Insmed Inc (INSM) 2003 Q1 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Insmed, Incorporated first-quarter earnings conference call. At this time, I would like to inform you that this conference is being recorded and all participants are in a listen-only mode. At the request of the company, we will open the conference for questions and answers following the presentation. I will now turn the conference over to Mr. Baxter Phillips, investor relations. Please go ahead, sir.

Thank you, Jennifer. Again, good morning, ladies and gentlemen, and welcome to today's investor earnings call.

We will shortly be presenting Insmed Incorporated's results for the first quarter of 2003 ending March 31st, along with the current outlook for the company. Before that, I'd like to start out by reading the Safe Harbor statement which is as follows.

This call may contain forward-looking statements with uncertainties that may cause our actual results, performance, achievements, or industry results to be materially different from any projection of future results or achievements expressed or implied by these forward-looking statements, including those outlined in the Securities and Exchange Commission's filings. In an effort to provide useful information to investors, our comments today may also include certain non-GAAP financial measures. For details on these measures, including why we employ them and a reconciliation to comparable GAAP measures, please refer to our earnings release and the Form 8-K that has been furnished to the SEC, both of which are available on our website at www.Insmed.com.

It is now my pleasure to turn the call over to Insmed Incorporated Chairman and CEO, Dr. Geoffrey Allan.

Good morning, everyone. As Baxter has indicated, the purpose of this call is to present our financial results for the first quarter of 2003 and to provide you with an overview of our company and its programs as they move forward.

We'll begin with our principal financial officer, Kevin Tully, who will take you through the financials. I will then get back on the line for a progress report on Insmed's major initiatives and growth strategy. I'll be talking about significant events of the first quarter and the weeks since then, and I'll be bringing you up to date on what we hope to achieve in coming quarters. And then I'll open the call up for your questions.

I will hope that you'll come away with a good sense of how Insmed plans to use its current product development programs to achieve substantial growth in coming years.

So let's proceed with the financial results presented by Kevin, and I'll now pass over to Kevin.

Thank you, Geoff, and good morning, ladies and gentlemen.

It's certainly a pleasure to again join with you this morning on another of our quarterly conference calls, especially when we have positive news, as is the case today.

As usual, I will be leading off with the financials. I will first give you an overview of our results for the first quarter 2003, and compare them with the first quarter 2002. I will then provide some guidance for the current quarter ending June 30th, and the full year 2003.

In the first quarter, ending March 31st, 2003, revenues were 62,000, 40,000 lower than the 102,000 reported for the first quarter of 2002. The net loss for the latest quarter was 2.2 million, or 7 cents per diluted share. This represents an improvement of 3.9 million from the loss of 6.1 million, or 19 cents a share, reported in the first quarter of 2002. It's also an improvement over our prior guidance. Early in April, Insmed had projected a net loss of 2.4 million. We exceeded that target by 200,000, a 8% improvement.

To go into some of the details, the 40,000 drop in revenue was due to the elimination of international license fees for INS 1, our drug candidate that was discontinued in September 2002.

The 3.9 million improvement in our net loss was primarily due to a reduction in R&D costs of 4.1 million, as we gear up for the start of a pivotal Phase 3 trial of our current lead candidate, the IGF-I IGFBP-3 complex in the treatment of growth hormone insensitive syndrome.

In the contrast, during the first quarter 2002, Insmed was involved in four clinical trials for INS 1 which were completed in September of last year. The drop in R&D cost was partially offset in two areas. We saw a 82,000 increase in the general and admin area, as the function took-a larger allocation of shared fixed expenses, and our interest income also was 110,000 lower, due to falling interest rates and less cash invested.

Our bottom line also improved sequentially. The first quarter 2003 net loss was down nearly 88% from the reported loss of 56 cents a share in the fourth quarter of 2002.Even after excluding a one-time charge in the fourth quarter for a goodwill write-off, the improvement, quarter over quarter, was 22%, or 2 cents a share.

For a development stage company such as Insmed, of course, the cash burn rate is a critical measure of health. It directly determines our ability to continue operations, implement our growth strategy, and get our lead drug candidates to market. I'm very pleased to report that in this area, too, we've been exceeding our own expectations. The burn rate in the first quarter of 2003 dropped substantially, both from the equivalent quarter in 2002 and sequentially. In the first quarter 2003, the rate averaged 740,000 per month, down 2.2 million per month, or about 75% from the average for the first quarter of 2002.Sequentially, the average monthly burn was down 540,000, or 42% from the 1.3 million averaged during the final quarter of 2002.

Just to recap the importance of the burn rate, at the current pace of our development program, we foresee our lead candidate gaining FDA approval for marketing in the U.S. sometime in the second half of 2004. Obviously, we need sufficient cash to continue operations, including clinical trials, until the approval comes in and we can start collecting significant revenue. Well, here's the good news. With the cash and cash equivalents at 25.1 million as of March 31st, 2003, we believe we have enough cash to carry us through for at least two more years, even if we do no better than our initial cash burn target of 1 million a month.

If we continue to beat the target, as we did in the quarter just ended, our staying power is even better. Either way, we believe we have enough cash to cover all operating costs through and beyond the likely extent of the FDA approval process.

Before I look ahead to the second quarter of 2003 and the balance of the year, I would just like to remind everyone of what I said in our last two conference calls. Back in October 2002, following our restructure, I mentioned that our average monthly burn rate for 2003 was forecast to be in the region of 1.2 million a month. In February of this year, I noted we could improve on that and revised our estimate, saying it would be closer to 1 million a month. As you can see from our Q1 2003 results, we are 26% ahead of our last projection. Although there will be some fluctuations quarter by quarter through the year, as some large outlays take place such as our annual D and O insurance premium, for example, we are firmly on track to deliver an average monthly burn rate of under 1 million a month for the year.

We recently indicated in our investor profile, which is available on our website, that our cash balance at the end of the second quarter 2003 was expected to be 21.5 million. I believe it will be closer to 22 million. As for the balance of the year, the same investor profile points to a cash balance of between 15 and 16 million at the end of 2003. I now believe we will better that by up to a million. And will end the year within a range of 16 to 17 million. This concludes my summary and now I'll hand back to Geoff, who will talk in more detail about our programs and outlook for the current year and beyond.

Good. Thank you, Kevin.

Clearly from the numbers given to you by Kevin, you can see that we've maintained a strong financial base to achieve our principal initiative, which is to get our lead product, IGF-1 IGF-BP-3 into the marketplace, so therefore, let me review for you the development status for this potential product and what we believe to be the market potential.

First of all, we are still on track to start a pivotal Phase 3 clinical trial before the first half of 2003 ends, and this clinical trial will support a product approval for this drug as a treatment for growth hormone insensitive syndrome. The majority of the work that precedes the initiation of this clinical study has been completed. We have been identified the clinical investigators, we've met with them to discuss the trial in detail. The patient population has been screened, and the subjects that will participate in the trial have been identified. We are now in the process of obtaining final regulatory clearance in the various countries where this trial will be conducted, and as I said a few moments ago, we'll be ready to begin the trial shortly. We have a great medical team in place, and we are working with some of the world's most experienced investigators in this field.

The data from this trial will be used to support the approval of the product, and we remain confident that we can not only compile the data and submit for review in the first half of 2004, but also obtain approval shortly thereafter.

We have several reasons for being confident that we can meet this timetable.

First, we're very confident in the scientific rationale that supports the efficacy of this drug in this population and the grand work that has the groundwork that has been done to get us to this point.

Secondly, we have obtained an orphan designation for the product from the FDA and we are seeking the same designation for it in Europe. Orphan drug status provides tax incentives, study design assistance, and funding for clinical trials, along with seven years of market exclusivity following approval.

Thirdly, our exclusive license to Pharmacia's (ph) corporation's portfolio of regulatory filings for IGF 1 provides us with a road map and a foundation to build upon. Pharmacia had used this material in several European countries to obtain marketing approval of its IGF-1 drug in the treatment of GHIS. With Pharmacia no longer making that drug, we can use these filings to support approval of IGF-1, IGFBP-3.

Finally. We have introduced the product into actual medical use through a special licensed named patient base program in Scandinavia. We're in the process of expanding this program into additional countries throughout Europe. This program makes the drug available to a small number of patients who suffer from this condition who have no other adequate therapies available to them. In addition, it provides the company with data which will be used to further support our regulatory applications while allowing the physician to gain experience with the product.

As you probably know, GHIS is not a common disease. The market for a drug to treat it is rather small, though it is still worth addressing. However, it is important to recognize that this commercial opportunity is near-term, and the approval of the product is key because it will allow the company to expand the label of the product into additional indications. The full market opportunity of this product encompasses several disease conditions where there is clear evidence that IGF deficiency contributes to the cause of the disease. So we see this initial approval for GHIS as opening the door to potentially very large markets.

In the past, I have compared this product to insulin and growth hormone, which both enjoy over a billion dollars in sales throughout the world, and that's why we continue to investigate the use of this product in the treatment of indications such as diabetes, severe burn injury, osteoprodic (ph) hip fracture, and various other medical conditions.

One of the largest potential markets for this product is in the treatment of diabetes. Type 1 childhood onset diabetes affects over 1 million people in the U.S. alone. Type 2 diabetes, which was once considered an adult on-set disease is now increasing common in adolescents and even children, and it is estimated to affect about 40 million Americans. This year, we have generated additional positive results from a dose ranging trial of our product in adolescents with Type 1 diabetes. The study was conducted at the University of Cambridge in England and it demonstrated that administration of IGF-I/IGFBP-3 restored IF 1 levels, increased insulin sensitivity in the dose-dependent manner and these results have been submitted for presentation to the 63rd scientific sessions of the American Diabetes Association which will be held in mid-June in New Orleans.

The market potential of the product will be especially large if the drug is found to be effective and approved for the use in the diabetic population. Three million diabetes patients currently take insulin therapy in the U.S. alone, yet the disease is still widely undiagnosed and is considered to be approaching epidemic levels.

The American Diabetes Association reports that much of our diabetic population is still not achieving the target blood sugar level for a healthy life. Researchers such as the Cambridge study suggested our product could work alongside insulin to give these patients adequate control. If it does, it will have a market with literally millions of customers around the world.

While getting approval for IGF-I/IGFBP-3 is our primary mission for the next two years, we're also continuing to develop another product candidate which we refer to as insulin like growth factor binding protein 3, IGFBP-3, and we're developing this product as a potential treatment for cancer. In January, we announced the results of a study by scientists at McGill University in Montreal and the University of Bristol in the United Kingdom demonstrating that this product caused a significant inhibition of cell proliferation in vitro and a significant inhibition of tumor growth in animals. Some of these research results were presented to the American Association for Cancer Research in April and some will be presented to the American Society of Clinical Oncology at its May 31st-June 3rd meeting and we're in the process of continuing these studies and will prepare ourselves for human studies later in the year.

I think as I've said on earlier occasions, BP-3 represents an ideal partnering opportunity for the company, and will offset the financial burden of running our own clinical trials . There is tremendous interest in finding new approaches to modulate tumor growth. Our approach represents one way where the scientific evidence to support our approach is novel, well-founded, and compelling. Consequently, we have had no difficulties in introducing the concept to other companies. The key to ensuring that we get the right return on our investment with this product is to continue to build an understanding of the value of the product by continuing a good-quality research program while simultaneously gaining access to best in class strategic partners. This is an ongoing activity, and I will keep you informed about progress.

Now, as part of a wrap-up, let me turn to the business plan as it relates to value to you as a shareholder. And I'd like to speak hypothetically about what the market potential for these products might be.

I think I've made it clear that approval in GHIS represents a fast-track to approval because of the major unmet medical need that exists. The immediate commercial value is not huge. We understand very clearly the size of this patient population and full penetration into the market would yield less than $10 million in revenue for the company. That is precisely why you obtain orphan designation, because ordinarily the market size would not justify the development investment.

However, we believe that once approval is obtained, we can expand the indication beyond primary GHIS into other growth disorders and develop a substantially larger market. More importantly, we have demonstrated the efficacy of this product in three major indications. Namely, diabetes, severe Burns and trauma, and osteoprotic hip fracture. Our objective is to continue our development program in these areas and build on our initial approval in GHIS.

We believe the target population across these three indications is substantial, and our calculations demonstrate that if we conservatively estimate a 2% penetration into the market over a five-year period, we will generate revenues in excess of $300 million. If we simply assume a profit margin of 15%, we would have a net income of $50 million. And if the average P/E ratio for biotech firms, which is about 27, Insmed's stock price would be around 28 times its current level.

Now, this is hypothetical, and it may appear simplistic, but I think it reflects the real possibilities for us in large and growing markets. It also represents the potential of our product to help millions of people improve their lives.

Therefore, in summary, I believe I have presented to you a very focused program with a clear, achievable mission. The fruits of our endeavors will be near-term, with events and milestones throughout the next two years. On a personal note, what makes me so excited about Insmed is that the science is very well established and we are simply translating good-quality science into product development. I have spent a considerable number of years in this industry, and having a certain degree of certainty in the science is always a pleasure. Our job now is simply a matter of execution, and I believe we have the skills to do that.

I would now like to turn this call back over to the moderator for your questions, and Kevin and I are both available to answer them.

+++q-and-a.

Thank you, sir. The question-and-answer session will begin at this time. If you're using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press star 1 on your push-button telephone. If you wish to withdraw your question, please press star 2. Your question will be taken in the order it is received. Please stand by for your first question.

Our first question comes from Steve (inaudible).

Hello, gentlemen. My question is: How comfortable are you with some of the assumptions behind your potential penetration rates for the insulin-resistant disorder markets?

Sorry, Steve. The question was how comfortable?

Yes. How comfortable are you with the potential penetration rates for the insulin --

Well, I think as I've identified to you, we've been extremely conservative in that penetration and we've just assumed a 2% penetration. We're very well aware of the nature of this severe insulin resistance market, and the nature of the patients and the need for therapy, and as I said, simply very conservatively estimate the 2% penetration. We get into a very sizable market size.

Okay. So you're comfortable then?

Oh, yes. Very comfortable.

Okay. Great. And I'm excited about things moving forward and I do appreciate the time. Thank you.

Our next question comes from Kevin Mac Kenna (ph) of RBC Dain Rauscher (ph). Please pose your question.

So BP-3 is a cancer agent. When can we actually anticipate human trials starting on that?

Good morning, Kevin. As I said in the presentation, and as I said earlier, BP-3 is currently in pre-clinical development. We have relationships with several academic institutions around the country, and we're continuing to elaborate on the biological profile. We're also simultaneously scaling up for manufacture, and we hope to be in early Phase 1 clinical trials by the back end of this year.

Okay. And does the cash burn for the rest of the year anticipate those trials being started?

Yes.

Yes, it does.

Good. Thank you. And additionally, could you comment on the lead investigators' meeting for GHIS which was held recently?

The comment -- well, comment? Basically, we held an investigators' meeting where we invited all of the key investigators that will participate in the study. As I said during my call, all of these investigators are very well-renowned pediatric endocrinologists in their field and they're very familiar with the treatment of this condition. They've all identified patients for participation, and we spent a very enjoyable, productive day working with the investigators and going through the logistics of the protocol. And it was a very productive meeting, a very exciting meeting, and I think everybody was highly motivated and enthusiastic to return to their respective centers and get prepared for the study.

Thank you. And one last question. On the name patient trials, does the company receive revenues from that?

We have initiated this name patient program. It's operating in Scandinavia and several other countries, and we are looking for cost recovery, reimbursement for the product.

Thank you.

As a reminder, ladies and gentlemen, should you have a question, please press star 1 on your push-button telephone. If you wish to withdraw your question, please press star 2.

Ladies and gentlemen, the question-and-answer session is open at this time. If you're using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press star 1 on your push-button telephone. If you wish to withdraw your question, please press star 2.

It appears there are no further questions, I will now turn the conference back to Mr. Phillips.

Excuse me. Thank you, Jennifer. I'm just going to go ahead and turn the call over back to Dr. Allan.

Okay. Once again, everybody, thanks again for tuning in this morning and as always, if there are any additional questions, you can feel free to call any one of us here at the company to explore the answers, and I look forward to certainly seeing you on the next conference call, and keeping you informed of the various developments we're making in our programs. So once again, thank you very much.

Ladies and gentlemen this concludes the conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.