Michael Partridge - Senior Director of Strategic Communications Jeffrey M. Leiden - Chairman, Chief Executive Officer and President Stuart A.

Arbuckle - Chief Commercial Officer and Executive Vice President Ian F. Smith - Chief Financial Officer and Executive Vice President Robert Kauffman - Executive Officer Peter R.

Mueller - Chief Scientific Officer, Executive Vice President of Global Research & Development and Member of The Scientific Advisory Board

Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division Geoffrey C.

Porges - Sanford C. Bernstein & Co., LLC., Research Division Rachel L.

McMinn - BofA Merrill Lynch, Research Division Michael J. Yee - RBC Capital Markets, LLC, Research Division Matthew Roden - UBS Investment Bank, Research Division Brian Corey Abrahams - Wells Fargo Securities, LLC, Research Division Liisa A.

Bayko - JMP Securities LLC, Research Division Terence C. Flynn - Goldman Sachs Group Inc., Research Division Ying Huang - Barclays Capital, Research Division Robyn Karnauskas - Deutsche Bank AG, Research Division Ravi Mehrotra - Crédit Suisse AG, Research Division Y.

Katherine Xu - William Blair & Company L.L.C., Research Division

Thank you operator, and good evening, everyone. Joining me on tonight's call are Dr.

Jeff Leiden, Chairman and CEO; Stuart Arbuckle, Chief Commercial Officer; and Ian Smith, Chief Financial Officer. Our agenda tonight is as follows: Jeff will begin by reviewing Vertex's strategic business priorities for 2014, then Stuart will discuss fourth quarter product revenue and provide some commentary on the outlook for KALYDECO in 2014.

And to close, Ian will review the full year 2013 financial results and our 2014 financial guidance. Joining us for Q&A will be Dr.

Bob Kauffman, co-Chief Medical Officer; and Dr. Peter Mueller, Chief Scientific Officer.

We plan to conclude tonight's call at approximately 5:45 p.m. Please be considerate and limit your questions to 1 with a related follow-up.

I'll note that information discussed on the conference call includes forward-looking statements, which are subject to the risks and uncertainties discussed in detail in our reports, including our 10-K and 10-Q reports, which have been filed with the Securities and Exchange Commission. These statements, including, without limitation, those regarding the performance of KALYDECO and INCIVEK, our development plans and expectations and our guidance are based on management's current assumptions and are subject to risks and uncertainties that could cause actual outcomes and events to differ materially.

Information regarding our use of GAAP and non-GAAP financial measures and a reconciliation of GAAP to non-GAAP is available on -- in our fourth quarter 2013 financial press release. The press release is on our website and I would also refer you to Slide 4 of tonight's webcast.

Thank you, and I will now turn the call over to Jeff.

Thanks, Michael. Good evening.

We received approval for KALYDECO for patients 6 and older with the G551D mutation nearly 2 years ago. And since that time, we've made significant progress toward our broader goal of treating the vast majority of people with cystic fibrosis.

KALYDECO is a transformative medicine, and I'd like to thank all the patients, families, doctors, nurses and caregivers, who are involved in the treatment of CF for their continued support, as we seek to help more people with this devastating disease over the coming year. Our strategy is to reach as many people with CF as possible with our medicines and to enhance the benefit for those that we treat.

This will be a very important year for patients, for Vertex and for our investors. I'd like to briefly review Vertex's strategic priorities and goals for the year.

The management team and I see this year as a year of execution for the company. If we're successful, this should deliver revenue and earnings growth for Vertex and its shareholders in 2015 and beyond.

This execution has 3 main components. First, we must remain focused on investing in priority development programs, particularly CF, in order to launch multiple transformative medicines globally in the near future.

Secondly, we will continue to invest in early-stage research. Research has been a growth engine for Vertex for many years, and we expect that it will produce many of our future medicines, including new clinical candidates in 2014.

Finally, we're committed to maintaining financial strength to support investments to create new medicines. We enter 2014 in a strong financial position to invest in our future.

We have approximately $1.47 billion in cash, no convertible debt and KALYDECO revenues that are expected to grow in 2014. During 2013, we worked on each part of our financial platform: revenue, expenses and the balance sheet.

On the revenue side, we were able to launch KALYDECO successfully in Europe, and we're now reaching nearly all of the eligible G551D patients ages 6 and older in both the U.S. and Europe.

We expect further growth this year pending KALYDECO geographic and label expansion. From a balance sheet perspective, we converted all $400 million of our convertible debt in 2013.

We start 2014 with a significantly stronger net cash position. Finally, at the end of the year, we restructured the business to provide significant expected savings in our operating expenses going forward, with a reduction of approximately $150 million to $200 million in non-GAAP OpEx in 2014 compared to 2013.

We expect our current financial strength to allow us to invest in our key development programs, particularly in CF, and still maintain a strong balance sheet as we exit this year. Looking back at 2013, I am proud of the execution that enabled us to meet or exceed these key goals, which are shown on Slide 7 that we shared with you at the beginning of last year.

We're outlining our key priorities for you at the start of 2014 so that you can again measure our performance as the year progresses. You can see these on Slide 8.

I'll point out a couple of things in particular. The KALYDECO label expansion efforts and related clinical data will be an important marker of our progress in helping more people with CF.

Results from the Phase III TRAFFIC and TRANSPORT studies in the Delta F508 homozygous population that we expect to see midyear are a key milestone for the company, potentially enabling us to begin to treat an additional 28,000 patients or more. We plan to conduct a 12-week Phase II study of VX-661 plus ivacaftor in Delta F508 homozygous patients in the first half of this year.

Our goal is to potentially position VX-661 to play a role in a triple combination with a next-generation corrector in the future. We're pleased that VX-661 has now been granted breakthrough therapy designation from the U.S.

FDA. I had the opportunity to meet with many of our investors and analysts at the J.P.

Morgan conference earlier this month, and I returned from the conference confident that investors and analysts are aligned with our key business priorities for the year. I look forward to speaking with you and updating you as we progress.

And with that, I'll turn it over to Stuart.

Good evening, everyone. Tonight, I'm pleased to report our fourth quarter product revenue, and outline our expectations for KALYDECO in 2014.

First, KALYDECO generated $371 million in worldwide net revenues for the full year, and approximately $109 million in net revenues in the fourth quarter, including U.S. sales of $56 million and international sales of $53 million.

These results are a testament both to the transformative nature of the medicine and the benefit it brings to patients. It's worth noting that our fourth quarter sales include approximately $8 million of inventory build and onetime business adjustments that we do not expect to be repeated in future quarters.

We are now treating nearly all the eligible G551D patients in the U.S. and EU.

We're forecasting growth for KALYDECO revenue in 2014 as outlined in the guidance we provided at J.P. Morgan, based on the following anticipated key drivers: First, geographic expansion, from securing public reimbursement in Canada and Australia.

We estimate that there are approximately 200 eligible G551D patients in Australia and 100 in Canada. Secondly, label expansion into 2 potential patient populations: other non-G551D gating mutations and R-117H patients.

For the non-G551D gating population, we have submitted an sNDA to the FDA with a PDUFA date of March 27. We've also submitted an MAA variation to the EMA for a similar label expansion in Europe and we are in discussions with regulators about that label expansion.

We estimate there are approximately 150 patients in the U.S. and 200 patients in the EU who are 6 years and older with these gating mutations.

We also see the potential to treat additional patients if we can successfully agree a regulatory path for people with CF who have the R117H mutation. To summarize, we expect these drivers to enable us to grow our KALYDECO revenue beginning in the second quarter and continuing throughout the year.

Our goal, as always, is to enable patients who could benefit from KALYDECO to access the medicine as fast as possible. Turning briefly to INCIVEK.

Fourth quarter revenues in North America were approximately $19 million, bringing the total revenue for 2013 to $466 million. The continued decline in revenue throughout 2013 can be attributed to a decrease in new patient starts, inventory drawdowns throughout the extended channel, and a decrease in the realized price due to a change in the payor mix.

In summary, I'm pleased with our results in making KALYDECO available to more patients who may benefit from this medicine, and I look forward to updating you on our continued progress in this area in 2014. I'll now turn it over to Ian.

Thanks, Stuart, and good evening to everyone. Tonight I'd like to discuss our current financial position, our 2013 results and our financial strategies, including our 2014 financial guidance.

For a detailed discussion of our 2013 financial results, please refer to our press release we issued earlier today. First, to our financial position and the progress we expect to make through this year.

As Jeff mentioned, we are entering 2014 with approximately $1.47 billion in cash. This balance sheet strength, combined with our expected growth in KALYDECO revenues and other revenue sources, enables us to both invest in our pipeline and products and still exit the year with a strong balance sheet.

Additionally, pending success with our late stage CF products, we have the potential to generate substantial cash flow and earnings in 2015 and beyond. Now to the 2013 results.

We generated $1.2 billion in total revenues in 2013, including $838 million in product revenue. This was made up of $371 million in KALYDECO revenue, and $466 million in INCIVEK revenue.

There were also approximately $157 million in royalty revenues, which includes $131 million in INCIVO royalties. Lastly, we recorded an additional $218 million in collaborative revenues, including the $152 million HCV royalty sale to J&J that we announced in November.

Going forward, we will no longer receive INCIVO royalties. Turning now to 2014.

We expect our total revenues to be in the range of $570 million to $600 million. We anticipate that this total revenue will be made up of approximately $470 million to $500 million in KALYDECO revenue, which Stuart discussed earlier, and approximately $100 million, which includes committed and contracted collaborative revenues and INCIVEK revenues.

Now to our operating expense guidance. We anticipate 2014 non-GAAP operating expense to be $900 million to $950 million, a decrease of $150 million to $200 million from our 2013 non-GAAP OpEx of approximately $1.1 billion.

The operating expense will vary quarter-to-quarter. However, we expect Q1 2014 to be lower than Q4 2013.

And we expect the amount of lower in the second half of this year, given the timing of planned clinical trials and the realization of our previously announced cost reductions. The main components of our non-GAAP operating expenses are R&D expenses and SG&A expenses, and our guidance for these items is $665 million to $695 million and $235 million to $255 million, respectively.

I'd now like to give you a breakdown of the R&D investments of the company. First, we plan to maintain our investment in basic research at approximately $200 million to support the creation of future medicines.

This is very similar to our 2012 and 2013 levels. Second, we expect to spend between $380 million and $410 million on late-stage development programs, mainly related to our multiple cystic fibrosis programs.

This amount includes significant supply chain investments to prepare for commercial supply for the potential clinical success of lumacaftor and ivacaftor combination. Finally, we expect to spend approximately $85 million on activities and obligations related to KALYDECO.

These include safety pharmacovigilance, medical affairs, quality and post marketing commitments. Turning now to 2014 SG&A guidance of $235 million to $255 million.

We expect a significant reduction in SG&A compared with $309 million in 2013. This is the result of reduced U.S.

sales and marketing expenses for INCIVEK, as well as a continued focus on limiting spend to only necessary investments to support our CF medicines. Before I close, an item to note in our 2013 results is the asset write-down of VX-135 and the related deconsolidation of our relationship with Alios.

We are required to review all assets recorded on our balance sheet for potential impairment on a regular basis. Based on the information we have today, including the clinical data and market data, our assessment was the $250 million carrying value of this asset was no longer justified.

This impairment and deconsolidation actually results in a gain of approximately $68 million attributable to Vertex, which represents the net of all amounts expensed to date, versus the actual cash payments to Alios. Regarding the development of VX-135, our goal is to determine the best way to bring this medicine to patients and maximize the value.

We remain in discussions with our 2 principal collaborators in HCV, Alios and BMS. Discussions are principally focused on the best way to advance this compound as part of our all-oral combinations and the financial arrangements of each party.

We recognize that time is of the essence in this area, and we hope to reach a conclusion on development plans soon. In summary, we are committed to managing our operating expense at a decreased level compared to prior years, while maintaining our R&D investment to support future product creation, revenue growth and earnings.

We're committed to exiting this year with a strong balance sheet. We're optimistic that 2014 will be a transformative year for patients, for Vertex and for investors.

With that, I'll ask the operator to please open the line for questions.

So when you looked at the data coming up in CF for KALYDECO monotherapy in one of the bigger populations, is the patients with residual function. My question is, what does your early data tell you about the treatment effect in this population relative to G551D?

And then looking forward, how should we think about what a Phase III would look like depending on the Phase II outcome?

So this is Bob, Geoff. We haven't really looked at the data from that trial yet, it's not yet been analyzed, and so I can't really comment on what we've seen so far.

You're familiar with the population of patients who are either pancreatic sufficient, or have only a modest sweat chloride increase, and we'll be anxious to see the results and I think our plans will come from there.

The earlier data I meant, when you look at some of your in vitro data, we thought that we could measure the effect size in the sweat chloride activity, relative to other mutation.

Yes. I mean, the effect size is, in many cases, comparable to what we see with the G551D with KALYDECO monotherapy, in vitro.

So we expect that to be in many of the mutations that result in residual function, that we'll see a similar level of activity. I will remind you though that we also saw this in our R117H and the results of that study were somewhat complicated, so we're waiting to see the results of the clinical trial of residual function to really get a sense to how to proceed.

And then, just last one on that, just because of the population being much bigger than G551D or R117H, do you imagine that a Phase III would have to be a lot larger? Would this potentially be, say a 500 or even a 1,000 patient population, in terms of the design of the Phase III, or do you feel like you can get this done in a relatively, sort of narrow study that would be, for example, like 12-week?

[ph]

Yes, I can't really speculate on that, but I will point out, obviously we have a fairly large safety database already on KALYDECO monotherapy that we'll be able to utilize to support the safety in this indication also. So it's something we'll have to discuss with the agency.

Just a quick follow-up question on R117H, and then a financial question, Ian. The boundaries of R117H's contribution, is it -- are they in or out, is R117H in or out of guidance for 2014?

And what are the potential outcomes of those discussions, in terms of revenue contribution? And then Ian, could you just clarify how much, you were very clear about what was in the OpEx, but how much incremental cash burn will you have on top of the OpEx during the year, so we can back into where cash might be at year-end?

I'm going to answer the second question first, Jeff. So we haven't given guidance, as you can see, on where we expect our cash position to be, end of the year.

The way that we manage our balance sheet is looking to cash from multiple sources, and if you look at the 2013 financials and then also, when we file our 10-K in a couple of weeks, you'll be able to see that we do get our cash from multiple sources. The way that we'd like to measure our cash burn, and it's one of the reasons why we give non-GAAP guidance is that the non-GAAP lost tends to be a very good proxy for our cash burn.

There are some noncash items in there, but they're both positive and negative. Things like option exercise money or capital expenditures.

And when you step back and look at our financials, what you tend to find is the non-GAAP guidance that we provide equates or gives an approximation to our cash burn, because we're managing the balance sheet in that way. So I would take a look at the K and understand it that way, and then also understand that the non-GAAP is a reasonable approximation.

Right, and R117H?

Could you just remind me of that question again, Jeff?

Yes, my -- is R117H in or out of the guidance for this year? And regardless, what are the potential sort of boundaries of what you might get from your regulatory discussions with R117H, and how much that revenue opportunity could be?

Yes. So there is a piece of R117H and consistent with the communication we made at the end of last year, we want to have a discussion with the FDA regarding a filing opportunity, regarding patients 18 and older.

So we're proceeding ahead there, and somewhat optimistic. So we would look forward to a contribution from that patient population financially in 2014.

So -- but it's small, because you've got to go through the review period and the approval and then you've got to launch in that patient population, it's US-based principally, there is a slight delay of timelines in Europe, so it's a small contribution. And then, I'd take the opportunity of your question, actually to hand it over to Stuart, to maybe, Stuart just can give you an idea of how the revenue for KALYDECO builds through the year, so you can understand how we get to where we provided the guidance.

Yes, so Jeff, I think -- first thing, is probably to ground people on what the run rate is as we exited 2013 and as I said, we did $109 million in the fourth quarter. But as I mentioned in my prepared remarks, about $8 million of that was some inventory build towards the end of the year, and some other onetime business adjustments.

So our run rate as we exit '13 is just north of $100 million a quarter. And as I outlined, we've really got kind of 2 ways that we think we're likely to grow KALYDECO in 2014.

The first one is kind of geographic expansion, and we have ongoing discussions regarding reimbursement in Canada and Australia, they've been ongoing for a while, and we continue to be in very active negotiations with both of those reimbursement authorities. We also have label expansions in the non-G551D gating, that's filed, both in the European Union and here in the U.S., and if successful, we'd expect that to contribute to future growth.

And as Ian said, R117H is in the range of possibilities encompassed by our current guidance. But clearly, we have to have discussions with the regulatory authorities, we have to put filings in and then certainly in Europe, we've then got to secure reimbursement.

And so as a contributor to our overall revenues in 2014, that's likely to be a very small contribution compared to some of those other growth drivers that I've mentioned.

[indiscernible] sitting in for Mark. Just maybe change the topic a little bit to VX-135.

A few questions that come to mind, but just to sort of stick with one. Maybe perhaps you can give us, if there is sort of an understanding as to the relapse that occurred in the 200 milligram post-daclatasvir arm, whether there's an understanding as to the reasoning, whether it was deep sequencing, whether a possible mutation was seen?

This is Bob. Sequencing is ongoing in that study, we don't have any results yet.

So I think we'll report those likely at a medical meeting.

I was a little bit surprised by the R&D numbers. It looks like there's a pretty big step down there, just the split in OpEx, not the total OpEx.

But I guess I wanted to, can you maybe walk through in a little bit more granularity what the color -- how to think about that over the course of the year? And then, as a follow-up to that on the HCV side, if I'm understanding your comments there, should we assume at this point your guidance contains no HCV expenses, either legacy telaprevir expenses or for 135?

And I guess, in your ongoing discussions with Bristol, is that like a non-starter for you, you're just -- you're not spending anything on Hep C?

Yes, I'm just scribbling down the questions, so I can get to all of them. So first of all, the trend of our operating expense, I'll start by saying that what you see is our operating expense in Q4 2013.

You should see a 5% to 10% decline as we go into Q1 of 2014. And then, when you look through the year, it oscillates around, based on the timing of certain clinical trials.

However, it's not significant. And we do anticipate -- and we also just anticipate, it might be a slightly lower run rate in Q3 and Q4, and that's just given that the timing of our major trial that we have ongoing with TRANSPORT and TRAFFIC.

So in summary, there should be slight tickdown in Q1 compared to the prior quarter. And then, as we go through the year, you should anticipate less in Q3 and Q4, but not significantly.

As far as the questions on HCV, we have some small costs that we still incur in HCV, relating to telaprevir and those are like post-marketing commitments that unfortunately, we're still contracted with the FDA to perform and complete. We actually exclude those as part of the restructuring of HCV, so that they don't get charged to P&L.

And also, they do not have any future benefits in our perspective, and that's why we don't incur them. And then as far as marketing and sales, to the ones supporting INCIVEK, that is absolutely negligible at this point in time.

Ian, you might want to comment on the -- how we're treating R&D expense for HCV, in and out of the budget. You talked about that part, I think that's really [indiscernible].

Yes, I'm not sure, Rachel. But did that -- was I -- did I answer your questions?

Hello, Rachel?

So HCV, though, with 135, is that completely out of your future...

I see. Thank you for clarifying.

So as we discussed at JPMorgan, our OpEx operating expense guidance of $900 million to $950 million includes $40 million to $50 million. But that's still in there.

We're not spending against that though, I want to be clear on that. We're not spending against that at this point in time as we decide on the direction for the program.

As I've said, in some of my earlier remarks, we are in discussions with both our principal partners in this area, both BMS and Alios. And so as we work through that -- those discussions, we'll be back to you, not only just with the direction, but the impact on our operating expense, if any.

And we hope it to be soon.

I had a question on 661, and obviously, you're starting a Phase II study in homozygous there, it's almost, sort of like a small replication of a Phase III. But I just wanted to get your updated thoughts on how you view the profile of that drug, and whether you'd expect it to be any different from an efficacy profile, versus 809, which we're going to get a Phase III reading on, and the value and readthrough, and what can we glean from that data, and whether you'd expect that to be after the Phase III data, maybe you can sort of run through your thoughts on 661.

So this is Bob. So the study that we're about to start is a 12-week study, safety, efficacy and PK, 661 plus ivacaftor.

And I think our thoughts about the profile of that compound really haven't changed at all. This is just the next step in the process, and we continue to be quite pleased with the results that we've seen so far with 661.

I wouldn't describe it as sort of a prelude to Phase III, it's a standalone Phase IIa study, and the results will obviously help us going forward. In terms of activity, it's very hard to speculate without seeing the data, but certainly, we were pretty happy with the outcome of the 28-day study that we reported last spring.

And at the same time, in vitro, we think the activity of 809 and 661 are relatively similar in homozygous HBE cells. But until we see the clinical data with the longer dosing period, I think it's a little bit hard to speculate on that.

Michael, just strategically, this is Jeff, remind you that how we're thinking about 661, as part of the portfolio. The primary way we're thinking about it is, eventually, it's part of a triple, with a first and second-generation corrector that will allow us to both increase activity in homozygotes and potentially, of course pending the data, reach heterozygotes as well.

The other potential use of 661, I guess, is as a so-called backup for 809, in double therapy. And once we see the results of 809 mid-year, and then we see the results of this Phase II trial, we'll be in a position to give you a lot more strategic information about how we're going to proceed.

Let me just ask that quick follow-up. Obviously, we're planning for success.

Were 809 not to work, there is some thinking that 661 would ultimately, could still be used in a homozygous setting if you had dual corrector. Not just hetero, but homo, so you'd just be delayed, is that the thinking there?

Correct.

Yes.

It's kind of a logical extension of the earlier question on the R&D spend. Presumably, if the CF program is positive, you'll have more financial flexibility going forward.

So I was wondering if you can describe, bigger picture, how you see a ramping up of R&D efforts again, and where do you get the programs, how fast can you ramp? Generally, what's your vision for R&D, longer-term?

So vision for R&D, I'll leave it to Jeff and Peter to talk about that. But in terms of the investment profile for the company, we don't see -- we get asked this question frequently, which is, that if your revenues increase and increase significantly, do you spend more of them in R&D?

The way that we view our financial investment in the area of R&D in the company right now, on a research basis is, we're very comfortable with the level of investment in research. And it's been productive and it's produced the pipeline that we have today, and hopefully will continue to provide new clinical candidates.

We see it as a nice profile that we have multiple sites, they're smaller sites, they're highly focused in certain areas. And so we don't see a significant change in research investment.

From a development perspective, development is a function and really, only changes if you're moving into late-stage development with significant trials. And again, it's not a function of a potential revenue, it's more of a function of opportunity.

And so if there is the opportunity there that we believe can translate into future medicines, then we will be investing in those drugs. Overall, when you roll this into how we look at the operating expense profile for the company, we see the ability to drive revenue growth, pending the success of the important trials this year, but we really see the opportunity to drive significant revenue growth while not seeing a significant increase in operating expense.

We just don't see that. Which therefore, gives us the leverage from the revenues on top of something that's -- may marginally grow on operating expense, but it gives you the opportunity to generate significant earnings and cash flow.

That's the profile that we're trying to manage to and be very selective about where we place our investments in R&D. I don't know whether Jeff or Peter wants to comment on R&D vision.

Yes, Peter has been doing a lot of nice work on R&D vision and strategy going forward. So maybe Peter, you have a few comments on how you're thinking about that.

It's been a productive organization, but the environment's changing in very interesting ways, and we're going to change with it.

So I want to be brief, because there would be many things to be said to know what's going on. I think #1, I think Ian phrased it nicely, I think we have a productive R&D or research engine that basically produces on a continuous basis, molecules.

And I have high confidence that, that will also happen as we go forward. Now in terms of focus, I think there is a change in the landscape out there that makes some adjustments necessary as you go forward in the future.

It is not symptomatic regimens any longer that basically drives the show, it is transformational regimens that will drive the show and driven by outcome and health care. Visibility to outcome is basically sort of the new hallmark that you have to shoot for, and it drives us into diseases and disease approaches that deliver transformational outcome.

That's our key focus. And that's our security, what's transformational, depending what disease you are in.

We will be very specific to basically look into those type of approaches and mechanisms. And as we go forward, that will not be just limited to fundamentals, more molecule approaches.

There will be broader efforts, in terms of cell therapeutic approaches, gene therapies and any of those that you can imagine. We are currently looking into what might play a role here, and that sort of, I would say high level of vision.

So there is a broader platform into transformational outcomes in diseases of specialty need that's I think what we are shooting for.

I appreciate the perspective there. Ian, a quick financial follow-up.

You mentioned in the release a couple of weeks ago, $60 million in interest expense in 2014, if I'm not mistaken, but I didn't see it in today's release. Does that still stand?

Can you clarify if that's GAAP or non-GAAP?

Yes, that still stands. And it is a GAAP and it's an interest charge that relates to -- well, it's actually a net interest charge because it's partly, it's an interest return from our invested capital, it's on our balance sheet, but it's principally driven by an interest charge on the lease of our building.

And that's still there.

Okay. But it's going to be non-GAAPed out?

No, we will leave it in, it is a GAAP number.

Just for Bob, about the long-term strategy in F508del and the role of potentiators. What's the latest understanding of the channel open probability in F508 CFTR?

I'm sort of just wondering if your view is multiple correctors, such as those within your portfolio, could ultimately get to comparable activity without the need for KALYDECO. And to that end, I'm wondering if you can give any more specific updates on the second, the next-generation correctors you're pursuing, in terms of timeline number we'll see move into the clinic this year.

Thanks.

So, this is Bob. So, just the last question first is, our timeline remains what we've said before, how we expect to have a clinical candidate by the end of 2014, depending on how things go, there could be more than one clinical candidate, but that's likely the earliest one.

In terms of the channel of improbability, I think our general outlook at this point is that for F508del, with homozygotes and heterozygotes, kind of the rate-limiting piece of this is the amount of correction that one can obtain, since potentiators are quite active on F508del CFTR once they get to the cell surface. I think our general thinking is, we likely will always be in a situation where we're going to be wanting to use a potentiator in combination with a corrector.

Since I think, just our looking at the additive effects of all these molecules on one another, in order to really get substantial CFTR activity, we're probably going to need basically, 3 drugs, 2 correctors and a potentiator.

I just wanted to get some commentary on what combination you think might be adequate to start targeting the heterozygotes?

Yes, Liisa, it's Jeff. As we've said before, the -- our thinking about this is really informed by the cell biology experiments.

And you'll remember that in those experiments, double correctors, I'm sorry, corrector plus potentiators, single correctors, 809 plus KALYDECO, or 661 plus KALYDECO, really doesn't get you to the chloride transport that has been predictive of good clinical activity, and that's been borne out even in the clinical experiments we've done in the heterozygotes. So in contrast, when you use a first generation corrector, a second-generation corrector in KALYDECO, you get to levels of activity in the heterozygous cells that are similar to what you see with a single corrector 809 plus KALYDECO, and that does read out in the clinic.

And that's really the basis of our assumption that 3 drugs, as Bob said, a first gen corrector, a second gen corrector and KALYDECO, are going to be necessary to reach the heterozygotes. The only exception being those heterozygotes who might be 508 on 1 allele and KALYDECO-responsive on the other allele.

And as you know, we're testing those with a combination of 661 plus KALYDECO right now, in a 4-week study.

And then, just, can you remind us when we might see usage of KALYDECO in patients below age 6 for the G551D population? Thanks.

So that was -- that study is supposed to read out in the second quarter, and it's on track for that. That's a 2- to 5-year-old study.

I was just wondering if you can update us on the IP for the combination, with respect to maybe just remind us on composition for 809 and 661, and then any combination patents that you might have?

Firstly, the patent protection goes to mid-2020s, but I can get the precise years for you, Terence, after we get off of the call, but it's principally in the mid- and late-2020s.

I think that's correct and in terms of composition, in terms of combination, I think we have filed in each of those patents, combination patents.

And when would those go out to? Like, what would be the latest, those -- the combo patents would cover to?

Yes, it covers through the mid 2020s, Terence. But I can take a look at the dates and get back to you later.

Quick one is, what should we expect from the 4-week Phase II study for the KALYDECO and 661 combo, in one allele of G551D and then one allele of 508del. And then, can you give us your thoughts about the importance of secondary endpoints from the ongoing TRAFFIC and TRANSPORT studies, in terms of regulatory approval, and also reimbursement from the payors, such as exacerbation reduction and weight gain?

Ying, thanks for the question. I'm going to get Bob to talk to the 508, 551, 661 study, and maybe Stuart will follow-up with the secondary markers that we're measuring.

So again, we expect to have data in the second quarter on the, that Phase II study with KALYDECO and 661, and F508del, G551D heterozygotes. These are people that are already on KALYDECO commercially, and are enrolled in the study to add 661 on top for 4 weeks, and a 4-week off period.

And then the assessment, and we'll have results in the second quarter.

Yes, on the secondary endpoints, I mean, they are clearly going to be of interest to the regulators. Just to remind you, in TRAFFIC and TRANSPORT, we have things like exacerbations and weight gain, hospitalizations, quality-of-life.

So they're clearly of interest to the regulators, whilst they still maintain a firm commitment to FEV1 as the primary regulatory endpoint. As far as reimbursement authorities go, I would say they're even more important than FEV1 for a couple of reasons.

Firstly, some of these secondary endpoints are of even more importance to providers and patients. And from a payor's perspective, they are also very important as they are important from a cost avoidance perspective.

If you can reduce exacerbations, if you can reduce hospitalizations, if you can be reducing concomitant medications, then clearly, those are important cost offsets. So the secondary endpoints are incredibly important, both from a regulatory point of view and from a reimbursement point of view.

And then Bob, if I may just have a follow up. So I guess we shouldn't expect additional FEV1 from the 4-week study, right?

Maybe it's some incremental secondary benefits here?

Not to speculate, but obviously, we're clearly looking at FEV1 as one of the readouts to determine if the combination actually has a benefit over the individual agent. We'll see how the results come when we get them.

So quickly, so just to be clear, if you hit your primary endpoint, I'm talking about that 809 combo trial, you hit the primary endpoint but miss secondary endpoints. And you maybe believe you won't field a secure, strong reimbursement or good pricing because you missed the secondary points, would you just wait to file with maybe the combo or the triple?

And the second question is, Ian, you mentioned at JPMorgan, talking about looking at products that are synergistic and additive and competitive. Given the cash position, what kind of deals are you thinking are optimal?

Licensing, partnerships, M&A ?

I'll look for Bob to take the first question in terms of filing with -- when we meet the primary -- if we meet the primary endpoints, and Bob?

Yes, I mean, obviously, we're hoping to hit on more than just the primary endpoint. But certainly, if we hit the primary, we will file, and bring this medicine to patients who need it.

And Robyn, on types of transactions or collaborations that we're looking for, clearly, our focus right now is on what the VX-509 and VX 787, 787 being the molecule for, potentially, to help with flu. So we'll continue to have discussions.

In particular, we've just recently received the 24-week data for VX-509, that allows us to continue those discussions. And as those progress through this year, we'll advise you appropriately.

Just as a follow-up, just to be clear, if the 809 combination trial. So say, you don't hit your secondary endpoints, would you then potentially begin exploring another homozygous trial with the other combo, to maybe secure -- get a drug on the market or a combo on the market, in that population that maybe does have better value to the patient?

Yes, and if I misunderstood your first question, I'm sorry, I thought that's where you focused. But also, a part of our approach to this area is to, as we mentioned back at NACF, back in October, we're more active than we've ever been, in terms of scouring the landscape.

Yes, we want to look for technologies, assets, molecules, approaches, that can be complementary, as well as maybe competitive. And so we have a kind of a learning in this space, when we were once [ph] in prior disease.

And today, as we go out and we look around, we do see some opportunities to enhance our position in CF. As far as the particular question you're asking me about, the 809, well, Jeff mentioned about the strategy with 661, but not only can that be -- play a role in the triple regimen where you've got the dual correctors, but we also see that as a potential to play as a backup if needed.

And I think that strategy, if you have more shots, it's better. We're committed to this disease, long-term.

We think we've got a good understanding of the mechanism of actions and how we can get these medicines to patients. And so, we're going to keep going.

We're committed to this space and we think we're doing some incredible things for these patients, and we want to broaden our efforts.

Operator, it's now past our planned stop time for the call. We think we have time for 2 more questions.

Can you give us any more color on your neurological disorder research efforts, in particular your MS program, specifically whether this program looks at remyelination?

I'll just quickly answer that, actually, Ravi, yes it does look to remyelination. It's an early stage program, it's in preclinical.

As we progress in all these different areas that we have in research, we'll decide to take the cover off at the appropriate time. We look forward to doing that, but yes, we do have a program in MS, and it is a remyelination approach.

I just have a very quick question. Now, you have patients over 6 years old of G551D, they're pretty much all on drugs.

Just curious, can you disclose the number of patients in the U.S. versus Europe?

Yes. We think overall, there's about 2,200 patients, 6 years and older in the U.S.

Europe, and also in Australia or in Canada. And as we've said, nearly all of those have started therapy in the U.S.

and Europe, and we would hope to be able to do something similar in terms of bringing benefit to about the same number of patients in Canada and Australia, once we've been able to secure public reimbursement.

How much -- how many U.S. versus in Europe, each?

It's roughly a 50-50 split for G551D.

Thanks, everyone, for tuning in tonight. Kelly Lewis and I are in our offices if you have any additional questions.

Have a good night.