusiasm for both the acquisition and pove remains high. As a reminder pove holds the promise of being a pipeline and a product and has best-in-class potential for the lead indication in IgA nephropathy given its mechanism of action with dual inhibition of both APRIL and BAFF, its pre-clinical profile and the clinical data through Phase 2 in proteinuria, hematuria and GFR. These attributes plus pove's once monthly dose frequency and small volume subcutaneous route of administration give us high confidence in its potential to be a transformative medicine for patients with IgAN. I am pleased to share that we are on track to initiate the global Phase 3 RAINIER study of povetacicept in patients with IgA nephropathy this month. To recap we had successful end of Phase 2 meetings with the FDA and global regulatory authorities and we're very pleased to have reached agreement on the following important elements. The pivotal program is designed as a single global randomized double-blind placebo controlled trial of approximately 480 patients with biopsy proven IgA and proteinuria. Patients will be randomized to receive either pove or placebo on top of standard of care. In the U.S. the Phase 3 design affords us the opportunity to submit for an accelerated approval. A pre-planned interim analysis will take place when a certain number of patients reaches 36 weeks of treatment to evaluate the change in proteinuria from baseline to week 36. For full approval the study will continue through week 104 and an assessment of GFR. Beyond the Phase 3 study in IgA nephropathy pove is also being evaluated in two Phase 2 basket trials one in renal diseases termed RUBY3 and a second in B cell mediated cytopenias termed Ruby4. We look forward to readouts from some cohorts in these studies later this year and into next. To close the pipeline review, a brief update on VX-634 and VX-668 in Alpha-1 Antitrypsin Deficiency or AATD. Safety was demonstrated in the Phase 1 studies of both VX-634 and 668. However based on the Phase 1 biomarker analyses we have determined that neither VX-634 nor VX-668 would deliver transformative efficacy for people with AATD and therefore we have decided to discontinue development of both molecules. With these learnings our research efforts in AATD will continue. I'll now turn it over to Stuart for a commercial update.

Charlie Wagner:

Thanks Stuart. Vertex's excellent Q2 results demonstrate once again our consistent strong performance and attractive growth profile. Second quarter 2024 revenue increased 6% year-over-year to $2.65 billion with solid growth of 7% in the U.S. and 5% outside the U.S. The drivers of this strong quarter were in line with our expectations, including an anticipated reduction in channel inventories in select international markets. Second quarter U.S. growth was driven by continued strong patient demand for TRIKAFTA. Outside the U.S., growth was also driven by strong demand, with continued uptake from the KAFTRIO launches in children's ages two to five, partially offset by the reversal of the first quarter channel inventory build. On the expense front, Q2‘24 combined non-GAAP R&D Acquired IPR&D and SG&A expenses were $5.43 billion, compared to $1.04 billion in the second quarter of 2023. Q2’24 operating expenses include over $4.4 billion in AIPR&D charges, primarily as a result of the Alpine acquisition, which we previously disclosed as being accounted for as an asset acquisition. This compares to just $111 million of AIPR&D charges in Q2’23. Q2’24 non-GAAP R&D expenses of $697 million were roughly flat year-over-year, reflecting ongoing investment in the advancement of our broad R&D portfolio, upset by reduced costs from the recently completed clinical trials, as well as the associated transition of certain costs from R&D to COGS and inventory. Q2’24 non-GAAP SG&A expenses of $280 million increased 28% versus prior year, primarily as a result of investments in the commercial organization, including launch activities for CASGEVY and pre-launch activities for Suzetrigine in acute pain. We anticipate that quarterly non-GAAP R&D and SG&A expenses will increase over the remainder of 2024 within our guidance as we advance multiple studies, including Suzetrigine, pove and inaxaplin in Phase 3 programs, VX-993 in acute and peripheral neuropathic pain studies, and the expansion of the VX-880 trial in T1D. In addition, we continue to invest in preparation for upcoming potential new launches, including the further build-out of our commercial capabilities in acute pain. Q2’24 results reflected strong revenue and underlying operating results, though due to the $4.4 billion AIPR&D charge from Alpine transaction accounting, we reported a second quarter 2024 non-GAAP operating loss of $3.1 billion. In the second quarter of 2023, we reported $1.15 billion in non-GAAP operating income. Our tax rate for the quarter was also impacted by the one-time, non-deductible, Alpine AIPR&D charge, leading to a reported non-GAAP tax rate for the second quarter of 2024 of negative 10%, compared to a tax rate of 21% in Q2’23. Aside from the effects of the non-deductible Alpine charge, there were no material changes in Vertex's non-GAAP tax rate for the quarter, which would have been approximately 21%. The $4.4 billion AIPR&D charge for the Alpine acquisition equates to an impact of approximately $17 per share on Q2 GAAP and non-GAAP results, and drove a non-GAAP loss per share of $12.83 in Q2’24, compared to non-GAAP earnings per share of $3.89 in the second quarter of 2023. We ended the quarter with $10.2 billion in cash and investments after paying approximately $5 billion to fund the acquisition of Alpine Immune Sciences. Additionally, we deployed over $300 million of cash in the second quarter to repurchase more than 700,000 shares. Now, switching to guidance. We are raising our 2024 total product revenue guidance to a range of $10.65 billion to $10.85 billion, representing 9% revenue growth at the midpoint at current exchange rates. We continue to have high visibility into this revenue outlook, as we expect continued growth in CF as we reach more patients, including younger ones in core markets and select other countries. Guidance also continues to include a contribution in the second half of the year from the commercial launch of CASGEVI. For Vertex operating expenses, our non-GAAP guidance continues to include a range of $4.2 billion to $4.3 billion in combined R&D and SG&A expenses, which is unchanged from the guidance provided on our last earnings call. As previously communicated, we are absorbing Alpine's projected non-GAAP operating expenses for the remainder of 2024 within our guidance range for R&D and SG&A. For Acquired IPR&D, we now expect approximately $4.6 billion for the year, including the Alpine asset acquisition charge recorded in the second quarter. Given that the Alpine AIPR&D charge is not deductible for tax purposes, we expect a non-GAAP full year 2024 tax rate of approximately 100%. Note that the anticipated percentage tax rate is highly sensitive to projected pre-tax income. Aside from the impact of the non-deductible Alpine AIPR&D charge, our underlying full year 2024 non-GAAP effective tax rate would have remained in the range of 20% to 21%. In closing, Vertex posted excellent results yet again as we delivered strong revenue growth, advanced our CASGEVE launch, and secured important regulatory approvals. We also strengthened our capabilities in preparation for additional near-term launches, progressed our pipeline, and made rapid progress closing and integrating Alpine, a compelling fit with Vertex's R&D strategy, with significant potential as a pipeline in a product. We are already leveraging Vertex's clinical, regulatory, and commercial capabilities to accelerate development in IgAN, with Phase 3 set to begin this month. We are targeting U.S. accelerated approval in IgAN in late 2027 and a contribution to Vertex's revenue growth and diversification beginning in 2028. In addition, as we move through 2024, we anticipate further important achievements, including multiple milestones in our pain portfolio, such as a Phase 2 data readout with Suzetrigine in LSR, Phase 2 initiation of VX-993 studies in acute pain and in diabetic peripheral neuropathy, as well as progress towards pivotal development in T1D. These and other anticipated milestones of continued progress in multiple disease areas are detailed on Slide 17. We look forward to updating you on our progress on future calls. And I'll ask Suzy to begin the Q&A period.

Salveen Richter:

Good afternoon. Thanks for taking my question. Noting that around 6,000 patients have discontinued CFTR modulators, as we think about uptake for vanzacafta triple, can you help us understand what the early launch dynamics could look like and whether they could be a significant bolus of early adopters? And then just a second question, if I may. What is the relative contribution of CASGEVI to the updated product revenue guidance? Thank you.

Stuart Arbuckle:

Yes Salveen. Thanks for the question. I don't think there's going to be a single bolus of patients, based on our research with physicians that they are considering for the vanzacafta triple combination. I'd say that they are excited about the prospects for vanzacafta, both for their existing patients who are on a CFTR modulator, many of whom I think are going to be very interested in a treatment option which promises the potential for increased CFTR function, and also being the fact that it's once a day. And then, as you say, there are also patients who are not currently on a CFTR modulator, who I think are going to welcome the opportunity for a new treatment option. So I don't think it's going to be one or the other. I think there's going to be a broad interest in the vanzacafta triple across both patients who are persistent today and those who've discontinued previously.

David Risinger :

Congrats on the strong execution. I have two questions. First, could you just discuss the potential to develop VX-548 ex-U.S. for neuropathic pain? And second, could you provide the latest on your preclinical development efforts for NAV1.7 inhibitors? Thanks very much.

Stuart Arbuckle:

Yeah. Hi Dave. Thanks for the question. So, I would say that the clinical landscape, and by that I mean the kind of the treatment options and the way that they are used, is very similar outside the U.S. as it is here in the U.S. with things like NSAD, acetaminophen. In neuropathic pain, things like pregabalin, gabapentin, and then obviously opioids. And that's true in both acute pain and neuropathic pain, and I know you were asking specifically about neuropathic, there are differences. I think it's fair to say that the level of abuse and misuse of opioids is less. It's not zero, but it's less outside of the U.S. But in addition, the pricing dynamics and the value recognition of healthcare and innovation by healthcare systems outside the U.S. is very different. And as such, our focus at this time is very much on the unmet need and opportunity to serve patients here in the U.S. first, and ex-U.S. is something that we will consider later on.

Operator:

The next question will come from Jessica Fye with J.P. Morgan. Please go ahead.

Reshma Kewalramani:

Yeah. Hi Jess. It's Reshma and let me take those two questions. Maybe we'll go with 264 first, and then we'll go to VX-880. So on VX-264, this is the Cells Plus Device Program. You're exactly right about the stage of the program. We're in Part B, which is the full dose. It's a full dose with a stagger period between patients. I would say that results are a 2025 timeframe. We're making progress, and I'm really happy to be in the clinic with both, 264 and 880. On VX880, this is the Naked Cell Program, so cells alone. This is the one that has now completed, which is obviously a big milestone, enrollment and dosing in the original 17-patient study. We are in the phase of development where we're in full dose with patients who don't have a stagger. I'm really happy with the regulatory discussions to-date and their endorsement for us to expand the study to a total of 37 patients, so an additional 20 patients. And with regard to your direct question on how should we think about the path forward with regard to regulatory expectations, I don't have an answer for you today, because that's exactly the conversations that we're going to complete in the coming months. But I would think about the Type 1 Diabetes Program more like a CASGEVY program than a small molecule program. You'll remember that the CASGEVY program in either TDT or in sickle cell disease was a very efficient sample size. And what we did in the case of CASGEVY is convert it from a Phase 1-2 to a Phase 1-2-3 trial, exactly what it will look like for VX-880. I'll look forward to keeping you updated as we complete the discussions with regulators.

Evan Seigerman:

Hi, guys. Thank you so much for taking my question. I think Stuart, in your prepared remarks, you suggested that the launch of Suzetrigine might be more gradual than some other launches. Maybe once approved, can you walk me through some of the gating factors to really get this into the hands of patients to have the maximal impact on healthcare system. Kind of what you have to do once approved to really get it to these patients? Thank you.

Evan Seigerman:

Great, thank you.

Chris Raymond :

Hey, thanks. Just maybe two questions. First, maybe on Pove, just a competitive question, as IgAN seems to be getting a little bit more crowded. Biogen just got access to felzartamab, which I think had pretty interesting Phase 2 data. Just maybe talk a little bit about how you view the sort of match up to that and maybe how does anti-CD38 compare to BAFF APRIL inhibition. And then maybe a CASGEVI commercial question. Just on the HHS suit around fertility treatments for patients getting CASGEVI, can you maybe talk about the overall timelines there with that case, and maybe you also talk about how much of an impact it is to not have this reimbursement for fertility in place during the early stage of the launch. Thank you.

Stuart Arbuckle:

Yeah, let me just take a step back before I talk specifically about fertility preservation. So, because of the treatment journey to get CASGEVI, which requires multiple trips to the activated and authorized treatment centers, and because there's only a certain number of sites in the United States, and in addition, because of the B cell-fan conditioning regimens is where the fertility risk comes in, we have sought to try and provide support to patients in two particular areas. One is travel and lodging, and the other one is in fertility preservation. And we want to provide those support services to patients equitably, no matter what their payer is. We are able to provide both of those services to commercially insured patients, and we are able to provide travel and lodging support to government-insured patients, because that has previously been ruled on by the OIG. What they have not given us an affirmative decision on is on fertility preservation, and that's why we have launched our suit to try and get fertility preservation approved for government-insured patients as well. It's impossible to speculate exactly on the timing of when that suit will be heard and resolved. In the short term, I don't see it as being rate-limiting to a successful launch of CASGEVI, and I think we're already seeing that in the number of patients who are beginning the treatment journey and in the number of cell collections. Having said that, we are completely committed to the sickle cell and TET communities, and we are going to fight for their rights to get equitable access, whatever their payer.

Terence Flynn:

Hi. Thanks for taking the question. Maybe two for me. Stuart, you discussed at a high level your confidence in Vanzacaftor pricing. Maybe just – I know you're not going to comment directly on the price, but just what are some of the inputs you're considering as you think about making that decision next year? And then, any update on where we might see the full Phase 3 data for VX-548 this fall? Thank you.

Stuart Arbuckle:

Yeah Terrence, on Vanzacaftor, we're going to approach the pricing of Vanzacaftor as we have with all of our medicines, which is we're going to base it on the clinical benefits and the value it provides to the patients. And as you know, we're very positive about the Vanzacaftor profile. It performed brilliantly in the Phase 3 program, non-inferior as anticipated to TRIKAFTA on FEV1, but demonstrated superior restoration of CFTR function as measured by sweat chloride, and of course, it has the convenience of being once daily. So we're going to take all of those factors into consideration when thinking of the pricing, which is obviously a decision we'll make much closer to the launch.

Mohit Bansal:

Great. Thank you very much for taking my question. Maybe one question on LS-SAR trial. If you could help set some expectations there, it's a placebo-controlled trial, so did we think a two-point improvement just like a DPN trial would be good enough here? And then the other one is that, are you expecting any adcomm for the pain, acute pain program at this point? Thank you.

Mohit Bansal:

Thank you.

Operator:

Yes, ma'am. The next question will come from Liisa Bayko with Evercore ISI. Please go ahead.

Reshma Kewalramani:

Stuart, any additional comments to make?

Liisa Bayko:

I was just trying to get a sense of the repetitive, like how quickly people might convert over is you're thinking. Do you think it'd be a kind of slow and steady or pretty rapid, your feedback there?

Reshma Kewalramani:

Liisa, maybe I'll just add one thing if you want to think through it. Patients with CF usually visit their doctors once a quarter. As Stuart said, the patients are very aware of drug development and Vanzacaftor in particular, as are their physicians. And patients have consistently expressed interest in thinking about medicines that may bring them the potential for higher efficacy. I think that that's as far as we can go with regard to timing, but maybe those are pieces of information that are helpful to you.

Operator:

The next question will come from Michael Yee with Jeffries. Please go ahead.

A - Reshma Kewalramani:

Yeah. Mike, I'm going to ask Stuart to comment on No Pain first. I think it was a little hard to hear you, Mike, but I think Stuart, Mike's question is, does the No Pain Act pertain to government-paid patients, and how are you thinking about commercial? And then I'll come back for Pove.

Reshma Kewalramani:

And Mike, on the question on Pove, I think the question was, how should we think about Pove in IgA nephropathy, and then how should we think about it in the other studies? Is it all about proteinuria? So, the way I would think about it is underlying cause of disease and B-cell mediated diseases. We have two Phase 2 studies going on. It was a very clever design by Alpine scientists. There's a RUBY-3, which is a basket of B-cell mediated renal diseases, IgA nephropathy, which is now going to Phase-3 this month. It has lupus nephritis in there, ANCA associated nephritis, as well as membranous. All of these diseases are B-cell mediated diseases. In many of these diseases, proteinuria is important. But I'll tell you, for example, in membranous, PLA2R is a very important biomarker. And in some of the nephritides as you may know, hematuria is very, very important. So I think protein is – proteinuria is clearly very important in IgA nephropathy. And its prominence is elevated because of the FDA's acceptance of proteinuria in IgA nephropathy as an accelerated approval endpoint. But hematuria is important in some. Looking at biomarkers like PLA2R is important in others. And in the RUBY-4 basket, these are B-cell mediated heme diseases. It's really not about proteinuria. It's about other markers of interest, like it could be something like hemoglobin or in the case of ITP, it would be platelets. But the way I would look at it and my enthusiasm for povetacicept is because it is such a good B-cell – it's such a good medicine to tamp down the B-cells, because it's dual inhibition and impacts maturation, proliferation and differentiation of B-cells, and that's where my optimism for B-cell mediated diseases comes from.

Reshma Kewalramani:

Yep.

Operator:

Thank you. This concludes our question-and-answer session, as well as our conference call for today. Thank you for attending today's presentation. A replay of today's event will be available shortly after the call concludes by dialing 1-877-344-7529 or 1-412-317-0088 using replay access code 101-86971. Thank you for your participation. You may now disconnect.

Operator:

Good day, and welcome to the Vertex Pharmaceuticals First Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Ms. Susie Lisa. Please go ahead.

Reshma Kewalramani:

Thanks, Susie. Good evening all, and thank you for joining us on the call today. Continuing our strong momentum from 2023, we've kicked off '24 with another quarter of excellent performance across the board.

In our late stage pipeline, we continue to drive programs into Phase III and towards regulatory approval, creating multiple opportunities for both revenue growth and diversification, including:

one, completing our regulatory submissions for the vanzacaftor triple in patients with cystic fibrosis 6 years and older in both the U.S. and the EU; initiating the rolling NDA submission for VX-548 or suzetrigine in moderate-to-severe acute pain; three, advancing inaxaplin into the Phase III portion of its pivotal trial in APOL1-mediated kidney disease and expanding the eligible patient population down to age 10; and four, following the successful completion of the end of Phase II regulatory meeting with the FDA, we are on track to initiate the Phase III trials of suzetrigine in painful diabetic peripheral neuropathy in the second half of this year.

With that overview, let me now turn to a more detailed pipeline review. This quarter, I'll limit my comments to the programs with the most significant recent updates:

cystic fibrosis, pain, type 1 diabetes and the pending Alpine acquisition. Starting with CF. We are very pleased with the Phase III results of the vanza triple we announced in early February as we continue to advance towards our ultimate goal of bringing all eligible patients to carrier levels of sweat chloride.

In peripheral neuropathic pain or PNP, we are very pleased with the outcomes from the recently completed end of Phase II meeting with the FDA and are excited to begin the pivotal program for suzetrigine in painful diabetic peripheral neuropathy or DPN in the second half of this year. The program will consist of 2 randomized sister studies of approximately 1,000 patients each, with 3 arms in each study:

a suzetrigine 70-milligram arm once daily, a placebo arm and a pregabalin or Lyrica arm.

Stuart Arbuckle:

Thanks, Reshma. I'll first discuss CF, and then as we're entering a new era of commercial diversification, provide some highlights of the ongoing CASGEVY launch and the outlook for suzetrigine in acute pain. As Reshma noted, we once again delivered strong results in CF as we continue to grow the number of eligible patients receiving our CFTR modulators.

Let me provide some insights on the launch with 2 key metrics we are sharing externally as important markers of our early launch progress:

the number of activated authorized treatment centers or ATCs, and patient cell collections. Recall that Vertex will recognize revenue for CASGEVY near the end of the patient journey at infusion. Starting with ATC activation. You may recall we are prioritizing approximately 75 ATCs globally and already had 9 ATCs activated at launch, even ahead of knowing the final label or pricing for CASGEVY.

Shifting now to suzetrigine. We believe this highly selective NaV1.8 pain signal inhibitor has the potential to provide a transformative treatment option for the millions of patients suffering from acute and peripheral neuropathic pain. This quarter, I'm going to limit my commercial comments to the opportunity in acute pain. Throughout its clinical trials to date, suzetrigine has shown a compelling combination of efficacy and safety, with strong potential to be used across a range of moderate to severe acute pain conditions, both surgical and nonsurgical, and across a range of settings. This profile will ideally address the clear unmet need among both patients and physicians:

effective pain relief with a favorable safety and tolerability profile.

We have also detailed the mix of settings for their over 1 billion calendar days of acute pain treatment:

15% are prescribed and dispensed in an institutional setting, 35% are prescribed at discharge and 50% are prescribed in physicians' offices. This quarter, I'll provide you with some insights on our go-to-market strategy and an update on the legislative and payer landscape. We are focused on the institutional setting, given these approximately 2,000 institutions account for 50% of acute pain prescriptions.

Charles Wagner:

Thanks, Stuart. Vertex' excellent start to the year demonstrates once again our consistent strong performance and attractive growth profile. First quarter 2024 revenue increased 13% year-over-year to $2.7 billion, with solid growth of 8% in the U.S. and 21% outside the U.S. The drivers of this strong start were in line with our expectations, with some outperformance due to channel inventory phasing in select international markets.

We ended the quarter with $14.6 billion in cash and investments. We will use a portion of this cash on hand to fund the $4.9 billion acquisition of Alpine Immune Sciences, which is expected to close this quarter, subject to certain customary conditions. Alpine is a prime example of our priority for capital deployment:

to invest in innovation, including external innovation via business development.

Geoffrey Meacham:

I had a few on the filings. So the first question is for vanza. Do you think you guys will get a claim for the sweat chloride benefit? It seems like, obviously, you'll have the Phase III data on the label. I'm just curious what you can do from a regulatory perspective to kind of elevate the sweat chloride benefit. So that's the first question.

Reshma Kewalramani:

Yes. Geoff, this is Reshma. Let me take those questions. On the vanzacaftor triple, if you go back and look at all of the CFTR modulated labels, you'll see that we always have sweat chloride in the labels, and they are reflected because it is indeed a pharmacodynamic or PD marker. So I fully expect that the sweat chloride data from the vanza triple studies will be reflected in the label. Obviously, we are just at the point of having submitted the filing, so we're not at the point of label negotiations yet. But if history serves as a guide, I expect the sweat chloride will absolutely be in the label.

Reshma Kewalramani:

Yes. So on the acute pain side, Geoff, I think that the most important data are going to be the primary endpoint data, and I'll ask Stuart to comment on that in a minute. And with regard to securing reimbursement and ensuring that there are no barriers to prescribing a non-opioid, we see that as a very important place for policy. Stuart?

Jessica Fye:

I'm curious. For your various NaV1.8 and 1.7 programs, would you consider advancing maybe another molecule for musculoskeletal pain, perhaps engaging a commercial partner to the extent it's not a Vertexian sales detail? Just curious if you kind of have any thoughts about that, so as to like not leave potential value on the table.

Operator:

Your next question will come from Salveen Richter with Goldman Sachs.

Stuart Arbuckle:

Yes. So Salveen, all of the stakeholders that you described are going to be important in making decisions on the use of a new medicine in the institutional setting. So administrators are certainly going to be important, but as are our physician advocates who are going to advocate based on the efficacy and safety of the medicine.

Evan Seigerman:

Love to know if you to provide any additional color on how many patients in the United States have gotten their cells collected, and maybe how we should think about the growth of cell collections in the U.S. going forward. I'm just trying to understand what the trajectory of this could be like this year and next year.

Colin Bristow:

Maybe first on the pain pipeline. I see you're advancing 993 to Phase 2. Could you just give us any sort of color or detail on how you expect this to be differentiated? And does this advancement mean you won't be taking 973 forward, which I think also recently completed Phase I? And then if I may, a quick housekeeping one. Any inventory moves in the quarter that we should be aware of?

Charles Wagner:

Colin, in my prepared remarks, I mentioned that we saw some benefit in the first quarter from phasing of international channel inventory, so I assume that's what you're talking about. That benefit was on the order of $75 million to $100 million in the quarter, and I expect that to begin to reverse in the second quarter.

Operator:

Your next question will come from Terence Flynn with Morgan Stanley.

Reshma Kewalramani:

Yes, on VX-548, fall meetings, shall we say. You should expect more data on 548 with those Phase III results. certainly not only in Congress form but in publications. So I'd say fall meetings. And let me ask Stuart to comment on CASGEVY in the Middle East. It is a really exciting opportunity for us.

Operator:

The next question will come from Phil Nadeau with TD Cowen.

Reshma Kewalramani:

Yes. Phil, I will ask Stuart to comment on both CF in Brazil. You know that we have regulatory approval and reimbursement there as well as formulary discussions on suzetrigine. But just to make sure we are on the same page, the formulary discussions are separate from our discussions with policymakers.

Stuart Arbuckle:

Yes. So just to add to that, Reshma, what I would say, Phil, is that the policy initiatives that we've seen so far are really looking at trying to reduce financial disincentives for patients and indeed for institutions to selecting a branded non-opioid in a market which is obviously currently dominated by generic opioids. And so that's why things like NOPAIN, which is providing an additional payment above the DRG in the outpatient and ambulatory surgical center setting, is important there.

Stuart Arbuckle:

I can't really speculate on exactly what's going to happen with, for instance, 2,000 institutions. But my hope would be that, that's not what's happening. I don't think it's very reasonable to expect a patient to have to step through a therapy which has significant side effect liability, including addictive potential, when there is a product available, which has very good efficacy from a pain control perspective and has an excellent safety and tolerability profile, including lack of addictive potential. So I don't think that would be something that we would -- certainly wouldn't be advocating and I don't think would be particularly medically reasonable.

Operator:

The next question will come from Olivia Brayer with Cantor Fitzgerald.

Reshma Kewalramani:

Olivia, this is Reshma. Let me take 1 and 3, and then I'll ask Stuart to take the question on where are we exactly with paying commercialization. On number 3, again, just to set expectations on CASGEVY. We're thrilled with the number of ATCs, 25 since approval, which has been in just the last few months, and we commented on the cell collection, but we're not going to comment any further on exactly where each one patient is in their journey.

Debjit Chattopadhyay:

I got a couple. First on IgAN, when Vertex is ready to launch in IgAN, it's likely Otsuka will have GFR data. How are you thinking about navigating this commercially?

Reshma Kewalramani:

Debjit, let me take both of those. On DM1 or myotonic dystrophy type 1, we actually haven't had a chance to talk about it extensively. But this is a program that is in Phase I/II in patients. So we are going to have the opportunity in this study to not only assess safety, but to assess efficacy as well. With regard to what the agency might want to see for the endpoint for approval, the real answer is I don't know yet because we haven't gotten to that phase in the clinical trial.

Operator:

That will come from Ms. Liisa Bayko with Evercore ISI.

Charles Wagner:

Yes, Liisa. On the quarter, I wouldn't read too much into sequential quarter fluctuations. We saw strong volume growth in the U.S. year-over-year. As we normally do, we see some seasonal gross to net in the first quarter, and the benefit of the price increase really isn't fully reflected in the quarter that comes throughout the balance of the year. So all of those factors affect the comparison. But overall, very, very strong year-over-year growth in the U.S. and outside the U.S.

Operator:

This concludes our question-and-answer session as well as our conference call for today. Thank you for attending today's presentation. A replay of today's event will be available shortly after the call concludes by dialing 1 (877) 344-7529 or 1 (412) 317-0088 using replay access code 10186968. Thank you for your time today. You may now disconnect.

Operator:

Good day, and welcome to the Vertex Pharmaceuticals Fourth Quarter 2023 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ms. Susie Lisa, please go ahead ma'am.

Reshma Kewalramani:

Thanks, Susie. Good evening all, and thank you for joining us on the call today. We've delivered another excellent quarter to finish 2023, established a strong foundation for continued growth, and started off 2024 with tremendous momentum with additional approvals for CASGEVY, positive Phase 3 results for VX-548 in acute pain last week, and positive results for the vanzacaftor triple program in CF, this afternoon. In 2023, Vertex continued to reach more CF patients and achieved full year CF product revenues of $9.87 billion, representing 11% growth versus 2022. Following the historic approvals of CASGEVY, the first-ever CRISPR/Cas9-based therapy, our launch is off and running globally as we are now approved in both sickle cell disease and beta-thalassemia in the U.S., Great Britain, the Kingdom of Saudi Arabia, and Bahrain. CASGEVY is a one-time precise durable CRISPR/Cas9 gene-edited therapy that is generating strong enthusiasm from physicians and patients and excellent support from payers. We're also working toward multiple additional near term commercial opportunities driving toward our five launches in five years goal. The recent approvals for CASGEVY in both sickle cell disease and beta-thalassemia deliver the first two. Now with the positive Phase 3 results from VX-548 in acute pain and for the vanzacaftor triple therapy in CF, these are potentially the next two, and with a strong clinical-stage pipeline with first-in-class or best-in-class assets, we are well on our way to our goal of five launches by 2028. In addition to the rapidly advancing clinical-stage pipeline, the next wave of innovation also continues to make progress, and as we announced last month, we are pleased to be advancing two new disease areas into the clinic. First, myotonic dystrophy type 1 or DM1, a serious disease with high unmet need and no approved therapies. This disease affects approximately 110,000 patients in North America and Europe. Our DM1 program represents our nineth disease area to advance into the clinic. We already initiated a Phase 1/2 study in patients that is to state a study that will be able to assess both safety and efficacy late last year. And second, we expect to advance into our 10th disease area in autosomal dominant polycystic kidney disease or ADPKD, the most common genetic kidney disease that affects approximately 250,000 patients in the U.S. and EU alone, into the clinic with a healthy volunteer study in the first half of this year. With that overview, let me now turn to a more detailed pipeline review. This quarter, I will limit my comments to the programs with significant recent updates, cystic fibrosis, sickle cell disease, beta-thalassemia, and pain, so as to leave time for your questions. Starting with cystic fibrosis and our next-in-class vanzacaftor triple combination therapy. This afternoon we reported positive results from the Phase 3 program, including the SKYLINE 102 and 103 studies in patients 12 years and above, and the RIDGELINE study in patients ages six to 11. We are very pleased with these results and the arc of progress in treating patients with CF, as we continue to advance our ultimate goal of bringing all eligible patients to carrier levels of sweat chloride. Treatment with the vanza triple met all primary and secondary endpoints in the three Phase 3 studies, and once again, our proprietary HBE assays were both qualitatively and quantitatively predictive. In the SKYLINE 102 and 103 trials, the vanzacaftor triple combination met its primary endpoint of non-inferiority versus TRIKAFTA on ppFEV1, consistent with our expectations. The difference in ppFEV1 in the TRI and vanza-treated groups was negligible. In SKYLINE 102, the LS mean difference was 0.2, numerically favoring vanza, and meeting non-inferiority with a p-value of less than 0.0001. And in the SKYLINE 103 study, again, the difference in ppFEV1 in the TRI and vanza-treated groups was negligible, and numerically favored vanzacaftor with LS mean difference of 0.2, meeting non-inferiority with a p-value of less than 0.0001. Recall, the improvement in ppFEV1 in treatment-naive patients in the original TRI Phase 3 program was approximately 14%. In addition, all key secondary endpoints were met across SKYLINE 102 and 103, and showed a statistically significant and clinically meaningful reduction in sweat chloride. The sweat chloride results were measured in three key secondary endpoints. First, the overall achieved sweat chloride levels in the two RCTs were lower in the vanza-treated group versus the TRIKAFTA-treated group. The LS mean difference was minus 8.4 with a p-value of less than 0.0001 in SKYLINE 102. The LS mean difference was minus 2.8 with a p-value of 0.0034 in SKYLINE 103. The key difference of course in SKYLINE 102 and 103 was the genotype studied. SKYLINE 102 included [FMF] (ph) patients, who have more severe disease and therefore higher sweat chloride levels at baseline and SKYLINE 103 included FF and other responsive mutations with lower baseline sweat chloride levels. Next, the second key secondary endpoint of proportion of sweat chloride less than 60 mmol pooled across two studies, 86% of patients in the vanza-treated groups and 77% of patients in the TRIKAFTA-treated groups achieved sweat chloride levels below 60 mmol, leading to an odds ratio of 2.21 and a p-value of 0.0001. This means about two times greater likelihood in the odds of achieving sweat chloride less than 60 with vanza versus TRIKAFTA. Last, the third key secondary endpoint of proportion of sweat chloride less than 30 mmol pooled across the two studies, 31% of patients in the vanza-treated groups versus 23% of patients in the TRIKAFTA-treated groups achieved sweat chloride levels below 30 mmol, leading to an odds ratio of 2.87 and a p-value of 0.0001. This means about three times greater likelihood in the odds of achieving sweat chloride less than 30 with vanzacaftor versus TRIKAFTA. The results were even more pronounced in the RIDGELINE study evaluating children ages six to 11. The primary endpoint in the single-arm study was safety, which I will come to in a minute. On efficacy, 95% of patients achieved sweat chloride below 60 mmol, the diagnostic threshold for cystic fibrosis, and more than half reached sweat chloride levels below the carrier level threshold of 30 mmol. These sweat chloride results with the vanza triple are both impressive and important. Let me take a step back to frame the significance of these results. While CF is a systemic multi-organ disease, historically, the focus has been primarily on lung function as measured by ppFEV1, given it is the most visible symptom and typically the cause of death in CF patients. ppFEV1 is also the regulatory enabling endpoint. Given the strides we've made with TRIKAFTA, we believe we may have reached the maximum potential benefit in lung function from CFTR modulators, thus, our objective was vanzacaftor moves beyond the focus on lung function to a broader, more ambitious goal to improve CFTR protein function as measured by lower sweat chloride levels and deliver even greater systemic benefit than TRIKAFTA. To be clear, the goal with the vanza pivotal development program was to show that lung function benefit was non-inferior to TRIKAFTA and over and above that to deliver additional benefit on sweat chloride, the direct marker of CFTR protein function. A note on CFTR protein. CFTR protein dysfunction is the underlying pathophysiology in CF, and while CF is often diagnosed by a genetic test at birth, it is confirmed via a sweat chloride test, because it is the direct measure of CFTR protein dysfunction. Simply put, higher levels of sweat chloride associated with more severe disease. Therefore, the ultimate goal is to restore CFTR protein function as measured by sweat chloride, back to normal or as close to normal as possible so that there is no manifestation of disease. And more specifically, sweat chloride values below 60 mmols are associated with improved outcomes, such as better and more stable lung function, fewer pulmonary exacerbations, better quality of life, and improved survival. Vertex's ultimate treatment goal is to restore sweat chloride levels to below 30, which is considered normal and are typical of CF carriers who do not have the disease, for instance, the parents of children with CF. Thus, our goal in designing the vanzacaftor triple therapy studies was to test if even more patients treated with vanza could achieve those sweat chloride thresholds of less than 60 and less than 30 than those treated with TRIKAFTA. Switching to safety, the vanza triple was generally safe and well-tolerated in all three studies. The adverse events seen in the vanza triple pivotal development program are consistent with the underlying disease and with the incidents and nature of adverse events we have seen with previous CFTR modulators. As a reminder and to round out the profile of the vanzacaftor triple, this therapy offers the convenience of once-daily dosing for patients and a substantially lower royalty burden. In summary, we set a goal to establish a new and higher bar in the treatment of CF with CFTR modulators, and with these Phase 3 vanza triple results, we have the first evidence that we have done so, and with these results, we now know that the vanza triple has indeed surpassed the very high bar set by TRIKAFTA in people with CF, ages six and older. And by treating patients early with the vanza triple, we have the potential to possibly prevent systemic manifestations of CF in more people. These results also reaffirm our conviction that continued investment in scientific and serial innovation will allow us to complete our journey to transform CF by bringing all eligible CF patients down to carrier levels of sweat chloride, where there are no manifestations of disease. I want to acknowledge the CF patients in our clinical trials, who put their trust in us as well as the Vertex San Diego team and the CF R&D teams, some of whom have worked on CF for more than 20 years to deliver yet another potentially transformative medicine. We are working rapidly to compile the regulatory submissions and anticipate filing in both the U.S. and Europe for patients ages six and older by the middle of 2024. We will be using one of our priority review vouchers entitling us to designate the vanza NDA for priority review, which provides an expedited six-month review versus a standard 10-month review timeline. I'll close on CF with VX-522, our CFTR mRNA therapy in development with our partners at Moderna, for the more than 5,000 CF patients who do not make any CFTR protein and therefore cannot benefit from CFTR modulators. Late last year, we completed enrollment in dosing in the single-ascending dose portion of our study for VX-522 and initiated the multiple-ascending dose portion of the study. This study continues to screen, enroll, and dose patients and we expect data late this year or early next. Turning now to CASGEVY, our precise durable CRISPR/Cas9 gene-edited therapy that delivers a potential one-time functional cure for patients with sickle cell disease and transfusion-dependent beta-thalassemia. CASGEVY represents an enormous advancement for the estimated 35,000 people living with severe sickle cell disease and transfusion-dependent beta-thalassemia across the U.S. and Europe, as well as thousands of patients in other regions such as the Kingdom of Saudi Arabia and Bahrain. CASGEVY represents a significant commercial opportunity as well, and Stuart will discuss the strong start to the launch following the rapid approvals in multiple countries. While these launches are underway, we are awaiting approval in the EU, where CASGEVY has received CHMP positive opinion for both sickle cell disease and beta-thalassemia. CASGEVY is also under review in Switzerland and we anticipate filing in Canada this quarter. Lastly on CASGEVY, recognizing the importance of treating patients with sickle cell disease and beta-thalassemia early in life to minimize organ damage and other complications of the disease, we are conducting studies in both sickle cell disease and beta-thalassemia to expand the label to younger age groups. To that end, we recently completed enrollment in our two global Phase 3 studies in patients five to 11 years of age, and dosing in these studies is underway. Moving to the Pain program and VX-548, our novel highly selective NaV1.8 pain signal inhibitor. With VX-548, we finally have the possibility of a medicine that has the compelling combination of both strong efficacy and strong safety that can be used for multiple moderate-to-severe pain types across multiple settings of care. Last week, we detailed the positive results from the three Phase 3 trials that comprise our pivotal program for VX-548 in acute pain, including randomized placebo-controlled trials in two different pain models, abdominoplasty, a soft-tissue pain model, and bunionectomy, a hard tissue pain model, and a single-arm safety and effectiveness trial in a broad range of surgical and non-surgical pain conditions. Both the abdominoplasty and bunionectomy RCTs met the primary endpoint with statistically significant improvement in pain compared to placebo on the primary endpoint of SPID48. The SPID48 is derived from a change in the numeric pain rating scale or NPRS. Practicing physicians tell us that in addition to SPID48 they focus on this reduction in the NPRS from baseline and this change in baseline in NPRS score is also how clinical meaningfulness is assessed in the field. In acute post-operative pain studies, clinical meaningfulness is defined by at least a two-point change in NPRS from baseline or at least a 30% reduction in NPRS from baseline. In that context, both RCTs demonstrated that treatment with VX-548 led to rapid, clinically meaningful reductions on the NPRS with more than three points of pain reduction or roughly a 50% reduction from baseline in the VX-548 arms. The single-arm safety and effectiveness trial was conducted in a broad range of surgical and non-surgical pain conditions and supported longer-term safety and effectiveness. VX-548 was safe and well-tolerated across all three studies, including multiple acute pain types and settings. Of importance, with respect to safety in the two RCTs, the incidence of adverse events in the VX-548 arms was lower than placebo, an uncommon and noteworthy finding. We believe the results of this comprehensive Phase 3 program support a broad, moderate-to-severe acute pain label, and if approved, should enable prescribing and usage across multiple care settings. VX-548 has already secured Fast Track and Breakthrough designations and we are working with urgency to file the NDA by mid-2024. Moving now to neuropathic pain. Two months ago, we also reported positive results from our Phase 2 study of VX-548 in diabetic peripheral neuropathy, one type of peripheral neuropathic pain, and another area of high unmet need. We look forward to our end of Phase 2 meeting with the FDA towards the end of this quarter and starting our Phase 3 program thereafter. We also continue to enrol and dose our second Phase 2 neuropathic pain study of VX-548 in lumbosacral radiculopathy or LSR. Ultimately, we seek a broad neuropathic pain label and believe by studying two of the largest pain segments, DPN and LSR, which together represent more than 60% of all peripheral neuropathic pain, we have a pathway to that broad indication. Just as we transform the treatment of CF, we believe we have the potential to transform the treatment of pain, both acute and neuropathic, based on the compelling and consistent results we have seen with VX-548. We now have results in hand from the Phase 3 program in acute pain as well as the Phase 2 results in DPN. We are underway with the Phase 2 study in LSR and we are continuing to execute our portfolio approach of serial innovation. We are well on our way to helping address the unmet need of 90 million patients suffering with pain. With that, I'll now turn it over to Stuart.

Charlie Wagner:

Thanks, Stuart. Vertex's excellent results in the fourth quarter of 2023 demonstrate once again our consistent strong performance and attractive growth profile. Fourth quarter 2023 revenue increased 9% year-over-year to $2.52 billion and was nicely balanced with revenue growth of 8% in the U.S. and 12% outside the U.S. Full year revenue of $9.87 billion represents 11% growth versus 2022, our nineth consecutive year of at least double-digit growth. Overall, the primary drivers of revenue growth in 2023 were in line with our expectations. Fourth quarter 2023 combined non-GAAP R&D acquired IPR&D and SG&A expenses were $1 billion, compared to $872 million in the fourth quarter of 2022. Included in Q4 '23 results are $18 million of acquired IPR&D charges, compared to $23 million of such charges in the fourth quarter of 2022. Note, that with the approval of CASGEVY in the fourth quarter cost for manufacturing capacity for CASGEVY are now being recorded in cost of goods sold rather than in R&D. Full year 2023 combined non-GAAP R&D acquired IPR&D and SG&A expenses were $4.24 billion compared to $3.07 billion in 2022. Fourth quarter and full year operating expense growth was driven as expected by continued investment in research and our pipeline as we have now advanced assets into the clinic in nine different disease areas. In the fourth quarter and throughout 2023, the most significant areas of increased investment versus prior year included the pivotal studies for VX-548 in acute pain and the vanzacaftor triple in CF, the Phase 1/2 study for Type 1 diabetes as well as the build-out of capabilities for both our expanding pipeline and our anticipated near-term commercial launches. In addition, approximately $400 million of the year-over-year increase in operating expenses was the result of increased AIPR&D costs from new business development. Fourth quarter 2023 non-GAAP operating income was $1.15 billion, consistent with $1.15 billion in non-GAAP operating income in the fourth quarter of 2022. Full year 2023 non-GAAP operating income was $4.37 billion compared to $4.79 billion in 2022. Fourth quarter 2023 effective tax rate of 16.3% reflects an increase in our 2023 U.S. R&D tax credits. This benefit lowered the Q4 rate and brought the full year 2023 effective tax rate to 19.4%, slightly below our guidance range of 20% to 21%. Fourth quarter 2023 non-GAAP earnings per share were $4.20, representing 12% growth compared to $3.76 in the fourth quarter of 2022. Full year 2023 non-GAAP earnings per share were $15.23 compared to $14.88 in 2022. We ended the quarter with $13.7 billion in cash and investments. Our priorities for cash deployment remain unchanged as we continue to prioritize investment in innovation including external innovation via business development. During 2023, we completed 10 transactions and recognized over $500 million of AIPR&D. We also deployed over $400 million to repurchase 1.3 million shares over the course of 2023. Now switching to guidance. For 2024, we expect total product revenue in a range of 10.55% to $10.75 billion, representing revenue growth of 8% at the midpoint at current exchange rates. Included in this outlook is our expectation for continued growth in CF as we continue to reach more patients including younger ones in core markets and select other countries. Guidance also includes contribution from the commercial launch of CASGEVY in approved indications and geographies. We continue to expect a foundational year for CASGEVY in 2024, as we ramp up patient initiations and build toward a multi-billion dollar market opportunity overtime. We are providing total product revenue guidance rather than specifics by disease area or product given the inherent uncertainty of new launches as well as the significant disparity in size of our established CF business relative to other revenues. As a reminder, on the accounting for CASGEVY and the CRISPR profit share arrangement, Vertex will book 100% of revenues for CASGEVY. The profit share with CRISPR calculated after product and commercial costs will be recorded in cost of goods sold. Any ongoing research and development costs will be recorded in operating expenses net of CRISPR's share. For total Vertex operating expenses, we project $4.3 billion to $4.4 billion in full year 2024 combined non-GAAP SG&A, R&D, and acquired IPR&D. This operating expense range includes approximately $125 million in currently anticipated IPR&D charges. We continue to invest a majority of our operating expenses into R&D given the momentum in our multiple mid and late-stage clinical development programs. Note, that the costs for multiple Phase 3 studies have been a significant driver of our growth in our total operating expenses in recent years. Given that a number of Phase 3 studies were completed as we entered 2024, we were able to fund new additional Phase 3 studies without the same rate of growth in operating expenses. While we have substantially completed our commercial investments for CASGEVY, we are also funding the expansion of our commercial capabilities in anticipation of other multi-billion dollar opportunities represented by our programs with near-term launch potential, while continuing to leverage an attractive business model afforded by our focus in specialty markets. With a more normalized impact from U.S. R&D tax credits in 2024, our full year 2024 non-GAAP effective tax rate is expected to be in the range of 20% to 21%. In closing, Vertex delivered excellent results yet again in 2023, achieving strong revenue growth, important regulatory approvals and commercial launches, and positive pivotal trial results that will enable additional near-term launches. We also made progress in our earlier-stage pipeline with proof-of-concept for VX-548 in neuropathic pain and anticipated advancement of two additional disease areas into the clinic. We also made substantial investments behind our programs and commercial capabilities for near-term launches. As we head into 2024, we anticipate further important milestones as highlighted on Slide 20 to mark our continued progress in multiple disease areas. We look forward to updating you on our progress on future calls, and I'll ask Susie to begin the Q&A period.

Operator:

Thank you. We will begin the question-and-answer session. [Operator Instructions] And the first question will come from Ms. Salveen Richter with Goldman Sachs. Please go ahead.

Reshma Kewalramani:

Sure. Thanks, Salveen. Let me turn it over to Stuart for both the question on vanza commercialization and on the CASGEVY launch with the focus on the CMMI question.

Salveen Richter:

Thank you.

Geoff Meacham:

Hey, guys. Thanks so much for the question and congrats on the data. On vanza, I just have a couple of questions, can you follow SKYLINE or RIDGELINE in an extension? I'm just trying to think if you can pick-up more differentiation versus TRIKAFTA, just in terms of maybe exacerbations or measuring pancreatic efficiency over a longer period. I guess ultimately, where I'm going is that, sweat chloride isn't regularly used in the clinic for treatment decisions, so I'm trying to see rationale for maybe switching a patient away from TRIKAFTA if they are stable. Thank you.

Geoff Meacham:

Thank you.

Mohit Bansal:

Great. Thank you very much for taking my question. Just following up on Geoff's question, so how commonly doctors check sweat chloride levels as part of -- I know it's for diagnostic purposes, but do they check it for -- retest it for prescribing [indiscernible] or it is something that you have to educate these doctors on that? And then my follow-up is actually on the COGS for Charlie, cost of goods sold. As you think about 2024 or what happened in fourth quarter, was it a one-time movement from R&D to COGS, which drove it or it is something that we need to continue modeling going forward? Thank you.

Charle Wagner:

Yes, Mohit, in the fourth quarter because CASGEVY was approved in the U.S., we started treating it as a commercial product, and therefore, we took some of the manufacturing costs that previously had been recorded in R&D and moved them up to cost of goods sold. Those manufacturing costs will remain in cost of goods sold going forward.

Mohit Bansal:

Got it.

Phil Nadeau:

Good afternoon, [members] (ph) and our congratulations on another positive pivotal program. One on sweat chloride and then one actually on the pain data that you released last week. First on the sweat chloride. It does look like TRIKAFTA gets a decent proportion of patients to below 60 mmol per liter and below 30 mmol per liter, do you have data following the patients who've been on TRIKAFTA for a long time to show better outcomes for those TRIKAFTA patients who get to low levels of sweat chloride, which then presumably you could extrapolate to the vanza triple and show a higher proportion of patients would have good outcomes. That's first question. And then the second question on the pain data released last week, it does seem like the bunionectomy Phase 2 trial underperformed the Phase 2's previously released as well as the abdominoplasty Phase 3 released last week, was there anything different about that trial, which would have caused 548 to act less potently there than it had in the prior studies? Thanks.

Phil Nadeau:

Perfect. Thank you.

Robyn Karnauskas:

Hi, thank you. So, commercialization, I know it's really hard switching from one drug to the next, can you walk me through switching from TRIKAFTA to the next drug? And like, given that people are stable, their lung punctures are great, how would you think about -- what motivates commercial, Europe as well as U.S., to allow people to stay on drug and like move to next-generation drug? And I think I'm coming from the point of, like I remember from a long time ago that people had a hard time switching from one drug to the other, and I want to understand like more -- like how you actually help people, help commercial organization switch from one to the next?

Stuart Arbuckle:

Yes, Robyn. Thanks. So I must confess, our experience is a little bit different to that. We've seen very rapid transitions from medicines as we've serially innovated and delivered better and better medicines, and even, for instance, when we introduced TRIKAFTA and patients who had been on KALYDECO for instance for a very long time, and obviously, KALYDECO had set a very, very high bar for efficacy, we did see rapid adoption with TRIKAFTA even in those patients given that it had a clear benefit-risk profile. So, I think we've seen relatively rapid transitions for our medicines as we've serially innovated. And interestingly, the design of the study actually gives a proof for the fact that patients can effectively transition from TRIKAFTA to vanzacaftor because as Reshma mentioned in her remarks, the design of the study was to have people stable on four weeks of TRIKAFTA therapy to establish a baseline, and they were then randomized to either continue on TRIKAFTA or transition to vanzacaftor. So we have within the study real-world evidence of people being able to transition. And then you asked me, what do I think is going to motivate people to want to consider the vanzacaftor triple combination? I think it's the benefit-risk profile that we've been able to demonstrate here with achieving higher levels of sweat chloride reduction and with any of our previous medicines, including now TRIKAFTA, and the fact that this is a once-a-day therapy. So as I've said a number of times, I think with this profile we're going to see a lot of enthusiasm from the CF community.

Stuart Arbuckle:

Well, I mean, I think we've had a long track of working with payers on cystic fibrosis for kind of well over a decade now, so I think there's a significant amount of understanding about the disease. Obviously, we'll be presenting the data to vanzacaftor to payers in a compliant manner at the right time. The one other thing I would note about the vanzacaftor triple combination, is it's likely to be indicated for a very similar population of patients to TRIKAFTA, which I do think is going to make this launch from a payer perspective a bit different to previous launches as you will recall, because you've been on this journey with us for a while. When we launched ORKAMBI, we were moving from kind of single-digit numbers of eligible patients to a medicine that could potentially treat up to 50% of CF patients. When we then brought TRIKAFA forward, we're moving it towards being able to treat 90% of patients. Vanza is going to likely have a very similar label to TRIKAFTA and so it's not likely to be as scary I would suggest to payers in terms of a big budget impact here.

Operator:

Your next question will come from Jessica Fye with J.P. Morgan. Please go ahead.

Reshma Kewalramani:

First thing, Stuart.

Jessica Fye:

Thank you.

Evan Seigerman:

Hi, guys, thank you so much for taking my question. I know there's a lot on the vanza triple, but kind of -- can you maybe walk us through some of the clinical considerations as you would get to maybe have a physician switch patient? And then thinking about kind of potential TRIKAFTA [indiscernible] returning on drug, what does that conversation look like? And I guess maybe more specifically, why would a patient discontinue TRIKAFTA and why would they want to reinitiate with the vanza triple? Thank you.

Operator:

The next question will come from Chris Raymond with Piper Sandler. Please go ahead.

Reshma Kewalramani:

I'm sorry, Chris, I didn't follow the question on the vanza triple, I got you on CASGEVY, is it about the royalty?

Reshma Kewalramani:

Yes, sure. Let me take CASGEVY quickly, turn it over to Stuart, and then we'll just do one minute real quick with Charlie and he will tell you about the royalty structure for vanza. Real quickly on CASGEVY, we have not heard of there being a center capacity issue. And honestly, we have not heard about challenges for reimbursement. We've actually had very positive reception from payers, but I'll turn it over to Stuart to make a quick comment on activation and his perspective.

Reshma Kewalramani:

Charlie, a word on royalties.

Chris Raymond:

Thank you.

Colin Bristow:

Hey, good evening, and congrats on all the data. Maybe first on vanza triplet, can you say if there any cases of AST or ALT elevations greater than three or five times the upper limit of normal? And then just secondly, I see that you've now three follow-on pain assets in the clinic, 993, 973, and 708, could you just give us more color on how you expect them to be differentiated and just elaborate a bit more on the strategy from here? Thanks.

Susie Lisa:

Chuck, we'll take one more question, please.

Myles Minter:

Hi, thanks for sneaking me in. You just mentioned in the first commercial patients on CASGEVY expected to start the journey in the coming weeks. Can you clarify what geographies they are in? And do you have a sense of how many patients you screened out at those ATCs to identify those first patients? Thanks very much.

Myles Minter:

Thank you.

Operator:

Good day and welcome to the Vertex Pharmaceuticals Third Quarter 2023 Conference Call. All participants will be in a listen only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Susie Lisa. Please go ahead, ma'am.

Reshma Kewalramani:

Thanks, Susie. Good evening all, and thank you for joining us on the call today. We've delivered another strong quarter and continue to drive execution across the company. By reaching more CF patients, third quarter global product revenue grew 6% versus the prior year period and we are raising full year 2023 CF product revenue guidance to approximately $9.85 billion. We are delivering on our marketed medicines in CF, while simultaneously preparing for commercial excellence in multiple areas ahead of our potential near-term launches, including exa-cel in both severe sickle cell disease and transfusion dependent beta thalassemia, VX-548 for acute pain and longer term in peripheral neuropathic pain, and our vanzacaftor triple combination therapy for cystic fibrosis. Most notably, we are tracking towards an exa-cel PDUFA date for sickle cell disease on December 8th of this year and for TDT on March 30th of next year, with global regulatory reviews also underway in Europe and the UK. Phase 3 pivotal trial readouts in early 2024 from both our vanzacaftor triple NCF and our VX-548 program in acute pain, a Phase 2 trial readout by year end 2023 from our VX-548 trial in diabetic peripheral neuropathy, and completion of enrollment in the Phase 2 portion of the VX-147 Phase 2/3 program in AMKD later this year. With that overview, let me now turn to a pipeline update, starting with cystic fibrosis. For our next in class vanzacaftor triple combination therapy, we remain on track to complete all three Phase 3 studies, SKYLINE 102 and SKYLINE 103 in patients ages 12 years and above and the RIDGELINE study in patients ages 6 to 11 by the end of 2023 and share results from these three pivotal studies in early 2024. We have high expectations that the vanzacaftor triple combination can deliver greater improvements in CFTR function than TRIKAFTA based upon the totality of evidence generated to date, including in vitro from our HBE assays and in Phase 2 studies. The vanzacaftor triple holds the potential for enhanced clinical benefit versus TRIKAFTA for patients and the convenience of once daily dosing. It also carries a substantially lower royalty burden. In addition, we continue to make progress with another important program in our CF portfolio, VX-522, our CFTR mRNA therapy in development with our partners at Moderna for the more than 5,000 CF patients who cannot benefit from CFTR modulators. We continue to expect to complete the single ascending dose portion and initiate the multiple ascending dose portion of this study by the end of the year. Turning now to exa-cel, our CRISPR/Cas9 based gene editing program for sickle cell disease and transfusion-dependent beta thalassemia. This program holds the potential to be a one-time functional cure for these debilitating and life-shortening diseases. Exa-cel represents an enormous advancement for the estimated 32,000 people living with severe sickle cell disease and transfusion dependent beta thalassemia across the U.S. and Europe. It is a large commercial opportunity. On the regulatory front in the U.S., we were very pleased to have had the chance to discuss the exa-cel filing with members of the FDA advisory committee last week, and to hear the very compelling stories from patients. The meeting represented a significant milestone for Vertex and the first potential CRISPR/Cas9-based therapeutic. We look forward to our upcoming PDUFA date and to the potential of bringing this precise, durable gene editing therapy to patients. Internationally, in both the UK and the EU, we are also well into the regulatory review process and expect regulatory decisions in these jurisdictions in the coming months. In addition, we recently submitted a marketing authorization application for exa-cel to the Saudi Food and Drug Authority, or SFDA. I am pleased to share that exa-cel is the first medicine ever to receive breakthrough designation by the SFDA, reflecting both the high unmet need and the high enthusiasm for exa-cel in the Kingdom of Saudi Arabia. We look forward to updating you in the coming months. Moving on to the pain program and VX-548, our novel, highly selective NaV1.8 inhibitor that holds the promise for effective pain relief without the side effects or addictive properties of opioids and therefore represents a significant commercial opportunity in both acute and neuropathic pain. The pace of the Phase 3 program in acute pain has been rapid, which we see as an indication of the high unmet need and strong patient and physician interest in an efficacious non-opioid acute pain therapy. We have completed the randomized control trial in abdominoplasty. The RCT in bunionectomy and a single-arm safety and efficacy study remain on track to complete by the end of this year. As previously discussed, we will unblind, analyze, and share results on all three studies at the same time, and we expect to do so in early 2024. This comprehensive Phase 3 program has been designed to support a broad, moderate to severe acute pain label, and to enable prescribing and usage across multiple care settings. We're also studying VX-548 in peripheral neuropathic pain, or PNP, yet another area of high-end met need. Recall, we previously demonstrated positive proof-of-concept with the predecessor molecule, VX-150 in neuropathic pain. In diabetic peripheral neuropathy or DPN, I am pleased to share that we have completed our Phase 2 12-week dose-ranging proof-of-concept study. We anticipate sharing the results from this Phase 2 trial by the end of this year. As we await the DPN results, we are excited to initiate a second Phase 2 peripheral neuropathic pain study of VX-548 by the end of the year in lumbosacral radiculopathy or LSR. It's a type of neuropathic pain caused by the impairment of nerve roots in the area of the lumbar spine. Given the limited therapeutic options, the significant opportunity to serve a large number of patients and the promise that the NaV1.8 mechanism holds, we are excited to pursue the potential of VX5-48 in each of these neuropathic pain types. Next, on to type 1 diabetes, where we are evaluating stem cell derived, fully differentiated, insulin producing islet cells for people with type 1 diabetes. Our goal is to develop a potential one-time functional cure for the millions of people living with type 1 diabetes, including the more than 2.5 million patients in North America and Europe alone. The VX-880 or naked cell program, where we have already established proof-of-concept is foundational to the type 1 diabetes program as a whole. Here, patients take standard immunosuppressants to protect the islet cells from the immune system. At EASD last month, we presented positive updated clinical data from all patients in Parts A and B of the VX-880 study. With regard to study status, Part C of the study, which administers the full target dose with concurrent dosing is now fully enrolled. Our second program, VX-264, or the cells + device program, encapsulates these same cells in a proprietary immunoprotective device and hence there is no requirement for immunosuppressants. We have begun enrollment and dosing in Part A of the VX-264 study. And finally, our third program, still in the research stage is our hypoimmune cells, in which we edit the same fully differentiated cells so as to obviate the need for immunosuppressants. Transitioning now to inaxaplin or VX147, the first potential medicine to target the underlying cause of APOL1-mediated kidney disease or AMKD. The inaxaplin pivotal program for Patients with AMKD is a single adaptive Phase 2/3 study with a pathway to accelerated approval in the U.S. The Phase 2b, dose ranging portion of the study, continues to enroll in dose patients, and we expect a complete enrollment by the end of this year. We now expect to select a dose and move to Phase 3 of the study in Q1 of 2024. Now turning to alpha-1 antitrypsin deficiency or AATD. We have discontinued development of VX-864 due to non-serious rash events in some patients in the Phase 2 program. Our next generation molecules, VX-634 and VX-668, both have greater potency and better drug-like properties and are both in Phase 1 clinical trials. These trials continue to enroll and dose healthy volunteers. We look forward to sharing more on AATD, including next steps, as we learn more in the coming months. With that, I'll turn it over to Stuart.

Charlie Wagner:

Thanks, Stuart. Vertex's excellent results in the third quarter of 2023 demonstrate once again our consistent strong performance and attractive growth profile. Third quarter 2023 revenue increased 6% year-over-year to $2.48 billion. U.S. Revenue grew 7% year-over-year following the recent FDA approval of TRIKAFTA in patients ages two to five, and outside the US revenue grew 6% year-over-year on continued strong uptake of TRIKAFTA/KAFTRIO in markets with recently achieved reimbursement as well as label extensions in younger age groups. As anticipated, in Q3 we saw the drawdown of inventory in certain international markets in contrast to the increases in inventory that we experienced in the first half of the year. Year-to-date revenue of $7.35 billion represents 11% growth over the corresponding prior year period, including an approximate $150 basis point headwind from changes in foreign currency. Overall, the primary drivers of revenue growth in 2023 have been in line with our expectations. Third quarter 2023 combined non-GAAP R&D, acquired IPR&D and SG&A expenses were $993 million compared to $758 million in the third quarter of 2022. Q3 2023 results include $52 million of acquired IPR&D charges compared to $29 million of such charges in the third quarter of 2022. Operating expense growth was driven, as expected, by continued investment in research and our pipeline. Throughout 2023, the most significant areas of increased investment versus prior year included the clinical studies for VX-548 in acute pain, the vanzacaftor triple in CF, and for type 1 diabetes, as well as build out of capabilities for our expanding pipeline. In addition, we continued our pre-commercial activities for exa-cel and other anticipated near-term launches. Third quarter 2023 non-GAAP operating income was $1.17 billion compared to $1.29 billion in the third quarter of 2022. Third quarter 2023 non-GAAP earnings per share were $4.08, representing 2% growth compared to $4.01 in the third quarter of 2022. We ended the quarter with $13.6 billion in cash and investments. Our priorities for cash deployment remain unchanged as we continue to prioritize investment in innovation, including external innovation via business development. Year-to-date, we have completed nearly 10 transactions with total consideration of over $500 million. We've also continued to allocate cash to share repurchases, and year-to-date, we have spent approximately $285 million to repurchase approximately 900,000 shares. Now switching to guidance. Given our strong year-to-date results and our consistent execution, we are increasing our 2023 revenue guidance as detailed on Slide 17. For the full year 2023, we now expect CF net product revenue of approximately $9.85 billion versus our prior range of $9.7 billion to $9.8 billion. Note that this revenue guidance continues to include an expected approximate $150 basis point headwind to our revenue growth rate from changes in foreign currency. We are maintaining our 2023 guidance for combined non-GAAP R&D, acquired IPR&D and SG&A expenses in a range of $4.1 billion to $4.2 billion. We continue to invest a majority of our operating expenses into R&D, given the momentum in our multiple mid and late-stage clinical development programs. We are also funding the expansion of our commercial capabilities in anticipation of the multibillion-dollar opportunities represented by our programs with near-term launch potential, while continuing to leverage an attractive business model afforded by our focus in specialty markets. Due to an increase in our current year U.S. R&D tax credit estimate, we are lowering guidance for our projected full year 2023 non-GAAP effective tax rate by 100 basis points to a range of 20% to 21% versus the prior range of 21% to 22%. In closing, Vertex delivered excellent results yet again in Q3 2023, achieving strong revenue growth, important regulatory milestones, continued clinical trial progress, and ongoing investments both internally and externally. As we continue to advance our programs to close out 2023 and head into 2024, we anticipate further important milestones as highlighted on Slide 18 to mark our continued progress in multiple disease areas. We look forward to updating you on our progress on future calls and I'll ask Susie to begin the Q&A period.

Geoff Meacham:

Good afternoon everyone. Thanks so much for the question. [Technical Difficulty]

Geoff Meacham:

Yep. So, first question on AAT. It seems like a much more difficult indication than initially thought. At a high level, what would you characterize that as? Is it just a mechanism? Is it the bar for risk-benefit? Or is it the molecules itself? And the second question is, when you look to vanzacaftor in the data, maybe help us with how rapidly you think you could roll reimbursement out across Europe and OUS indications. I know I wasn't sure if this was part of your portfolio agreements or if you had to renegotiate that. Thank you.

Stuart Arbuckle:

Yeah, Geoff, so on expectations for access and reimbursement outside of the US. As Reshma said, importantly, this study is a head-to-head comparison with TRIKAFTA. To your specific question, was vanzacaftor imagined when we embarked on some of our portfolio agreements? It was. Some of them do include clauses to include increasingly better and better medicines which is our anticipation of what vanzacaftor will prove to be. It isn't in all of our reimbursement agreements, just to be clear. But if the product can deliver the kind of profile that we expect, I would expect like we did with TRIKAFTA that we will beat the kind of industry benchmarks for getting to access patients across ex-US markets.

Operator:

The next question will come from Robyn Karnauskas with Truist Securities. Please go ahead.

Reshma Kewalramani:

Yep. Robyn, two questions on VX-548. One on the acute pain side and one on the neuropathic pain side. Let me tackle acute pain and I'll ask Stuart to comment on our commercialization approach on the neuropathic side. So to ground everyone, the acute pain program is in its entirety three pivotal trials. One is the abdominoplasty RCT, the second is the bunionectomy RCT, and the third is a single arm safety and effectiveness trial. And the reason we are planning to unblind, analyze, and share the results all at the same time is because our goal is to secure a broad, moderate to severe acute pain label. And in order to do that, we need the results from all of these trials. So that's the reason for sharing the results all at the same time. With regard to PNP, I'll just frame it up with what we are looking to do and how you may want to think about the profile, and then I'll turn it over to Stuart for commercialization. The Phase 2 study, that's the study we have completed and expect to share the results before the end of this year. It is a study that has a Lyrica reference arm. So it's not a comparison, but it's there so that we can assess the magnitude of the treatment effect. And our goal here really is to have a medicine that can compete effectively and bring a better benefit risk profile than Lyrica for this patient population. And just so that it's not missed, one of the comments I made in my prepared remarks is we're now expanding our progress into the peripheral neuropathic pain area with a study that we will initiate before end of year in what's called LFR or lumbosacral radiculopathy, another kind of neuropathic pain. Stuart?

Robyn Karnauskas:

And one follow-up I can. Do you have to look better? I know Lyrica is just a side arm, but I know a lot of doctors want it looking better for reimbursement. Do you have to look better or just safer? We obviously know the issues with safety with Lyrica.

Robyn Karnauskas:

Great. Thanks, guys.

Salveen Richter:

Good afternoon. Thanks for taking my questions. One here on the pain side with the LSR trial, can you help us understand why start this trial now versus waiting for the DPN trial to read out and get a better understanding of the profile there? And then a second question on the Cells and Device program here, that seems to be partial dose with staggered enrollment again. And I'm just wondering why in the context of maybe the de-risking that you saw in the naked cells approach? Thank you.

Operator:

The next question will come from Phil Nadeau with TD Cowan. Please go ahead.

Reshma Kewalramani:

Yeah, sure. So when I think about the distillation of the editorial, I think it comes down to this is the holy grail of pain in terms of targets. There looks to be very promising results. It's a Phase 2 study. How should we think about the magnitude of the treatment effect? How should we think about it in terms of the effect and the potential not only versus placebo, but versus opioids and then maybe a desire to learn a little bit more about the secondary endpoints. And what I would say is we're going to have a far bigger study, 2,000 people in all. There's 1,000 people in the abdominoplasty study, another 1,000 people in the bunionectomy study, and another 250 people in the safety and effectiveness study. And we'll have all the data we need to make a full assessment in this Phase 3 trial. So I think the best answer is, let's look towards the Phase 3 trial. And I agree, the Phase 2 results are very promising. Let me turn it over to Stuart to talk about vanza.

Phil Nadeau:

That's very helpful. Thanks again for taking our questions.

Mohit Bansal:

Great. Thank you very much for taking my question and congrats on all the progress. One question again, staying on DPN and study. So could you remind us how prevalent is the opioid use in this setting because from our reading it seems like it is more a third line agent. And is the thought to replace Lyrica in that setting or is it more like to replace opioid in that setting? I mean, how do you think about the profile of the drugs? Thank you.

Stuart Arbuckle:

Yeah, Mohit. There is a lot of polypharmacy going on in DPN right now, largely because the efficacy of the various classes of pain medicines which are available today is pretty variable. So you do see patients who are on nonsteroidals, you see a lot of people who are on the gabapentinoids which have been studied and approved there and you also do see parents -- patients on opioids as well. So it really is a disease characterized by sort of polypharmacy, largely due to either variable efficacy and/or the adverse events of the currently available therapies. That's why we're so excited about the prospect of 548 being able to establish a new standard of care for these patients.

Operator:

The next question will come from Jessica Fye with JP Morgan. Please go ahead.

Reshma Kewalramani:

Hey, welcome back, Jess. Really terrific question. The portfolio strategy, as you've seen it play out in CF, is authentically and reproducibly extended across our R&D pipeline. So as it pertains to pain, the next NaV1.8 inhibitors are already in the clinic in Phase 1 trials. And we have more after that making their way through the research part of our organization. In terms of NaV1.7, they are in the research stage and making very good progress. And we see the NaV1.7s as potentially for use as a single agent. And we also see the real opportunity for combining NaV1.7 and NaV1.8. And just for all of the others who are following along, the reason I say that and the reason I think it's an excellent question is that, the way that the action potential works in the periphery in transducing the pain signal is that there is a stimulation of the action potential and then the propagation and NaV1.7 works on that stimulation of the action potential and NaV1.8 works on that propagation. So we see a lot of opportunity in the combination, but we also see opportunity of NaV1.7 in and of itself.

Operator:

The next question will come from David Risinger with Leerink Partners. Please go ahead.

Reshma Kewalramani:

Okay. Hey, David. Let me start the answer to both of these questions, but the PNP question has a component of can we go at it alone? And so I want to make sure that Stuart touches on it. Let me cut to the punch line. For acute pain and for neuroplastic pain, both in terms of diabetic neuropathy and in terms of LSR, this lumbosacral radiculopathy, we are going to do the development by ourselves and we are going to commercialize by ourselves. Both of these, acute pain and neuropathic pain are absolutely Vertexian diseases if I can call it that in terms of commercialization. I'll ask Stuart to comment a little bit more on commercializing neuropathic pain and I'll come back to tell you about acute pain rescue meds, etc.

Reshma Kewalramani:

And David to round it out with your questions on acute pain. We have thought through very carefully as we did in the Phase 2 portion of the study, the same in the Phase 3 portion of the acute pain studies, about the use of rescue medicines and how to consider the statistical analysis plan in that light. And there are, it's been very well considered in there. So I don't have much more to say other than the use of rescue medicines, of course, will be disclosed in the publications and when we share the results. But how to think about it has been deeply considered and well accounted for just as it was in Phase 2. I think there was a question in there about Phase 3 and the peripheral neuropathic pain structure. I'll focus my comments on DPN. That one will be designed with the FDA. We haven't yet had our end of Phase 2 meeting, and therefore I can't give you specifics on what that program will look like, but that's exactly what will be the next step once we have the Phase 2 DPN results, assuming they are positive.

Reshma Kewalramani:

You bet.

Evan Seigerman:

Hi all, thank you so much for taking my question and congrats on the progress as always. I wanted to talk about the implications of the recently released UK NICE appraisal of TRIKAFTA, essentially indicating that was not cost-effective for the UK system. So, that was under the impression that this was settled in 2019. Could you maybe expand on the impact to UK franchise and steps to resolve to ensure access in the UK? Thank you.

Evan Seigerman:

Great, thank you.

Liisa Bayko:

Hi there. Thanks for taking the question. I wanted to circle back to pain and just two questions for me. First of all, the article, so the Editorial [indiscernible] General Medicine did focus in on overwhelmingly more females and the two acute pain indications that you're using as examples. So maybe you can just speak to that in addressing sort of the underrepresentation of males? And then finally, just if you could comment on any capabilities that you've been working on developing. This is obviously a much different market to commercialize into than CF with a lot of generic competition and the need to get on hospital formulary, et cetera, and how are you building sort of those capabilities as you're waiting for data? Thanks.

Stuart Arbuckle:

Yeah, so to your question about capabilities, I think we're trying to get the best of both worlds. We are trying to leverage the capabilities that have made us be successful to date, And much of that is based around our ability to get reimbursement and access for our medicines and also work with policymakers, with guideline institutions, et cetera, to support the appropriate use of effective medicines like ours. And as Reshma said, we're already seeing tailwinds, if we can call them that, in the pain market with people looking to move away from the restrictions that they've previously put in place for things like opioids in terms of who can prescribe them, for how long, for which patients in which settings, to people looking at policy changes like the No Pain Act, which we highlighted a couple of quarters ago now, where people are looking to make sure that there are no financial barriers or disincentives to people doing the right thing and using a non-opioid effective pain medicine just because there are generic medicines available. So that's something that we're going to be looking to build on, some of the capabilities that we've used to help us be successful. Having said that, we are going to be selling into a different segment of the market. This is obviously going to be a very hospital institution driven sale and so we are looking to bring in and have brought in new capabilities as we've brought on our paying business unit people who are experienced in that kind of institutional setting. So I would say we're trying to get the best of both worlds, leverage what we've been good at in the past, while bringing in people who bring new knowledge, skills, and experience to the company as well.

Michael Yee:

Hi, guys. Thank you for the question, and congrats on a great quarter. We had a follow-up question on pain and then a question on vanza. On the acute and chronic pain, can you just remind me, since you've never disclosed doses, should we expect that it's the same doses used in the Phase 2 and also the Lyrica and Vicodin doses as a control, or basically the doses from the label, and is that pretty well understood? And then from a safety tolerability standpoint, I think there was a QT study that had completed, so was there anything to disclose there? That would be great to hear if that was the case. That'd be a positive. And then on VANS, I know that there was questions around non-inferiority and superiority, and I know it's power potentially for superiority, but can you just remind us, is there a magnitude of clinical meaningfulness on FEV, et cetera, that you would deem to be meaningful, or is it more the totality of everything as well, like sweat chloride and the benefits that that may provide? Thank you so much.

Stuart Arbuckle:

Yeah so Mike, just as Reshma said on the study, the primary end point is non-inferiority versus TRIKAFTA on FEV1, which as we know is an incredibly high bar, but we will be able to see you how vancicafeter does versus tricafter in the study. So that's the first thing just to remind you. As Reshma said, we're also looking at measures of superior CFTR function in patients. And when we've done research with physicians, even if the FEV1 benefit is the same with vanzacaftor. If we can demonstrate improved CFTR function, which as Reshma said, the pharmacodynamic measure of that is sweat chloride, there's a lot of enthusiasm from physicians for a product which has that profile. In addition, just to remind you, vanzacaftor is also going to be a once a day regimen as well, which is also considered to be of benefit, particularly for those patients who have compliance challenges as well. So we're very much looking forward to the Phase 3 results and I think there's going to be, if the results come out as we expect them to, a high level of enthusiasm for vanzacaftor.

Michael Yee:

Got it. Thank you.

Operator:

The last question will come from Terence Flynn with Morgan Stanley. Please go ahead.

Reshma Kewalramani:

Yeah. Hey, Terence, this is Reshma. Let me comment on acute pain and then I'll turn it over to Stuart. You know, we are very close to having the results from the acute pain program, and I'll just leave it at, our goal is to have a positive set of three studies, and our goal is to file for a broad, moderate to severe acute pain label. Stuart?

Susie Lisa:

Thanks, Jack. If you could give the details, please, for callback.

Operator:

Good afternoon and welcome to the Vertex Pharmaceuticals Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Susie Lisa, Senior Vice President, Investor Relations. Please go ahead.

Reshma Kewalramani:

Thanks, Susie. Good evening all and thank you for joining us on the call today. After a strong start to the year, we saw continued momentum into the second quarter across all aspects of the company. Our CF business continues to grow and we are reaching more patients than ever. In the second quarter, this expanded reach drove 14% global safe product revenue growth versus the prior year period. And with this first half performance, we are raising our full year 2023 CF product revenue guidance to a revised range of $9.7 billion to $9.8 billion. As we continue to deliver in CF, we're also investing for future commercial excellence, ahead of multiple potential near-term launches. In exa-cel in both severe sickle cell disease and transfusion-dependent beta thalassemia which we expect will be the first in our next wave of launches. In VX-548 for acute pain, another multibillion-dollar commercial opportunity and in our Vanzacaftor triple combination therapy for cystic fibrosis which provides the opportunity to further extend our leadership in CF. In addition to these 4 disease areas, our mid-stage clinical pipeline continues to develop rapidly and marked progress towards our 5 launches in 5 years goal. Recent achievements include

Charlie Wagner:

Thanks, Stuart. Vertex's excellent results in the second quarter of 2023 demonstrate once again our consistent strong performance and attractive growth profile. Second quarter 2023 revenue increased 14% year-over-year to $2.49 billion. Growth was led by a 26% year-over-year increase outside the U.S. on continued strong uptake of TRIKAFTA-KAFTRIO in markets with recently achieved reimbursement as well as label extensions in younger age groups. Similarly, expansion in younger age groups helped drive 7% U.S. revenue growth following the recent FDA approval of TRIKAFTA in patients ages 2 to 5. Second quarter and first half revenues also benefited from increases in channel inventory in certain international markets which are expected to draw down in the second half. Second quarter 2023 combined non-GAAP R&D, acquired IP R&D and SG&A expenses were $1.04 billion compared to $750 million in the second quarter of 2022. Q2 2023 results include $110 million of acquired IP R&D charges compared to $62 million of such charges in the second quarter of 2022. Second quarter 2023 IP R&D expense reflects a $70 million milestone to CRISPR Therapeutics for progress made in our hypoimmune program for type 1 diabetes. Aside from our investments in external innovation and the resulting higher acquired IP R&D charges, operating expense growth was driven as expected by continued investment in research and our advancing pipeline which includes mid- and late-stage clinical assets across 8 different disease areas. The most significant areas of increased investment versus prior year included the clinical studies for the vanzacaftor Triple-NCF for VX-548 in acute pain and for type 1 diabetes. In addition, we continued our pre-commercial activities for exa-cel and other anticipated near-term launches, given the potentially transformative benefits to patients and multibillion-dollar market opportunities for our mid- and late-stage programs, we will continue to invest appropriately. Second quarter 2023 non-GAAP operating income was $1.15 billion compared to $1.19 billion in the second quarter of 2022. Second quarter non-GAAP earnings per share were $3.89, representing 8% growth compared to $3.60 in the second quarter of 2022. We ended the quarter with $12.6 billion in cash and investments. Now switching to guidance. Given our strong first half results and our consistent execution, including the successful launch of TRIKAFTA in patients ages 2 to 5 in the U.S., we are increasing our 2023 revenue guidance as detailed on Slide number 16, for the full year 2023, we now expect CF net product revenue of $9.7 billion to $9.8 billion, an increase of $100 million to $150 million compared to our prior range of $9.55 billion to $9.7 billion. Note that this revenue guidance includes an expected approximate 150 percentage point headwind to our revenue growth rate, consistent with our prior expectations. In addition, given our December 8 U.S. PDUFA date for exa-cel and sickle cell disease, 2023 product revenue guidance continues to reflect revenue from cystic fibrosis products only. We are also raising our 2023 guidance for combined non-GAAP R&D, acquired IP R&D and SG&A expenses to a range of $4.1 billion to $4.2 billion, an increase of $200 million from prior guidance. This increase reflects higher IP R&D expenses from new business development, including collaborations with Entrada in DM1 and with CRISPR in type 1 diabetes. Our 2023 non-GAAP operating expense guidance now includes approximately $500 million of upfronts and milestones compared to the $300 million projected at the start of the year. We continue to invest a majority of our operating expenses into R&D, given the momentum in our multiple mid- and late-stage clinical development programs. We are also funding the expansion of our commercial capabilities in anticipation of the multibillion dollar opportunities represented by our programs with near-term launch potential while continuing to leverage an attractive business model afforded by our focus in specialty markets. Our guidance for projected full year 2023 non-GAAP effective tax rate of 21% to 22% is unchanged. In closing, Vertex delivered excellent results for the second quarter of 2023. We delivered strong revenue growth, completed important regulatory milestones, updated on significant clinical trial programs and invested internally and externally. As we continue to advance our programs in 2023, we anticipate further important milestones as highlighted on Slide 17 to mark our continued progress in multiple disease areas. We look forward to updating you on our progress on future calls and I'll ask Susie to begin the Q&A period.

Operator:

[Operator Instructions] Our first question is from Phil Nadeau with Cowen & Company.

Reshma Kewalramani:

Phil, this is Reshma. Let me take the first part of your question and then I'll ask Stuart to comment on the commercial launch readiness. With regard to exa-cel, the FDA has informed us that there will be an advisory committee. This is not unexpected as we've discussed in the past, given the new mechanism of action. We don't have further details. Those will be forthcoming. And I expect we'll know more as we approach the date of the AdCom which we don't have today either. However, conventionally, the advisory committees usually take place about 1 to 2 months before the PDUFA date. So that's the general framework that we're looking at. We are very excited to have the opportunity to share our data, to talk about the benefit risk and to talk about the transformative potential and to have the patient's voices heard at the advisory committee. Let me turn it over to Stuart to comment on launch readiness.

Phil Nadeau:

Great. One follow-up, if I may. On the reimbursement, we've seen warranty agreements put in place by one recent gene therapy launch. Is that something you're considering or you think would be helpful?

Phil Nadeau:

Yes. In terms of reimbursement in the structure of reimbursement agreements, one recent gene therapy launch included a warranty as part of the reimbursement agreement. Is that something Vertex is considering or would think would be helpful for a launch like exa-cel?

Operator:

The next question is from Liisa Bayko with Evercore ISI.

Reshma Kewalramani:

Sure thing. Liisa, with regard to the T1D program, on the VX-880 side, that's, let's call it the naked cells program. You should expect to have a data readout at the fall diabetes conference where there will be an oral presentation. On the 264 program, that's the cells plus device program, we've just initiated enrollment. We've just dosed, as you heard in my prepared remarks, the first patient. And you should expect to hear from us with regard to results from that cells plus device program which does not require immunosuppressants, either when we reached a milestone in terms of data readout or we have a decision to communicate. We won't be sharing results patient by patient.

Reshma Kewalramani:

Sure. Liisa, you're right. We see this as an enormous opportunity. Let me ask Stuart to tell you how we plan to approach that opportunity. Stuart?

Operator:

[Operator Instructions] The next question is from Salveen Richter with Goldman Sachs.

Reshma Kewalramani:

Sure. Salveen, I'll ask Stuart to comment.

Operator:

Question is from Geoff Meacham with Bank of America.

Reshma Kewalramani:

Sure. Geoff, as we think about the busulfan based conditioning regimen which is what exa-cel will launch with, we see that as having a positive benefit risk profile for the approximately 32,000 people with the most severe forms of sickle cell disease and beta thalassemia. And with the improved or gentler conditioning, we see the opportunity to serve the full 150,000 people with sickle cell disease and beta thalassemia in Europe and the U.S. What this program looks like and we have an active set of programs internally, our partners at CRISPR are working on this problem, other academia and biotechs are working on this problem. And so I do see this as a problem that will be solved. It's not a tomorrow solution but I see this happening in the coming months and years. What we see is the opportunity to have a conditioning regimen that very specifically targets the compartment and the cells that are limited to those hematopoietic stem cells sparing all of the other cells. And in so doing, not have the side effects of busulfan, including the very significant cytopenias that you see with busulfan. So I do think that this is an area that we will see a solution for because we and others are working on it and because of the broad application and I do think you'll see progress in the coming months and in our years. I don't mean decades.

Robyn Karnauskas:

Sorry for the noise. I'm on board a plane and we're departing. So the question is, what is the bar for neurotrophic mean? I know your previous study with your previous drug kind of looks similar to Lyrica. Maybe you could step that for us in a second. We've done some due diligence in the chemo-related peripheral neuropathy is a huge unmet need. I wanted to know whether you thought it might work in this population as well.

Operator:

The next question is from David Risinger with Leerink Partners.

Reshma Kewalramani:

Sure. David, I think you're asking about the AATD program. And just to ground everyone on that one, this is our program where we have 2 molecules, VX-864 which is in a Phase II study and VX-634 which is making its way through a Phase I study. Our excitement for this particular program and disease comes from the fact that it fits the Vertex strategy like a glove. We are seeking to target both the liver and lung manifestations of this disease. And our small molecule approach is the only one that holds the potential to treat both liver and lung manifestations. And I do believe you need to treat both in order to have a transformative medicine. Our VX-864 study which is in Phase II is a long-term study. It's a 48-week study. And there, we are looking at the impact of long-term dosing on both functional AAT levels in the blood and clearance of liver polymer. You might recall that on a post-hoc analysis of our VX-864 Phase II data from a few years ago, we saw a 90-plus percent reduction in serum Z polymer levels which is why we're so interested in the liver polymer. And in the 634 study, we are going through our first in-human studies. So I expect that we'll have all the results from both of these trials by sometime next year, so 2024 and I expect that we'll be able to share the results at that time. Exact timing, we're going to need to get a few more months under our belt to look at the enrollment dynamics but I do expect we'll be sharing results by sometime next year. So it's a '24 milestone.

Terence Flynn:

Stuart, you mentioned there were about 20,000 patients not on drug at the start of the year that could potentially be eligible. Just wondering where that figure will end, assuming you achieve your new 2023 guidance?

Operator:

Next question is from Mohit Bansal with Wells Fargo.

Reshma Kewalramani:

Mohit, I think you're talking about the vanzacaftor triple, that's our next-in-class regimen for CF. This is the program that's in Phase III and we expect to complete both studies in the 12-plus-year-old age group and the 6 plus year age group this year with results from that pivotal program early next year. With regard to your question on sweat chloride and ppFEV1, yes. There is a very strong association between improvements in sweat chloride and improvements in lung function. And you can see that across all of our previous CFTR modulators, all the way from KALYDECO through ORKAMBI SIM and TRIKAFTA. So that relationship is strong. In terms of what you should expect from the vanzacaftor triple. Or let me put it another way, the reason we have such high enthusiasm for the vanzacaftor triple, in the preclinical experiments, including the very important HBE assays which have been not only qualitatively predictive but quantitatively so, the vanzacaftor triple, I know this is hard to believe in a tall order but the vanzacaftor triple preclinically is even better than TRIKAFTA in our HPE cells. And when we look across the Phase II studies that have been done, the vanzacaftor triple have better sweat chloride than even TRIKAFTA. It's hard to call -- make a call on ppFEV1 because in the Phase II studies, the sample sizes are obviously smaller and ppFEV1 is a more variable endpoint. So I think the right measure to look at is indeed sweat chloride. And from all of the data we've collected, vanza is even better than TRIKAFTA on that measurement of sweat chloride.

Michael Yee:

You announced that the chronic pain neuropenic pain study, Phase II was complete enrollment. So that's super exciting and the data, I guess is end of '23, early '24. Can you talk a little bit about, I guess, on one side, you feel confident because of the biology and the acute data was also quite strong, there's also some early chronic data as well as the last gen. But also, I guess, historically, chronic pain studies can be challenging with placebos, even with vicoden and opioids, you can get mixed results. So I just wanted to ask about your confidence around this probability success versus the acute study and how we should take this study into consideration from an expectation standpoint, give it just a Phase II?

Operator:

The next question is from Evan Seigerman with BMO Capital Markets.

Reshma Kewalramani:

Yes. Let me take the second half of your question, Evan and then I'll turn it over to Stuart to talk through how we're seeing the commercial opportunity for the vanza triple. So when you look at parents, so carriers of the CF mutation, for those who don't have disease. When you are at those carrier levels of sweat chloride, you have virtually no manifestation of disease. That's why we're targeting carrier levels of sweat chloride. You're fundamentally -- just like you and me, I don't -- I'm not a carrier and I'm not a patient with CF. But if you are a carrier of CF, you are fundamentally unaffected. That's why that's the highest bar to achieve. And that's why that's the bar we continue to chase. The TRIKAFTA triple gets some patients there, the vanzacaftor triple will get more patients there. But our research continues and we've already identified additional potentiators and correctors that will get us to that ultimate goal of carrier levels of sweat chloride. Stuart?

Operator:

The next question is from Colin Bristow with UBS.

Reshma Kewalramani:

Colin, I think there are 2 separate questions in there. One about the vanza triple and what do we need to see and then one on DMD. Let me tackle the DMD, DM1 question, I'll come back to vanza. On the DMD question, I'm going to broaden it out to muscular dystrophies as a whole and I'll talk about DMD. and DM1. We have programs in DMD that are going through IND-enabling studies now as well as in DM1. We actually have multiple programs in DM1. The lead program is the one that we in-licensed from Entrada. And that program also is already in IND-enabling studies and both of them should have those results in the second half of '23. And our timing remains to file the IND for both DMD and for DM1 for the lead program in DM1 in the second half of this year. With regard to the vanza, I think Stuart just covered that. What we're looking to see in the way the study is designed is vanzacaftor in the Phase III program head-to-head versus TRIKAFTA and the primary endpoint is sweat chloride. And the reason for that is, again, with patients who -- with carriers, those with who have 1 CF gene, they have virtually no manifestations of disease. And that is measured assessed by the sweat chloride carrier level is a description of sweat chloride levels. So that's what we're measuring. We are, of course, going to have PPFEV1 in there. And as Stuart said, if the profile is, as I described it to be, improvement on sweat chloride levels, we expect it to have real value to patients. I'll also add that the vanzacaftor triple has a lower royalty burden than the TRIKAFTA combination.

Operator:

This concludes the question-and-answer session and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator:

Good day, and welcome to the Vertex Pharmaceuticals First Quarter 2023 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Ms. Susie Lisa. Please go ahead.

Reshma Kewalramani:

Thanks, Susie. Good evening, all, and thank you for joining us on the call today. We're pleased to have opened with a strong start to 2023, as first quarter global CF product revenues grew 13% versus the first quarter of 2022. In addition, we completed the Exa-cel U.S. rolling BLA submissions for sickle cell disease and beta thalassemia and secured U.S. approval for TRIKAFTA in patients two years to five years of age. Now is an especially exciting time at Vertex because within our five launches in five years, or five in five goal, we see multiple programs with near-term launch potential including exa-cel and sickle cell disease and transfusion-dependent beta thalassemia, the vanzacaftor triple in CF, and VX-548 for acute pain. In total, we now have programs in eight disease areas, in mid and late-stage development, six of which are past the proof-of-concept stage as depicted on slide five. With this breadth of compelling opportunities, we're investing accordingly to drive continued pipeline success, clinical trial progress, and the buildout of commercialization capabilities. In addition, beyond the eight disease areas already in the clinic, the next wave of innovation is advancing through preclinical development, including programs in Duchenne's muscular dystrophy, Myotonic dystrophy type 1, NAV1.7 for pain, and gentler conditioning agents for use with exa-cel. With a uniquely strong and durable CF franchise, multiple near-term commercial opportunities, a broad and rapidly advancing pipeline, a strong balance sheet, and an exceptionally talented and committed team, Vertex has never been as well-positioned to deliver for patients and shareholders for years to come. With that overview, I'll turn to the details of recent R&D progress starting with CF. Our next in-class vanzacaftor triple combination has completed enrollment in its two Phase 3 clinical trials in patients ages 12 years and above, known as SKYLINE 102 and SKYLINE 103 and is progressing well. Enrollment in patients ages six to 11 known as the RIDGELINE study is also advancing rapidly. We continue to anticipate the completion of the SKYLINE studies by the end of this year, and I'm pleased to share, we now project the completion of the RIDGELINE study at approximately the same time as the SKYLINE studies. Recognizing the very high bar set by TRIKAFTA, we have high expectations for the vanzacaftor triple program based on the totality of the evidence generated to-date, and as was recently reported in Lancet Respiratory Medicine. Preclinically, our HBE assays which have consistently proven to have robust translation from the bench into the clinic showed greater restoration of chloride transport with the vanzacaftor triple than with TRIKAFTA. In the Phase 2 clinical program, the vanzacaftor triple drove greater CFTR function and correspondingly lower levels of sweat chloride that has been seen with TRIKAFTA. As such, we believe the vanzacaftor triple has the potential for enhanced clinical benefit along with the convenience of once-daily dosing. In addition, we expect the vanza triple to carry substantially lower royalty burden. Another important study in our CF portfolio pertains to VX-522, our CFTR mRNA therapy that we're developing in partnership with Moderna for the more than 5,000 CF patients who cannot benefit from CFTR modulators. We have initiated the single ascending dose or SAD study of VX-522 and are actively enrolling and dosing CF patients. We anticipate completing the SAD portion of the study and initiating the multiple ascending dose portion of the study this year. Turning now to exa-cel, our gene editing program for severe sickle cell disease and transfusion dependent beta thalassemia. exa-cel holds the potential to be the first CRISPR-based gene editing treatment to be approved, as well as the promise to be a one-time functional cure for these diseases. This is our most advanced program outside of CF and we expect exa-cel to be our next commercial launch. Per our prior guidance, we completed our BLA submissions for both sickle cell disease and TDT in the U.S. at the end of last quarter. We now await acceptance of our filings and assignment of the PDUFA date. Our filings include requests for Priority Review, which if granted will result in an eight months review by FDA from the time of submission. Internationally, as previously announced, both the EMA and MHRA have validated our exa-cel MAA submissions, and those filings are under review. We see a significant opportunity for exa-cel. Stuart will comment further on the market opportunity and our launch preparations in just a few minutes. Turning next to our pain program and VX-548, our novel highly selective NaV1.8 inhibitor that holds the promise of effective pain relief without the side effects or addictive properties of opioids. We have confidence in the outlook for this program, given, one, NaV1.8 is a genetically and pharmacologically validated target. Two, we have multiple positive proof-of-concept results with our predecessor NaV1.8 inhibitor VX-150 across acute, neuropathic, and musculoskeletal pain, and with VX-548 itself in acute pain. And three, our Phase 3 program with VX-548 in acute pain is substantially similar to the positive Phase 2 II trials we have already concluded. VX-548 has been granted Fast Track and Breakthrough Therapy designations for acute pain in the U.S. We initiated pivotal development last year and enrollment and dosing across the three Phase 3 studies continue to progress nicely. These studies have been designed to support our goal of a broad moderate-to-severe acute pain label that would enable prescribing and usage across multiple care settings, including at the site of care post discharge and in the home. We continue to anticipate completing the acute pain Phase 3 pivotal program towards the end of this year or beginning of next creating another potentially significant and near-term commercial opportunity. In addition, we continue to enroll and dose patients in a twelve-week Phase 2 dose-ranging proof-of-concept study of VX-548 in diabetic peripheral neuropathy, a form of peripheral neuropathic pain. I am pleased to share, we also anticipate completing this Phase 2 study towards the end of this year or beginning of next. Transitioning now to inaxaplin or VX-147, the first potential medicine to target the underlying cause of APOL1-mediated kidney disease or AMKD. In March, we were very pleased with the publication of the Phase 2 results for inaxaplin in the New England Journal of Medicine. Importantly, the paper was accompanied by an editorial and a feature on the science behind the study. We see this coverage in the New England Journal of Medicine as underscoring the importance of the inaxaplin data and the medicine's potential. The Phase 2b dose ranging portion of the global Phase 2, 3 pivotal study remains on track to complete this year. Recall, this study has a preplanned interim analysis at 48-weeks of treatment, which, if positive, could serve as the basis to seek accelerated approval in the U.S. With inaxaplin, we see the potential to bring a first-in-class treatment to the approximately 100,000 patients with AMKD in the U.S. and Europe and unlock a multibillion-dollar market opportunity. Moving now to Type one diabetes. There are more than 2.5 million people with Type one diabetes in North America and Europe alone, and we are committed to delivering a transformative, if not, curative medicine for this disease. We have three programs in our type one diabetes portfolio, all of which use the same fully differentiated insulin producing islet cells, which have already demonstrated proof-of-concept. Our first program or VX-880, the naked cell program use a standard immunosuppressive to protect the islet cells from the immune system. I am pleased to share that both part A and part B of the study are now fully enrolled and dosed. In both portions of the study, dosing of patients with staggered with Part A patients receiving half dose and Part B patients receiving the full target dose. The next step in the program is Part C in which patients will be treated concurrently with the full target dose. This should facilitate faster timelines. We look forward to sharing VX-880 data from more patients and with longer duration of follow-up at medical congresses this year, including the ADA Scientific Sessions in June. Our second program, VX-264 or the cells plus device program encapsulates these same cells in a proprietary device that is designed to shield the cells from the body's immune system, and hence there is no requirement for immunosuppressants. Both the IND in the U.S. and the CTA in Canada have cleared. Site activation and study initiation activities are underway in both the U.S. and Canada, and we look forward to enrolling and dosing patients in this Phase I, II study in the near-term. Third, our hypoimmune program in which we added the same cells to cloak them from the immune system. This would represent another path to obviating the need for immunosuppressives. In March, we expanded our collaboration with CRISPR Therapeutics into type one diabetes and this new licensing agreement will enable us to use CRISPR-Cas9 to edit the cells. This research stage program continues to make progress. Lastly, also in the T1D portfolio, the ViaCyte VCTX-211 hypoimmune program using a ViaCyte cell line remains on track. This program is finished enrollment and dosing in Group one of the Phase 1, Phase 2 study. Let me conclude with our Alpha-1 Antitrypsin Deficiency or AATD program, which continues to enroll both the Phase 2 study for VX-864 and the Phase 1 study for VX-634. The Phase 2 program for VX-864 is a 40 eight week study in patients with AATD that will assess both liver clearance of the polymer and serum functional AAT levels. This study is projected to complete enrollment later this year. The Phase 1 healthy volunteer study of VX-634, the next in class molecule with multi-fold greater potency and better drug-like properties is projected to complete this year. With that, I'll now turn over the call to Stuart.

Charlie Wagner:

Thanks, Stuart. Vertex's results in the first quarter of 2023 demonstrate our consistent strong performance and attractive growth profile regardless of macroeconomic conditions. First quarter 2023 revenue increased 13% year-over-year to $2.37 billion. Growth was led by a 33% year-over-year increase outside the U.S. on continued strong uptake of TRIKAFTA/KAFTRIO in markets with recently achieved reimbursement, as well as label extensions into younger age groups. U.S. CF revenue grew 3% year-over-year with ongoing consistent performance. First quarter 2023 combined non-GAAP R&D, acquired IPR&D, and SG&A expenses were $1.2 billion compared to $687 million in the first quarter of 2022. Q1, 2023 results include $347 million of acquired IPR&D charges, compared to just $2 million of such charges in the first quarter of 2022. First quarter 2023 IPR&D expenses resulted from several new collaborations, which augment our internal innovation efforts as detailed on slide 15, including collaborations with Entrada Therapeutics and DM1 ImmunoGen for gentler conditioning agents and the expansion of our relationship with CRISPR Therapeutics into Type one diabetes. Aside from our investments in external innovation and the resulting higher acquired IPR&D charges, operating expense growth was driven as expected by continued investment in research in our advancing pipeline, which includes mid and late stage clinical assets across eight different disease areas. For example, these investments are directed towards clinical studies for the vanzacaftor triple in CF, VX-548 in acute pain, and type one diabetes, as well as pre-commercial build-out activities for exa-cel and other potential near-term launches. Given the potentially transformative benefit to patients and multibillion-dollar market opportunities for our programs, we will continue to invest appropriately. First quarter 2023 non-GAAP operating income was $902 million in the quarter, compared to $1.17 billion in the first quarter of 2022. First quarter adjusted earnings per share were $3.05. We ended the quarter with $11.5 billion in cash and investments, as our cash flow generation and balance sheet remain very strong. Now switching to guidance. Given our first quarter results and our consistent execution, there are no changes to our 2023 financial guidance as detailed on slide 16. We continue to expect product revenue guidance of $9.55 billion to $9.7 billion, representing 7% to 9% growth year-over-year. Note that, this guidance continues to include an expected approximate 1.5 percentage point headwind to our revenue growth, inclusive of our foreign exchange risk management program. As we mentioned in early February, given our years of experience in CF, we have strong visibility to our 2023 revenue guidance range, which is inclusive of expected new approvals like the TRIKAFTA U.S. approval in patients ages two to five and new reimbursements outside the U.S. Note too that 2023 product revenue guidance continues to reflect revenue from cystic fibrosis products only. Exa-cel is not included in guidance as potential approval and launch dates in the EU, UK and US are still to be determined. We are also reiterating our 2023 guidance for combined non-GAAP R&D, acquired IPR&D, and SG&A expenses in the range of $3.9 billion to $4 billion. Our 2023 non-GAAP operating expense guidance now includes approximately $400 million of upfronts and milestones from previously existing or recently completed BD transactions versus the $300 million that was anticipated at the beginning of the year. Our operating expenses continue to be more than 70% allocated to R&D and are funding the significant continued progress of our multiple mid and late stage clinical development programs. Additionally, we are funding the expansion of our commercialization capabilities in anticipation of the multibillion dollar market opportunities represented by our programs with near term launch potential. Our guidance for projected full year 2023 non-GAAP effective tax rate of 21% to 22% is also unchanged. In closing, Vertex performed exceptionally well in the first quarter of 2023. We delivered strong revenue growth, invested internally and externally, and accelerated programs across our diverse pipeline. We're also proud of our industry leading culture of innovation that we believe will continue to drive long term success. A few highlights from our recently published Corporate Responsibility Report are found on slide 17. And as we continue to advance our programs in 2023, we anticipate further important milestones as highlighted on slide 18 to mark our continued progress in multiple disease areas. We look-forward to updating you on our progress on future calls. And I'll ask Susie to begin the Q&A period.

Salveen Richter:

Good afternoon. Thanks for taking my question. With regard to the exa-cel launch, you discussed the three steps that need to occur for patients to get treatment here. Could you just speak to the overall time that will be required in your mind after approval for a patient to actually be administered drug? And then secondly, the gene insertion competitor clearly has been doing work here and it's taken some time, but they've done foundational payer work. Just wondering what the read through is from all the work they've done to your launch progress as well. And in the context of this on the R&D and SG&A front, as we look to next year, how do we think about how that SG&A line might inflect in the context of not just this launch, but also the pain launch as well? Thank you.

Stuart Arbuckle:

Yes, so Salveen, as I outlined in my prepared remarks, this is a relatively extended process that takes multiple months from beginning to end. As I said, from the patient deciding with their physician with a genetic approach is the one that they would like to undertake through mobilization and the manufacturing then very, very importantly the last step which is obviously the most important because that's when they are infused with their edited cells because of the nature of that loss that's where the patient if they want to go myeloablative conditioning and therefore has a multi week stay in the hospital once they're followed to see whether the product has ingrafted before they are released from the hospital, they have to schedule that into their life, and so that is obviously a very significant undertaking for an individual. But, of course, the payoff there is they're looking to get a potential lifetime cure for that multi-month process. So it is a multi-month process with that last step obviously been one, if they need to schedule into their life. Hopefully, then to receive a lifetime of benefit from exa-cel. In terms of what do we learning from the marketplace more interaction with payers, we're incredibly encouraged by the reaction we've had from payers both their understanding of the severity of both sickle cell disease and transfusion-dependent thalassemia and the very significant burden that it has on patients, their families, and of course, the broader healthcare system and the cost associated with that. Also, we're very encouraged by their reaction to the product profile that exa-cel has and how positive they appear to be working with us to try and ensure that there is as nearest possible access to that exa-cel is close to possibly post approval. So we're really very encouraged by the response from there across the continuum, commercial payers, and very importantly for this population both Medicaid and Medicare. I think you had a question on SG&A evolution. I think that's probably best handled by Charlie. So Charlie, do you want to take that one?

Salveen Richter:

Thank you.

David Risinger:

Yes, thanks very much, and thank you for the updates. So I was hoping if you could talk about your vision for VX-548 in chronic pain. So obviously, you're studying it in DPN. But specifically, what I'm interested in is, assuming that you succeed in your Phase 2 neuropathic pain trial, how might Vertex pursue Phase 3 development, how do you see the target product profile for the product? And would you consider development in musculoskeletal pain as well? Thank you.

David Risinger:

Thank you.

Mohit Bansal:

Great, thank you for taking my question. Maybe a question on exa-cel, one more question on that. So I know -- I mean you are excited about the opportunity, and you're talking about 32,000 patients there and the drug clearly works. I mean, it's pretty amazing. But when we talk to doctors, they talk about maybe initial opportunity will be in 5,000 to 10,000 patients in the U.S. and they're a little bit worried about safety at this point, early on and the investment community is also a little bit looking at it as a show-me story. So could you help us understand what we are missing in terms of when you talk to payers and prescribers, where do you think the disconnect is? And how do you think like what steps would need to happen for -- what is disconnect to disappear? Obviously, launch would be an important part there.

Stuart Arbuckle:

Yes. As Reshma said, the 32,000, those patients who are sort of the severe end of the spectrum, essentially, patients very similar to those that were enrolled in our clinical trials. These are patients who are having multiple occlusive crises per year for our sickle cell disease population and multiple transfusions in the year for those in the transfusion-dependent thalassemia patient population. So these are patients who -- whose lives are very, very significantly impacted by their disease, and it really impacts all aspects of their life, impacts their loved ones, impacts their ability to work, and they have a very, very significant burden of disease and also a very significant burden for the health care system. So in the discussions that we've had with both patients, payers, and physician groups, the unmet need is very, very clearly well understood, the potential for curative onetime therapies is very, very much something that people are looking forward to. I think with any new technology and with any new product, there are always going to be some questions that people will have around things like safety as these are really transformative and innovative therapies. And to some extent, for some people, that's something that can only get solved over the course of time and with their own live experience. But certainly, the level of enthusiasm we're seeing from all stakeholders is very, very high, and we're very optimistic about this being a multibillion-dollar opportunity.

Operator:

The next question will come from Geoff Meacham with Bank of America. Please go ahead.

Reshma Kewalramani:

Sure, Geoff. Let me ask Stuart to tackle vanzacaftor first and then I'll ask Charlie to comment on capital allocation. Stuart?

Charlie Wagner:

And then, Geoff, on capital allocation, no change at all in our strategy or priorities. Our priority continues to be investment in innovation, both internally and externally. You saw that we were active with BD in the first quarter. While it may be true that if you look back over the last 18 months or so, we've done a number of BD transactions in cell and gene therapy, I don't think you have to project forward that that's the only place we're focused. As you know, we've got a sandbox of disease areas, and we are modality agnostic and we'll do the deals that make sense for our program areas and fit our strategy. Lastly, I guess I would be remiss to point out, we do have an ongoing share buyback program as well. We've been at that for about five years or so. And that program continues to be a part of our capital allocation strategy.

Operator:

The next question will come from Phil Nadeau with Cowen and Company. Please go ahead.

Reshma Kewalramani:

Sure. Let me comment on the target product profile a bit, and then I'll ask Stuart to comment on the market size, both in terms of patient numbers and dollar potential. So Phil, if we recapitulate the results that we saw in Phase 2, which you'll recall, is substantially similar to what we're doing in Phase 3. That is to say, a study in abdominoplasty as a form of a soft tissue model and bunionectomy as a form of a hard tissue pain model, that would be a home run for us. What I mean by that is efficacy, pain relief that's quick and durable, a benefit risk profile that is quite attractive and by mechanism of action, that is to say the way 548 works is on the peripheral nervous system, not centrally no addictive potential. That is an absolute home run. I'm going to ask Stuart to comment on market size in terms of dollars and patients. Stuart?

Operator:

The next question will come from Michael Yee with Jefferies. Please go ahead.

Reshma Kewalramani:

Sure. Let me take the mRNA question first, and then I'll come back around to pain. With regard to the program we have ongoing with Moderna, that's the VX-522 program. It is a program for the approximately last 5,000 patients or so who simply can't benefit from CFTR modulators. It is a SAD MAD program with the SAD portion of it going on right now. When we did KALYDECO and TRIKAFTA, for example, our patients used to tell us that they knew from the first day that they were on placebo or active therapy. So I can't rule out when we will know whether we have efficacy. But in terms of time lines and what you can plan for, we expect to be done with the SAD this year, and we expect to be well into the MAD this year. So those are the time lines we're looking forward to. With regard to the pain studies and what you could expect there, I don't really see read-through from acute to chronic neuropathic pain or vice versa. What I do see read through is from the Phase 2 studies to Phase 3. And I also see read-through from the NaV1.8 class. That is to say VX-150, which already showed efficacy in acute neuropathic and musculoskeletal. So as I look forward to the VX-548 pain study results, and the VX-548 dose-ranging Phase 2 neuropathic range neuropathic study results, that's where I'm looking to for precedents, the Phase 2 program in VX-548 itself in acute pain, and the VX-150 program across the three pain types.

Reshma Kewalramani:

Sure.

Will Pickering:

Hi, thank you for taking my question. Another one on pain. For the neuropathic pain study, could you talk about reasons to be optimistic that this drug will compare favorably to existing treatment options based on your experience with VX-150? And then very quickly on sickle cell and the CGT access model, how does the time line for that program compared to the expected launch time line for exa-cel? Thank you.

Stuart Arbuckle:

Yes. Well, so on the CGT access model, I would consider this kind of complementary to our ongoing efforts with both government and commercial payers, secure access for exa-cel as close to approval as we possibly can. The model has only just been announced, and so it's obviously going to take a while for that to be fleshed out and then implemented. We're certainly not relying on that to be in place for a successful launch of exa-cel. As I said in my prepared remarks, we've been having extensive discussions with both government and commercial payers for the last few months, and we'll continue to up to and post the approval of exa-cel and so we are working with them. We're not relying on the CDT access model for a successful launch. What I do think it is a signal of though, is just how important payers consider getting innovative therapies like exa-cel through these traditionally underserved patient population. So to us, it's a real indicator of a groundswell of opinion that people want to get these transformative medicines to patients that has been poorly treated in the past.

Operator:

The next question will come from Jessica Fye with JPMorgan. Please go ahead.

Reshma Kewalramani:

Jess, this is Reshma. You're right about the study design. It is a study that has a primary endpoint of VX-548 versus placebo just like the Phase 2 study and there is a secondary endpoint with regard to the opioid comparator arm. And you'll remember in the Phase 2 study, we also had an opioid arm, but in the Phase 2 program, given the reasonably efficient study design, it was not for comparison, but for context. But I will point you to the press release that we put out to give you if you want to get a sense for what the magnitude of the treatment effect was and how it compares. And I'll just say that it compares favorably, of course, it was not there for comparison. Let me turn it over to Stuart to comment on the commercial implications.

Jessica Fye:

Thanks. And if I could just seek a follow-up. Are there any side effects that we should be keeping an eye out for with this mechanism as we approach the Phase 3 readout?

Jessica Fye:

Thank you.

Colin Bristow:

Hey, good afternoon and congrats on the quarter and all the progress. Maybe first on the pipeline and CRISPR-based DMD therapy. Could you give us any more color on the progress of the IND filing? And is it reasonable for us to expect any clinical data in 2024? And then second on VX-880. What should we expect to see at ADA in terms of patient numbers and cohorts? And then just a follow-on from that, with regards to VX-264. Now the IND is cleared, could you give us any more color in terms of the materials or the design of the device? Thank you.

Susie Lisa:

Thanks, Colin. Just that brings us to time. So can you wrap it up, please?

Operator:

Good day, and welcome to the Vertex Pharmaceuticals Fourth Quarter and Full Year 2022 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Ms. Susie Lisa, please go ahead.

Reshma Kewalramani:

Thanks, Susie. Good evening all and thank you for joining us on the call today. We are pleased to have closed out a strong 2022 with full year global CF product revenue up 18% versus 2021. Our full year 2023 product revenue guidance is $9.55 billion to $9.7 billion, representing 7% to 9% growth year-on-year inclusive of FX headwind of approximately 1.5%. We have more than 20,000 patients still to reach with CFTR modulators and we continue to work with focus and urgency to reach all patients with CF around the globe who may benefit from our therapies. It is an exciting time for Vertex. Our medicines have transformed CF and the growth of our CF business has transformed Vertex. Our differentiated R&D approach led to our multiple life-changing therapies in cystic fibrosis and is designed to deliver transformative medicines for serious diseases at high rates of success. Agnostic to modality, it is delivering just that. In aggregate, our mid and late-stage clinical pipeline holds the promise to deliver potentially transformative benefit for patients across eight disease areas. As detailed on Slide 5, each program holds the potential to be best-in-class and transform the disease and each represents a multi-billion dollar market opportunity. Furthermore, we see the opportunity to launch new products into five of these disease areas within the next five years or our five and five goal and we're not done. The next wave of innovation is also making progress and advancing through preclinical development, including programs in Duchenne's muscular dystrophy and myotonic dystrophy Type 1. This breadth of pipeline success, accelerated pace of clinical trial progress and build out of commercial capabilities for upcoming product launches warrant continued investments in 2023. As such, we are strategically investing and focusing on execution to drive forward the significant opportunity with a uniquely strong and durable CF franchise, a deep, broad and advancing R&D pipeline with multiple potentially near-term commercial opportunities, a strong balance sheet and a deeply talented and committed team, Vertex is well positioned to deliver for patients and shareholders for years to come. With that overview, I'll turn to the details of recent R&D progress. Starting with CF. We'll continue our journey in cystic fibrosis as we serially innovate to bring highly efficacious therapies to all CF patients. Our next in class vanzacaftor triple combination completed enrollment in its two Phase 3 clinical trials, SKYLINE 102 and SKYLINE 103 in patients ages 12 years and older in Q4 of 2022. While TRIKAFTA sets a very high bar, our enthusiasm for this vanzacaftor program is also high. This program could deliver even greater benefits to patients given one, our highly predictive, in vitro human bronchial epithelial or HPE cell assays showed the vanza triple was superior to TRIKAFTA in improving chloride transport, a direct measure of CFTR function. Two, our Phase 2 clinical data also suggest the potential for greater efficacy for vanzacaftor versus TRIKAFTA. And three, the vanzacaftor triple also has the benefit of once-daily oral dosing and a substantially reduced royalty burden relative to TRIKAFTA. The Phase 3 trial are currently in the 52 week dosing period and we anticipate their completion towards the end of this year. Another important program is the VX-522 program, our CFTR mRNA approach that we are developing in partnership with Moderna for CF patients who cannot benefit from our CFTR modulators. In December of 2022, the FDA cleared the IND for VX-522 and the single ascending dose study in CF patients was initiated last year, a major milestone for Vertex and the field. We have high expectations given over five years of research that led to the discovery of VX-522 with the following properties, one, delivery of mRNA at high efficiency into HBE cells; two, expression of CFTR protein leading to high levels of chloride transport; and three, in both rodents and non-human primates expression of CFTR protein in the desired cells; and lastly, a preclinical safety profile that supported advancement into human clinical trials. We are excited with the progress of VX-522, which brings hope to the more than 5,000 CF patients who are still waiting for a treatment that targets the underlying cause of their disease. Turning now to exa-cel, our gene-editing program for severe sickle cell disease and transfusion dependent beta thalassemia. This is our most advanced program outside of CF and we expect exa-cel to be our next commercial launch. In late Q4, we completed our regulatory submissions for exa-cel for both sickle cell disease and beta thalassemia in the EU and UK. Both the EMA and the MHRA have recently validated the MAA submissions. And in the U.S., we remain on track to complete our rolling BLA submission by the end of this quarter. The remarkable clinical benefits are evident in the data we’ve shared to date. Exa-cel holds the promise to be the first CRISPR-based gene-editing treatment to be approved and represents a near-term and significant market opportunity, which Stuart will detail. Turning next to VX-548 and our pain program. VX-548 is our novel selective NaV1.8 inhibitor that holds a promise of highly effective pain relief without the side effects or addictive potential of opioids. If approved, VX-548 would represent the first new class of pain medicine in decades with the potential to address the staggeringly high unmet need in acute pain. VX-548 acts on the peripheral nerves to block the pain signal and thus may be able to provide effective pain relief without the abuse potential, which is a central nervous system phenomenon. We have high expectations for this program because NaV1.8 is a genetically and pharmacologically validated target. Second, we have multiple positive proof of concept results with VX-150, a predecessor molecule to VX-548 and proof of concept with VX-548 itself. And lastly, our Phase 3 program in acute pain is substantially similar to the positive Phase 2 trials we have already conducted. VX-548 has been granted Fast Track and Breakthrough Therapy designation in the U.S. We initiated pivotal development last year and we are enrolling patients across three Phase 3 studies with the goal of seeking a broad moderate to severe acute pain label. We anticipate completing the Phase 3 pivotal program towards the end of this year or the beginning of next, creating another potentially significant and near-term commercial opportunity, which Stuart will also discuss. In addition to validation of NaV1.8 as a target in acute pain, it has also been validated as a target in neuropathic pain. I am pleased to share that in late Q4, we initiated a 12-week Phase 2 dose ranging proof of concept study for VX-548 in peripheral neuropathic pain. We look forward to updating you as this Phase 2 program progresses and to sharing more on the market opportunity on future calls. Transitioning now to inaxaplin or VX-147, the first potential medicine to target the underlying cause of APOL1-mediated kidney disease or AMKD, post the positive Phase 2 proof of concept study, inaxaplin is now being studied in a single adaptive Phase 2/3 pivotal trial. This study has a pre-planned interim analysis at 48 weeks of treatment, which if positive could serve as the basis to seek accelerated approval in the U.S. Our goal is to complete the Phase 2 dose ranging portion of the Phase 2/3 pivotal study this year, select a dose, and then continue on to the Phase 3 portion. We are also working to increase awareness screening and diagnosis through multiple initiatives given the high unmet need and the approximately 100,000 patients in the U.S. and Europe alone. With inaxaplin, we see the potential of bringing a first-in-class treatment to patients with AMKD and unlocking a multi-billion dollar market opportunity. Moving to type 1 diabetes where a goal is to deliver a transformative if not curative therapy for the more than 2.5 million patients with type 1 diabetes in North America and Europe. We are advancing multiple programs. First, VX-880 is our stem cell-derived, fully differentiated, insulin-producing islet cells, which use standard immunosuppressive to protect the cells from the immune system. These cells are also foundational for the other two T1D programs. For VX-880, we achieved proof-of-concept last year with the first two patients treated in Part A of the VX-880 study. We have now fully enrolled Part B, where patients will receive the target dose on a staggered basis. The next phase is Part C, expected to initiate later this year in which patients will be treated concurrently with the target dose. We look forward to sharing VX-880 data from more patients and with longer duration of follow up at medical congresses this year. Second VX-264 or the cells plus device, which encapsulates the same fully differentiated insulin producing islet cells in a proprietary device that shields the cells from the body’s immune system and hence there is no requirement for immunosuppressants. In late Q4, we simultaneously filed a CTA in Canada as well as the IND in the U.S. As we shared last month, the CTA has cleared and we look forward to initiating enrollment and dosing of patients in Canada in the coming months. In the U.S., the IND has not cleared. We have received and responded to the FDA’s questions. We look forward to working with the agency with urgency, so that we can initiate the study in the U.S. as soon as possible. Third, in our hypoimmune program, we are editing the same fully differentiated insulin producing islets to cloak them from the immune system, another path to obviating the need for immunosuppressive. This program continues to progress in preclinical development. Let me close the T1D section with an update on the ViaCyte acquisition through which we gained intellectual property, tools and capabilities that hold the potential to accelerate our goal of developing transformative treatments for this disease. We have now completed our data and portfolio review and are very pleased with the progress to date. We have begun executing our integration plans. On the clinical side, a Phase 1/2 study of VCTX-211, a hypoimmune cell program that originated with ViaCyte and that Vertex is now developing in partnership with CRISPR Therapeutics has been initiated and is ongoing. All other ViaCyte clinical trials have completed enrollment and dosing and are in the follow-up stage. I’ll finish up with the alpha-1 antitrypsin deficiency or AATD program. Both a Phase 1 study of VX-634, the first in a series of next wave AAT correctors and a 48-week Phase 2 study of VX-864, our first generation AAT corrector are ongoing. We look forward to updating you as these programs advance. I’ll now ask Stuart to review our commercial progress.

Charlie Wagner:

Thanks, Stuart. Vertex’s fourth quarter and full year 2022 results represent another year of strong execution and exceptional financial performance. Fourth quarter 2022 revenue increased 11% year-over-year to 2.3 billion. Growth was led by a 24% year-over-year increase outside the U.S. on continued strong uptake of TRIKAFTA/KAFTRIO in markets with recently achieved reimbursement as well as label extensions into younger age groups. U.S. CF revenue grew 5% year-over-year with ongoing consistent performance. Full year 2022 revenue of 8.93 billion represents 18% growth versus 2021, marking Vertex’s eighth consecutive year of at least double digit revenue growth. Full year 2022 international revenue of 3.23 billion, increased 41%. And full year U.S. revenue of 5.7 billion, increased 8% compared to 2021. For the full year 2022, we estimate the changes in foreign exchange negatively impacted our global revenue growth rate by approximately 1.5 percentage points inclusive of our foreign exchange risk management program. Fourth quarter 2022, combined non-GAAP R&D acquired IP R&D and SG&A expenses were 872 million, an increase of 5% compared to the fourth quarter of 2021. Full year 2022 combined non-GAAP R&D, acquired IP R&D and SG&A expenses were 3.07 billion, a decrease of 11% versus the prior year. Recall that 2021 results were impacted by 1.1 billion of acquired IP R&D charges, including the one time $900 million payment to CRISPR compared to 116 million of such charges in 2022. Acquired IP R&D aside throughout 2022, we continued to invest in research and our advancing pipeline, which includes mid and late stage clinical assets across eight different disease areas. The year-over-year increase in spending reflects stepped up investments in programs where we made notable clinical progress, particularly in pain, the new vanza [ph] triple as well as type 1 diabetes. We also continued to invest in the pre-commercial buildout activities for exa-cel and preparation for other potential near-term launches. Given these programs potentially transformative benefit to patients and multi-billion dollar market opportunities, we will continue to invest accordingly. Fourth quarter 2022 non-GAAP operating margin was 50% and we generated non-GAAP operating income of 1.15 billion in the quarter, an increase of 15% versus the prior year period. Full year 2022 non-GAAP operating margin was 54% and full year non-GAAP operating income was 4.79 billion, up 48% versus 2021. We ended the quarter with 10.8 billion in cash in investments as our cash flow generation and balance sheet remained very strong. On the business development front in Q4, we announced a global collaboration with Entrada Therapeutics focused on therapeutics for DM1. The HSR period expired last night and the transaction is expected to close within days. As a result, our Q1 2023 results are anticipated to include an approximate 224 million upfront payment recorded in our income statement and an approximate 26 million equity investment recorded on the balance sheet. Now switching to guidance. We are establishing 2023 product revenue guidance of 9.55 billion to 9.7 billion, representing 7% to 9% year-over-year growth at current exchange rates. Note that this guidance includes an expected approximate 1.5 percentage point headwind to our revenue growth inclusive of our foreign exchange risk management program. Also note that 2023 product revenue guidance reflects revenue from cystic fibrosis products only. Exa-cel is not included in guidance as potential approval and launch dates in the EU, UK and U.S. are still to be determined. For our CF franchise in 2023, we see continued strong performance of TRIKAFTA/KAFTRIO in all major markets, further uptake in markets with recent reimbursement agreements and expansion into younger patient populations. Of note, with four years of TRIKAFTA experience, the majority of international reimbursement agreements secured and recent revisions in epidemiology, we have strong visibility to our 2023 revenue guidance range and another year of attractive growth for our CF product portfolio. We are also providing 2023 guidance for combined non-GAAP R&D, acquired IP R&D and SG&A expenses in a range of 3.9 to 4 billion, which includes approximately 300 million of upfronts and milestones from known collaborations, including the expected upfront payment in Q1 2023 for Entrada. This targeted investment increase is consistent with the significant continued progress of our multiple mid and late stage clinical development programs and the expansion of our commercial and manufacturing capabilities in anticipation of the multi-billion dollar market opportunities represented by our programs with near-term launch potential. Our guidance for projected full year 2023 non-GAAP effective tax rate is a range of 21% to 22%. Lastly, we announced today a new $3 billion multi-year share repurchase authorization. In closing, Vertex performed exceptionally well in 2022. We grew revenue double digits for the eighth consecutive year, maintained our strong balance sheet, invested internally and externally and accelerated programs across our diverse pipeline. In 2023, we look forward to further important milestones as highlighted on this slide to mark our continued progress in multiple disease areas. We look forward to updating you on future calls, and I’ll ask Susie to begin the Q&A period.

Salveen Richter:

Good afternoon. Thanks for taking my question. Can you frame what we’re going to see from the VX-880 program this year and when, and also on the second program, the cells and device program, how you overcome challenges here in your confidence level that you’ll be able to kind of get to the bars that you want to see?

Salveen Richter:

Thank you.

Geoff Meacham:

Hey, everyone, afternoon and thanks for the question. Just have two for VX-548 is the communication strategy here to have all the Phase 3 data in acute pain and neuropathic pain and then disclose everything before filing? I wasn’t sure what the plan was there? And then Stuart, given the hospital setting, what role do you think that treatment algorithms and cost benefit studies will play commercially? This is obviously a pretty different market than you guys are typically used to. And then for 522, I don’t have a doubt that you guys can express CFTR, but obviously has to be in the right tissues. Can you talk maybe about the technical challenges here with an mRNA strategy and your development plans and just at a high level? Thank you.

Stuart Arbuckle:

Yes. So Geoff as we’ve described before, this is a very big market opportunity with 1.5 billion treatment days of acute pain therapy prescribed per year. Just to dimensionalize that I talked in my prepared remarks about two-thirds of those prescriptions are either written and dispensed in a hospital or institution or ambulatory care center or they are written in the institutional setting, but given to a patient on discharge and therefore filled in the retail setting. And the combination of those two accounts are about two-thirds of the 1.5 billion treatment days. When we've talked to stakeholders across the board, they are well aware of the unmet need for new therapies in the acute pain space because all institutions and all states have put in place restrictions on the use of opioids. It's created this gap in the market for products like 548 that have a really positive benefit risk profile. I do think we are beginning to see a sea change in terms of policies which have been focused on limiting utilization of opioids to actually policies which are looking to remove barriers that might be created by cost sensitivity. And I'll point you to the NOPAIN Act, which I refer to in my prepared remarks that directs CMS to develop a system of add-on payments for non-opioid pain medicines in addition to the bundle payment that they give to hospitals for the outpatient and the ACS setting. I see that as a really important sea change and recognition that these are cost sensitive segments, but this is a way of creating barriers or – sorry, reducing barriers or creating incentives to do the right thing and prescribe non-opioid pain management when they're available.

Geoff Meacham:

Great, thank you.

Phil Nadeau:

Good afternoon. Thanks for taking our question and congrats on the progress. A question on the expense side from us, it does seem like the guidance for costs for 2023 is a bit heavier than we had anticipated and even excluding the Entrada upfront, it does seem like costs are growing a bit faster than revenue. So I'm curious, what are the push pulls in the guidance? What elements are you including in the guidance? Is there investment for pre-launch, more heavy investment in R&D? Just kind of looking for a little bit more color on what is causing the expenses to rise so much. Thank you.

Charlie Wagner:

Yes, Phil, thanks for the question. And just so you get an overall sense of where we're thinking about things, given the strong and predictable performance in CF and the recent success of the advancing pipeline, with the number of first-in-class and best-in-class assets, including programs with significant near-term potential commercially. We see this as absolutely the right time to be investing in the business. If you look at 2023, specifically, over 70% of the planned increase in R&D and SG&A is expected in programs which are past POC and therefore meaningfully de-risked. Specifically, we've got trials for vanza and pain and AMKD and Type 1 diabetes. You've got the full year cost of the investments in commercial readiness for sickle cell and beta thal and we're making commercial investments for pain as well. Importantly, all of these programs are advancing rapidly and represent multi-billion dollar market opportunities. So from our perspective, it's the right time to invest. And the good news is that if with our differentiated business model, we can deliver industry leading profitability while we're investing for innovation and growth.

Charlie Wagner:

No, we have not established a long-term goal.

Operator:

The next question will come from Liisa Bayko with Evercore ISI. Please go ahead.

Reshma Kewalramani:

Yes, sure. Liisa, this is Reshma. VCTX-211, a bit of a mouthful. Is the study that Vertex is now running in collaboration with CRISPR Therapeutics, it's a hypo immune program for Type 1 diabetes where we are going to be assessing safety and efficacy. VCTX-210 was a safety study in terms of when you should expect data readouts and such. This study is just getting going. We haven't called when we will be sharing results, but it is just getting going.

Reshma Kewalramani:

Yes, sure. Liisa, let me tackle the IP questions and then I'll turn it over to Stuart to talk about the CF epidemiology. The patent for TRIKAFTA goes out to at least 2037. And the reason, if you're wondering, gosh, how is it so long from when we launched? It's because of the rapid pace from when we had synthesized this molecule in the lab to when we got approval starting with the U.S., which is about three years, eight months or so. The vanzacaftor triple, we haven't given a specific date, but it's longer than the TRIKAFTA compound. And we have indeed identified potentiators and correctors behind vanzacaftor towards our goal of getting CF patients to sweat chloride levels in the carrier range. And those would be even longer than vanzacaftor. Let me turn it over to Stuart for CF epi.

Liisa Bayko:

Great. Thank you very much.

David Risinger:

Yes. Thanks very much. So my question is on VX-548. I guess first, could you talk about publication plans for detailed Phase 2 results in 2023? And if you are planning publications, what incremental points should we be expecting to focus on? And with respect to the commercialization scenarios, there’s one in which VX-548 is non-inferior to active control, and then another in which its superior to active control. So it would be helpful to just understand commercial opportunities in those two different scenarios. And then one final tidbit for Charlie, non-GAAP IPR&D was $116 million in 2022. What is the figure that’s incorporated in your guidance for 2023, please? Thank you.

Charlie Wagner:

David, the guidance includes an estimate of $300 million for IPR&D, and that’s inclusive of the upfront for Entrada.

Stuart Arbuckle:

Yes. As Reshma said about the design of the study, the primary endpoint is the comparison to placebo, and then we can compare it to the reference arm. I think in either scenario that you describe Dave, what we’ve got here is a very significant commercial opportunity. If you are in addition to being superior to placebo, as good as opioids from an efficacy point of view without all of their associated liabilities, which include addictive potential but aren’t restricted to just addictive potential, then that is something that’s going to be highly valued by the treating community. Obviously, if we’re superior, that’s even better, but something which is as good as opioids from an efficacy point of view, but without all the liabilities would be a very high value medicine.

Operator:

The next question will come from Robyn Karnauskas with Truist. Please go ahead.

Reshma Kewalramani:

Yes. Robyn let me ask Stuart to go first with CF and talk about how we see vanzacaftor and the place for that in the marketplace.

Reshma Kewalramani:

Robyn, let me take the question about chronic pain next, and we’ll end with growth. We see pain as three distinct categories, acute pain, that’s what we’ve been talking about with VX-548 and this very near-term commercial opportunity, given we are well underway with our Phase 3 program, and it is only 48 hours of dosing. The second, we see is neuropathic pain. Obviously, that’s a version of chronic pain, but we distinguish that from musculoskeletal pain. For neuropathic pain, I see that as equally a Vertexian opportunity as is acute pain. There is a – there are discrete number of prescribers. It can be serviced with a specialty sales force. And we have already shown that this target NaV1.8 with our predecessor molecule, VX-150 is effective for neuropathic pain. When LYRICA was a branded medicine, just to give you a sense of the market size, it was approximately a $5 billion market for LYRICA in this chronic neuropathic pain. And then there’s the third kind of pain, which is musculoskeletal pain. It turns out that we’ve already studied that as well with our predecessor molecule, and it’s effective in that kind of pain setting as well, which is actually quite unusual. There aren’t very many medicines that work in acute neuropathic and musculoskeletal pain. We are – I don’t see the musculoskeletal pain as a Vertex sales and marketing specialty opportunity, but we’re absolutely going to serve all patients and we would partner that, but our focus is on the two Vertexian opportunities right in front of us, acute pain, very near term, and the neuropathic pain that’s already in Phase 2 and the predecessor molecule with successful there. With regard to growth, let me ask, Charlie to comment on the growth profile for the company.

Reshma Kewalramani:

Robyn, I’ll just add, we’ve been talking about long-term growth, our five and five goal. This is five new medicines launching in the next five years. And then if you think about what qualifies in there, the very near-term opportunities are exa-cel and sickle cell disease and beta thalassemia, Vanzacaftor in CF and VX-548 in pain. Those are just right in front of us. And then we have AMKD that’s in Phase 2/3 with VX-147, the Type 1 Diabetes program that we spoke about, the neuropathic pain program that we spoke about. And there’s also the mRNA program and the AATD program, which is also in Phase 2.

Mohit Bansal:

Great. Thank you very much for taking my question. And maybe can you talk a little bit about the capital allocation priorities? I know you announced a buyback program today, but your 2022 year-end cash is almost 14% of your market capitalization at this point. Did you think outside of internal R&D, you could think about some mid-size acquisition at this point given the cash position and the market at this point? Thank you.

Charlie Wagner:

Yes. Mohit, thanks for the question. On capital allocation probably it sound like a broken record, but our priorities are the same, investing in innovation both internal and external is the top priority. We clearly see that as the best way to create value for patients and for shareholders. We have for the last five years now maintained share buyback program, where we focus on offsetting dilution from employee share programs and for some opportunistic buying. And so we have this new larger authorization at $3 billion, but it’s simply a reflection of the growing strength of our balance sheet and cash flow.

Operator:

The next question will come from Michael Yee with Jefferies. Please go ahead.

Reshma Kewalramani:

Yes. Sure thing, Mike. With regard to the vanza triple, if you look at the Phase 2 data, and you’re right, these are cross study comparisons, but if you’re trying to glean and get a general sense for what the data are telling you in the Phase 2 trials, what you can see is on average the vanza triple compared to what we have shown with TRIKAFTA, it’s about 5 points better on sweat chloride. And if you look closely and look at the ppFEV1 values that we’ve generated there are some patients in the vanza triple where we’ve seen 20% improvement in ppFEV1. So if you ask me, gosh, can the vanza triple be better than TRIKAFTA? Yes. And I would say that the strongest evidence for that is the chloride transport in our HBE assays, which have proven themselves time and time again as well as sweat chloride because that’s simply a less variable measure. But if I look at ppFEV1, there are hints of that as well, but I would put that lower on the scale of evidence because the variability is greater. With regard to mRNA and why we are so enthusiastic about this program, which we are running in collaboration with Moderna. It is really a combination of three things. The first is the ability to demonstrate that with these LMPs we get the construct into the HBE cells, and that’s important because of how reliable the HBE cells are and how translatable they are. Second, it is about the high expression of the protein, and third, in multiple animal models we can show, and this has been difficult for others to show. Some have not talked about it, and it’s been difficult to gather whether they have or have not. But I can tell you we have a multiple animal model demonstrated that the mRNA gets to the right cells in the lung.

Operator:

The next question will come from Jessica Fye with JPMorgan. Please go ahead.

Reshma Kewalramani:

Yes. Hi, Jess. With regard to the SAD/MAD VX-522 NCF, we do expect that the SAD will complete this year. And it’s hard to say that we’re going to see in effect because it is a single dose study, right? But we’ve been wrong before. When patients started on TRIKAFTA, for example, they tell us they felt differently with the first dose. So we do expect that the SAD will finish and we fully expect to initiate the MAD as well. And I do think that we will have a good line of sight on efficacy with the MAD. So we’re not guiding yet to when the data will be available, but we do expect to finish the SAD. We expect to initiate the MAD, and yes, it’s possible that data will be ready this year. On the VX-147 program inaxaplin and the Phase 2/3 study, you’ll remember this one is particularly exciting because it’s in kidney disease where there has been unfortunately very little advancement and there are really no products in development for APOL1-mediated kidney disease. And our Phase 2 results showed a 47.6% reduction in proteinuria, which is unprecedented in FSGS, let alone in APOL1-mediated FSGS. We do expect that the Phase 2 part of the study will be done this year. Because it’s an ongoing study it’s an adaptive 2/3, which means we’ll roll right into the Phase 3 once dose selection is made. I do not expect that we will be sharing results to maintain study integrity, but we will be sharing that we’ve completed that portion, we’ve selected a dose and we’ve rolled into Phase 3.

Operator:

The next question will come from Iger – excuse me, Evan Seigerman with BMO Capital Markets. Please go ahead, sir.

Reshma Kewalramani:

Yes. Evan, this is about cells plus device VX-264 in type 1 diabetes. This is the program using the same cells as the 880 program, but encapsulated in a device. So immunosuppressants are not necessary. The most important thing to tell you is we’ve received the FDA questions and we’ve already responded. No new data needed to be generated, no new experiments needed to be run. The questions and clarifications were ready at hand. Evan, if you ask why was one regulatory agency more comfortable than another, that’s just a tough question to answer and I don’t know that I have a good answer for you. What I can tell you is that it’s a high quality submission and we are very excited to get this up and running with patients enrolled and dosed in Canada. And we’re working with urgency to get the study in the U.S. as well.

Susie Lisa:

Thanks everyone. Chuck, will you please give the replay information?

Operator:

Good day. And welcome to the Vertex Pharmaceuticals Third Quarter 2022 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Susie Lisa. Please go ahead, ma’am.

Dr. Reshma Kewalramani:

Thanks, Susie. We are delighted to have you on Board. Good evening all and thank you for joining us on the call today. Vertex continues to execute exceptionally well and make significant progress towards our goals of; one, reaching all patients with cystic fibrosis resulting in strong sustainable growth; two, advancing our diverse mid- and late-stage clinical pipeline to develop transformative medicines in multiple disease areas; three, preparing for our next commercial launches; and four, progressing the next wave of innovation towards the clinic. In the third quarter, global CF product revenues increased 18% year-on-year to $2.3 billion, as more patients initiated treatment with our CFTR modulators. Based on the strong performance, we are raising full year 2022 product revenue guidance from $8.6 billion to $8.8 billion to $8.8 billion to $8.9 billion. Despite the growing numbers of CF patients on CFTR modulators, we still have many more patients to reach. And as you will hear from Stuart, we are working with focus and urgency to reach all patients around the globe who may benefit from our therapies. As previously discussed, we are at an important inflection point for the company, each of our clinical stage programs, sickle cell disease and beta-thalassemia, acute pain, AMKD, type 1 diabetes and AATD is a first-in-class or best-in-class approach that holds the promise to transform the disease and each represents a multibillion dollar opportunity. With a uniquely strong and durable CF franchise, a broad and deep R&D pipeline with multiple potentially near-term commercial opportunities, a strong balance sheet, and the capacity to invest in both internal and external innovation and deeply talented people, Vertex is well positioned to deliver for patients and shareholders for years to come. With that overview, I will turn to the details of recent R&D progress starting with CF. TRIKAFTA sets a very high bar in terms of safety and efficacy in the registrational trials, as well as in real world and long-term studies. That said, if it is possible to develop even more effective medicines for CF patients, we are determined to be the company that does so. Our next-in-class triple combination, VX-121/tezacaftor/VX-561, holds that potential. The triple now referred to as vanzacaftor/tezacaftor/deutivacaftor or the vanzacaftor triple is progressing rapidly through Phase III development with our studies in patients ages 12 and older, now projected to complete enrollment this year. As a reminder, this combination demonstrated greater activity in our human bronchial epithelial assay versus TRIKAFTA and greater clinical benefit in Phase II than we have seen with any of our prior medicines. Additionally, it offers the convenience of once-daily dosing and royalties in the low single digits versus low double digits for TRIKAFTA. For the 5,000 patients who do not make any CFTR protein, we are working on an mRNA therapy with our partners at Moderna. We have completed IND-enabling studies and we remain on track to submit an IND for this program this quarter with clinical trials starting thereafter. And we are not done, our work continues to identify even better potential therapies that could bring more patients with CF to carrier levels of sweat chloride. Turning to exa-cel, previously known as CTX001, our gene editing program for severe sickle cell disease and transfusion-dependent beta-thalassemia or TDT. This is our most advanced program outside CF and we expect exa-cel to be our next commercial launch. In June, we presented data from 75 patients with up to 37 months of follow-up from our pivotal trials of exa-cel. The data demonstrated exa-cel’s potential to provide a one-time functional cure for these patients. Last month, we announced that in addition to having granted virtually all available U.S. regulatory designations, the FDA has now also granted exa-cel a rolling review. We plan to begin our BLA submissions for both sickle cell disease and beta-thalassemia in the U.S. next month and complete the submissions by the end of the first quarter of 2023. In Europe, we previously shared that we reached agreement on the filing package with the EMEA and MHRA in the EU and U.K., respectively. We remain on track to submit these MAAs by the end of this year. Our teams are intensely focused on preparing these multiple complex submissions with three separate regulatory agencies in order to bring exa-cel to patients as quickly as possible. Given that priority, we will not be sharing new clinical data at ASH, but instead, look forward to sharing updated clinical data in the first half of 2023. Exa-cel holds the promise for a onetime curative therapy for thousands of patients with severe sickle cell disease and transfusion-dependent beta-thalassemia. This therapy potentially the first CRISPR-based gene editing treatment to be commercialized for patients with a genetic disease also represents a near-term and significant market opportunity. Turning to VX-548 and our pain program. VX-548 is a novel selective NaV1.8 inhibitor that offers the potential of highly effective pain relief without the side effects or addictive potential of opioids. NaV1.8 is both a genetically and pharmacologically validated target. Recall that VX-150, an earlier-generation NaV1.8 inhibitor, demonstrated positive proof of concept in acute, neuropathic and musculoskeletal pain. VX-548 has been studied in two Phase II placebo-controlled acute pain studies and showed statistically significant and clinically meaningful pain relief compared to placebo and was generally well tolerated. The study also included an opioid reference arm to support the evaluation of VX-548. With regard to the regulatory status, VX-548 has been granted fast track and breakthrough therapy designation in the U.S. We reached agreement with the FDA on the design of the Phase III program in support of a broad label in moderate to severe acute pain and recently initiated the pivotal studies. The Phase III development plan for VX-548 in acute pain consists of two randomized controlled trials. The design of the RCTs in the pivotal program is very similar to our Phase II completed studies, same pain states, post bunionectomy and post abdominoplasty, same treatment duration, 48 hours and the same primary endpoint, the sum of pain intensity difference, or SPID, over 48 hours of VX-548 compared to placebo. A third single-arm study rounds out the Phase III program. This study will enroll patients with multiple other types of moderate to severe acute pain with a treatment period of up to 14 days. Given our experience in executing these types of trials efficiently, the short treatment duration and the high unmet need for effective pain relief without the significant side effects or addictive potential of opioids, we view VX-548 as a near-term and significant market opportunity. We also plan to study VX-548 in neuropathic pain and remain on track to initiate a Phase II dose ranging proof-of-concept study in patients with painful diabetic neuropathy towards the end of this year. Moving to inaxaplin or VX-147, the first potential medicine to treat the underlying cause of APOL1-mediated kidney disease or AMKD. Inaxiplin has breakthrough therapy designation in the U.S. and both prime and orphan drug designation in Europe. Inaxaplin is being studied in a single adaptive, randomized, double-blind, placebo-controlled Phase II/III pivotal trial and the primary endpoint is a reduction in the rate of decline of kidney function in patients treated with inaxaplin on top of standard-of-care compared to standard-of-care for approximately two years. Importantly, the trial is a preplanned interim analysis at 48 weeks of treatment, which if positive, could serve as the basis for accelerated approval in the U.S. This study is underway in enrolling patients. We now have more than 50 sites open for enrollment in the U.S. and internationally with a goal to open more than 150 sites in total. We look forward to updating you on the enrollment and study progress as the trial advances. Next, moving on to type 1 diabetes. We have been advancing three programs in our portfolio. First, VX-880, our stem cell-derived, fully differentiated insulin-producing islet cell replacement therapy, which is a mid-stage clinical development. In this program, we use standard immunosuppressive therapy to protect the cells from the immune system. These same cells are the foundation for our other two programs in type 1 diabetes. Next, the cells plus device program, which encapsulates these fully differentiated islet cells in a proprietary device that shields the cells from the body’s immune system and does not require immunosuppressants. We remain on track to file the IND for this program by the end of this year. Lastly, in our hypoimmune cells program, which is in preclinical development, we are editing the same fully differentiated insulin-producing islet cells to cloak them from the immune system, obviating the need for immunosuppressants. Earlier this year, we achieved proof of concept for VX-880 in type 1 diabetes with the first two patients dosed at half dose in Part A of the study. Part B of the study, which uses the full target dose is underway and enrolling patients. The type 1 diabetes program holds enormous potential. There are more than 2.5 million patients in the U.S. and EU alone with type 1 diabetes who may benefit from a treatment with the potential to provide glucose control without the fear of hypoglycemia or the need for insulin. We look forward to sharing additional data from more patients and longer duration of follow-up at the appropriate time. A last word on our type 1 diabetes program, having recently closed the acquisition of Viacyte, I want to extend a warm welcome to our Viacyte colleagues. Let me close with our Alpha-1 antitrypsin deficiency, or AATD program. Earlier this month, we announced that the IND for VX-634, the first in a series of next wave AAT correctors has cleared and VX-634 has entered first-in-human clinical trials. We also announced that a 48-week Phase II study of VX-864, our first-generation AAT corrector will soon initiate. This study will assess the impact of longer term treatment on polymer clearance from the liver, as well as on serum levels of functional AAT. With those R&D highlights, I will hand it over to Stuart for a review of our commercial progress.

Charlie Wagner:

Thanks, Stuart. Vertex’s third quarter and year-to-date 2022 results set us on pace for another year of exceptional financial performance and strong execution. Third quarter 2022 revenue increased 18% year-over-year to $2.3 billion, led by 46% growth outside the U.S. on continued strong uptake of TRIKAFTA/KAFTRIO in markets with recently achieved reimbursement, as well as label extensions into younger age groups. U.S. CF revenue was up 5% with ongoing consistent performance aided by penetration into younger age groups. During the third quarter, CF revenue growth also benefited from an approximately $75 million increase in channel inventory in certain markets. We do not expect these purchases to recur in the fourth quarter and this quarterly phasing is reflected in our updated full year guidance. Third quarter 2022 combined non-GAAP R&D, acquired IP R&D and SG&A expenses were $758 million, an increase of 29% compared to the third quarter of 2021. Throughout 2022, we have continued to invest in our R&D pipeline, which now includes seven programs, five of which are in pivotal development. The year-over-year increase in Q3 reflects stepped-up investments in these programs, notably pain, the new vanzacaftor triple in mRNA and CF and type 1 diabetes, as well as the continued pre-commercial build-out activities for exa-cel. Looking forward, we expect to continue to invest in research and our clinical stage pipeline, as well as in commercial readiness activities for programs with near-term significant commercial potential, including exa-cel and VX-548 for pain. We also remain committed to augmenting our internal research efforts with external innovation aligned with our R&D strategy. Third quarter 2022 non-GAAP operating margin was 55%. We generated non-GAAP operating income of $1.3 billion in the quarter, an increase of 11% versus the prior year period. Our non-GAAP effective tax rate in the third quarter of 2022 was 21%. We ended the quarter with $9.8 billion in cash and investments as our cash flow generation and balance sheet remain very strong. On the business development front, we closed the previously announced acquisition of ViaCyte for $320 million in cash and integration activities are underway. Now switching to guidance, we are increasing our 2022 CF product revenue guidance by $150 million at the midpoint to a new range of $8.8 billion to $8.9 billion. The increase reflects the strong uptake of TRIKAFTA/KAFTRIO in markets with recent reimbursement agreements and continued performance in the U.S. At the midpoint, the increased guidance represents full year 2022 revenue growth of approximately 17% versus 2021 and will mark Vertex’s 8th consecutive year of double-digit revenue growth. There is no change to our projected 2022 combined non-GAAP R&D, acquired IP R&D and SG&A expense range of $3 billion to $3.1 billion. There is also no change to our full year non-GAAP effective tax rate guidance range of 21% to 22%. Finally, a comment on movements in foreign exchange, the impact of the significant strengthening of the U.S. dollar versus the euro and other currencies since the start of the year is partially mitigated by our foreign exchange risk management program. For the full year 2022, at current rates, we estimate that changes in foreign exchange, net of program effects will have a negative impact of approximately 1% on our revenue growth and this is reflected in our updated revenue guidance range for the year. In closing, Vertex is performing exceptionally well despite the challenging macroeconomic climate. For the remainder of 2022 and into 2023, we look forward to further important milestones to mark our continued progress as highlighted on this slide. As Reshma noted, over the past year, Vertex has seen a significant acceleration in our R&D pipeline and we are well on our way to diversifying the company and adding to our long-term growth profile. As always, we look forward to updating you on our progress on future calls. Let me turn the call back to Susie to begin the question-and-answer period.

Operator:

Yes, ma’am. [Operator Instructions] And the first question will come from Michael Yee with Jefferies. Please go ahead.

Dr. Reshma Kewalramani:

Hey. Thanks very much for that. Your question is about our type 1 diabetes program and just to ground everyone. There are actually three programs within our type 1 diabetes portfolio. The first is VX-880, and that one is actually in Phase I/II. So it’s a program that’s already in patients. That’s the program in which we have already achieved proof of concept based on the first two patients treated, importantly with half the targeted dose. That program is now continuing. We are enrolling and dosing patients at the full targeted dose and we do expect to share data next year at the appropriate conference or venue. The second program in that portfolio is the cells plus device program. That program has its IND on track for later this year. With regard to what you should expect from that in terms of data disclosures and when we might be able to see data, I would think about the type 1 diabetes programs, whether it’s cells alone or cells plus device closer to CTX001 and less similar to our small molecule programs. And what I mean by that is, we go right into patients and with a reasonably small number of patients, because you are right into patients with this potentially one-time curative therapy, we can tell a lot about the treatment effect and the emerging profile. So it’s a little bit too early to comment on exactly when we will see data, but I would think about the program closer to CTX than to small molecules. And then lastly, just to round up the type 1 diabetes program, the third vertical or the third pillar in that program is the same exa-cel, these VX-880 cells that have already demonstrated benefit in the clinic, we are editing those cells in order to cloak them from the immune system and that would allow us to not have to use immunosuppressants.

Operator:

The next question will come from Mohit Bansal with Wells Fargo. Please go ahead.

Dr. Reshma Kewalramani:

Yeah. Hey, Mohit. Thanks for the kind words. Your question is about CFTR modulators in general and what can we expect in terms of benefit? Let me just blow out that question a little bit more and broaden it. When you think about the benefit of CFTR modulators, it’s important to realize that CF, as a disease, is a systemic disease. So the only manifestation is not the lung. It is a very prominent manifestation, but it’s not the only manifestation. So what do I mean by that? CF patients also have difficulty with liver disease. They also have difficulty with endocrine and exocrine pancreatic disease, and you know about the difficulty in gaining weight, gaining height and living a high quality life in the absence of CFTR modulators. So the real benefit of CFTR modulators and we have seen this with KALYDECO to start with all the way up to TRIKAFTA is certainly an improvement in lung function and the way we measure that acutely is indeed ppFEV1. Now your specific question is, is 14%, which is what TRIKAFTA achieved, is that the max, and I think the jury is still out on what the maximum ppFEV1 benefit could be. But I will tell you that the next in-class combination, that’s the VX-121/ tezacaftor/561 combination. In the Phase II study, it had search in populations get up to 20% in benefits. So I think the jury is still out, and we have the next wave of molecules to look forward to. And just to close out the benefits, there are some abstracts coming out at NACFC that include data from TRIKAFTA and some of our other CFTR modulators. And it’s really encouraging to see that this benefit on ppFEV1 also translates to benefit in terms of mortality, lung transplantation, hospitalizations and pulmonary exacerbations.

Mohit Bansal:

Helpful. Thanks.

Operator:

The next question will come from Salveen Richter with Goldman Sachs. Please go ahead.

Dr. Reshma Kewalramani:

Hey. Thanks, Salveen. Let me start with the type 1 diabetes question and I will just frame the capital allocation question, and I will ask Charlie to give you more details. On the type 1 diabetes program and the cells plus device combination, we have worked long and hard and all credit to the Semma team that worked on this even prior to the acquisition. There has been a long history of trying to use devices in this context and the traditional trouble that people have won into are the following; one, sufficient oxygenation and nutrients for the cells; two, prevent a foreign body reaction; and three, to have the cells protected where the nutrients and oxygen can get in, but not the immune cells and also to ensure that the sensing of glucose and the release of insulin can occur. The proprietary device that we have that it will be used with the VX-880 cell has the features to account for and address those issues, namely protect the cells, but allow the flow of nutrients and oxygen; two, in all of our preclinical studies, including in large animal studies, we see no foreign body reaction; and three, to have the ability to sense glucose and release insulin. I will say, Salveen, the most challenging part of the type 1 diabetes program is actually having cells that are fully differentiated, insulin producing, and that part of this, we know we have gone past because of the proof-of-concept achievement in those first two patients treated at half dose. On the capital allocation question, our strategy on capital has not changed. The focus is on innovation, both internal and external. Charlie, anything you wanted to add to that?

Salveen Richter:

Thank you.

Operator:

The next question will come from Phil Nadeau with Cowen & Company. Please go ahead.

Dr. Reshma Kewalramani:

Sure. Phil, the inaxaplin trial, that’s the VX-147 trial in AMKD or APOL1-mediated kidney disease is the program that’s the adaptive Phase II/III study. And the criteria for dose selection, Phil, really centers around measures of efficacy seen at 12 weeks and what that really means is proteinuria. Remember, proteinuria, we can see, change within that 12-week period. That is not possible for the change in GFR. Now the -- there is a committee that can look at the data to make that decision, that is done in the appropriate way, given the need to maintain trial integrity. But I would assume that we would share the fact that we have gotten past that important Phase II milestone and that a dose has been selected, but we are going to have to be careful about maintaining steady integrity, given that there are patients that are in the trial and will be continuing to the Phase III portion.

Dr. Reshma Kewalramani:

Yeah.

Evan Seigerman:

Hey, guys. Thank you so much for taking my question. Really congrats on the strong quarter. I’d love for you to provide me some more color as to what you saw with 864 to reinitiate a clinical trial with this asset? Can you also highlight why 634 might be more successful than its predecessors?

Evan Seigerman:

Thank you.

Operator:

The next question will come from David Risinger with SVB Securities. Please go ahead.

Dr. Reshma Kewalramani:

David, I am going to ask Stuart to tackle the question on acute pain and I will come back and just say a word on chronic pain. Stuart?

Dr. Reshma Kewalramani:

Yeah. David, I agree with you on the opportunity in chronic pain in addition to a very substantial opportunity in acute pain. And the reason for the opportunity in chronic pain is two-fold. One is what you indicated around not wanting to use opioids over a chronic period, frankly, not wanting to use opioids even over an acute period. But second, opioids are actually not very good at all in terms of efficacy in the chronic setting and sort of, for example, in neuropathic pain. And I just wanted to close by letting you know that the Phase II dose-ranging study of VX-548 in diabetic neuropathic pain, we will also initiate this quarter. And we have high confidence for this one, not only because of the genetic validation of the target, but because of the pharmacological validation on neuropathic pain with the predecessor molecule VX-150.

Operator:

The next question will come from Robyn Karnauskas with Truist Securities. Please go ahead.

Dr. Reshma Kewalramani:

Sure. So, two separate questions in there, one about the mRNA program in cystic fibrosis and then about AAT. So let me tackle mRNA in cystic fibrosis first. So the approach here is to use an mRNA inhaled therapy for those 5,000 or so patients who don’t make any CFTR protein and therefore, cannot benefit from CFTR modulators. The IND-enabling studies are complete. The IND will go in this year. And you are right, it is a more complex product than a small molecule. And in the grand scheme of things, we have only been working on nucleic acid therapies and cell therapies for the last, let’s say, five years to eight years, whereas we have been working on small molecules for many decades. That all being said, CF is a very serious life-shortening disease and I do think that all parties invested are motivated to make sure that medicines that could bring benefit to patients rapidly. Of course, we will be able to update you on the progress in future calls, but I am very pleased with the progress and I am pleased to see that we are on track with the IND to go in this year. On the AAT program, we are doing two things in parallel; one is advancing VX-634 into the first-in-human study; and two, studying VX-864 for a longer duration of time. And we are doing this in parallel because we can, that is to say we have sufficient toxicology coverage to study VX-864 over an extended period and I do think you need that extended period to evaluate liver clearance for this mechanism. But in terms of the first -- in humans, you have seen our track record, we tend to move at a good clip, I would say, let’s say, around this time next year or so, we will have the data from our first-in-human studies with 634, we will have our data from the Phase II longer term study and I fully expect more molecules behind 634 to enter the clinic. So I feel really good about where we are, and we are executing on the strategy of serial innovation and having a portfolio approach exactly as I would like in all of our programs, but particularly in AAT.

Operator:

The next question will come from Jessica Fye with JPMorgan. Please go ahead.

Dr. Reshma Kewalramani:

Yeah. Jessica, on the new triple combination, the vanzacaftor triple combination, that’s 121-561 tezacaftor, we do project enrollment in that program, both studies in 12 plus will complete before the end of this year. As a reminder, these studies are one year in duration. So we will have all of the dosing complete at some point next year and it does take a little bit of time, but we are pretty quick with closing out the study and having results thereafter. But the important point to know is that’s a one-year treatment duration. With regard to the 864 program and AATD, what are we really trying to accomplish there. Here’s the important thing to keep in mind. With 864, what we saw for the first time ever with a small molecule corrector is increases in functional AAT level. The magnitude of the treatment effect was insufficient for us to move that to Phase III, but that gave us proof of biological activity. The reason we want to study 864 for polymer clearance in the liver is because that post hoc analysis of Phase II showed us a 90% decrease in serum polymer levels, leading us to believe that longer term treatment would indeed lead to clearance of the liver. That’s the hypothesis we are testing there and we are also going to evaluate where the longer-term treatment leads to elevations in functional AAT. If you are asking, is it possible that 864 is a molecule that moves forward into later stages of development based on this longer term treatment? Yes, that’s possible. Is it possible that VX-634 is the molecule we select because it’s more potent and has better drug-like properties? Yes, that’s possible. And that’s why we are running both these programs in parallel. Ultimately, maybe the most important thing to take away is that the small molecule approach to this disease AATD is the only approach that holds the potential to treat both the liver and lung manifestations of this disease, and this pathway that we have drawn out allows us to assess both of those in parallel.

Operator:

The next question will come from Geoff Meacham with Bank of America. Please go ahead.

Dr. Reshma Kewalramani:

Sure. Let me start with where we are today and the immediate next milestones that we are working towards and then I am going to ask Stuart to comment on the prelaunch activities. So we are intensely focused on getting our filings in for the EU, the U.K. and the U.S. We are on track to start the rolling submission in the U.S. next month in November and we are on track for our EU and U.K. submissions to complete by the end of this year. Stuart, do you want to talk a little bit about our prelaunch activities from there?

Unidentified Analyst:

Great. Thank you so much.

Operator:

The next question will come from Colin Bristow with UBS. Please go ahead.

Dr. Reshma Kewalramani:

There are two questions in there, one on CF and one on DMD. Let me take the DMD question first. So to give everyone a little bit of a quick backgrounder, recall that our approach to DMD is different than most of the approaches out there, which focus on microdystrophin. Our approach is an in vivo gene editing approach that is centered on exon skipping and producing full length, if not near full length dystrophin. And the reason we believe in this approach is because of the human genetics that we see. So for example, Becker’s muscular dystrophy where patients have near full length dystrophin, that disease is a much, much milder form of DMD. The microdystrophin approach simply doesn’t have that kind of human genetics behind it. I am really pleased with the progress of the program. We are in our IND enabling studies now. We expect to finish those up and file our IND next year. There was a question in there about when you could expect data really a little bit too early to call, but I would think about this program in that cell and gene space, so with a reasonably small number of patients over a reasonable amount of time, very similar to CTX001, very similar to the type 1 diabetes program, we are going to know where we are. On the CF business, we have talked about this many times in the past. TRIKAFTA has set an enormously high bar. It can treat up to 90% of patients with this disease. We have already advanced the next program. This is the vanzacaftor program. It’s going to complete Phase III enrollment this year. If it is possible -- and it is a tall order, but if it is possible to be better than TRIKAFTA, the vanzacaftor triple program holds that potential. It has better chloride transport than TRIKAFTA in our human bronchial epithelial assays and in Phase II studies. We have to do some cross-study comparisons. But in Phase II studies, it looks like it is potentially even better than TRIKAFTA. And we are now on the brink of bringing the mRNA therapy for the first time having a therapy for the last 5,000 patients with CF. We have never had more patients benefit from our CFTR modulators and we have never been in this position of being right on the cup of having something for all patients. I like our hand and I am looking forward to sharing more data.

Susie Lisa:

Thank you, Chuck, and thanks very much, everyone, for their questions. We look forward to taking your follow-up and meeting with you soon.

Operator:

Good day, and welcome to the Vertex Pharmaceuticals Second Quarter 2022 Earnings Call. . I would now like to turn the conference over to Charlie Wagner, Chief Financial Officer. Please go ahead.

Reshma Kewalramani:

Thanks, Charlie, and good evening all. Vertex continues to make strong progress towards our goal of reaching all CF patients eligible for our medicines. Based on the continued uptake of TRIKAFTA in the U.S. as well as in the international region, our Q2 CF product revenues grew 22% year-on-year to $2.2 billion. And based on this uptake as well as the new reimbursements recently secured, we are updating revenue guidance from $8.4 billion to $8.6 billion, to $8.6 billion to $8.8 billion. We're also making rapid progress in advancing our R&D portfolio with programs in 5 disease areas now entering or progressing through late-stage clinical development, and the next wave of innovation getting ready to enter the clinic. Our expanding leadership in CF, coupled with the broad, deep and advanced research and clinical stage pipeline brings Vertex to this new inflection point highlighted last quarter. This inflection point is rooted in our differentiated R&D strategy, which is designed to increase the odds of success in drug discovery and development. This strategy is working. First in CF and more recently, we have seen it deliver potentially transformative, if not curative therapies in multiple disease areas, including sickle cell disease, beta thalassemia, APOL1-mediated kidney disease, acute pain and type 1 diabetes, programs that are all now past the proof-of-concept stage. Each of these programs individually represents a multibillion-dollar market opportunity. And taken together, they represent enormous potential for patients and for Vertex. In addition, we continue to use our strong balance sheet to pursue external innovation that complements or accelerates our internal efforts. The Viacyte acquisition, for example, has the potential to accelerate development of our type 1 diabetes programs. The early stage assets from Catalyst and the Verve collaboration complement our internal efforts in sandbox diseases. With our strong revenue growth and rapidly advancing pipeline, we are continuing to invest in internal and external innovation, as you see us do today with the increase in OpEx guidance to $3 billion to $3.1 billion, and the multiple business development deals we've announced this quarter. Let me now turn to the pipeline and review some of our recent R&D progress. Starting with CF. For patients who can benefit from CFTR modulators, TRIKAFTA has set a very high bar. But if it is possible to develop more effective medicines, we are determined to be the ones who do so. Our next-in-class triple combination, VX-121/tezacaftor/VX-561, is now in Phase III development enrolling patients 12 years and older, and we remain on track to complete enrollment by the end of this year or early next. With the progress in the SKYLINE 1 and SKYLINE 2 trials, we've also recently initiated pivotal development of VX-121/tez/VX-561 in patients 6 to 11 years old. Lastly, for patients who do not make any CFTR protein and cannot benefit from a CFTR modulator, we're developing an mRNA therapy with our partners at Moderna. We are on track to file the IND for the mRNA program in the second half of this year. Moving to CTX001. Our most advanced pipeline program outside of CF is our exa-cel, or CTX001 gene editing program in severe sickle cell disease and beta thalassemia. In June, we presented data for more patients treated with exa-cel and with longer follow-up at the Annual Meeting of the European Hematology Association. These data, which included 75 patients with up to 37 months of follow-up continue to demonstrate that exa-cel holds the potential to be a durable, onetime functional cure for these patients and the safety data continue to be consistent with myeloablative conditioning and autologous bone marrow transplant. In terms of next steps, we have recently concluded our discussions on the filing package with EMA and MHRA and have reached agreement on the filing package. We remain on track to submit the MAAs in both sickle cell disease and beta thalassemia in the EU and the U.K. in Q4 of this year. We expect to wrap up our conversations with the FDA regarding the filing package, in particular, the number of patients and duration of follow-up, in the coming weeks, and we look forward to updating you after that. Turning now to inaxaplin, or VX-147 in APOL1-mediated kidney disease, or AMKD. Inaxaplin is a small molecule inhibitor of APOL1 that targets the underlying cause of AMKD. Based on the unprecedented Phase II proof-of-concept results, which showed a 47.6% reduction in proteinuria, inaxaplin received Breakthrough Therapy designation in the U.S. and Priority Medicines, or PRIME designation in the EU. The pivotal trial is a single adaptive Phase II/III randomized, placebo-controlled trial, and the primary endpoint is the reduction in the rate of decline of kidney function in patients who have been treated for approximately 2 years. Importantly, the study is designed to have a preplanned interim analysis at 48 weeks of treatment. If the interim analysis is positive, it will serve as the basis for us to seek accelerated approval in the U.S. We initiated the inaxaplin pivotal trial in late March, site activation, patient screening and enrollment are all ongoing. Moving to pain. And VX-548, a novel first-in-class NaV1.8 inhibitor. We have high expectations from this program because NaV1.8 is both a genetically and pharmacologically validated target across acute, neuropathic and musculoskeletal pain. And VX-548 demonstrated a very desirable benefit/risk ratio profile in Phase II. Additionally, the VX-548 program represents a near-term commercial opportunity. To recap, earlier this year, we shared positive proof-of-concept results from VX-548, which demonstrated statistically significant and clinically meaningful relief of pain in 2 Phase II studies of acute pain, one in the post-bunionectomy setting and one in the post-abdominoplasty setting. Based on these results, the VX-548 has received Breakthrough Therapy designation, highlighting the significant need for highly efficacious and well-tolerated non-opioid pain medicines. We are very pleased to have completed our end of Phase II meeting with the FDA and reach agreement on the VX-548 pivotal program in acute pain. The Phase III program will include 2 randomized placebo-controlled trials that will evaluate VX-548 post-bunionectomy and abdominoplasty. The exact same postsurgical acute pain settings we explored in Phase II. These trials are shortened duration, approximately 2 days of treatment followed by 14 days of safety follow-up. Both of these Phase III studies will also include an opioid treatment arm. A third single-arm study will evaluate the safety and effectiveness of dosing with VX-548 for up to 14 days across multiple other types of moderate to severe acute pain. We remain on track to initiate the pivotal development program by the end of this year. In addition, we have completed our preclinical studies to support initiating a Phase II dose-ranging proof-of-concept study of VX-548 in neuropathic pain towards the end of this year. Turning now to type 1 diabetes. In June, our VX-880 clinical data were featured in an oral presentation at the ADA Scientific Sessions. We've previously shared that we achieved proof-of-concept with the results from the first 2 patients who were treated in Part A with half the targeted dose. Both achieved glucose-responsive insulin secretion, improvements in hemoglobin A1C with concurrent reductions in or, as in the case of the first patient, elimination of exogenous insulin. The new data that we presented at ADA included glucose time and range measurements. Time and range is important because it gives much more granular and comprehensive data than hemoglobin A1C alone and is correlated with the risk of developing micro and macrovascular complications. Patient 1 achieved a glucose timing range of 99.9% at day 270 versus 40.1% at baseline and remained insulin-independent. Patient 2 showed a glucose timing range of 51.9% at day 150 versus 35.9% at baseline with a 30% reduction in exogenous insulin. The trial, which has remained open in Canada and resumed enrollment in the United States last month, continues to screen and enroll patients in Part B. To close, a word on the next wave of innovative therapies. These are programs in late preclinical development that are rapidly approaching the clinic. For the CFTR mRNA program, our cells and device program in type 1 diabetes and our next-generation AATD molecules, we expect to file INDs this year. Lastly, our gene editing program in DMD is in IND-enabling studies, and we plan to file the IND for this asset in 2023. With that, I'll hand it over to Stuart for a commercial overview.

Charles Wagner:

Thanks, Stuart. In the second quarter of 2022, Vertex continued to deliver strong financial performance. Second quarter product revenues were $2.2 billion, an increase of 22% compared to the second quarter of 2021. Our growth was again driven by an increased number of patients on therapy compared to the prior year, resulting from several approvals and reimbursements for TRIKAFTA/KAFTRIO over the last year as well as continued strong execution with market launches. Movements in foreign exchange had only a small impact on reported growth, primarily because of our active hedging program, which helps offset impact from currency movements. Our second quarter combined non-GAAP SG&A, R&D and acquired IPR&D expenses were $750 million compared to $1.5 billion in the second quarter of 2021. The year-over-year decline was primarily related to the $900 million payment in the second quarter of 2021 for the amended collaboration agreement with CRISPR Therapeutics. This effect was partially offset by higher expenses resulting from our advancing pipeline, especially in CF, pain and type 1 diabetes as well as expenses for CF launches and pre-commercial activities for exa-cel. Our continued strong revenue growth, combined with our efficient operating model resulted in a Q2 non-GAAP operating margin of 54% and non-GAAP operating income of $1.19 billion compared to $71 million in the second quarter of 2021. This increase was primarily driven by strong product revenue growth and the year-over-year comparison to the second quarter of 2021, which included the $900 million payment to CRISPR. Our non-GAAP effective tax rate for the second quarter of 2022 was 22%. We ended the quarter with $9.3 billion in cash and investments, and our balance sheet profile remains very strong. As Reshma highlighted, on the external innovation front, we've recently announced multiple business development deals including the acquisition of Viacyte for $320 million in cash with closing subject to certain conditions, including the expiration of the Hart-Scott-Rodino waiting period. This transaction will bring us tools, technologies and assets that will accelerate our goal of bringing curative therapy to millions of people with type 1 diabetes. Now to guidance. We are raising our 2022 product revenue guidance to a range of $8.6 billion to $8.8 billion based on current exchange rates. The increase reflects the rapid uptake we have seen with new launches in geographies where we recently secured reimbursement for TRIKAFTA/KAFTRIO as well as continued performance in the U.S. Year-over-year, our updated guidance represents product revenue growth of approximately 15% at the midpoint. Now to OpEx. Our R&D strategy was designed to deliver disproportionate success and we are seeing that strategy play out with multiple programs now in mid- and late-stage development, each of which could drive significant future growth. With our strong financial profile, we expect to continue investing in both internal innovation with our rapidly advancing pipeline as well as external innovation that fits with our R&D strategy and complements our existing portfolio. As a result, non-GAAP operating expenses for the year are now projected to be in a range of $3 billion to $3.1 billion, an increase from our previous guidance of $2.82 billion to $2.92 billion. The increase is primarily due to incremental expenses resulting from the advancement of our pipeline programs into late-stage clinical trials, particularly in pain and AMKD as well as additional upfront and milestone payments. Finally, we continue to project a non-GAAP effective tax rate in the range of 21% to 22%. As we consider the second half of 2022 and into early 2023, we look forward to a number of important milestones to mark our continued progress, several of which are outlined on this slide. As Reshma discussed earlier in the call, Vertex is at a new inflection point. We're in our eighth consecutive year of double-digit revenue growth, and we've built a remarkably durable business with long-term leadership in CF delivering strong cash flow for years to come. We're also well on our way to diversifying the business and adding to our long-term growth potential with 5 disease areas now in late-stage development and multiple new medicines set to enter the clinic. We are developing these programs with the intent of creating transformative, high-value medicines, each of which represents a multibillion-dollar opportunity. Fueled by our success in CF, we can continue to invest in our advancing pipeline while also delivering exceptional profitability and cash flow. As always, we look forward to updating you on our further progress throughout the balance of the year. Let's now open the call to questions.

Salveen Richter:

Nice quarter here. Just a pipeline question with regard to your program for beta cell and sickle cell, what does the FDA want with regard to number of patients? And what duration here, are they looking at a proportion out to 2 years similar to what we saw with bluebird? Just curious where you stand there.

Operator:

The next question will come from Michael Yee with Jefferies.

Reshma Kewalramani:

Yes. Michael, there were two questions in there. One about AMKD and one about exa-cel. Let me just close out on exa-cel first. As we were just discussing, we are going to have our meetings with the FDA to wrap up these discussions in the coming weeks. And so we're not going to need to speculate. We'll be able to update you on the specifics and give you a timeline in the near future. With regard to AMKD, the point that you make about the difficulty enrollment based on the patient population is a really good point. While the AMKD population shares many similarities with CF, genetically driven disease, about 100,000 patients, and our approach to treating CF is by targeting the CFTR protein, the underlying cause of disease. It's the same thing with AMKD. We're targeting the APOL1 protein. Where the big difference comes in is in diagnosis, disease awareness and genotyping. But recognizing this, we've inserted 3 initiatives into this Phase II/III program. The first is we're opening over 150 sites globally so that we have sites to close to where the patients are, and simply many of them. Second, we have an observational study ongoing. That's a genotyping study. People who genotype in with 2 APOL1 alleles are then eligible and could be enrolled in the randomized controlled trial. And lastly, as you heard Stuart discuss, we're working with patient groups and physician groups and the community as a whole to raise awareness. I will point out, Michael, that the beauty of the Phase II/III study is we do everything upfront. That is to say that the phase -- the trial sites that will be the Phase III trial sites, they're all being opened up right now as part of the Phase II/III study.

Reshma Kewalramani:

Yes. Sorry about -- you had a question on the data. When we are at the point of having selected our dose on the Phase II part, you should expect to hear from us.

Unidentified Analyst:

This is on for Phil. Congrats on the progress. Maybe just on 147. Potentially, could you give us an update on how you're thinking about potential baseline characteristics for the patients enrolled in the Phase II/III study now that it's targeting the broader AMKD population. Just curious how you're thinking about the potential differences in proteinuria and eGFR looking across the clinical sector of APOL1 .

Unidentified Analyst:

Great. That's very helpful. And if I may, is there any chance that you'll release data from the observational study that you mentioned that you're enrolling? Just to get the genotyping data, et cetera?

Operator:

The next question will come from Liisa Bayko with Evercore ISI.

Reshma Kewalramani:

Yes. Sure thing, Liisa. So SKYLINE -- the 2 SKYLINE studies and now the RIDGELINE study, which is the study of 121/561 tezacaftor in the 6- to 11-year-olds, which is also ongoing. Here's what we're looking for based on every piece of data that we have, including our HBE assays, which you know is not only qualitatively but quantitatively predictive of what we see in the clinic. We expect to see greater sweat chloride than even TRIKAFTA. Based on the Phase II studies where we looked at sweat chloride and we looked at ppFEV1, we expect 121/561 tez has the potential to be even greater than TRIKAFTA. And at the end of the day, what we are really looking for here is ppFEV1, sweat chloride levels and, of course, the safety profile. From what we see preclinically and clinically in those Phase II studies that I described, I expect that 121/561 tez has the real potential to be superior to TRIKAFTA. And remember, when we talk about that, the best readout of the function of CFTR modulators is on sweat chloride. That's the most direct readout, the PD readout, if you will. And that has been consistently superior in HBEs, Phase I and our Phase II studies.

Geoffrey Meacham:

Congrats on the good quarter. I wanted to ask on 548. When you consider the market opportunity and what could be a pretty broad program, I just wanted to get your perspective on what success looks like kind of at a high level. And then I wasn't sure if you've had pre-Phase III meetings with FDA, but how you're thinking about the size and scope of the pivotal that you'll start the second half of the year?

Stuart Arbuckle:

Yes, Geoff. And so why we're so excited about our agreement with the FDA and the broad indication it could lead to if the studies are positive, which we have a high level of confidence, they will be is because the moderate-to-severe acute pain market is incredibly large. So as I said in my prepared remarks, it's over 1.5 billion with the B treatment days a year in the U.S. alone. And 2/3 of those are about 1 billion treatment days a year are either initiated in hospital or influenced by hospital as a result of patients being discharged after either their inpatient or outpatient visit where they were given treatment for pain. So 1.5 billion treatment days, as you know, the vast majority of that market is currently genericized. But even so, it's a $4 billion market in the U.S. alone today. And so we know that if we bring to market a highly effective pain med that also has a great safety and tolerability profile, we should expect to be able to get a decent share of that market and then a branded oral pain medicine at price of around $10 a day. That is a very significant multibillion-dollar opportunity. And so that's why both Reshma and I have a high level of enthusiasm for this program.

Evan Seigerman:

Congrats on the quarter. Kind of following up to Geoff's question on pain. I'd love to take a step back and really get some color on how you envision 548 fitting within the acute pain management paradigm? And I assume the goal would be to use 548 ahead of opioid therapy but still kind of have the option for opioid therapy if there's breakthrough pain. And with that, would you need to show a safety kind of perspective using both together? Maybe provide us color as to how you think about this fitting in.

Reshma Kewalramani:

Evan, this is Reshma. To add to what Stuart said, there is a raging opioid epidemic in this country. And it is a public health crisis. So I think the most recent CDC report indicated 75,000 deaths in this last year, which is a 35% increase over the past year. So this is not a historic issue. It's a current day crisis. And I think that this approach that Stuart described where there is a step from over-the-counter pain medicines and then to a drug like VX-548, which because it only works in the periphery, there are no central receptors. There is no addictive potential here, I think, has enormous potential. And from physicians and community groups and health care officials that we've spoken with, there is huge enthusiasm for this kind of mechanism.

Colin Bristow:

Congrats on the quarter. So on the Viacyte acquisition, the VX-880 program. Could you just walk us through just -- obviously, there's areas of program overlap. Just how should we think about prioritization here? And maybe just flesh out a little bit more about just some of the -- and how it augments the program for you overall? And then on VX-548, so it sounds like trial initiation before year-end and acknowledging that it's large population size, but it is a short primary endpoint. When do you think you'd be in a position to out topline for those trials?

Operator:

The next question will come from David Risinger with SVB Securities.

Reshma Kewalramani:

Yes. Sure thing. With regard to the question around the interim analysis, and is the agency supported of an accelerated approval based on the interim analysis. Unambiguously, yes. This is one of the points of agreement that we reached at our end of Phase II meeting, which is one of the very important points that we were driving to ensure we had conclusion on. The reason for that is the following

Mohit Bansal:

Congrats on the quarter. I have a question and a clarification for Charlie. So the clarification is, are we including $300 million of Viacyte acquisition in IPR&D at this point for your guidance? Number one. And the question is for R&D and SG&A combined, it looks like -- I mean you're in a good situation of having so many programs which are entering into pivotal phase. Keeping that in mind, how sustainable is this a mid-50% operating margin profile going forward for the next couple of years, given that you are investing heavily in R&D.

Operator:

The next question will come from Olivia Brayer with Cantor Fitzgerald.

Reshma Kewalramani:

Yes. Sure thing. We have been having conversations, and we're really fortunate because we have every designation offered by regulators on this side of the pond and the other that allow us to have frequent conversations with them. And so we've been having these conversations with MHRA, EMA and FDA for many months. The topic of conversations have evolved because over time, we've settled out the preclinical package. We've settled out on CMC and manufacturing and all of the other modules. The conversation with EMA and MHRA towards the end as we were concluding those discussions, we're on the same point as with FDA. And that was around number of patients in the filing and duration of follow-up. We have come to conclusion. We have reached agreement. And therefore, I can say that we are on track, and we fully expect to get our filing in towards the end of this year. With regard to the FDA, we simply haven't hit that milestone yet that we have with MHRA and EMA. We simply haven't concluded our discussions on the number of patients and the duration of follow-up. I do expect we will do so in the coming few weeks, and I look forward to updating you after that.

Hartaj Singh:

A really nice quarter. Not to -- Reshma, to talk about a little bit of about memory from a year or two years ago, but AATD looks like you're going to be bringing a couple more molecules into the clinic this year. And previously, you had mentioned that you're trying to increase the potency of these molecules and get them at higher concentrations to do the tissue of interest. So how are you thinking about that with the approach for these molecules in the clinic this year? And then assuming you get them in the clinic this year, when could we see a readout going forward?

Operator:

We have time for one more question, and that will come from Brian Abrahams with RBC Capital Markets.

Reshma Kewalramani:

Yes. I'm going to ask Stuart to comment on the opportunity, the near-term opportunity with busulfan in the long term, and I'll come back and tell you a little bit about manufacturing.

Reshma Kewalramani:

And with regard to the manufacturing, in the grand scheme of things, this is an easier manufacturing challenge than other diseases that are being tackled with CRISPR-Cas9, for example. And I say that because this is ex vivo gene editing. And in essence, what we're talking about is a guide RNA and Cas9. The second point to make here is that -- and credit to our partners at CRISPR, we've thought about the commercial manufacturing of this therapy from the get-go. I mean that in terms of the process development. I also mean that in terms of the actual manufacturing sites. It's fundamentally the same process that we are using in the clinical trial space, that is what we will be using in the commercial space. And it's actually the exact same manufacturing sites as well. So we feel really good about where we are with the commercial manufacturing of CTX001. And as I said, in the grand scheme of things, it's an easier challenge because it's ex vivo gene editing, and it is Cas9 and guide RNA, and that's it.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Michael Partridge:

Good evening. This is Michael Partridge. Welcome to Vertex's First Quarter 2022 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; Dr. Bastiano Sanna, Chief of Vertex Cell and Genetic Therapies and Dr. David Altshuler, Chief Scientific Officer, will join for Q&A. 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.

Stuart Arbuckle:

Thanks, Reshma. I'm pleased to review tonight our continued strong commercial performance in CF, our clear path towards future growth in CF and our plans for expansion into additional disease areas. Vertex's CF business continues to grow at a rapid pace, driven by consistent performance of TRIKAFTA in the U.S. and the continued robust uptake of TRIKAFTA, KAFTRIO outside the U.S., following significant reimbursement progress internationally over the past year. Q1 product revenue of $2.1 billion grew 22% year-over-year as more patients have come on therapy. U.S. revenues grew 9% to $1.37 billion in the first quarter of 2022 driven by additional patients starting treatment with TRIKAFTA, most notably children ages 6 to 11, following the mid-2021 approval. Revenue outside the U.S. increased 55% over the first quarter of 2021 to $729 million, driven by rapid uptake of TRIKAFTA, KAFTRIO in countries where we reached reimbursement agreements. We started the year with more than 25,000 patients in North America, Europe and Australia, who could benefit from a CFTR modulator but were not yet on therapy. These patients fell primarily into 1 of 3 categories

Operator:

And the first question will come from Cory Kasimov with JPMorgan. Please go ahead.

Reshma Kewalramani:

Yes. Cory, with regard to the 147 program, the key features of the study design are that it's a singular Phase II/III study. It is a study that will enroll the broad population, so the full 100,000 patients that could be eligible for this drug. And the third feature of the study is the 1 you asked about. We have built in a prespecified interim analysis at the 48-week time point. And if that analysis is positive, that provides the pathway to accelerated approval. The relationship between proteinuria, that's what we studied in Phase II is very tight, high correlation with EGFR, which is a measure of renal function. And the reason I have such high confidence in the interim analysis is because the reduction in proteinuria that we saw in Phase II is an unprecedented 47.6% in this very specific and a very aggressive form of AMK called FSGS. So with that 47.6% reduction in proteinuria and you do the translations to what you would expect in terms of GFR. What I come out with is a high confidence level for the interim analysis. That was why it was so important that these 3 features that I mentioned were agreed upon with the agency when we went to them at the end of Phase II meeting.

Jason Zemansky:

This is Jason on for Geoff. Congratulations on the quarter. And again, want to extend our congratulations to Michael. A few quick if I may. Could you discuss how the pain programs fit in strategically within the commercial portfolio, given the focus on rare diseases, basically, is this an asset you're potentially thinking about partnering with? Is it advances? Or are you kind of looking at maybe establishing the necessary commercial infrastructure? And then it does sound like the clinical hold on 80 was a bit of a surprise. But then again, regulators have seemingly started operating with I guess, an abundance of caution for gene and cell therapies. And do you see any potential negative read-throughs to the upcoming CTX001 submission? Or have regulators seem fairly comfortable with the safety and efficacy package as is.

Stuart Arbuckle:

Yes. And Jason, I think there is a bit of a misconception about us as a company that we're a rare or an orphan company. And as Reshma described that's not how we define ourselves. Our research strategy is to focus on specific diseases where we understand the human biology, whether or dare validated targets, as Reshma said, either genetically or in the case of NAV 1.8 now pharmacologically and they're in markets where we can access them with a specialty infrastructure. And we think pain fits that description perfectly. As Reshma said, there's various different segments of the pain market that you can think about acute, neuropathic and the chronic musculoskeletal. The commercial opportunity in the acute pain segment is enormous. Acute paying accounts for over $1.5 billion with the B treatment days a year in the U.S. alone. And despite more than 90% of those prescriptions being generic, the market is valued at $4 billion. So if we are able to bring forward an asset that has opioid or better efficacy, without the side effect liability of opioids and other pain medications. We think the opportunity is very, very significant in acute pain, multibillion dollar in acute pain opportunity. And as Reshma said, similarly in neuropathic pain, multibillion-dollar opportunity, that's also a specialty market that we could service through a specialty infrastructure.

Robyn Karnauskas:

So a few quick ones. 2 quick ones, some inclusion criteria for your Phase III trial for AMKD. How challenging do you think the enrollment might be? You've indicated there's 100,000 patients how many are actually genotypes are seeking treatment? Do you have to do more work to actually get the genotype? And second question is really on CTX-1. Could you just give us some more color as you've been talking to more of the centers, maybe buckets of patients that would be the initial patients most likely to 1 drug and what their characteristics are? And are you creating a registry or a list of patients who might be willing to start therapy.

Stuart Arbuckle:

Yes, Robyn, thanks for the question. So -- as we've commented previously, there's about 150,000 patients who have sickle cell disease or transfusion development, fusion dependent thalassemia in the U.S. and the EU. However, as you can imagine, we don't think that there are -- that is the entire population is going to be eligible for CTX001 given the current conditioning regimen. So based on the inclusion criteria with our study, but also our research and other people's research, talking to physicians about the types of patients that they think are likely to be potential candidates. We think that's around 32,000 of the 150,000. Of that 32,000, about 25,000 of those are sickle cell, the majority of which are here in the U.S. So that is the patients that we think are likely to be potential candidates for CTX001 with the existing BSA-based conditioning regimen.

Salveen Richter:

Michael, it has been a pleasure working with you. You'll be very missed here. Two clinical questions. One on CTX001. On the commercial front, how much precedent has been set on the payer front globally by bluebird, particularly given their difficulty with the EU? And then secondly, on the Duchenne gene editing program, -- could you just provide some details on the construct? And is this in partnership with CRISPR.

Bastiano Sanna:

Sure. So our approach to D&D is a little bit different than all the other gene therapy approaches because we have deliberately actually chosen to go with like a near full-length exon-skipping dystrophin approach, which is based on human genetics because as you know, patients with back dystrophy, for example, have a near full line dystrophin and for the very mild disease. The gene therapy approaches that are used by -- in other contexts, they only deliver a truncated version of the dystrophin or various lengths, but it's called micro dystrophin for a reason. Gene editing is actually on the approach that has the potential to deliver the near full-length protein, which is required for what we believe is going to be a durable transformational functional cure. You remember that this program came to us through the acquisition of Axonics. And since then, we have worked really, really hard on both analytical and process development for our technology because given what has happened in the field that we did pay close attention to those purity and other things like development and process development to be sure that we have the best product technology-wise as opposed together with science. So we feel very optimistic about our approach and as Vesa said, very pleased to be in IND-enabling studies and we aim to file the IND in 2023 and beginning clinical development soon thereafter.

Operator:

The next question will come from Michael Yee with Jefferies. Please go ahead.

Reshma Kewalramani:

Yes. Mike, with regard to enrollment, it is really simply too early to comment on enrollment dynamics for VX-147. We presented and shared the Phase II data just in December and the Phase III started just 3 months after that in March. So a little too early to call. But as I commented, I think the genotyping study, the number of trial sites that we are opening around the globe and the fact that this is a study where both arms get treatment will help with enrollment. On the GFR question in the Phase III portion, the -- this group of patients, those with 2 APOL1 alleles have a very rapid decline. And when I say that, I mean north of 5 ccs per year. And when you have that kind of rapid decline, it gives you the opportunity to assess the impact of your drug, which is why this 1-year accelerated endpoint potential is really important. So what we demonstrated in Phase II is reduction in proteinuria. That was the approximately 50% reduction, 47.6% on -- that is very tightly correlated with the EGFR, the measure of kidney function and the measure of kidney function in people with 2 APOL1 alleles, regardless of whether you call it FSGS or you call it another disease, is very high. So I feel very good about where we are in terms of getting the clinical trial up and running and very good about the way we've designed the endpoint on both proteinuria and eGFR.

Phil Nadeau:

Michael, let me add my thanks for all your help over the years. Best of luck in your next adventure. You're certainly going to be missed here. Two questions from us. First, brief commercial and then VX-880.On the commercial last quarter, you called out inventory build. You haven't mentioned inventory yet on the call. So curious where inventory stands and whether there's destocking in the quarter. Then second on VX-880, appreciating it's still early days since the clinical hold that was initiated. But do you have any sense of why the FDA is not convinced. I think in the press release, you mentioned they didn't believe the benefit risk was positive. Is that because they don't think you need more benefit -- or is there some risk they're worried about? And then second on VX-80, you have 1 ex U.S. trial site, any desire to increase the numbers to continue enrolling patients what the U.S. hold is instituted. And last, of course, if you have any preliminary thoughts on what you need to do to release the hold would all be curious to hear.

Charles Wagner:

Yes. Thanks for the question. As we've mentioned previously, it's not at all uncommon for us to see channel inventory and patient inventory fluctuations quarter-to-quarter on the order of magnitude of $20 million to $50 million. We called out an inventory increase in the fourth quarter. We did see some destocking in the first quarter. We just didn't call it out specifically.

Operator:

The next question will come from Colin Bristow with UBS. Please go ahead.

Reshma Kewalramani:

Yes. Colin, I'll start and then I'm going to ask David to add a little comment. Colin, I won't speak directly to any competitor. That's not my practice. But let's talk about CF in general. Over the years, we've established a leadership position in CF, and we've not only sustained it, but we've expanded it. And our goal of out innovating ourselves and if possible, even bringing more efficacious medicines forward than TRIKAFTA. And absolutely, in the case of the last 5,000 patients bringing forward a nucleic acid therapy for them, that remains unchanged. TRIKAFTA is the standard of care today. And the closest competitor to TRIKAFTA has been and remains today our own VX-121561, tezacaftor. I'm going to ask David to just give you a few comments on why we have so much confidence in our molecules and the HBE assays, which are really the workhorse and the translational element of what we do. David, a few comments from you on our confidence and why we know when we have something in the lab, it translates into the clinic.

Operator:

The next question will come from Mohit Bansal with Wells Fargo. Please go ahead.

Reshma Kewalramani:

Yes. Well, it's really good questions. I'm going to reframe the question a little bit and ask Bastiano to comment, but I want to make sure I explain this well. The way you know that a patient is insulin independence actually is by a very strict criteria. And that strict criteria is they don't take insulin any longer, exogenous insulin. Their fasting glucose level is less than 126 and their postprandial, that's to say after food, glucose level is less than 180. And the reason we're able to declare patient number one as insulin independent is because they meet all of those criteria. Now you asked a good question about what do we expect in terms of durability of effect. And I'm going to turn it over to Bastiano to talk about the experience with cadaveric transplants, the quantity and quality of our cells and why we think that our approach is a durable long-term durable approach. Bastiano?

Reshma Kewalramani:

I think that was a .

Evan Seigerman:

I'll just add, Michael, thank you for everything over the years. You will be missed greatly. Charlie, 1 for you. I love if you could speak to the impact of FX on OUS sales. I don't think you mentioned anything in your prepared remarks. Did that factor into your decision not to raise guidance despite expanded reimbursement, I'm not pointing to kind of what you announced in Australia recently.

Evan Seigerman:

And then no real impact on FX or kind of -- can you speak more to that?

Reshma Kewalramani:

Operator, we have time for one more question.

Liisa Bayko:

I guess we'll be the last one to thank Michael for all of his hard work. And we'll hope you'll keep in touch with us.

Liisa Bayko:

I just want to see if we get a little more detail on some of the type 1 diabetes metrics. Like for example, we don't have some of the HBA1c number for patient 2 at 90. And it would just be nice to see how that's tracking. I know there was a reduced exogenous inflow news, so that's good. And then some of the other -- I guess, are you saying if you didn't mention the (inaudible) C-peptides, maybe it hadn't reached an appropriate level yet. I'm just curious because the peak simulator wasn't shown either for some of those endpoints -- those time points. So just curious to fill in some of the holes here.

Liisa Bayko:

And then just one more question, if I may. Sorry, I might have missed this earlier, but for CTX001, have you finalized what you need to file with FDA? And then if you could give us an indication of where you're going to present the data, the next data out there, that would be great.

Liisa Bayko:

And it seems like you've done a bunch of work on sort of the market and it looks like the markets are relatively concentrated. Do you have any sense of sort of capacity and how we should think about how many patients could be treated in the current scenario on a yearly basis?

Operator:

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Michael Partridge for any closing remarks. Please go ahead.

Operator:

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Michael Partridge:

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.

Stuart Arbuckle:

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. I will now turn it over to Charlie.

Operator:

. Certainly. And first, I'd like to hand the program over to Michael Partridge, Senior Vice President of Investor Relations.

Operator:

. Our first question comes from the line of Michael Yee from Jefferies.

Reshma Kewalramani:

Sure. Michael, thanks very much for the question and for the kind words for the year. With regard to the VX-147 program, the important point here to discuss is that in Phase II, what we did was study APOL1-mediated FSGS, which is one kind of APOL1-mediated kidney disease. APOL1-mediated kidney disease as a whole, that's to say where patients have 2 APOL1 alleles and kidney disease driven by those 2 alleles, that overall population is 100,000 patients in Europe and the U.S. The FSGS population that we study is about 10,000 patients. So why did we do that? This was a very deliberate decision because the FSGS group are a very severe group of patients with heavy proteinuria, rapid progression to end-stage renal disease and no available therapy. Reasoning that if we could have impact in those patients, then we could go forward into Phase III with confidence that we would be able to impact the broad AMKD population. The results from our Phase II study are, and I don't use this word loosely, they are unprecedented, 47.6% reduction in proteinuria on top of standard of care in an APOL1-driven FSGS population is an impressive result. With regard to the study design for the next stage, we are -- as you rightfully point out, Michael, we are going to have our end of Phase II meeting with the FDA in the near term. That is just something we haven't done yet, although we have had the benefit of conversations with the agency. The important parameters I'll put on the table are the following

Philip Nadeau:

Maybe just a follow-up to Michael's. In terms of the specific endpoint, you just mentioned proteinuria and then the composite endpoint of more clinical results. In the recent past, it seems like the renal division of the FDA has been shying away from surrogate markers and focusing companies on the more clinical endpoints. So can you talk a bit more about your optimism for -- maybe in proteinuria as a primary endpoint? Would you actually seek an SPA if you get an agreement on that endpoint to try to lock the FDA in? And maybe how likely is it that you actually have to do a clinical endpoint-based trial? If so, how long of a study would that end up being?

Operator:

Our next question comes from the line of Alethia Young from Cantor.

Reshma Kewalramani:

Yes, yes, great question. Alethia, let me just step one step back and make sure everyone is tracking with you on where we are with the CTX001 program today and then where we're going with conditioning regimens that we're looking to improve. Okay. So where are we today? Across the sickle cell and beta thalassemia programs, we have completed enrollment. The initial target was 45 patients in each program. Each of the studies was oversubscribed, and we have more patients than that and we have completed enrollment. We have dosed more than 70 patients. And we are looking, as I said in my prepared remarks, towards a filing towards the end of this year. This program is with busulfan-based, single-agent myeloablative therapy. And we think that, that regimen with the benefit risk that it provides would be applicable to about 32,000 people in the U.S. and Europe with sickle cell and beta thal. 25,000 of those would be sickle cell patients and the majority of those in the U.S. But to unlock the full potential, which is, I would say, about 150,000 patients in the U.S. and Europe, we do see gentler conditioning regimens being key to that. We have programs internally at Vertex. We have recruited a world-renowned team in our, what we call, VCGT, Vertex Cell and Genetic Therapies division. We -- our partners at CRISPR also have programs in improved conditioning as do a number of other academic and biotechnology -- other biotech companies. I will say, Alethia, that I think that this is a problem that will be solved. And I say that for 2 reasons. One, we have line of sight on to the biology. We understand the cell surface markers and the ligands that we could use to pursue the cell types that we are trying to deplete selectively. And two, because this kind of approach, this gentler conditioning regimen would have applicability beyond sickle cell and beta thal in oncology. And so I do think that this is a problem that is going to be solved.

Geoffrey Meacham:

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.

Stuart Arbuckle:

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.

Brian Abrahams:

Congratulations on the quarter and the year. You've obviously shown very promising data from the first patients with the VX-880 for diabetes. And I guess I'm curious, how consistent should we expect the effects to be patient to patient with this type of approach? How are you feeling overall about the safety profile as you've continued to enroll patients? And what will be your aim as you move from half to full doses? Would it be generating a more rapid response -- an even more rapid response than you've seen or potentially moving towards complete normalization of some of the key parameters?

Operator:

Our next question comes from the line of Salveen Richter from Goldman Sachs.

Reshma Kewalramani:

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 is 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.

Colin Bristow:

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?

Operator:

Our next question comes from the line of Robyn Karnauskas, Truist Securities.

Reshma Kewalramani:

Yes, yes, really great questions, Robyn. Let me take the neuropathic pain question first with 548 and then let's do type 1 diabetes. Okay. the NaV1.8 axis, as I described earlier, is an exciting one. It's an exciting target for us because of the genetic validation but also because of the pharmacologic validation with VX-150, which had positive results not only in acute, but also neuropathic pain. So yes, I do expect VX-548 has potential in neuropathic pain. Unlike acute pain, which as the name implies, is a short-lived pain syndrome, neuropathic pain is a chronic disease state. So the kind of preclinical data and the work that we need to do and the package we need to put together is different, and that's what we're doing right now. But I do expect that the NaV1.8 axis and that target will be important in neuropathic pain. And I point you to the NaV, 150 results as the clearest reason to believe. With regard to the question around potentially getting to a point of having fully differentiated, allogeneic, insulin-producing pancreatic islet cells that could be edited to evade the immune system, here's the most important thing, you have to have the cells. It's not actually about the editing. It's not actually about the device. It's not actually about the off-the-shelf immunosuppressives. Those are 3 different ways to protect the cells from the immune system, but it's actually about the cells. And the only company that has these allogeneic, fully differentiated, pancreatic islet cells that make insulin and can make these cells in industrial quantities is Vertex. And we are working on multiple approaches to protect these cells from the immune system. VX-180 -- 880 uses the off-the-shelf immunosuppressives. The -- we call it VX-264. That's the cells plus device program that uses a device to protect the cells from the immune system. And then, of course, we have our program to edit the cells. But the key is it's the cells.

Mohit Bansal:

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.

Operator:

Our next question comes from the line of Evan Seigerman from BMO Capital Markets.

Reshma Kewalramani:

Yes, it's a really great question, Evan. The thing I would share with you that's topmost on my mind is a -- if I wear my nephrology hat is that the hope that VX-147 offers is something that is truly novel and a big deal, a big deal in the renal community. The reason I say that is that this is one of the few genetically defined kidney diseases that we understand. And it is one of the first, if not the first precision medicine approach to a genetically driven kidney disease where we're targeting the underlying cause of the kidney disease. There is a relationship between proteinuria and GFR. So GFR is simply a measure of kidney function, right? Just like ppFEV1, which we're all very familiar with is a measure of lung function. And the relationship is this. Proteinuria measures kidney damage. It tells you that protein, which is supposed to stay on one side of the membrane is leaking out into the urine. When you have that and it progresses, the next step is decreases in GFR, a measure a function of the kidney. And unfortunately, the next steps after that are continued decline leading to either transplantation, dialysis or death. So these are very related measures. I think they are individually important and collectively very telling about the course of a patient. But maybe clinically speaking, what I would say is when you see a patient who has a proteinuric kidney disease, what are we trying to do in the clinic? We are trying to reduce proteinuria because there is a clear correlation between proteinuria and the hard outcomes of transplantation, dialysis and death.

Operator:

Certainly. Our next question comes from the line of Hartaj Singh from Oppenheimer.