Vertex Pharmaceuticals Q3 2021 Earnings Call Transcript

Participants

Corporate Executives

• Michael Partridge, Senior Vice President of Investor Relations
• Reshma Kewalramani, Chief Executive Officer, President & Director
• Stuart A. Arbuckle, Executive Vice President & Chief Operating Officer
• Charles F. Wagner, Executive Vice President & Chief Financial Officer
• Bastiano Sanna, Executive Vice President, Chief of Cell & Genetic Therapies and VCGT Site Head

Analysts

• Salveen Richter, The Goldman Sachs Group, Inc.
• Michael Yee, Jefferies Financial Group Inc.
• Phil Nadeau, Cowen & Company
• Brian Abrahams, RBC Capital
• Robyn Karnauskas, Truist Securities
• Liisa Bayko, Evercore ISI
• Cory Kasimov, JPMorgan Chase & Co.
• Olivia Braye, Bank of America Co.

Presentation

[Michael Partridge, Senior Vice President of Investor Relations at Vertex Pharmaceuticals]

Good evening. This is Michael Partridge. Welcome to the Vertex Third Quarter 2021 Financial Results Conference Call. On tonights call, making prepared remarks, we have Dr. Reshma Kewalramani, Vertexs CEO and President; Stuart Arbuckle, Chief Operating Officer; and Charlie Wagner, Chief Financial Officer. Dr. Bastiano Sanna, Executive Vice President and Chief of Cell and Genetic Therapies at Vertex, will join us for Q&A. We recommend that you access the webcast slides as you listen to this call. This call is being recorded. 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 todays press release and in our filings with the Securities and Exchange Commission. These statements, including, without limitation, those regarding Vertexs marketed CF medicines, our pipeline and Vertexs future financial performance are based on managements 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.

[Reshma Kewalramani, Chief Executive Officer, President & Director at Vertex Pharmaceuticals]

Thanks, Michael. Im very pleased to be here with you tonight to discuss Vertexs progress through the first three quarters of 2021. During this year, weve meaningfully increased our leadership in cystic fibrosis, both with our approved CFTR modulators and with the CF programs advancing in our pipeline. Weve expanded and accelerated our R&D pipeline beyond CF, and these programs are now delivering clinical results. We have continued to demonstrate exceptional financial performance with significant growth in revenue, high operating margins and increasing cash flow. Let me elaborate more on each of these three points. Starting with CF, from a commercial perspective, third quarter product revenues were $1.98 billion, representing almost 30% growth year-over-year. This growth was driven by the performance of TRIKAFTA in the U.S., including the launch in children ages six to 11, and strong uptake OUS, where KAFTRIO has been reimbursed, including most recently in France and Italy. Based on the strong performance, we are again increasing our revenue guidance and now expect total product revenues for 2021 to be between $7.4 billion and $7.5 billion.

As we look forward, we expect that our CF business will continue to show robust growth in the years ahead as there are approximately 30,000 CF patients yet to be treated with our CFTR modulators. Weve made important progress with our CF R&D pipeline programs this year as well. Based on strong preclinical and clinical results from our next-in-class triple combination regimen of VX-121, tezacaftor and VX-561 that demonstrate the potential for superior benefit to existing CFTR modulators, weve accelerated this program into pivotal studies. Both of the Phase III studies are head-to-head trials versus TRIKAFTA. Both studies are up and running and enrolling patients. And we are not stopping there. We have identified even more promising regimens in our labs, building on 20 years of success translating our proprietary insights in CF biology into groundbreaking medicines. We are confident that these regimens will allow us to reach our long-standing goal of bringing CF patients to carrier levels of sweat chloride. For the approximately 10% of people with CF who cannot benefit from a CFTR modulator, were working on genetic therapies, including an mRNA approach.

We and our partner, Moderna, have for some time now been able to synthesize mRNA constructs that restore CFTR protein function in vitro. The biggest challenge for us and for everyone in the field has been delivery of the mRNA to the target cells. I am very pleased to report that we and Moderna have made a significant breakthrough in delivery this past year. We have now demonstrated that we can efficiently deliver full-length CFTR mRNA to human bronchial epithelial cells in vitro to provide high levels of CFTR function and in vivo through the delivery of nebulized lipid nanoparticles to the bronchial epithelial cells in nonhuman primates. Based on these results, IND-enabling studies for our CFTR mRNA therapy are already underway, and we plan to file an IND and start clinical development in 2022. To close CF, I will note that just a few months from now, we will mark the 10th anniversary of the first approval of KALYDECO, our first CFTR modulator. And last month, marked two years since the U.S. approval for TRIKAFTA.

For the Phase III clinical trials, our CF medicines have always been appreciated for their outstanding short-term benefits, not just significant increase in ppFEV1, but decreases in pulmonary exacerbations, increases in weight and increases in quality of life. Were now in a position where we have tens of thousands of patient years of safety data, and we could appreciate more fully the breadth of clinical benefit with analysis of longer-term real-world data. What we find truly remarkable is that with KALYDECO, we now have database on an average of six years of follow-up in patients six years and older and that includes a 78% reduction in the mortality rate and an 89% reduction in the rate of lung transplantation compared to patients who are not eligible for treatment. With TRIKAFTA, we now have data showing no decline in lung function after two years of follow-up from the pivotal trials. And this is a first for any CF medicine. Id like to emphasize that from our perspective, it is these kinds of long-term data that ultimately determine physician and patient choice of regimens, particularly in CF where patients take CFTR modulators chronically over a lifetime. Let me turn to our pipeline outside of CF. First, to our type one diabetes programs and the unprecedented clinical data we recently shared. The pathophysiology of type one diabetes is well known.

It results from the autoimmune destruction of pancreatic islet cells. Daily injections of insulin have saved the lives of these patients, but patients still suffer from severe long-term vascular complications of the disease, resulting in premature mortality. And unfortunately, the treatment itself can lead to severe hypoglycemic episodes that can be associated with unresponsiveness, seizures and even death. Therefore, the holy grail for type one diabetes for decades has been to replace the damaged pancreatic islet cells and restore insulin production. Early clinical space using cadaveric islets have demonstrated the curative potential of this approach. The problem has been produced sufficient quality and quantity of islet cells to treat the millions of people with this disease. Vertex has developed a proprietary process to make industrial quantities of allogeneic, stem cell-derived, fully differentiated islet cells that could serve the more than 25 million patients with type one diabetes. The clinical data from this first patient treated in our VX-880 program with these cells are truly remarkable with a single infusion at half the target dose combined with standard immunosuppression, routinely used in transplantation, we observed substantial improvements across multiple measures of islet cell function that were rapid, robust and durable through day 90.

Our stem cell-derived islets produce basal levels of insulin and increased insulin secretion appropriately in response to glucose stimulation. And in the 90 days following infusion, there was a significant reduction in blood glucose as measured by hemoglobin A1C despite a 91% reduction in exogenous insulin requirements. On the safety side, VX-880 was generally well tolerated. These cells are the product. They are the common denominator across our type one diabetes programs and these will derisk each of our three programs. In the cells alone program, we use standard pharmacologic immunosuppressives. In the next program, were using our proprietary device for immunoprotection of these cells. The IND-enabling studies for this program are already underway, and we plan to file the IND in 2022. And these same cells are the starting product for our gene-editing program designed to produce hypoimmune islet cells that can evade the immune system. In cell and gene therapies, it is clear that the curative potential of these approaches is very high, and therefore, these therapeutics have potentially rapid path to registration involving a reasonable number of patients and a reasonable amount of follow-up. It is with this in mind that were working with urgency on the VX-880 program. Moving on to CTX001.

CTX001 is our nonviral ex vivo gene-editing therapy that is designed as a onetime curative approach for sickle cell disease and beta thalassemia. It also stands out as a clear example of how we have accelerated our pipeline in 2021. CTX001 is our most advanced program outside of CF and continues to have strong momentum. Weve now fully enrolled the target number of patients in both the sickle cell disease and beta-thalassemia clinical studies. Based on the clinical data weve presented to date, physician and patient interest in these trials has been high, and we have additional patients beyond the target 45 in each trial who are now completing eligibility assessments and will be enrolled this month. We anticipate closing out our regulatory discussions in the near term and submitting regulatory filings for approval of CTX001 by year-end 2022 based on these clinical results. We have high confidence that CTX001 will be our next launched medicine. Stuart will comment on the progress of our commercial preparedness in his remarks. On to VX-147 and where we will have results from the Phase II proof-of-concept study this quarter. This Phase II study of VX-147 is fully enrolled and focuses on patients with the form of FSGS that is mediated by APOL1. Our goal is to establish APOL1 inhibition as a new mechanism that can be used more broadly beyond FSGS, and in APOL1-mediated nondiabetic proteinuric kidney disease.

Based on the human genetics, the strongly validated target and the performance of VX-147 across a number of in vitro and in vivo assays we see our APOL1-mediated kidney disease or AMKD program as having a high probability of success. Some of the preclinical data from this program are the subject of a presentation at the American Society of Nephrology Meeting taking place later this week. In this Phase II study, were assessing the safety of VX-147, and the key efficacy marker is reduction of proteinuria. Proteinuria is the clinically relevant endpoint and one that regulators have expressed openness to accepting in a homogeneous proteinuric kidney disease population. If our Phase II study in APOL1-mediated FSGS is successful, it would represent a first-in-class demonstration of proof-of-concept for an APOL1-mediated kidney disease and would propel us into pivotal development in the AMKD population, which includes, but is not limited to FSGS. In total, this represents approximately 100,000 people with AKD. Ill conclude the pipeline discussion with a few words on our pain program. We have high confidence in the NaV1.8 target for three main reasons.

One, NaV1.8 is genetically validated. Two, NaV1.8 is also pharmacologically validated with our very own three positive Phase II proof-of-concept studies in acute, neuropathic and musculoskeletal pain. And third, our lead molecule in the program, VX-548, has the key drug-like properties that we are looking for, including high selectivity and potency. The two Phase II dose-ranging studies in acute pain, biectomy and abdominoplasty with VX-548 are well underway. Based on enrollment progress, we currently expect data from these studies in Q1 of 2022. With that, Ill now turn it over to Stuart to review the commercial progress.

[Stuart A. Arbuckle, Executive Vice President & Chief Operating Officer at Vertex Pharmaceuticals]

Thanks, Reshma. Ill begin by reviewing the Q3 revenue performance of our CF medicines, which reached nearly $2 billion in Q3. U.S. revenues were $1.38 billion, an increase of 13% compared to the prior year, driven by the performance of TRIKAFTA, including the launch in the 6- to 11-year-old population. The launch in the 6- to 11-year olds is progressing rapidly, which is not surprising given the profile of the medicine and the recognition of the importance of early treatment of this relentlessly progressive disease. Outside the U.S., revenues were $601 million, an increase of more than 90% over the third quarter last year, driven by the ongoing launch of KAFTRIO in the 12-plus population. In particular, KAFTRIO was off to a strong start in France and Italy, two major markets where we achieved reimbursement in June of this year. We also signed a letter of intent for public reimbursement of TRIKAFTA in patients 12 and over in Canada. And since then, weve achieved model provincial reimbursement agreements and some 90% of patients covered by government insurance now have reimbursed access to TRIKAFTA.

We have achieved reimbursement agreements for KAFTRIO/TRIKAFTA in more than 20 countries outside the U.S., just over one year since approval. And importantly, weve continued to achieve reimbursement at levels that reflect the high value of the triple combination regimen. As Reshma mentioned in her remarks, the profile of our CF medicines continues to be enhanced by term data. The start of the North American CF conferences tonight, and among several important abstracts, our data from the ongoing 192-week open-label extension study of TRIKAFTA, which shows there has been no loss of lung function during long-term follow-up. This is a first for any CFTR modulator to date is an important milestone for the field. All previous long-term data for our other medicines showed a slowing of lung function decline. In contrast, these data show no loss of lung function for patients on TRIKAFTA after 96 weeks of follow-up. Real-world data also being presented at the conference on KALYDECO show at an average of six years of follow-up, a 78% reduction in the mortality rate and an 89% reduction in the rate of lung transplantation compared to patients who were not eligible for the treatment.

These data are very important for patients and the medical community because they more fully illustrate how our medicines address the long-term aggression and complications of the disease. These data also have important implications for the future competitive landscape as they raise the bar in terms of what will be required to compete effectively. Now turning to some of the other opportunities in our pipeline beyond CF. Our commercial experience in CF provides foundational capabilities, which we will be able to leverage to commercialize our next wave of transformative medicines. As Reshma mentioned, regulatory submissions for CTX001 are planned for the end of 2022. And so our launch preparation activities are well underway to ensure we are able to bring this potential medicine to patients globally immediately upon approval. We see CTX001 as a potential onetime curative approach for the approximately 32,000 patients with severe sickle cell disease or transfusion-dependent beta thalassemia in the U.S. and Europe.

Weve developed a deep understanding of the sickle cell and beta thalassemia markets, including where patients with these diseases are and the role that key referral and treatment centers will play to facilitate the treatment journey for patients. Consistent with our own internal market research, published physician surveys in the U.S. consistently indicate that they would expect 1/4 to 1/3 of their patients with sickle cell disease to be good candidates for a onetime curative approach using the current conditioning regimen, which is in line with the estimates of the numbers of patients with severe disease, approximately 25,000 sickle cell disease patients. We are focused on three key areas of launch preparation for CTX001. First, people. Weve hired many of the key people who will support the launch. Second, manufacturing. This is an area we have focused on from the earliest days of our work on CTX001 to ensure we can supply a consistent and high-quality product to the large number of patients we believe will benefit from the medicine on day one of the launch. Importantly, we are using the same manufacturing sites and processes for commercialization that we are using for our clinical trials.

And third, patients, making sure we really listen, understand them and their experience, so we can provide them at launch with the information, resources and support they need as they consider treatment with CTX001. Now turning to pain. With our acute pain study is well underway, I thought I would remind you of the large market opportunity there. Acute pain accounts for 1.8 billion treatment days a year in the U.S. alone. And despite more than 90% of prescriptions being generic, this is still today a $4 billion market. Thats typical branded pain medicine pricing of approximately $10 a day, a new medicine that takes even a portion of the current treatment days has multibillion dollar potential. In light of the unprecedented data for VX 880, its also worth highlighting the market opportunity in type one diabetes, which is very large. Let me start with the disease. Type one diabetes is a disease that is affecting more than 2.5 million people in the U.S. and Europe alone. It is a severely debilitating and life-shortening disease in which due to autoimmune destruction of pancreatic islet cells, the body produces little to no insulin. There are two patient populations to consider.

First, those with severe enough diabetes for whom the benefit risk profile is positive for the cells alone plus standard immunosuppressive therapy. And secondly, the broader population who would be candidates for the cells encapsulated in our proprietary device or hyperimmune cells, where immunosuppression would not be needed. There are at least 60,000 patients with type one diabetes in the U.S. and Europe who are potential candidates for the first approach with VX-880. This group is made up of people who have severe, difficult to control forms of type one diabetes, characterized by impaired awareness of hyperglycemia and severe hyperglycemic events that can be life-threatening. There are approximately 45,000 patients in this category. And then there are people with type one diabetes who have had previous organ transplants, primarily kidney and so are already on immunosuppression.

There are about 15,000 patients in this category. Cadaveric islet and whole pancreas transplants are already performed, albeit in small numbers of these patients and give some sense of the value of this type of intervention in a patient with severe disease. For illustrative purposes, if you benchmark price in the U.S. for a pancreatic transplant of approximately $400,000 per patient as the price for a cell-based treatment, treating even a minority of the eligible patients would represent a multibillion-dollar opportunity. Beyond VX-880, the cells plus device program which encapsulates the same cells for which we recently reported the unprecedented clinical data into our proprietary device that protects these cells from the immune system, could address the broader type one diabetes population, 2.6 million patients in the U.S. and Europe. In summary, Im pleased with our continued progress in bringing our CF medicines to more patients around the world and excited about the many opportunities in our pipeline. And with that, Ill turn it over to Charlie.

[Charles F. Wagner, Executive Vice President & Chief Financial Officer at Vertex Pharmaceuticals]

Thanks, Stuart. In the third quarter of 2021, Vertexs long-term track record of strong revenue growth continued. Total product revenues were $1.98 billion, a 29% increase compared to the third quarter of 2020. Notably, TRIKAFTA represented nearly 80% of third quarter revenues as most eligible patients have switched to TRIKAFTA. Our third quarter revenues included $1.38 billion in the U.S. and $601 million outside the U.S. Ex U.S. revenues for the quarter grew 92% over the prior year driven by continued strong uptake for KAFTRIO. Our third quarter combined R&D and SG&A expenses were $561 million compared to $497 million for the third quarter of 2020, driven largely by investment in our clinical stage programs and our research pipeline. We expect our R&D investments will continue to be substantial as we advance our mid- and late-stage programs and make further clinical and regulatory progress across the pipeline. Our continued growth in revenues, combined with disciplined growth in OpEx translates to a year-to-date operating margin of 59%. And with our strong revenue and profitability, we ended the second quarter with $7 billion in cash. Now to guidance.

We are again revising our 2021 guidance upward for total product revenues in the range of $7.4 billion to $7.5 billion. This increase reflects continued outperformance as well as the rapid uptick we have seen with new launches. Year-over-year, this guidance represents 20% growth at the midpoint. As Stuart highlighted, the six to 11 launch in the U.S. and the uptake in France and Italy are proceeding very rapidly. Even with the outstanding growth in the number of patients treated this year, we have approximately 30,000 patients left to treat with our CFTR modulators. Given our proven track record of securing new reimbursement agreements in additional markets, executing successful launches and expanding access to younger age groups, we are confident that we will be able to reach the vast majority of these patients with our medicines. We are maintaining our non-GAAP OpEx guidance for full year 2021 at $2.25 billion to $2.3 billion. And for our non-GAAP tax rate, we continue to guide to a range of 21% to 22% this year.

In conclusion, 2021 will be another year of rapid growth for Vertex, and we are confident in our continued growth trajectory in CF and our ability to lead in this therapeutic area over the long term. TRIKAFTA is an exception medicine that sets a very high bar for efficacy and safety with IP that extends to the late 2030s. With the emerging profile of our next regimens beyond TRIKAFTA as well progress we are making in genetic therapies for CF, we are well on our way to fulfilling our vision for achieving carrier levels in all CF phases. The VX-121/tezacaftor/VX-561 regimen is the only regimen with clinical data that shows the potential to meet or exceed the performance of TRIKAFTA and is years ahead of any other regimens in development. Our pipeline beyond CF is both advancing and delivering. Progress with CTX001 and more recently, VX-880, continues to demonstrate the value we can create by investing in external innovation.

We look forward to sharing additional data with you as ongoing trials come to completion in the coming months. We anticipate Phase II data for VX-147 in APOL1-mediated FSGS and Phase II data for VX-548 in acute pain in the near term. With growing revenues and margins at the top of our peer group, we will deliver strong cash flows as we continue to reinvest in internal and external innovation to drive future growth. We are confident that the execution of our business strategy will continue to drive exceptional results for patients and the medical community as well as for our shareholders. We will now open up the call to questions.

Questions and Answers

[Operator]

[Operator Instructions] Our first question comes from Salveen Richter with Goldman Sachs. Your line is open.

[Salveen Richter, Analyst at The Goldman Sachs Group]

Good afternoon. Thanks for taking my questions. Two on the pipeline here. With regard to your collaboration with Moderna, I recognize that youre moving forward nicely with the -- with delivering mRNA via LNPs. Could you just talk about where you stand with using mRNA to explore the use of gene editing in lung cells? And then secondly, on the development plan in type one diabetes, maybe you could touch base on the expanded collaboration with Arbor and how that fits into the outlook here.

[Reshma Kewalramani, Chief Executive Officer, President & Director at Vertex Pharmaceuticals]

Yes. Salveen, this is Reshma. Two questions in there. One about the mRNA program with Moderna. And another question, I think, on type one diabetes, but specifically with regard to our collaboration with Arbor and how were thinking about the hypoimmune cell programs. Let me break it up into two parts. And maybe Ill expand a little bit on type one diabetes even beyond the collaboration with Arbor. Lets start with Moderna. We are very excited about the recent breakthrough we made that I shared in my prepared remarks on the mRNA program for the last 10% of patients with CF who simply dont make any CFTR protein, right? And when you step back and think about what do you really need to do to make a breakthrough here, its really about three things. Its about the HBE cells, its about the mRNA construct itself and then for short about delivery. And its this last one, delivery thats been a vexing problem for us in the field as a whole. And thats really the exciting news for today. With regard to the HBE cells, these have been the workhorse for the four medicines that we have brought forward already.

And I say that because they are the only model that translates from the bench to the bed side, right? And its not only qualitatively so, but quantitatively so. And its -- these HBE cells that have also been the workhorse for the program with Moderna. The second is the mRNA construct itself. And a number of years ago, we have struck up a partnership with Moderna, arguably the best company in the space of mRNA. And in all honesty, we have for some time been able to express full-length CFTR mRNA, the protein, and demonstrate its functionality. Weve been able to do all that in vitro and HBE. But over the last several months, what we have now been able to do is demonstrate that we can deliver using nebulized LNPs to the appropriate cells. So that is to say, to bronchial epithelial cells, and weve done this in small animals and large, and we can see that weve delivered them to -- deliver the mRNA construct to the bronchial epithelial cells. No one else has claimed to do this, and certainly, no one else has been able to do this. So thats the big advancement that allows us to go and start our GLP-enabling studies. Those are already underway, and I do expect the IND to go in next year.

On type one diabetes, Salveen, there are the cells themselves. And then there are the mechanisms to cloak the cells, right? In the first program with VX-880, we use simple off-the-shelf pharmacologic immunosuppressive. In the second program, its cells plus device. Those IND studies are already underway IND next year. The third program is using these same cells. And for the cloaking, we use -- our plan to use gene editing, for example, to make hypoimmune cells. Im going to ask Bastiano to comment just a little bit more on the hypoimmune program. Bastiano?

[Bastiano Sanna, Executive Vice President, Chief of Cell & Genetic Therapies and VCGT Site Head at Vertex Pharmaceuticals]

Absolutely. Thanks, Reshma. Thanks, Salveen, for the question. So like Reshma said, the product is actually the cell, the fully differentiated allogeneic beta cells. Aiding cells to cloak them from the immune system is a complex scientific challenge in general, specific to type one diabetes is represent are even more complicated because the call, that type one is an autoimmune disease. So we have to cloak the cells from the general allogeneic response, but also from the autoimmunity. And of course, its fairly obvious that allogeneic rejection is something that has been worked on in the past, I would say, two decades. And of course, knocking out MHC Class one and two is the usual place where most people will go, and were doing that internally. There are other mechanisms we are exploring internally into collaboration to ensure that we take care of both types of immunity, the allogeneic rejection and autoimmunity.

[Salveen Richter, Analyst at The Goldman Sachs Group]

Great. Thank you.

[Operator]

Our next question comes from Michael Yee with Jefferies. Your line is open.

[Michael Yee, Analyst at Jefferies Financial Group]

Hi. Good afternoon. I had two questions. Its been a long day. One is actually the announcement this quarter that you had moved your new CF program into Phase III. And I would like for you to comment about it in the context of how much clear differentiation youre confident it is from TRIKAFTA, but also in the context of the fact that everybody knows theres a competitor with coming -- data coming and how we should interpret that in the context of your data that you put out in the press release and how differentiated they could be. The second question is more a question around the fact that you had commented about M&A earlier this year. In fact, Reshma had commented even about areas like Huntingtons. And I just wanted you to refresh that view in the fact that you havent really commented about that so much like you did earlier this year in the recent prior quarters. Thank you.

[Reshma Kewalramani, Chief Executive Officer, President & Director at Vertex Pharmaceuticals]

Sure. Michael, lets do the CF question first, and then Ill come to capital allocation and M&A. So we have obviously established ourselves as a leader in CF over the last decade plus. And over the recent few years, weve expanded that leadership first with TRIKAFTA that can serve up to 90% of people with CF. And then with the specific program that youre asking about VX-121/561/tez, which preclinically in these HBE cells that are a model that translates from bench to bedside have demonstrated the potential to have even better efficacy than TRIKAFTA and in the clinical program from the Phase II results that we shared earlier in the year, where it looks that 121/561/tez has the ability to provide even more benefit than TRIKAFTA. Now make no mistake about it. TRIKAFTA sets an incredibly high bar. Its an extraordinary medicine with a very high benefit risk profile.

But 121 frankly is the competitor to TRIKAFTA. Its years ahead of anything else in the field. If I just stand back and look at this, Mike, we have the best medicine for CF today in the form of TRIKAFTA. We have the best medicine for CF tomorrow in the form of 121/561/tezacaftor. And as I look long term, when you really think about CF, a chronic disease, children are born with this disease, theyre going to take medicine for a lifetime chronically, youre going to need long-term data, the kind of data that Stuart talked about in his prepared remarks, mortality, lung transplantation, rate of decline. And to be clear, the only company that has the term data and the long-term data is Vertex. With regard to capital allocation, Charlie, Ill ask you to comment on that one.

[Charles F. Wagner, Executive Vice President & Chief Financial Officer at Vertex Pharmaceuticals]

Yes. Thanks, Reshma. And Mike, thanks for the question. Listen, its very clear to us that innovation is the greatest driver of value in this industry. And we have shown that in CF that innovation that leads to transformative medicines for serious disease, create tremendous value both for patients and for shareholders. And we hope to do that in a number of other disease areas that are represented across our broad pipeline. So when it comes to capital allocation, our primary focus is on reinvestment in innovation, both internally and externally. You can see in the numbers, weve never invested more internally than we are today. And you can also see in the pipeline, the benefit of some of the smart external investments that weve made over the last couple of years, I would call out CRISPR and Semma specifically, but there are many others. And so from a capital allocation standpoint, that reinvestment in innovation will continue to be the top priority. Weve not commented specifically on types of deals because were not looking for a certain type of deal. Were looking for tools and technologies and assets that fit and are well aligned with our research strategy. And as we identify those, you can expect that well continue to be disciplined and move quickly when we see an opportunity.

[Michael Yee, Analyst at Jefferies Financial Group]

Thanks, guys.

[Operator]

Our next question comes from Phil Nadeau with Cowen & Company. Your line is open.

[Phil Nadeau, Analyst at Cowen & Company]

Good evening. Thanks for taking questions. Two from us, if thats okay, one commercial, one pipeline. On the commercial, the growth quarter-over-quarter was pretty impressive. Could you give us some sense of where you think you are penetrating the six to 11-year-olds in the U.S. And then those ex U.S. markets that you highlighted like France, Italy and Canada, and whether the type of growth that weve seen could continue into future quarters? And then second, on the pipeline in FSGS, as the data approaches, were just curious to hear your most recent thoughts on what would be proof-of-concept for the molecule and what gives you confidence to go from the non-FSGS population to the broader APOL1-mediated kidney disease population based on this initial data? Thank you.

[Reshma Kewalramani, Chief Executive Officer, President & Director at Vertex Pharmaceuticals]

Good afternoon, Phil. Im going to ask Stuart to comment on the question around CF and how we see growth, and then Ill come back and say a little bit more about the FSGS program. Stuart?

[Stuart A. Arbuckle, Executive Vice President & Chief Operating Officer at Vertex Pharmaceuticals]

Phil, yes, thanks very much for the question. And yes, Im enormously proud of our execution in this third quarter that led to the results that you commented on and led us to increasing our revenue guidance today. Its hard to comment specifically on kind of quarter-on-quarter, what our growth rate is going to be, but Ill give you a sense for where we are in our overall growth trajectory. As you said, we got the approval for the six to 11-year-olds for TRIKAFTA in June, so just prior to this quarter starting. We also secured new reimbursement agreements in important markets like Italy and France and also most recently in Canada, and the launches there are underway. What I can tell you is that the level of enthusiasm for 6- to 11-year-old TRIKAFTA here in the U.S. and overseas for a KAFTRIO is exceptionally high, in line with that, that weve seen in every other market where weve launched TRIKAFTA/KAFTRIO. So those launches are off to a strong start. Obviously, were in the first few months of those launches.

So looking ahead, what do I see? Despite the fact that weve had really successful launches for TRIKAFTA and KAFTRIO, were still actually only treating today about half of all the patients with CF who could benefit from our medicines overall. And specifically for CFTR modulators, theres about 30,000 patients yet to go in terms of patients who could benefit from our medicines. Now you might ask yourself who are those patients? Well, those patients are patients in countries where we have reimbursement, where were early in the launch sequence some of the markets I just described. Theyre in countries where we have regulatory approvals with most of the world now, but where we have yet to secure reimbursement agreements. But -- and theyre in younger age groups, obviously, six to 11-year-olds. Outside the U.S., we dont yet have an approval. And also, were going to be pursuing approvals for TRIKAFTA/KAFTRIO down to even younger age groups as we have done with KALYDECO and ORKAMBI.

So given our track record in securing approvals, getting reimbursement and successfully launching, I have no doubt that were going to get to the vast majority of those 30,000 patients over the coming years. And so I see substantial growth for our CF franchise between now and the middle of the next decade. And then as we announced today, weve also made great progress with our mRNA program, which has the prospect of developing a medicine for the 10% or so of patients who dont respond to CFTR modulators. So I think weve got substantial growth runway yet to go in CF. And Reshma, back to you.

[Reshma Kewalramani, Chief Executive Officer, President & Director at Vertex Pharmaceuticals]

Still on the question of the VX-147 program. Okay. So on that one, I have high confidence in the Phase II proof-of-concept study. And I say that for really three reasons. The first is the human genetics for APOL1-mediated kidney disease is strong. In fact, theyre very strong. People who have kidney disease, who have proteinuria have two APOL1 alleles. They have universally poor outcomes. And the target, therefore, is really exceptionally well validated. The second is our in vitro and in vivo studies. Weve done portfolio of studies in vitro as well as in animal studies, we find good potency, good selectivity and really strong reductions in proteinuria. And the third is that VX-147 is all of the drug-like properties that we seek. As a nephrologist, I find this opportunity really very exciting for the following reason. So in Phase II, were studying 801-mediated FSGS.

That is one kind of APOL1-mediated kidney disease. Its a very aggressive form of renal disease, about 10,000 people who have that. But APOL1-mediated proteinuric, lets say, prime proteinuric kidney disease, I know its a mouthful, theres about 100,000 people who have that. And if the Phase II study is positive in FSGS, what that really tells you is that we have now, for the first time, found a small molecule that interdicts on APOL1 and can potentially be a therapy for the broad FSGS, not only FSGS, but the broad AMKD market, so the full 100,000. And then with regard to what would we consider successful?

Okay. So the Phase II studies in FSGS, right, and the entry criteria is such that its a very severe population. Its APOL1-mediated FSGS with a high burden of proteinuria and we allow stable doses of standard of care therapy. So these patients are already on ACEs, ARBs, immunosuppressives and steroids. So in that kind of patient population with an aggressive disease with high levels of proteinuria already in standard of care, double-digit improvements in proteinuria that would be impressive. Now of course, higher is better, but double-digit improvements in proteinuria, that would not only be important, it would be something that weve not seen before.

[Phil Nadeau, Analyst at Cowen & Company]

Thats perfect. Thanks for taking our questions.

[Operator]

Our next question comes from Brian Abrahams with RBC Capital. Your line is open.

[Brian Abrahams, Analyst at RBC Capital]

Congrats on the quarter and thanks for taking my questions. Id love to learn more about the mRNA program. And I guess Im curious how translatable nonhuman primate lungs are to human CF lungs, especially given the, I guess, the mucus layer. Do you have any sense of what the, I guess, the half-life or the resident time in the lung would be in terms of what type of frequency of administration one might look at or a general range. And might you see any opportunity down the line for this to be usable, perhaps in combination for the other 90% of patients who dont have non-transmutations but with CF. Thanks.

[Reshma Kewalramani, Chief Executive Officer, President & Director at Vertex Pharmaceuticals]

Brian, really important questions on the mRNA program, and theres a few different questions in there. So let me parse it out. Theres a question in there about dose targeting it to the right cells and how translatable the model is. And then theres another question in there about how do we think about the 90%. Okay. So Im going to be circumspect with my comments. The insights are commercially sensitive. But heres what I can tell you. We have been very, very diligent and deliberate about dose and making sure that the mRNA transcript and protein expression are in the right cells. I would say that in drug development in this area, thats the most important part that many others have not gotten right. And thats specifically why I talked about the HBE assays in vitro, and the small and large animal studies and the targeting of the mRNA construct to the relevant cells, which are the bronchial epithelial cells.

And I feel very good about the dose selection, about the schedule of dosing and the targeting to the appropriate cells. Now with regard to the question about down the line, do we think this could be extended to the other 90%. I would actually look at it the other way. CF is a systemic disease. Its not only a lung disease. And so the real value of small molecule correction of the CFTR protein is that you get systemic benefit. So in the setting of the last 10%, what I would contemplate is -- if our -- we are successful with our mRNA program when were in the clinic next year, its combining the mRNA with a small molecule. Were obviously the only ones who could do that. And I think the opportunity to bring benefit to the last 10% is therefore tremendous.

[Brian Abrahams, Analyst at RBC Capital]

Thanks so much, Reshma.

[Operator]

Our next question comes from Robyn Karnauskas with Truist Securities. Your line is open.

[Robyn Karnauskas, Analyst at Truist Securities]

Great. Thanks for taking my questions. So two quick ones. So for patients on TRIKAFTA, you show that great data showing lung stability. In the real world, what percentage of the population would benefit from, you think, the new drugs that youre developing, meaning that their sweat chloride levels are below the normal range and you might be able to put them into that bucket? And second question Ive had is for your device for diabetes. How does the device -- I know youve talked about how getting the cells in, they go to the liver and then blood vessels formed, and thats how they interact with the liver to function. How does the device not only protect the cells from the attacked by the immune system, but also allow them to have the interaction with blood vessels to work and function. So how does it work? So I was just wondering if it might not be able to interact with the blood vessels because its in a device. Thank you.

[Reshma Kewalramani, Chief Executive Officer, President & Director at Vertex Pharmaceuticals]

Yes. Yes. There are two different questions in there, Robyn. One about type one diabetes and the device; and then a separate question about how we think about VX-121/561/tez and maybe Ill expand that to the next, next generation of CFTR modulators. Lets do CF first, and then well -- lets do type one diabetes next. So Robyn, you know this, the TRIKAFTA/KAFTRIO medicine can treat up to 90% of people with CF and it has really extraordinary efficacy. And what we see is that large numbers of patients, as you saw in the clinical trials program get benefit in the double-digit improvements in ppFEV1, significant improvements in sweat chloride in weight and quality of life. Now what we are trying to do and our long-term goal is to get all CF patients to carrier levels of sweat chloride.

And the reason we want to do that is because carriers really manifest almost no disease. And what I can tell you, 121/561/tez in our preclinical experiments in these HBE cells that have this quantitative and quantitative relationship to what we see in the clinic, the 121/tez/561 has the potential to be even better than TRIKAFTA in that dimension. But weve already identified another generating molecules that in our HBE assays, look like theyre going to get us to that ultimate goal of getting all patients with CF, the 90% to carrier levels. With regard to the device program, Ill ask Bastiano to comment, but heres the important thumbnail sketch of the field and what the real breakthrough that we have made.

The problem with device historically has been foreign body reactions or fibrosis. And the second challenge with devices has been vascularization. Both of those challenges are what we tackled with our program and what we do not see with our device. So what we do not see is fibrosis or for body reaction. And what we do see is really excellent vascularization. Bastiano had a comment about the materials and the geometry and the configuration of the device that allows us to have the kind of effect that we have. Bastiano?

[Bastiano Sanna, Executive Vice President, Chief of Cell & Genetic Therapies and VCGT Site Head at Vertex Pharmaceuticals]

Thanks, Reshma. And Robyn, I just want to maybe start with making clear that this is a completely novel device that is made with different materials, different geometry, different configuration from everything else that has been described by others in the field. It was specifically designed to exactly address the causes of failure in the field of encapsulation like Reshma said, which is foreign body response and vascularization. Its called channel array device for that particular reason. Its purportedly designed to really minimize fibrosis and to allow the device to integrate in the body, allow vascular beds to form throughout the device on top and the bottom. So the cells are always optimally distant to a source of oxygen and nutrient, allowing for insulin and glucose, of course, to be exchanged. This is completely different from you think what was in the field, and we have evidence in our preclinical models that we do not see further by the response. We see robust neovascularization. We see rapid insulin responsiveness and immunoprotection even in immunocompetent animals.

[Robyn Karnauskas, Analyst at Truist Securities]

Great. Thank you.

[Operator]

Our next question comes from Liisa Bayko with Evercore ISI. Your line is open.

[Liisa Bayko, Analyst at Evercore ISI]

Hi. Thanks for taking the question. I wanted to ask about CTX001. So when you file at the end of next year, can you talk about sort of how much data and follow-up data youll have on how many patients? And then I also wanted to ask just a commercial question as youre doing a lot of your commercial rep, can you maybe describe like what the -- how many patients per year can be treated in the U.S. in kind of -- given that hospital environment and all that kind of stuff? So how should we think about kind of what -- at time of launch, what that will look like and then how that may evolve over time? Thank you.

[Reshma Kewalramani, Chief Executive Officer, President & Director at Vertex Pharmaceuticals]

Liisa, I think youre asking about how we see commercial launch for CTX001.

[Liisa Bayko, Analyst at Evercore ISI]

Yes, I kind of wanted to know like what the throughput of patients like capacity-wise is. Is there some upper limit on that, that we should think about as we think about the population, its quite a big population in fact. But Im trying to understand what the capacity is in the United States, at least. And how you think that may evolve over time, but from the onset, what that would look like?

[Reshma Kewalramani, Chief Executive Officer, President & Director at Vertex Pharmaceuticals]

Yes. Yes, sure thing. Let me ask Stuart to comment on how we see the CTX001 launch and the launch dynamics, taking into account the question specifically about whether there are capacity constraints and such. And Ill come back and tell you a little bit more about how we see the filing. Stuart?

[Stuart A. Arbuckle, Executive Vice President & Chief Operating Officer at Vertex Pharmaceuticals]

Yes. Thanks, Liisa, for the question. So we start at the highest level with the overall opportunity, and then Ill get to your question about the kind of launch dynamics or our views on them at this kind of early stage. So in terms of people who have severe sickle cell disease and beta thalassemia, between the U.S. and the EU, we think theres about 32,000 we estimate patients who have severe disease in both of those in the combined populations of sickle cell and beta thalassemia. In sickle cell, its about 25,000 and because of the nature of the disease, the vast majority of those are in the United States. And that number is kind of validated by external physician surveys, which would indicate that -- they think they would treat between 25% and 1/3 of all their sickle cell disease patients with a onetime curative approach with the existing conditioning regimens.

So we think thats about the order of magnitude of patients who might be eligible for this initial phase of a gene-editing curative treatment. In terms of launch dynamics, its really going to be a function of probably four things. The first one is sort of physician and patient interest in the technology. And based on the results that weve seen to date and the enthusiasm weve seen in the field, particularly as it translates into interest in our clinical trials, we expect the enthusiasm from the community to be high. At the other end, its going to be a function of our ability to manufacture. And as you can imagine, were working diligently on our manufacturing processes to make sure that we have capacity to treat patients. But the bottleneck is likely to be in treatment centers. And as you know, the treatment is going to be administered in transplant centers. Theres a limited number of those in the U.S., and they also have competing priorities with malignant hematology conditions.

And so that is likely to be the rate-limiting step. Were obviously in the initial throes of evaluating those treatment centers and working with them. Again, we do think that enthusiasm to treat these patients is going to be high given the very significant unmet need in sickle cell disease and thalassemia and the outstanding results weve seen to date. So without commenting specifically because I wouldnt know the exact answer to that at this early stage, Liisa, those are likely to be some of the pinch points as it were in terms of the launch dynamics. What I can tell you, though, is we are expecting demand to be very, very substantial amongst those 32,000 patients given the unmet need and the results weve seen.

[Reshma Kewalramani, Chief Executive Officer, President & Director at Vertex Pharmaceuticals]

Liisa, on the question on where are we with our filing and how are we thinking of the size, the data set size, Ill just step back for one moment to remind that we have had the benefit of having virtually every regulatory designation known both here and in the EU with RMAT and orphan and PRIME. Thats allowed us to have a number of engagements with the agency and to be able to address a number of their questions. Were really at the tail end of those conversations. And the two areas on which were wrapping up our discussions are, one, what is the sample size that is -- that they will require; and two, whats the duration of follow-up? I expect were going to finish those discussions in the next couple of months. And I do expect that the filing will go in towards the tail end of next year

[Liisa Bayko, Analyst at Evercore ISI]

Okay. Thanks.

[Stuart A. Arbuckle, Executive Vice President & Chief Operating Officer at Vertex Pharmaceuticals]

Operator, well take two more questions.

[Operator]

Okay. Our next question comes from Cory Kasimov of JPMorgan. Your line is open.

[Cory Kasimov, Analyst at JPMorgan Chase & Co.]

Thanks. Good afternoon, guys. I wanted to follow up as well on CTX001. And just to piggyback on the filing, I recognize we should get more clarity in the coming months. But can you talk about your comfort level on the regulatory front when it comes to addressing any CMC requirements. We see -- frequently see delays there with regards to cell and gene therapies. And then also, you speak about the 32,000 patients between the U.S. and Europe. I wanted to ask about your comfort level with Europe as we recently saw bluebird back out of that market with LentiGlobin for beta thal based on the fact that they couldnt come to agreements on pricing. So your comfort level that you can get around this. Thank you.

[Reshma Kewalramani, Chief Executive Officer, President & Director at Vertex Pharmaceuticals]

Yes. Cory, let me start with telling you a little bit more about the regulatory process and something a little bit more on manufacturing, which is your specific question. And then Ill ask Stuart to comment on Europe. Obviously, we are -- we have the opportunity not only in Europe but the opportunities certainly including Europe to lead from the front with our CTX001 for both beta thalassemia and sickle cell disease. Okay. So Cory, on the regulatory filings, because of these designations weve had a benefit of multiple conversations with the agency and as I said earlier, been able to address most of their questions, and were really now wrapping up conversations around two clinical points, which is how big is the database and whats the duration of follow-up.

On the manufacturing side, we are using the same processes and actually the same sites as we did for the clinical trials for the commercial product. And in the grand scheme of things, when you think about what we are doing with CTX001, its ex vivo gene editing. And really, its the Cas enzyme and the guide RNA. And in the grand scheme of things, thats just simply an easier manufacturing situation than other manufacturing challenges. So I feel very good about our conversations with the agency. Weve been able to derisk by addressing their questions along the way. And we are using the same processes and the same sites that we used in the clinical trials for the commercial product. Stuart, a couple of comments maybe from you about Europe and CTX001.

[Stuart A. Arbuckle, Executive Vice President & Chief Operating Officer at Vertex Pharmaceuticals]

Yes, Cory, thanks for the question. I feel very confident in the team that we have on the ground in Europe and their ability to secure reimbursement and access for patients who have rare diseases for transformative medicines like this. I think theyve got a demonstrated capability to capture and describe the unmet need in these types of conditions to gather and generate evidence on the both economic and clinical benefits of our medicines to translate those into value propositions, which makes sense to payers and then work creatively with payers to develop bespoke solutions country by country to secure reimbursement and access for our medicines. I think weve demonstrated that very, very successfully in CF, and Im looking forward to us being able to use those same capabilities to get access for patients with sickle cell disease and beta thalassemia in Europe.

[Cory Kasimov, Analyst at JPMorgan Chase & Co.]

Great. Thank you guys.

[Operator]

Our next question comes from Geoff Meacham with Bank of America. Your line is open.

[Olivia Braye, Analyst at Bank of America]

This is Olivia Brayer on for Geoff. Thanks for the questions. Ive got two follow-ups on the next-gen triplet program. First is, can you give us a better sense for when we might start to see those Phase III data and now both those trials are up and running, and whether there could be an opportunity for an earlier look at one or maybe both of those trials as we get into next year. And then I know you guys have talked about moving forward even more next-gen triplets at some point. So are there specific areas where youre maybe more focused on when you think about the optimization or differentiation of those newer assets? And just as a follow-up to that, could there be some potential ways to accelerate development time lines once those agents move into the clinic?

[Reshma Kewalramani, Chief Executive Officer, President & Director at Vertex Pharmaceuticals]

Yes. Good afternoon. With regard to your questions, which really center around the next wave, whether its 121/561/tezacaftor, which is already in the clinic in Phase III clinical trials or the molecules that weve identified in San Diego that are going to be coming into the clinic. How are we thinking about this? How quickly can we go? Whats the overall goal? So to be clear, the goal here is to bring all patients with cystic fibrosis to carrier levels of sweat chloride. That is our long-stated goal and that is what we are aiming for. And I feel really good about where we are with 121/561/tez based on the preclinical results that I shared and the Phase II results that we shared earlier this year. And the next wave of molecules look like they can be even better. So we are well on our path to bringing forward therapies that can bring all CF patients to carrier levels of sweat chloride. With regard to speed and how fast can we go, right? I dont think that anybody can go faster than us in cystic fibrosis for a couple of reasons.

One, weve already demonstrated that we can do this very quickly. In TRIKAFTA, we went from the bench, so first synthesis of the molecule to U.S. approval in less than four years. Outside of oncology, its one of the fastest drug development programs ever. The second reason I say that we do this really fast as we have a lot of experience in this, right? Weve already done it with four medicines on the market, the fifth one being 121/tez/561. And with regard to when should we expect results and such. Remember, the trials for TRIKAFTA, we enrolled in about six months. So thats a benchmark for the last set of clinical trials we did. I expect us to continue to use the -- what we know and our experience to move fast with 121/561/tez and the molecules behind that.

[Olivia Braye, Analyst at Bank of America]

Okay. Great. Thanks very much.

[Michael Partridge, Senior Vice President of Investor Relations at Vertex Pharmaceuticals]

Okay. Thank you all for tuning into the call tonight. If you have additional questions, please reach out to the Investor Relations team. We are in the office tonight and happy to follow up. Have a good evening.

[Operator]

[Operator Closing Remarks]