Insmed Inc (INSM) 2006 Q4 法說會逐字稿

Thank you very much for holding, everyone. Welcome to Insmed's Fourth Quarter and Year-End Financial Review Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Jody Lomenzo for opening remarks and introductions. Please go ahead.

Thank you and good afternoon. I'd like to again thank everyone for participating in today's call. The purpose of this call is two-fold. First, we will present Insmed's financial results for the fourth quarter and full year ended December 31, 2006. Second, we will discuss the Company's outlook following Insmed's settlement with Genentech and Tercica over rights to IPLEX. Before we begin, I would like to remind you that during this call, certain matters that we will discuss today consist of forward-looking statements related to, among other things, our expectations for the results of our clinical trial for IPLEX and the provability for IPLEX for indications beyond severe primary IGF1 deficiency.

We will be discussing possible financing plans, future financial and business performance, operating plans, goals, and objectives of management, and plans concerning 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 risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements.

These risks and uncertainties include among other things the risks that the product candidates may fail in clinical trials or may not be successfully marketed, that we may be unable to successfully enroll our patients in clinical trials, that we may be unable to manufacture a sufficient quantity of the product [inaudible] for our clinical and production needs of our protein manufacturing facility and Insmed [inaudible] or that we fail to prevail in ongoing investigations.

Moreover, the Company may lack financial resources to complete the development of the product candidate and it 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 on a timely basis or received at all. Additional risk factors are noted in our most recent press release announcing our recent results and 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.

We undertake no obligation to update or revise information provided in this call, whether as a result of new information, future events or otherwise. It is now my pleasure to introduce you to today's participants in the call - Dr. Geoffrey Allan, the President and Chief Executive Officer of Insmed, and Kevin Tully, our Chief Financial Officer. I am going to turn the call over to Geoff now. Good afternoon, Geoff.

Thank you, Jody. And good afternoon, everyone. As you have just heard, this conference call will cover two areas. The first is our regular financial report for this time of year, and the second is a discussion as to where we stand now in the execution of our business strategy. The long-term strategy for Insmed remains fundamentally unchanged by the recent IPLEX settlement and we continue to pursue several avenues of exciting drug development.

Our activities include, but are not limited to, the application of IPLEX for the treatment of myotonic muscular dystrophy, known as MMD, along with HARS, HIV Adipose Redistribution Syndrome, and the indication of Retinopathy of Prematurity, or as we refer to it, ROP. Some 40,000 people suffer in the United States with MMD, and about 80,000 are affected by HARS. The patient population for ROP is between 14,000 and 16,000. So these are all substantial markets. In addition, we are now generating revenue on a cost recovery basis, which we expect to reach close to $3 million this year, supplying IPLEX to physicians in Italy treating patients with ALS.

We are also continuing an oncology development program, which is centered on two molecules - on recombinant IGFBP-3 and a molecule that we refer to as INSM-18. Dependent on the results of early clinical studies, we will evaluate opportunities to initiate Phase II clinical trials in breast, colorectal, lung, or prostate cancer. Shortly, I will describe all of these activities in more detail to give you a clear idea of their value.

But first, I will turn this call over to Insmed's Chief Financial Officer, Kevin Tully, who will go over the financial results of the fourth quarter and year-ended December 31, 2006. Kevin?

Thanks, Geoff, and good afternoon, everyone. For the three months ended December 31, 2006, Insmed reported total revenues of 502,000, as compared to 24,000 for the same period of 2005. The net loss for the three months ended December 31, 2006 was 21.4 million, or $0.21 per share, compared to a net loss of 12.9 million, or $0.27 per share for the corresponding period of 2005. The rise in the net loss for the fourth quarter of 2006 as compared to the same period of 2005 was due primarily to increases in commercial operations, litigation expenses, and a one-time asset impairment charge of 7.1 million related to capital equipment expenditures and inventory.

This latter item arose as a result of our exit from the short stature market, as these are assets, which were previously carried on the balance sheet, have been expensed following the curtailment of our revenue stream. For the full year ending December 31, 2006, our total revenues were 1 million, made up of 0.4 million from commercial sales, 0.4 million in cost recovery from our expanded access program, and 0.2 million in royalty. For the same period in 2005, we reported 0.1 million in royalty.

The net loss for the 12 months ended December 31, 2006 was 56.1 million, or $0.59 per share, as compared to 40.9 million, or $0.84 per share for the corresponding period of 2005. The increase in the net loss year-on-year was again primarily due to the rising commercial activities, increased litigation expenses, and the expensing of capital equipment and inventory. In terms of cash, we ended the year with 24.1 million of cash on hand, which fell within the previous guidance we had given. The increase in our cash on hand of 5.3 million from the level of December 31, 2005 was due to 52.5 million in net cash received from financing activities, which was partially offset by a total of 47.2 million used in operating on investing activities.

To summarize the key data for 2006, Insmed reported 0.4 million in commercial product sales, incurred a net loss of 56.1 million, and used 47.2 million of cash to support operations and investing activities. For 2007, with the license and development agreement with Tercica and Genentech in place, although the 0.4 million commercial revenue stream disappears, this will more than--be more than offset by the elimination of litigation expenses under a [indiscernible - accented] 12 million in annualized commercial costs and 10 million in annualized manufacturing costs as a result of our recent restructure.

We also have the potential cost recovery from our expanded access program from ALS in Italy. We believe that in Italy an estimated 1,000 new cases of ALS develop each year. Currently, we have 60 patients who have been identified in the program, and 18 are already receiving IPLEX for which we are being reimbursed. Although there are no guarantees that this reimbursement stream will continue as this is an unapproved drug in an emerging program, we are currently projecting close to 3 million in cost recovery for this program in 2007, based on the current up tick.

We believe the net effect to the cost reduction and expanded access programs will allow us to almost halve our cash needs in 2007 as compared to the previous year. And we expect to require between 25 million and 28 million to fund our operations for the current year. At present, we believe we have sufficient cash on hand to support our operations into the fourth quarter of 2007.

Before I turn the call back over to Geoff, I would like to take a moment to emphasize the positive impact the recently announced settlement with Tercica and Genentech has on our future operations. This agreement basically clears a path to the progression of the science, and provides a straight track to the type of indications we have always targeted for IPLEX - mainly in niche markets with unmet medical needs. The agreement has also allowed us to rationalize our business to tailor the pursuit of these primary markets without the financial and legal drain associated with our preliminary entry into the commercial arena.

In effect, what we've been able to accomplish is a scaled down company capable of reaching our initial target markets via a more fiscally responsible and less risky route. We have an approved product with an ever improving safety profile, an FDA approved manufacturing site capable of supplying our drug product needs for the foreseeable future, and a developmental pipeline which shows great promise.

We do need to raise capital this year, and we will have the going concern language in our 2006 10-K. However, we believe that with the specter of litigation lifted, the emergency of our ALS expanded access program in Italy, and improving prospects for IPLEX in our target markets, we have the capability of leveraging these positives and securing the appropriate financing to support our business moving forward.

With that, I'll turn the call back to Geoff, who will discuss Insmed's outlook in light of the IPLEX settlement.

Thank you, Kevin. I'd like to start with an observation based on the financial results you just said. Hopefully, those numbers will provide some perspective. The sharp drop in our share price after the settlement demands last week is likely due to a perception that Insmed had just lost a substantial stream of current and future revenue.

The point which the market may have overlooked as a result of the restructure announced last week, we believe that any potential loss in revenue over the next few years can be more than made up through cost savings and cost [indiscernible - accented]. Or to put it another way, we feel that we are now clear to go after the markets we have always wanted to pursue as our main strategic targets and we can do it in a way which reduces our overall investment. We no longer will fund the upfront costs and expense of commercial operation and the added costs associated with commercial manufacture and we've eliminated the uncertainty of a potential future injunction and consequently freed ourselves from the burden of litigation costs.

What can investors look forward to now? With the IPLEX litigation out of the way, we are no longer constrained as to the potential development avenues we can pursue. I [mentioned] several avenues - the use of IPLEX for the treatment of HARS, MMD, and ROP. And development work on HARS and MMD is far enough along so that we can offer some idea of when IPLEX would be on the market as a treatment for these conditions, and how much revenue it potentially could produce.

MMD with its U.S. patient population of 40,000, represents a potential market of several hundred million dollars for IPLEX. We believe the market for HARS, which we believe afflicts about 80,000 subjects in this country, is of a similar potential value. In our MMD program, a Phase II clinical study investigating IPLEX's treatment for MMD has been initiated by the University of Rochester School of Medicine with funding provided by the Muscular Dystrophy Association and the National Institute of Health. This Phase II program is designed to investigate the safety and tolerability of a once daily subcutaneous injection of IPLEX in patients with this condition, using two sequential studies, each involving 15 patients.

The first study is a 24-week dose escalation study of IPLEX intended to maximize--intended to identify the maximum tolerated dose for use in the subsequent 24-week fixed dose safety and efficacy study. Both studies will evaluate a number of safety parameters in a prospective manner, as well as several key efficacy measures. We anticipate initial data from these trials will be available in Q2 2007, and we plan to initiate definitive Phase II trials by the end of 2007. We believe we could enter Phase III clinical trials for this indication in early 2009.

HARS, a condition characterized by abnormal fat distribution and abnormal metabolism in HIV infected patients is currently the subject of a Phase II open label clinical study at the University of California, San Francisco. This study is designed to evaluate the safety and efficacy of 12 weeks of IPLEX treatment in 12 subjects with HARS, with the primary goal of determining the effects of IPLEX on visceral fat in glucose [in lipid] metabolism. We expect initial data from this trial to be available in 2007 and the timeline for Phase III trials will be in the 2009 timeframe.

Clinical work is at an early but promising stage in the development of IPLEX to treat ROP. This is a disease that affects premature infants in which the small blood vessels in the back of the eye grow abnormally. The Phase I clinical study investigating IPLEX as a treatment for ROP has been initiated by investigators at the University of Gutenberg in Sweden in collaboration with scientists at the Harvard Medical School in this country. Ten patients have been enrolled sequentially, with each subsequent patient receiving a higher dose of IPLEX.

The objective of the study is to determine the dose of IPLEX required to increase serum IGF1 levels into the normal physiological range. We will have the results of this study later this year, and at that time we will talk more definitively about the prospects of IPLEX in the treatment of this condition and the timeline of future studies.

In oncology, we have two compounds - INSM-1, INSM-18, and our recombinant, IGFBP3, both of which are in early clinical development. We believe these are promising potential novel treatments for a variety of cancer types. Preclinical models show that both treatments interact with the IGF1 system to reduce tumor growth. INSM-18 is an orally available small molecule tyrosine kinase inhibition, which has demonstrated selection inhibition with the IGF1 receptor and human epidermal growth factor receptor. Two single dose Phase I clinical studies and half the volunteers have been previously treated with this direct candidate. In both studies, the drug was safe and well tolerated.

At the University of California, San Francisco, a dose escalating Phase I/II clinical study designed to define the maximum tolerated dose of INSM-18 in patients with relapsed prostate cancer has been completed. The study consisted of a 28-day treatment period at each growth level to investigate the effect of INSM-18 on prostate-specific [androgen] levels, or TSA levels. An analysis with the data collected from the study is currently being conducted. The results from this study will be used to design further Phase II clinical studies.

Finally, there is Insmed's program of treatment for ALS, the neuron degenerative illness also known as Lou Gehrig's Disease. This program is ongoing in Italy. This program was initiated at the request of the Italian Ministry of Health and we have set up an expanded access program to provide IPLEX to physicians so that patients with ALS through an agreement with Cephalon, which hold patent rights in the European Union for IGF1 as it relates to this treatment, we will be able to provide IPLEX to physicians in Italy.

This program has expanded to the treatment of 60 patients who have petitioned the courts for treatment. 18 of these patients are currently receiving the IPLEX treatment. And as Kevin said earlier, we are projecting income of close to $3 million based on the current intake. But this is only a small minority of the ALS patients in Italy where there is an estimated 1,000 new cases of ALS every year. If IPLEX is found to be effective in easing ALS symptoms or prolonging life, we anticipate that it will be made much more widely available in that country.

To this end, we are currently planning to conduct a clinical study in collaboration with the Italian Ministry of Health, which we hope to initiate sometime this year, and this study will address the long-term efficacy potential of IPLEX in this indication.

As a wrap-up, I hope we have provided some useful insight into Insmed's strong development prospects and the real impact of our most current settlement with Genentech and Tercica. Now we would like to take any questions you may have.

Thank you. (Operator Instructions.) Our first question is from the line of Matt Osborne with Lazard. Please proceed with your question.

Thanks. Hi, Geoff. A quick question on myotonic muscular dystrophy. Can you outline kind of the role that IGF1 could play? This seems to be a new indication for this type of therapy. And perhaps, what FDA may be looking for in terms of clinical outcome.

Okay. First of all, good afternoon, Matt. Myotonic muscular dystrophy, as you well know, it's a disease of muscular weakness. And it's been recognized that IGF1 as a pharmacological agent can improve that muscular weakness. This has been demonstrated in various animal models. It's been demonstrated in a previous clinical study where IGF1 was studied for the treatment of myotonic muscular dystrophy. So really, the focus of the activity is around its ability to improve muscular strength. IGF1 also is an insulin sensitizer and it has been demonstrated that in patients with this condition, there is a good deal of insulin resistance that's apparent in the patients who suffer from this condition. So therefore, IGF1 will certainly improve insulin sensitivity in this population, and that may be an indirect way to further improve in muscular strength.

In terms of outcomes, I think the key activity that's going on now in this clinical study is to look at a whole range of different parameters in this patient population. There's a lot of focus on muscular activity, muscular strength. There is also a lot of focus on other symptoms associated with the condition, such as GI symptoms, cognitive function, et cetera. And so, what we hope to achieve as a result of this clinical study is a better understanding of which endpoints we can lay out there as primary efficacy endpoints, the secondary endpoints, and then take that information to the FDA in preparation for more definitive Phase II trials.

Okay, great. So it looks--so would you be looking at muscle tone, muscle strength improvement from baseline in each of these patients at different doses?

At this point in time, we're looking at precisely those types of parameters as a function of dose. Yes.

Okay. And then, on Lou Gehrig's in Italy, is there an opportunity through the settlement to expand IPLEX beyond the collaboration with the Italian government, perhaps in other countries in the--.

--Our agreement right now stands with Italy. We have that relationship with Cephalon for the use of their patents in Italy, and we also have that relationship with Genentech and Tercica. I think, as you know, this is a very novel area for the study of IPLEX and so we're sort of going it one step at a time.

But are you bound just to Italy?

At this point in time, yes.

Okay. And then, Kevin, just a follow-up question. On some of the expense guidance--of what you've provided for 2007. Can you just reiterate for R&D and perhaps the SG&A for 2007? I think you mentioned some level of decline there in expense. Can you reiterate what that was?

Yes. I'll be giving more detail in our quarterly conference call. But for now, just for an overall guidance, I'd just prefer to stick with the 25 to 28 that we have in cash. And our loss will be in the same range, as we're on to an expensing program now rather than recognizing revenue, et cetera. Our P&L and our cash will basically be in the same range. So 25 to 28 would be the range. And I can give more detail on that as we get into the quarterly calls through the year.

25 to 28 for an operating loss?

Yes.

Okay. And just the impairment charge this quarter, I assume that's a one-time non-cash?

Yes, it is. That basically is two items. It's capital which we put in place in 2005 for operating Boulder. Normally, that would be put on the balance sheet and amortized over the life of the lease. As we don't have a revenue stream to match it with, we basically took the hedge and expensed that in 2006. In terms of inventory, which is the other component of that, it's the cost of inventory, which we, again, would normally sit on the balance sheet. And again, since we don't have any revenue, that's basically been written off as R&D. It's still a good product, it's just moved onto as an expense item rather than stay sitting on the balance sheet.

Okay, great. Thank you.

Our next question comes from the line of Andrew Fein with C.E. Unterberg. Please proceed with your question.

Hi. Good afternoon, everyone.

Hi.

I just wanted to ask one question on the HARS program. My impression was that you would get data from the Phase II open label study in the second quarter. Is that still right?

Yes, that's correct Andrew.

Okay. And then, the Phase III program you said is going to start in '09?

That's our best estimate at this point.

Okay. So I would assume you'll do a larger Phase II trial in that interim period?

Yes.

What could that trial look like in terms of number of patients or what you'd be seeking to show to demonstrate clinical significance?

Well, we don't have precise detail on the trial in terms of numbers. But in terms of trial design, it would clearly have to be placebo controlled, randomized, double-blind study. We would be looking at the parameters of visceral adiposity, and primarily the parameters of glucose control, which would be measures of glycemia and measures of insulin sensitivity. It would be potentially studied at maybe two dose levels. Again, that would be determined by the data we get from this open label trial. And if I gave you just a very rough guess, it might involve 40 to 60 patients per arm. So overall, it might involve up to say 150 to 200 patients.

Okay, that's useful.

Okay. Thank you.

And then, just one other question I had relative to--my impression is that for the patients who are on IPLEX therapy--.

--Yes?

They're going to continue receiving--or continue to get IPLEX therapy while they get transitioned over to [INCOLEX]?

Yes.

And those sales are subject to a 40% royalty?

No, no. The idea here is that the transition from IPLEX to INCOLEX, if that is the appropriate transition to make--.

--Okay--.

--Will occur as quickly as possible. So there's no inconvenience to the patient. And it's our intent to ensure that that happens as quickly as possible. And I believe we've--we have indeed communicated with all physicians and I believe we've had a very good reception in terms of transitioning the drug over.

So I guess when would you expect all patients to be transitioned over to--.

--Oh, I think it will take less than a month or so.

Okay. Thank you very much.

Okay. Thank you.

There are no further questions at this time.

Okay.

Thank you, Rob. I think we can just wrap up. I'm going to allow Dr. Allen and Mr. Tully to just once again thank everyone. We will move forward into the new quarter.

Okay. I'll simply echo those words. Thank you very much for listening in this afternoon, and we look forward to speaking with you at the end of the next quarter.

Thank you.

Thank you.

This concludes today's conference. Thank you for your participation.