Insmed Inc (INSM) 2006 Q3 法說會逐字稿

Good day and welcome to the Insmed Third Quarter Financial Results Conference Call. Today's conference is being recorded.

At this time, I'll turn the conference over to your host, Ms. Jody LoMenzo. Please, go ahead, ma'am.

Thank you and good morning. I want to thank everyone for participation in today's third quarter conference call. As we announce our results for the third quarter 2006, we will concurrently post these results on our website at www.insmed.com.

In this call, we'll be presenting Insmed's results for the third quarter, along with a current review of the Company. Before we begin, let me remind you that during the call, certain matters we will discuss today consist of forward-looking statements relating to, among other things, our expectations concerning the results of our clinical trials for IPLEX, approvability for IPLEX for indications beyond severe primary IGF deficiency, financing plans, future, financial and business performance, operating plans, goals and objectives of management and plans concerning the protein manufacturing facility that we leased in Boulder, Colorado.

We also caution that these statements are neither promises nor guarantees, but are subject to risks 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 risks 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 risks that our sales results may not meet expectations or that we failed to prevail on ongoing litigation.

The Company may lack 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 10K for the year ended December 31, 2005, and subsequent Form 10-Q.

We undertake no obligation to update or revise the information provided in this call, whether as the result of new information, future events or otherwise. Before I make the introductions, I would like to state that the patents litigation trials of Genentech and Tercica vs. Insmed will begin in Oakland, California on Monday, November 6, in the Northern District Court of the U.S. Circuit Court. Therefore, we will not be making any comments on this litigation.

It is now my pleasure to introduce you to the participants in today's call: Dr. Geoffrey Allan, the President and Chief Executive Officer at Insmed; Kevin Tully, Chief Financial Officer; and Philip Young, Chief Business Officer. It's now my pleasure to turn the call over to Dr. Geoffrey Allan for opening remarks. Geoff?

Thank you, Jody. Good morning, everybody and thank you for joining the call this afternoon. Insmed has enjoyed a very productive third quarter result as well as year-to-date for 2006. Let me briefly review some of the year's activities before passing over to some of the management here for more detailed presentation.

Since we launched IPLEX to the pediatric endocrine market late in the second quarter, we have been gratified to witness a good physician adoption for the growing number of children on therapy. Still, we'll 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, such as severe insulin resistance, myotonic muscular dystrophy, AIDS [unintelligible] dystrophy and we're about to initiate a new clinical study in children with Newman's Syndrome.

Positive data from our severe insular resistance study and our pivotal IGFD studies were presented at several [unintelligible] of the Congress this last quarter and we hope to present top-line data from these new studies in the first half of 2007.

In the second quarter, we also submitted our European market application. THE EMEA has validated and accepted our application and we anticipate working with this agency to gain approval in 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 and Kevin will provide more detail of our financial performance in a moment.

So with that very brief overview, I will now pass on to Phil to present our business results. Phil?

Thank you, Geoff and good morning, everyone. Thanks for joining us. The third quarter was highlighted by continuing success in the commercial effort of the Insmed team. Through the end of the quarter, we saw more than a four-fold increase in patients using IPLEX. At the end of the third quarter, we had 82 statements medical necessities or SMNs for IPLEX representing approximately 200 prescriptions. The number of patients and prescriptions is continuing to grow through today.

One of the important highlights of the quarter is the success of our dedicated open distribution system which we call PLEXPoint. The average time to reimbursement approval is approximately 27 days with no denials to date. Through PLEXPoint, we're able to receive and rapidly adjudicate prescriptions for IPLEX and since we have decided to have an open system, specialty pharmacies around the country are able to access IPLEX without restrictions, expediting payer approval and product flow to patients.

Also during the quarter, we made strides to improve the storage and shipping guidelines for our current formulations of IPLEX. New data submitted to the FDA that supports extended homes [unintelligible] freezer, refrigerator and at room temperature. This new data will be presented at the meeting of the Third Joint Symposium of the GRS and IGF Society in Kobe, Japan next week.

As discussed previously, we are actively working to develop a second generation product that is stable at room temperature. The development work for this new product is on track and we plan to launch it around mid-year next year.

An onto the investor relations front briefly, we'll be presenting at a couple of upcoming conferences in New York. Next week, we will be at the Rodman & Renshaw Conference and later in the month, we'll be presenting at the Lazard Capital Conference in New York City as well.

So to conclude, the transition of Insmed to a fully integrated biopharmaceutical company is on track and the launch of IPLEX is progressing as planned. With that, I'll turn it over to Kevin for an update on financials. Kevin?

Thanks, Phil and good morning, everyone. My financial review today will follow the same format as prior calls, starting with a look at the latest quarter in year-to-date and comparing them with the corresponding periods for 2005. I will then provide some details on the results and finally, I will close with some high-level guidance.

For the third quarter ended September 30, 2006, our reported revenues were 226,000, as compared with the 22,000 reported for the same period 2005. The revenue figure for the third quarter of 2006 was made up the 126,000 of sales to commercial patients, 76,000 sales from our named-patient program and 24,000 in royalties. The reported revenue for the third quarter of 2005 reflects only royalties, as receipts from our named-patient program at that time were recorded as a reduction in expense as we were reporting on an R&D basis in 2005.

The net loss for the latest quarter was 12.4 million or $0.12 per share, as compared to a net loss of 13.8 million, or $0.29 per share for the corresponding period of 2005. The 1.4 million reduction in the net loss for the third quarter of 2006, as compared to the third quarter of 2005 was due mainly to a 5.9 million decrease in interest expense, a [naught] .3 million in interest income and a [naught] .2 million increase in revenues, offset by a 5 million increase in operating expenses. Addressing the major variances, the decrease in interest expense relates to the March 2005 financing and is due to the fact that there were no [naught] conversions in the current quarter, whereas in the corresponding quarter of 2005, a partial conversion of [naughts] into shares triggered an acceleration of the debt discount amortization.

As for the increase in operating expenses, principally in the SG&A area, this is primarily due to the higher end of the commercial team and associated marketing expenses for the Company's commercial launch of IPLEX and the recording department litigation expenses within SG&A.

Before I move on to the year-to-date results comparison, I would like to comment briefly on the cost of goods. As I mentioned in our last conference call, I do anticipate fluctuations in this figure, as we prospectively commission our second generation process to improve output and implement process improvements to allow the production of a room-temperature, stable, multi-dose product. For example, in the current quarter, the plan downtown to conduct improved process trials placed a limit on our commercial production capacity for the quarter. This lower production absorbed the full site cost and the result [unintelligible] sales for the quarter. I expect these fluctuations will continue during the implementation of our planned process update in Boulder with the variations narrowing as production levels settle.

And now turning to the year-to-date figures, revenues reported for the nine months ended September 30, 2006 were 489,000, as compared to the 107,000 reported for the same period in 2005. The year-to-date revenue includes 134,000 of sales to commercial patients, 248,000 of sales in our named-patient program and 107,000 in royalties. The revenue for the corresponding period of 2005, again, reflects only royalties, as I mentioned earlier.

The net loss for the nine months ending September 30, 2006 was 34.7 million, or $0.37 per share, compared to the net loss of 28 million or $0.61 per share for the reporting--for the corresponding period in 2005. The 6.7 million increase in the net loss for the nine months of 2006, as compared to the same period of 2005, was due mainly to a 13 million rise in operating expenses, partially offset by the combination of a 5 million decrease in interest expense, a [naught] .9 million increase in interest income and a [naught] .4 million increase in revenues.

The rise in operating expenses is primarily due to the build-up of our commercial team and associated marketing expenses as mentioned earlier. Together, with increased legal costs, which were higher than the corresponding period of 2005, due to elevated litigated activity. The decrease in interest expense is, again, associated with the March 2005 financing, as the amortization of the debt discount was accelerated in 2005 due to a partial conversion of the [naughts] into shares.

As of September 30, 2006, the Company had total cash and cash equivalents of 35 million, which represents an increase of 16.2 million from December 31, 2005. This net increase is due to the 52.1 million in net cash provided by financing activities which was partially offset by the 31.4 million in net cash used in support of the Company's business operations and 4.5 million of construction in progress at the Company's Boulder manufacturing facility.

The 52.1 million of cash in financing activities was 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 [naught] .4 million from a reduction in the restrictive letter of credit, together with minor employee option conversions.

Looking forward to the balance of 2006, my guidance on cash continues to be consistent with the projections indicated during our earlier conference calls. I believe that the cash required from the operations and CapEx for the full calendar year 2006 will likely be in the 45 million to 48 million-range. Again, at this early stage of our commercial launch, I'm refraining from giving any guidance as to revenues and margins, as I believe it is prudent to wait until we have a decent trend of actual data before projections in these areas I discussed. Based on our current operational and investing cash [burn], I believe we have sufficient funds to support our business through mid-year 2007.

This completes my review of the financial picture and now, I'll pass the call back over to Jody.

Yes, thank you, Kevin and ladies and gentlemen, we will now accept calls, however, again, I'd like to remind you that we will not discuss our litigation and upcoming trial with Genentech and Tercica.

Operator, would you please start the questions?

Thank you. The Q and A will be conducted electronically. [OPERATOR INSTRUCTIONS] And we'll pause a moment to assemble our queue.

We'll go to Matt Osborne with Lazard.

Hey, guys.

Hey, good morning, Matt.

How are you?

Good morning, Matt.

Quick question on the statement of medical necessity patients. Phil, you mentioned there were 82 enrolled during the third quarter. What is the conversion rate or anticipated conversion rate of those SMNs to prescribing and fully reimburse patients?

Well, they're all patients that we've received--SMN is a prescription for the product, so they all represent discreet patients and as I've mentioned, we've had no denials to date. So they're all going to be paying patients, whether it's immediately or the average is about 27 days till we get approval from the payers.

Okay, so we should consider the SMN same as a prescribing patient?

Yeah. Oh, yeah. That's how we judge them and what happens is, when you get the new patient on, you generate the first one and then a new a prescription comes in whenever the dose is changed or some payers require new prescriptions every two-to-three months.

And of the 200 prescriptions written, some of those, obviously, are dipping into the second month?

Oh, yeah, sure.

Second, third--okay, and have you seen, in the field, any switching from Increlex to IPLEX and perhaps what percent of those patients, 82 now, have been or are considered patients who've switched?

Yeah, I can't comment on that one, right now, Matt.

And can you comment perhaps on reimbursement? It seems that you're getting a higher rate of reimbursable patients versus Increlex. Are there any insights there you may offer?

I can't judge what's going on with anyone but with the managed care team and the processes we have in place and the fact that we have a new product, it takes a little bit of time to work its way through the payer systems and we've, through the PLEXPoint group, we've actually done a pretty good job of [greasing the skids] and getting things going. And it doesn't eliminate giving some kids a jumpstart, as we call it, which is a first shipment free but we're doing everything we can to eliminate that and ratchet the pressure up on the payers to get approval even more rapidly.

Okay, one last question and I'll jump into the queue. The timing for the next data either from severe resistant myotonic muscular dystrophy, AIDS [like] dystrophy, when can we expect to see the next data?

We expect to see it in early '07 for everything you just mentioned.

Okay, for all. Okay, great, thank you.

Uh-huh. Take care.

[OPERATOR INSTRUCTIONS] And that does complete the Q and A. Actually, we'll go back to Matt Osborne for a follow-up.

Hey guys.

Hey.

Kevin, can you comment on the cost of goods? You said the fluctuating levels may be narrowing. Can you not offer a time point when that may be? In the next few quarters or--

Yeah. There's a couple of issues affecting the cost of goods, Matt, and obvisoly, the first one is capacity. As we improve the capacity at Boulder, we need to take some downtime to get the process in, and that'll sort of flex itself out probably over the first quarter 2007. As we go towards room-stable and multi-dose, that'll take us towards mid-year. And as Phil mentioned, utilization program will start to drop off and certainly will eliminate, once you've got a multi-dose vial.

So I'd say certainly over the next two quarters, you're going to see that variation narrow quite a bit.

Okay and can you remind us what the cash balance is, potentially, on hand by the end of 2006? Have you provided guidance there?

With the 45 to 48, I'm looking at a 23 million to 26 million-range for year end, which relates to 3 million to 4 million burned for the last quarter, based on our current projections.

Okay, great. Thank you.

That's 3 million to 4 million per month.

And ladies and gentlemen, that does conclude the question-and-answer session today. At this time, I'd like to turn it back to management for any additional or closing remarks.

Okay, well, thank you, ladies and gentlemen. Let me just wrap up the call by thanking everyone for listening in today. 2006 has been a transformational year for Insmed. At the beginning of the year, we set out very specific goals and we've achieved each one. We assembled a world-class commercial team. We launched IPLEX. We filed an EMEA application for IPLEX. The manufacturing team has made excellent progress and we are on track with the development of our room temperature-stable, multi-dose formulation of IPLEX and I look forward to our next call next quarter and reporting the full-year results for 2006.

With those remarks, I'd like to thank you very much, and good day.

And ladies and gentlemen, that does conclude today's call. Thank you for your participation. You may now disconnect.