Insmed Inc (INSM) 2006 Q2 法說會逐字稿

Thank you for standing by and welcome to Insmed's second quarter 2006 conference call. [OPERATOR INSTRUCTIONS] At this time, I would like to turn the conference over to Mr. Tim Ryan for opening remarks and introductions. Mr. Ryan, please go ahead.

Thank you, and good afternoon, ladies and gentlemen. Thank you all for participating in today's 2006 second quarter conference call. Today, after market close, we released our financial results for the second quarter of 2006. Concurrently, we posted these results on our Website at www.insmed.com. In this call, we'll be presenting Insmed's results for the second quarter along with a current view of the Company.

Before we begin, let me remind you that during the call, certain matters that we'll discuss today consist of forward-looking statements relating to, among other things; our expectations concerning the results of our clinical trials for IPLEX, approvability of IPLEX for indications beyond sever primary IGF deficiency, financing plans, future financial and business performance, operating plans, goals and objectives of management and plans to utilize the protein manufacturing facility that we lease in Boulder, Colorado. We also caution that these statements are neither promises nor guarantees but are subject to risk and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements.

In particular, the risks and uncertainties include among other things; the risk that product candidates may fail in clinical trials or may not be successfully marketed. Our ability to successfully enroll patients in our clinical trials, our ability to manufacture sufficient quantities of product candidates for our clinical and commercial production needs of our protein manufacturing facility, Insmed Therapeutic Proteins. The risk that our sales results will meet expectations or that we will fail to prevail in ongoing litigation. The Company may lack the financial resources to complete development of product candidates and may not be able to raise additional financing on commercially reasonable terms. Competing products may be more successful, required regulatory approval may not be received in a timely basis or at all. And those other risk factors contained in our most recent press release announcing our recent results and in our periodic reports filed with the Securities and Exchange Commission including but not limited to our annual report on Form 10-K for the year ended December 31, 2005 and subsequent Form 10-Q's.

We undertake no obligation to update or revise the information provided in this call, whether as a result of new information, future events or otherwise. It is now my pleasure to introduce to you the participants in today's call. Dr. Geoffrey Allan, the President and Chief Executive Officer of Insmed; Ronald Gunn, Chief Operating Officer; Kevin Tully, Chief Financial Officer; Dr. Ken Attie, Chief Medical Officer; and Phillip Young, Chief Business Officer. It is now my pleasure to turn the call over to Dr. Geoffrey Allan for opening remarks. Jeff?

Thank you, Tim. Good afternoon, everybody. And thank you for joining the call this afternoon. Insmed has enjoyed a very productive second quarter as well as first half of 2006. Let me briefly review of some our activities this year before passing over to the management team for a more detailed presentation.

As promised, we launched IPLEX to pediatric endocrine market on May 25. Phil will update you on our progress in a moment. We continued our label expansion studies for IPLEX. And now we have ongoing clinical studies where we are evaluating the value of IPLEX in several disease areas, namely severe insulin resistance, HARS, myotonic muscular dystrophy and we're about to initiate a new clinical study in Noonan Syndrome. Positive data from our severe insulin resistance studies and our pivotal IGFD studies were presented at several scientific congresses this last quarter. And we hope to present top line data from these new studies both later this year and in the first half of 2007.

During the quarter, we also submitted our European marketing application, the EMEA has validated and accepted our application. And we anticipate approval in the first half of 2007. I am happy to say that we are making all of this progress while staying within the financial guidance provided to you earlier this year. Kevin will provide more detail of our financial performance in a moment. With that very brief overview, I will now pass the call over to Phil. Phil?

Thank you, Jeff. Good afternoon and thanks for joining us.

Mr. Young has disconnected. Please hold on for just one moment. [OPERATOR INSTRUCTIONS] Mr. Young, please go ahead.

Hi. Sorry about that. Technology is not my friend today. Anyway, if I can pick up where I left off. As Jeff mentioned, we've completed our transition to a fully integrated biopharmaceutical Company with the successful launch of IPLEX. That included the hiring and training of our commercial team, the sales, managed care and medical affairs, medical communications and marketing. And most importantly, we did launch IPLEX at the end of May.

In addition to our sales efforts, Insmed was a significant presence with commercial activities and data presentations at the important pediatric endocrine conventions. In May, we attended the Pediatric Research Society and Lawson Wilkins Pediatric Endocrine Research Society meetings in San Francisco. As well as the Pediatric Endocrine Nurses Meeting. In June, we were in Boston for the Endocrine Society and in Rotterdam for the European Society of Pediatric Endocrinology. The data presented at the various meetings was well received and keen customer interest in IPLEX was evident by the constant stream of physicians and healthcare providers at the convention booth.

One of our principal goals is to establish and build Insmed as the new force committed to the pediatric endocrine community. We also want to expand the understanding and appropriate treatment of severe short stature due to severe primary IGF deficiency. During this quarter, we've made important strides toward accomplishing these goals.

One of the significant accomplishments was to acquire the sponsorship for one of the most respected and well-read publications in the endocrine field. The publication is "Growth, Genetics and Hormones," or "GG&H" as it is commonly referred to. This 15-year-old periodical, which would have ceased to exist is now available in print and online due to an unrestricted grant from Insmed. Customer feedback has been very positive and supportive of our decision.

The team also is working to develop an industry leading post marketing surveillance program, which will kick off later this year. In just a few months, the managed care team has done an outstanding job since launch. Since launch, we have been able to secure 100% payer approval for all IPLEX prescriptions that have been written. In addition, thanks to great effort, IPLEX is now available on payer plans that account for greater than 90% of all insured lives in the United States. IPLEX is available in state Medicaid as well as public health service programs and was recently added to the federal supply schedule.

Now, to discuss the sales achievements. As we look at these accomplishments, it's important to remember that our sales team has been quite busy and has had a very successful first half of 2006. In less than half a year, we were able to establish a commercial operation, have prescriptions written and IPLEX generated for patients across the United States. On the sales side, our team of professionals, we call area managers, have personally met a minimum of one time with 537 growth hormone prescribing pediatric endocrinologists. During these consultative sales calls, area managers were re-establishing old relationships or introducing themselves to accounts for the first time.

The central message delivered at every meeting is focused on severe IGF deficiency by walking through the ideology and pathology of the disease and then offering the only once a day IGF replacement therapy. The clinicians -- this clinically relevant message is well received. In fact, we've had spontaneous reports from endocrinologists complimenting the clinical knowledge, professionalism and expertise of the area managers. Throughout the country, the response to IPLEX has been generally very positive. Though, as with any new treatment paradigm, there are pockets of physicians that have not yet are convinced of IGF replacement therapy and its important therapeutic options.

These customers are what excite the team and motivate everyone to work harder but the data to date is very positive. 537 one on one physician interviews revealed that physicians have responded to IPLEX's message. From launch, the end of May through the end of the quarter, at the end of June, pediatric endocrinologists wrote IPLEX prescriptions for 28 children. As exciting as the number of prescriptions is and I'll tell you the number has continued to grow since the end of the second quarter, I think you'll agree that it is an excellent effort from a sales team.

But during this one on one call with pediatric endocrinologists, the Insmed sales team has identified over 500 additional patient candidates for IPLEX therapy. It is our anticipation that these patients will come on treatment over the next several quarters. Given the patient accrual trend and opportunity, we're confident we'll have a successful year in 2006 setting the stage for a breakout year in 2007.

I want to point out that once we establish a constant rate of patient accrual and revenue, I'll not continue to update the market on specific patient numbers. The revenue should be sufficient for your values. I'm extremely proud of the accomplishments of the team and in a short period of time, we've had a tremendous impact on the market. And with that, I'll turn it over to Kevin to update you on the financials and apologize for the technical problem. Kevin?

Thanks, Phil. And good afternoon, everyone. My financial review today will follow the same format as prior reviews. Starting with an overview of the latest quarter and half year as compared to the corresponding periods of 2005. I will then provide some details on the results. And finally, I will close with some high level guidance for the balance of 2006. As Phil indicated, the second quarter of 2006 became a new chapter for Insmed with the launch of IPLEX on May 25.

With the transformation from research and development into commercial enterprise with an approved product, our financials will now take on a different form. As we move from the expensing format of an R&D Company into the matching of costs with revenues. From a financial perspective, as we compare current periods with prior periods, this transition will mean that these comparisons will be dissimilar until both current and prior periods reflect the matching concept of a commercial Company.

In looking at the second quarter ended June 30, 2006, our reported revenue were 210,000, as compared with the 28,000 reported for the same period in 2005. The 210,000 revenue figure for the second quarter of 2006 was made up of 172,000 of sales from our named patient program, 8,000 of sales to commercial patients and 30,000 in royalties. The 28,000 of revenue for the second quarter of 2005 reflects only royalties. As receipts from our named patient program for the second quarter of 2005 totaling 27,000 were reported as have been received with no accruals and classed as a reduction in expense, as we were reporting on an R&D basis at the time.

As Phil mentioned, from the launch of IPLEX on May 25 to the end of the second quarter 2006, pediatric endocrinologists wrote IPLEX prescriptions for 28 children. Many of these children received their first month of IPLEX free, as we agree to allow the children to begin their treatments immediately, rather than wait until the drug was approved by their particular payer plan, which normally takes about a month on average. This program will apply to all children entering treatment with IPLEX if their particular plan has not yet been contacted for approval.

Today, I'm pleased to report that 100% of the requests for approval for the various player plans have been granted. The net loss for the latest quarter was 8.9 million or $0.09 per share, as compared to a net loss of 8.5 million or $0.19 per share for the corresponding period of 2005. The 0.4 million increase in the net loss for the second quarter of 2006, as compared to the second quarter of 2005 was due mainly to a 3.5 million increase in selling general and administration expense. Which was partially offset by a combination of a 1.7 million decrease in interest expense, a 1 million reduction in research and development expense and a 0.3 million increase in interest income.

The rise in SG&A expenses for the three months ended June 30, 2006 is mainly due to the hiring of the commercial team and associated marketing expenses for the Company's commercial launch of IPLEX. And the recording of patent litigation expenses in the SG&A category to coincide with the commencements of commercial operations in the second quarter. Prior to the second quarter 2006, these patent litigation expenses were recorded in R&D. The decrease in interest expense was due to a 1.8 million reduction in noncash amortization associated with the convertible debt discount of the 2005 notes, partially offset by a 0.1 million reduction in actual cash interest payments made on the notes.

The decrease in R&D expenses for the three months ended June 30, 2006, as compared to the corresponding period of 2005 was mainly due to the capitalization of inventory and construction in progress of our production facility in Boulder, Colorado. And the recording of the previously mentioned patent litigation expenses in SG&A. The increase in interest income for the quarter resulted from the higher level of cash on hand for investment as a result of our public offering in March 2006.

Before I move on to the half year results comparison, I would like to comment briefly on the cost of goods. In this, our inaugural sales period, and for the balance of this year, there will be some natural fluctuations in this figure driven primarily by the timing and recognition of expenses and costs in this start of affairs of our commercialization.

For example, in the current quarter, much of the product which was sold during the quarter was manufactured in prior periods, when all costs were written off as R&D. Consequently, any product sold this quarter, which was manufactured in a prior period, will not have a cost associated with it, as that cost will have previously been expensed. I anticipate that this and other launch associated issues will have worked their way through the cost of goods figure by the end of 2006 when the figure will begin to be more reflective of our ongoing commercial activities.

Revenues reported for the six months ended June 30, 2006, were 263,000, as compared to 85,000 reported for the same period in 2005. The 263,000 of revenues reported for the half year were made up of the same 180,000 sales figure as reported for the second quarter and 83,000 from royalties. The 85,000 of revenue for the first half of 2005, again reflects only royalties, as receipts from our named patient program for the first half of 2005 totaling 134,000 were recorded at the time as a reduction in expense.

The net loss for the six months ended June 30, 2006, was 22.3 million or $0.25 per share, compared to the net loss of 14.3 million or $0.32 per share reported for the corresponding period in 2005. The 8.1 million increase in the net loss for the first half of 2006, as compared to the first half of 2005, was mainly due to a 6 million increase in SG&A expense, a 1.9 million increase in R&D expense and a 0.9 million rise in interest expense. Partially offset by a 0.6 million increase in interest income.

The rise in SG&A expenses is primarily due to the build-up of our commercial team and associated marketing expenses, as mentioned earlier. Together, with a recording in SG&A of patent litigation expenses, which were higher than corresponding quarters. The higher R&D expenses were mainly due to increased product and process development expenses at our manufacturing facility in Boulder, Colorado, as we added personnel and continued scale up and process improvements in support of our current and future IPLEX production.

These increases were partially offset by the recording of patent expense in SG&A, as mentioned earlier, and the capitalization of inventory and construction in progress. The higher interest expense results from a 1.1 million increase in noncash amortization of the March 2005 convertible debt discounts. Offset by a 0.2 million reduction in actual cash payments of the conversion of the March 2005 notes warrants, which were exercised during the first quarter of 2006. And this resulted in an acceleration of the debt discount and a reduction in interest paid.

The increase in interest income for the half year resulted from a higher level of cash at hand for investment. As of June 30, 2006, the Company had total cash and cash equivalents of 48.4 million, which represents an increase of 29.6 million for the December 31, 2005 figure. This net increase is due to the 52.1 million in net cash provided by financing activities during the first half of the year, which is partially offset by a 19.5 million in net cash used during the half in support of the Company's business operations. and 3 million of construction in progress as we invest to operate our boulder production. The 52.1 million of cash from financing activities was principally generated from a combination of 42.8 million in net proceeds from the sale of common stock in March 2006, 8.8 million from the exercise of certain outstanding warrants and 0.4 million from the reduction in restricted letter of credit and employee option exercises.

Looking forward to the balance of 2006, my guidance on cash again remains unchanged from earlier estimates. I continue to project that the cash required to fund operations in CapEx for the full calendar year 2006 will likely be in the 45 million to 48 million range. At this stage of our commercial launch, I'm refraining from giving any guidance as to revenues and margins for 2006 because I believe it is wise to wait until we've had a trend of actual data representing the truer reflection of current operations, upon which we can base our external revenue and cost of goods forecasts.

My operational and investing cash guidance for the year therefore does not take into account at this stage any cash from sales. Indicating that based on our current operational and investing cash burn, we have sufficient funds to support our business through midyear 2007. The first half 2006 saw Insmed transform from a purely R&D Company into a commercial entity, with an experienced marketing arm to spearhead our plan goal and innovative manufacturing group geared to underpin our credit needs and a resourceful clinical team committed to develop our healthy pipeline.

We head into the second half of the year buoyed by our efforts with added certain determination to continue to execute our plan on all fronts. This completes my overview of the financial picture. I will now turn the call back to Jeff to conclude the review.

Let me thank both Phil and Kevin for their remarks and now I'll pass the call over for questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll take our first question from Matt Osborne with Lazard.

Good afternoon. Thanks for taking the question. And congratulations on the first quarter of commercial product sales. Just had a couple of questions on, first, on how you report revenues. Is it when you ship product from Boulder or upon receipt and reimbursement from third party payers? And then if you can discuss the named patient sales versus non-named patient sales, what that implies in terms of off-label use in other indications so far during the launch?

This is Kevin. I'll just take the first part and I'll ask Phil to comment on the named patient side of things. From a revenue perspective, we recognize that as soon as title passes, which is when the product is shipped from our distributor to the various patients.

Matt, I'll take the next question. Part of the reason, as Kevin mentioned, that we've had to ship free drug to some of the kids is that physicians wanted to start the kids right away. And sometimes as we go through the first shipment to some plans, we don't receive their approval immediately and so we ship at risk. We do go back and bill them for it but we don't always recover. As far as the named patient, this is -- the ongoing and extension of the activity we've been carrying on for the last year plus, with patients around the world basically who --.

I think we may have lost Phil.

Mr. Young, you are still connected.

Phil, are you still there? Sorry. If he's trying to reconnect. Why don't we go on to the next question then we can come back, Matt, and answer that question in more detail when Phil reconnects.

Okay. If I can just follow up with another couple of questions and then I'll jump back in the queue.

Okay.

If you can update us on perhaps discussions with partnerships in Europe or is that too early to assume you would either go alone or partner? And then an update on the refrigerator stable version if that data is about to be submitted to FDA, if it hasn't already?

With respect to partnerships, Matt, I think as you know, it has always been our intent here to maintain discussions with prospective partners but not lose sight of the activity of getting EMEA approval. And as that approval nears which it is, hopefully, we'll continue to talk to potential European partners for that important market. Let me pass briefly on to Ron Gunn, our Chief Operating Officer, to answer the question regarding refrigeration because this work has been conducted in our manufacturing facility in Boulder.

Hi, Matt. Thanks for the question. With regards to the changes in -- and actually the changes in labeling regarding the storage conditions, we anticipate that that will get through the FDA review some time early next year. We'll be able to put that in place.

Thank you.

Let's open up the next questions.

[OPERATOR INSTRUCTIONS]

Well, there don't appear to be any more questions. So, let me just wrap up the call by thanking everyone for listening in this afternoon. I apologize for some of the technical details we've had. And as always, we look forward to speaking with you in the near future. Thank you.

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation and you may disconnect at this time.