Insmed Inc (INSM) 2003 Q4 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Insmed Incorporated's 2003 fourth-quarter and year-end conference call. At this time I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company we will open the conference up for questions and answers after the presentation. I will now turn the conference over to Baxter Phillips. Please go ahead, sir.

Thank you, Charlene. Good morning, ladies and gentlemen. Thank you all for participating in today's fourth-quarter and year-end earnings conference call. Joining us today on this conference call from Insmed are Geoffrey Allan, President and CEO, and Kevin Tully, Principal Financial Officer.

Earlier today we released financial results for the fourth quarter and year's end of 2003. Concurrently we posted this release on our website, at www.Insmed.com. We will shortly be presenting Insmed's results for the fourth quarter of 2003 along with current outlook for the company. Before that I would like to start of by reading the Safe Harbor statement, which is as follows.

The 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 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 filings or our earnings release in the form 8-K that has been furnished to the SEC, both of which will be available on our website, at www.Insmed.com.

It is now my pleasure to turn the call over to Insmed Incorporated's Chairman and Chief Executive Officer, Dr. Geoffrey Allan.

Thank you, Baxter. Good morning, everyone, and welcome to our end of quarter conference call. As usual the purpose of this call is twofold. First to present our financial results for the fourth quarter and year-end review for 2003. Second to give you a report on our company's progress toward meeting its long-term strategic goals. Therefore first we will begin with Kevin Tully, our Principal Financial Officer, who will take you through the financials. Over to you, Kevin.

Thank you, Geoff, and good morning, everyone. I will follow the usual format in our quarterly conference calls. I will first give you an overview of our results for the three and twelve month periods ending December 31, 2003, and compared with the corresponding periods of 2002. I will then provide some details on the results; and finally I will close with some brief high-level guidance for 2004.

As for the overview, in the fourth quarter ending December 31, 2003, our reported revenues were $27,000 as compared to the $26,000 reported for the fourth quarter of 2002. The net loss for the latest quarter was $2.5 million or 6 cents per share versus a loss of $18.5 million or 56 cents per share in the same period for 2002.

For the 12 months ending December 31, 2003, reported revenues were $150,000 as compared to $1,955,000 in the corresponding period of 2002. The net loss for the 12 months ending December 31, 2003, was $10.3 million or 29 cents per share as compared to a net loss of 36.4 million or $1.10 per share for the equivalent period in 2002.

Looking into these results in more detail, for the fourth quarter the $16 million reduction in our net loss for the three months ended December 31, 2003, as compared the same period in 2002 were due to lower operating expenses of 16.1 million, offset by a declining interest income of 0.1 million. The 16.1 million improvement in our operating expenses arose mainly from the elimination of a $15.4 million write-off for goodwill in 2002 which was associated with the acquisition of Celtrix Pharmaceuticals in May 2000. These savings were bolstered by lower research and development costs of $0.8 million due to reduced manufacturing development costs, while a $0.1 million increase in general and administration expenses provided a small offset.

In looking at the full 12-month period ended December 31, 2003, and comparing it to the corresponding period in 2002, the $26.1 million reduction in our net loss arose mainly from a $28.2 million decrease in operating expenses which were partially offset by $1.8 million decline in reported revenues and a $0.3 million decline in interest income.

The $28.2 million decrease in operating expenses was primarily due to the avoidance of $17.9 million of charges in 2002 relating to a combination of the goodwill write-off of $15.4 million and the $2.5 million operational restructuring charge to cover the costs associated with the discontinuance of Insmed's INS-1 program in September 2002.

The other key factor which impacted the year-on-year improvements were lower research and development expenses of $10.9 million as the company refocused its clinical trial and manufacturing activity from INS-1 to the pivotal IGF-I/IGFBP-3 Phase III trials in GHIS, Growth Hormone Insensitivity Syndrome area.

These favorable movements were partially offset by a $0.5 million increase in general and administrative expenses as a result of higher external service costs and a $0.1 million non-cash cost of recording shares issued for services in 2003.

The $1.8 million drop in reported revenue as compared to the same period in 2002 was entirely due to the elimination of international license fees for our earlier drug candidate, INS-1. As the INS-1 program was discontinued in September 2002, all of the deferred revenue related to the prepaid license fees for the program were fully recognized in 2002. As for the lower interest income year-on-year of $0.3 million, this was almost entirely due to the impact of declining interest rates.

In terms of cash, the cash used to fund operations for both the current quarter and year to date ended December 31, 2003, declined by 30 percent and 55 percent respectively from the same periods in 2002. We ended the year with $29.5 million of cash on hand.

At the start of 2003, I indicated that our plan for the year was to underpin our research and development program with an operational cash outlay of around $12 million. We actually were able to accomplish this with a 10.8 million operational cash outlay, which represents a 10 percent improvement from our initial targets.

As for the coming year and progressing the IGF-1/IGFBP-3 complex toward (technical difficulty) GHIS, we do anticipate a planned increase in our operational spending in 2004 from the levels seen in 2003, as we continue to scale up our manufacturing capability in support of an NDA approval in the GHIS indication. This enhanced spending pattern is completely in line with our overall goal of submitting an NDA for the GHIS indication by the end of 2004.

In summary, we enter the current year on a solid cash footing. Our programs are on track, and we have a disciplined spending plan in place to support our key initiatives. This concludes my results and our review of the results. I will be available at the end of the call to answer any questions, and now I will hand back to Geoff to continue the business review.

Thank you, Kevin. Let me continue to build on the comments Kevin just made; and specifically I would like to highlight one very important word Kevin mentioned. That was the word disciplined. I believe the cornerstone of our achievements in 2003 has been our discipline to adhere to a clearly stated corporate strategy. This plan included specific scientific and development objectives with our lead drug candidate, SomatoKine, and rigid fiscal responsibility in order to operate in the most cost-efficient manner possible.

I believe throughout 2003 we have adhered to our corporate plan, evidenced by our scientific, clinical, regulatory achievements and our cash conservation through the fiscal responsibility. We believe these activities have been recognized in the marketplace; whereas the NASDAQ biotechnology increase has increased by 65 percent, we have increased by 740 percent for the previous 52-week period.

In September 2002, we had a product failure, namely INS-1. And as anyone in the biotechnology industry will realize, that after a product failure a company is usually left for dead, and it is not a particularly pleasant experience for the management team that is trying to manage the future success of the company. Well, we decided that we were not going to be left for dead, and we put plan in place that we thought that if we adhered to would benefit tremendously the company and the existing shareholders that hung on within the company.

Just to exemplify how well we have stuck to our corporate strategy, I would like to read you an excerpt of an e-mail that was sent to our employees at the end of 2002, after this product failure, that outlined certain tasks with clear initiatives for 2003 that the company believed would lay the groundwork for future success. And the e-mail read as follows.

Dear all, the one activity that I have observed that creates success in this industry is the continued tenacity that a company will show to prove that its products work. Data drives this industry, and sometimes it just takes a lot of painstaking effort; and if you are into instant gratification, this is not the industry to be in. The purpose of this memo is to lay out a calendar of events that can contribute to reshaping the company and build stock appreciation by creating a constant news flow that is meaningful and demonstrates our focused commitment to proving that our products work.

In the long term, getting a drug approved and either establishing a commercial opportunity through either internal efforts or (technical difficulty) a partner is the end game of this industry and will create sustainable value. In the short term we need to demonstrate the achievement of tangible milestones that will be indicative of our focus on the end game. Let me cite what I believe to be a few tangible milestones that can be achieved in the short term and the reasons I believe they can create value.

The first one that was stated was obtain regulatory worldwide approval to allow initiation of a Phase III pivotal clinical trial in the condition Growth Hormone Insensitivity Syndrome with our lead product, SomatoKine. The logic here was that this was very simple; and the fact that if you do not do clinical trials you will not get drugs approved.

The second initiative was to obtain European Orphan designation for this indication. We had already obtained U.S. Orphan designation, and by obtaining European designation would demonstrate that we are protecting our worldwide market.

The third was to meet with the FDA to discuss the protocol, and this would then demonstrate that we were engaging with the FDA and insuring that our end game was both recognized and endorsed.

We then went on to state that if we utilized our Pharmacia license and more recently our Fujisawa license that would pave the way to getting SomatoKine approved and protect its approval in the marketplace as a new and improved IGF therapy. Regardless of the indication that we get this product approved in, joining the ranks of the biotech companies with an approved product should not be overlooked as a value-added opportunity for the company.

A fifth point we made was to initiate a named patient treatment program. This would give us credibility with clinicians and build support for our organization on a global scale. This would be of enormous value in helping us achieve the end game. Additionally, seek reimbursement for the named patient program, demonstrating that we can bring revenue into the company, defray R&D costs, and demonstrate that there is a great demand for the type of therapy that we intend ultimately to bring to the market.

Another point was to submit additional Orphan applications, particularly one for Myotonic Dystrophy, and compile one for a specific diabetes indication. This would again constantly reinforce that the company is creative, forward thinking, and protective of its assets. Apply for Orphan and NIH grants, demonstrating that we are creative, willing to work hard, and find money to promote our clinical development.

And finally release data. All data is important. You should be constantly aware of abstract deadlines so that we can present our data. Scientific presentations represent credibility and endorsement by the scientific community.

So the main message to get across was simply that the company is massively undervalued and there is a tremendous opportunity to contribute to value creation. And if the end game is achieved, that value will be realized.

So that was written in 2002. One year later, we believe we have strictly adhered to these stated initiatives and now Insmed is in a position in the biotechnology universe as one of the few companies close to realizing a commercial opportunity.

So now let me give you a brief summary on where we stand with each of the initiatives outlined in this e-mail of over one year ago. We were indeed able to navigate the regulatory pathways in several countries in order to initiate our Phase III pivotal trial last year. We have met with the FDA on several occasions to discuss and fine-tune our GHIS protocol, so that we at least minimize if not eliminate any surprises when we ultimately file our NDA.

We did obtain Orphan Drug designation at the European authorities for GHIS to complement our Orphan Drug designation here in the U.S. We were successful in establishing our named patient program; and we were able to obtain reimbursement in this program, establishing that there is a great need for this therapy in the marketplace. More importantly to Insmed is the fact that this program is laying the groundwork and anticipation of commercial success by familiarizing the physicians with the drug.

We have received additional Orphan Drug applications in the area of extreme insulin resistance, and in collaboration with the University of Rochester we have obtained NIH funding to pursue studies in Myotonic Dystrophy, an additional Orphan indication without having this important clinical program impact our cash on hand today.

Ultimately I think all of our hard work is represented by the amount and quality of data we presented to scientific conferences last year. As I said earlier, data drives this industry. We have presented 10 scientific studies to eight different peer-attended scientific conferences. This (technical difficulty) tells me that Insmed scientists are progressive thinkers and can take action, and that these activities are being well endorsed by the scientific community. And as an investor this should represent sound scientific credibility.

In 2003 we acted with discipline and fiscal prudence in laying the groundwork for our future success. Our adherence to our stated plan and our scientific achievements represent this and are exemplified by the impressive stock appreciation we have all enjoyed as investors.

For the upcoming year we will continue to diligently complete our Phase III trial in GHIS. As we have stated we intend to file our NDA by the end of this year. I know we are all excited for the results of this trial, however we will not comment on the timing of data other than it will be delivered at an appropriate forum for Insmed.

We intend to initiate additional trials this year in areas where we believe we have a high likelihood of success for any conventional expansion of our market (inaudible) label. These areas include diabetes, extreme insulin resistance, Myotonic Dystrophy. We expect these trials to be initiated in the second half of this year.

On the cancer front, with IGFBP-3 we continue to see promising data coming out of this program, which we will report at various scientific venues throughout the year. Our goal this year is to bring BP-3 into the clinic for cancer. The activities necessary for this goal to be met are currently in the works. I am hopeful that in our Q2 conference call I will be able to discuss this in more detail. I have stated previously we remain consistent in the fact that we intend to partner this drug with a company that has the experience and resources to fully develop this promising cancer treatment.

So this state of the union address, so to speak, for Insmed that I have reported to you I believe is one that as an investor you should be proud of. If we as a company continue to improve on the groundwork that we laid last year, I have no doubt that we will be successful both in terms of our corporate growth and in terms of our market valuation. With that being said, I would like to thank you once again for listening in on this morning's conference call, and I will now open the session to questions and answers.

(OPERATOR INSTRUCTIONS) Navdeep Jaikaria, Rodman & Renshaw.

Congratulations on a great quarter. This is actually Sean Wu; I am filling in for Navdeep. He is tied up somewhere else. You said you haven't collected anymore lacot (ph) data on lakpenda (ph). I think I have to ask the question again. Can you provide an update on how many patients you have enrolled for the Phase III trial? Also do you expect to see (technical difficulty) preliminary results for (indiscernible) trial in the middle of the year?

Sean, as we said, we would prefer not to comment on the day-to-day execution of this trial. It is our plan, as we stated, to file the NDA by the end of this year. That clearly requires us to complete the trial, analyze the data, and compile the NDA. Prior to compiling the NDA, we would like to meet with the FDA and ensure that we have a package that is admissible.

We are simply wanting at this point to be very careful about how we release data so that we don't compromise any interaction that we have with the FDA prior to the NDA submission. So I appreciate that that is not really giving you the answer to the question that you're asking, but I just hope that -- if you can recognize that filing this NDA is very important to us.

Okay, so is it fair to say everything is on track?

I think as both Kevin and myself have said, right now everything is on track.

Very good. Can I ask another question here?

Sure.

Do you have any timeline, like a more specific, for initiating a trial of SomatoKine products, (inaudible) extreme insulin resistance? Because I think this one seems to be very interesting and you seem to have done a lot of work on this area.

Yes, as I said in my notes a few moments ago, we are evaluating various clinical trial protocols, working with various opinion leaders as we speak with respect to design of clinical programs and clinical trials. And severe extreme insulin resistance, Type I/Type II diabetes, Myotonic Dystrophy, other growth disorders, these are all of the trials that we are very keen to initiate; some if not all during the second half of this year to ensure that when SomatoKine is approved that we have really demonstrated the opportunity to maximize the label expansion commercialization of the product.

Great. I'm going to now get back in the queue, and I actually have one more question left, but I will ask it later.

(OPERATOR INSTRUCTIONS) A follow-up from Navdeep Jaikaria.

This is me again, sorry. You said that you have initiated a named patient program. I'm just curious if your revenue of 27 (indiscernible) includes any amount of reimbursement that you received from this program?

No, that doesn't include it. We are at the moment classifying that as a reduction in R&D spending, as it is somewhat small. We will be classifying that as revenues as it increases going forward into 2004.

So right now you just take it as an account to the expense side. So do we expect that it will reflect in revenue anytime soon, or just that you will continue (ph) doing this as a part of R&D expense?

Let me answer that to a certain extent. We did initiate this named patient program; and what this entails is providing the drug on a very limited basis to patients who are very closely supervised by a physician where there is no available therapy for their particular condition. So it is clearly a very marked unmet medical need. And simply because this product has a cost associated with its manufacture we have simply approached the various ministries, local governments, state organizations, whatever in the various different countries where this is going on. And we have simply sought reimbursement.

And, as Kevin said, because this has really just been initiated with a very small number of patients it is really just being laid out as a defrayment of R&D. This year, 2004, that program may expand. We certainly do not wish to over expand it prior to getting the product approved. But as it does expand, we will report the revenue properly (ph).

Excellent, thank you very much. I really appreciate your taking time to answer my questions and I am grateful you provide this opportunity. So I am done with my questions, thank you.

William Murray, (ph) a private investor.

My question relates to financing. With $29.5 million of cash on hand and (technical difficulty) ongoing expenses of Phase III for SomatoKine, how do you intend to finance the cost of the additional four or five trials that are supposed to start in the second half of the year?

I will answer that, William, in the sense that as Kevin has laid the numbers out for you for 2004, that number basically covers the cost of essentially what I have just said we're prepared to do in 2004. Clearly as with all biotechnology companies, there is always a cash need. As we go through 2004 we will always be looking for ways of possibly raising additional capital, whether it is through partnerships, equity offerings, to ensure that we can fulfill the objectives of the plan. I will just remind you that earlier this year we raised somewhere close to $14 million, and that helped us get to this point and beyond.

But at the current time there's no definite plans on raising additional capital or partnering these new Phases?

We always have discussions with respect to partnering. Because as we present our scientific data to various different companies, whether it be at scientific meetings or directly face-to-face with the companies, those discussions, -- yes, we do have those discussions.

As I said with BP-3, our oncology product, we recognize that as a company an oncology indication is both expensive, time-consuming, and requires a lot of resource, so we do actively view this product as a partnering opportunity. And we will initiate and continue to have discussions throughout 2004 with a view of partnering that product. Clearly if that is successful it will bring revenue into the company.

I look forward to the press release on the partnering. Thank you very much.

So do we.

Bob Krimovik, (ph), a private investor.

Good morning. A question similar to the previous caller. You have mentioned data several times. A key data to individual investors and most investors is cash, money, and how the stock is performing. Have or will you consider any offers to sell the company? Part two of that question is have any offers or any discussions arisen as to whether or not that would be something in the company's future?

Well, I think every biotech company and we are not alone entertains all sorts of discussions at all sorts of periods in time. So we are in there with everybody else. Our job right now is to build value, get products approved, and when value is created, we enter (technical difficulty) same conversations.

Let me just go back to part B of my question. Part B was have any offers or have any discussions arisen?

There have been no offers made.

Thank you.

(OPERATOR INSTRUCTIONS) If there are no further questions, I will now turn the conference back to Dr. Allan.

Thank you all for tuning in. Just to reiterate, as I said I think we've had a very successful year in 2003. We have put the company back on the path which we think is a very attractive (technical difficulty) valuable path. And we look forward to speaking with you again very shortly at our next conference call. Thank you.

Ladies and gentlemen if you wish to access a replay for this call you may do so by dialing 1-800-428-6091 or 973-709-2089 with an ID number of 334672. Thus conclude our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.