Insmed Inc (INSM) 2007 Q2 法說會逐字稿

Greetings, and welcome to the Insmed, Inc. second quarter results conference call. (Operator instructions)

It is now my pleasure to introduce your host, Mr. Zachary Bryant with Investor Relations International. Thank you, Mr. Bryant. You may begin.

Thank you and good morning. I want to thank everyone for participating in today's call. We will shortly be presenting Insmed's financial results for the second quarter ended June 30, 2007, followed by a business update.

Before we begin I would like to remind you that during this call certain matters will be discussed today consisting of forward-looking statements related to, among other things, our expectations for the results of our clinical trials for IPLEX and approvability of IPLEX for indications beyond severe primary IGF-1 deficiency.

We'll be discussing possible financing plans, future financial and business performance, operating plans, goals and objectives of management, and plans confirming the protein manufacturing facility that we lease in Boulder, CO. We also caution that these statements are neither promises, nor guarantees, that 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 risk that product candidates may fail in clinical trials or may not successfully be marketed, that we may be unable to successfully enroll our patients in clinical trials, that we may be unable to manufacture sufficient quantities of product candidates for our clinical and commercial production needs of our protein manufacturing facility and Insmed therapeutic protein, or that we may fail to prevail in ongoing investigations. Moreover, the company may lack financial resources to complete the development of product candidates 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 in a timely basis, or received at all. Additional risk factors are noted 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 quarterly form 10-Q and our annual report on form 10-K for the year ended December 31, 2006.

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 you today to our participants in the call, Dr. Geoffrey Allan, the President and Chief Executive Officer of Insmed; Kevin Tully, Chief Financial Officer, and Steven Glover, the President of follow-on biologics. I'm now going to turn the call over to Geoff. Good morning, Geoff.

Thank you Zachary, and good morning everyone. We will start today by going over Insmed's financial results which were released earlier today for the most recent quarter. Our Chief Financial Officer, Kevin Tully will provide the details on this topic. I will then introduce to you Mr. Steve Glover, our newly appointed President of Insmed Therapeutic Proteins, who will discuss our Follow-On Biologics program. And then I will wrap up by giving you an update of our continuing effort to bring our lead drug, IPLEX, to market as a therapy for HARS, myotonic muscular dystrophy, retinopathy of prematurity, and our continuing efforts to provide drug through our EAP program to patients suffering from ALS in Italy.

First I will pass to Kevin.

Thank you, Geoff, and good morning everyone. I'm pleased to report that our results for the second quarter 2007 represent a much improved picture from previous periods. For the three months ended June 30, 2007, Insmed reported total revenues of $2.3 million, a $2.1 million increase from the same period 2006. This increase resulted from a $1.1 million rise in cost recovery from our Expanded Access Program, and the addition of $1 million licensing income from our January 2007 agreement with NAPO Pharmaceuticals.

The net loss for the three months ended June 30, 2007 was $2.5 million, or $0.02 per share, compared with a net loss of $8.9 million, or $0.09 per share for the corresponding period of 2006. This $6.4 million reduction in our net loss year on year is due to a $4.7 million decline in expenses, combined with the $2.1 million rise in revenues I mentioned earlier, which was partially offset by a $400,000 decrease in net interest income.

Total expenses for the second quarter of 2007 were $4.8 million, as compared to $9.5 million reported for the second quarter of 2006. The $4.7 million reduction in expenses consisted of a $4 million decline in SG&A expenses, and a $700,000 drop in R&D expenses. The SG&A decline was primarily from reduced litigation expenses and the elimination of commercial costs associated with our business restructuring plan. The drop in R&D spending reflected a reduction in our clinical and commercial manufacturing activity, as compared to Q2 2006.

Interest income for the second quarter of 2007 was $200,000, some $400,000 below the same period 2006 due to a lower average cash balance during the second quarter of 2007.

For the six months ending June 30, 2007, revenues totaled $3.9 million, which represents a $3.7 million increase from the first half of 2006, driven primarily by the rise of $1.7 million in cost recovery in our Expanded Access Program, the addition of $1.5 million in licensing comes from our agreement with NAPO Pharmaceuticals, and a $400,000 increase in the commercial sales of IPLEX which occurred during the first quarter of 2007.

The net loss for the first half of 2007 was $12.8 million, as compared to the $22.3 million for the corresponding period of 2006. This $9.5 million narrowing of our net loss were due to the $3.7 million rise in total revenue which I previously mentioned, combined with a $3.6 million decline in total expenses, and a $2.3 million fall in net interest expense.

The $3.6 million decline in total expense resulted from a $2.4 million reduction in our SG&A expenses, and a $1.7 million decline in R&D expenses, which were partially offset by a $500,000 rise in the cost of goods sold.

The drop in SG&A expenses were again the result of lower litigation costs, together with reduced commercial expenses, which were partially offset by severance costs associated with our business restructuring plan in Q1 2007.

The reduced R&D expenses putting them to lower litigation costs which were included in R&D during the first quarter 2006, while increased cost of goods reflected the high commercial sales of IPLEX during the first quarter of 2007.

The fall in net interest expense for the half year were due primarily to the acceleration of the debt discount in the first half of 2006, as certain note holders involved in the March 2005 financing converted their notes into our common shares. During the first half of 2007 there were no conversions and therefore no acceleration of the debt discount took place.

In terms of cash, we ended the first half of 2007 with $22.3 million of cash in hand as compared to $24.1 million as of December 31, 2006. The $1.9 million decrease in cash reflected the use of $18.7 million for operating activities and $500,000 utilized for our investments in NAPO Pharmaceuticals. These were partially offset by net proceeds of $17 million from the offering of our common stock, and $300,000 from a reduced letter of credit.

To summarize, the second quarter of 2007 signaled a marked improvement in our overall financial performance. We were able to progress our Expanded Access Program cost recovery and garner additional licensing income which contributed to an enhanced overall revenue picture. At the same time, we've been successful in taking significant costs out of our business, with the net result being a major narrowing of our net loss.

Looking forward to the balance of the year, we believe we are well positioned to address our proprietary protein platform and advance our Follow-On Biologics initiative. And we expect to end the year with cash on hand of approximately $15 million. The programs are set, the resources are in place, it's now down to execution.

That concludes my financial discussion. I will now turn the call over to Steve.

Thanks Kevin, and good morning everyone. I just want to start off by saying I'm very excited to be here to address our plans and our approach to the follow-on biologics marketplace.

First, let me start with a little bit of my background. I've got 25 years of experience within the biopharmaceutical industry with companies such as SmithklineBeecham, Roche, Amgen, and most recently Andrx. I've had experience with various sales and marketing and corporate development positions, both on the brand and the generic side of the industry.

At Andrx, prior to joining Insmed, I was head of a brand divisions as well head of the branded product development division which leveraged or controlled leased technologies for product life cycle management. Additionally, I worked on follow-on biologics strategies for the last two years, and I'm happy to bring that strategic insight and activities to the Insmed team.

First let me start off by talking about strategic intent around the follow-on biologics program. It's a four point strategy. The first point is to be the first U.S. based biotechnology company to develop a comprehensive portfolio of follow-on biologics. Our second strategic intent point is to introduce competition into previously monopolistic markets, thus expanding access to critical therapies. Our third intent is to establish a strategic partnership to optimize market penetration both in the U.S. and globally. And fourth, and most importantly, is to be there on day one when the U.S. market opens up.

First let me talk about our portfolio and opportunity. Insmed's follow-on biologic portfolio represents an opportunity of $9 to $10 billion in 2006 sales. We're focused on the following products, G-CSF, pegylated G-CSF, interferon data, (inaudible) alpha, as well as HGH. Most importantly, we've got significant activities underway with our lead product, G-CSF. We have completed and finalizing our purification in the process of scaling up that particular product.

Let me switch to the regulatory environment. Last month the Senate Health Education, Labor, and Pensions Committee passed the Biologics Price Competition and Innovation Act of 2007. Although neither the full Senate nor the House Energy and Subcommittee have passed similar legislation, it has been widely speculated as the legislation would be considered in the conference committee (inaudible) difference between the House and Senate bills.

Finally, we have learned that the Congressional Budget Office is drafting a report and scorecard on biogeneric legislation that could be published within the next few weeks. Our continued position is not "if," but "when" we will see the pass of this critical legislation. And that is additionally the critical position of our potential partner. We continue to monitor the situation very closely and are looking forward to the passing of this legislation.

Now let me switch over to the value proposition and capabilities of Insmed Therapeutic Proteins that will allow us to approach this critical marketplace. We have an experienced team with proven ability to develop (inaudible) protein products. Our team collectively has more than 500 years of experience working with industry leaders such as Amgen, Roche, Chiron, [Cedis], J&J, [Louie], and Baxter.

Additionally, our team brings experience of working with over 50 therapeutic proteins throughout their careers. Some of the proteins that I'm going to mention are household names. These are products such as Betaseron, Epogen, Humatrope, Neupogen, Neulasta, IPLEX, Kineret, Roferon-A, and Zenapax. As you see, a who's who in the biotechnology product world.

Our capabilities are very significant. We have the clinical regulatory expertise, the manufacturing expertise, and the analytical expertise gained through our (inaudible) of IPLEX, as well as our experience with other therapeutic proteins. This puts us in the unique position for rapid development and following of follow-on biologics.

What most of you may be aware of is that ITP provides a world class capability today. ITP offers specialized manufacturing capabilities not available elsewhere in the industry, that have replicated with costs upwards of $140 million to build, and three to four years to build and staff and gain FDA approval. The facility has 22,000 square feet of biologics manufacturing and 16,000 square feet of state of the art process and analytical laboratories. It is FDA inspected and approved by CG&P as a protein manufacturing facility. We have the sophisticated capabilities and equipment for both branded and follow-on biologics. And most importantly, we have the footprint to produce the capability and the capacity of the proteins of which I've outlined.

Let me close by saying that the market pointers that we identified as significant investments for the company, we believe we have the capacity and the potential to produce the lion's share of the market as identified today.

In closing, I look forward to providing you with updates as we progress in this very lucrative market. And now I'd like to turn it back over to Geoff.

Okay. Thank you, Steve. Let me round out this call by discussing our activities with IPLEX.

As you may recall, in late April we reported preliminary results from our investigator led Phase II clinical study which demonstrated the effect of IPLEX treatment in HARS patients. At that time we emphasized the importance of the possible effects of IPLEX on insulin sensitivity in these patients. The importance of this property of IPLEX is further reinforced to us last week when we noted that Serostim, a growth hormone product under review at the FDA, was not approved for the treatment of HARS. The agency felt that the potential for an enhanced risk of diabetes and cardiovascular disease caused by the growth hormone in this population outweighed its potential clinical benefits.

We believe this action validates our approach of IPLEX in that in this population the dual property is improving insulin sensitivity while reducing glycerol adiposity will set IPLEX apart from its competitors and provide a potential advantage. Needless to say, we are excited to see our studies at the University of California continue as we keep our plan in place for our Phase II programs to further develop IPLEX in this indication.

In June of this year some very intriguing data was published in the proceedings of the National Academy of Sciences reporting on the effects of IGFBP3, which as you know, is a key component of IPLEX. These studies demonstrated that this protein could potentially prevent the blindness associated with prematurity in the (inaudible). As you know, we have an early Phase I clinical study ongoing to address the safety of IPLEX administration in this population, and we look forward by year end to present to you our plan moving forward with this unique indication.

Our studies with IPLEX are still continuing at the University of Rochester to evaluate its efficacy in treatment of myotonic muscular dystrophy and we will continue to update you with data as it becomes available.

Lastly, let me turn to our activities in Italy with the ALS population. Our plans of IPLEX in the treatment of ALS are simple. We wish to generate data to demonstrate the efficacy of the drug in this chronically debilitating, life-threatening disease. We believe we can enroll a sufficient number of patients through our Expanded Access Program to collect quality data to evaluate whether the IPLEX is effective in the management of this devastating disease. To date the drug has been very well tolerated and we have not had any reports of serious side effects related to the treatment, and therefore we continue to enroll patients.

To wrap up, I would like to conclude with a few observations. Firstly, Kevin has presented the evidence that we can financially manage our business in a very sound way. Second, Steve has presented to you a well thought out business opportunity in the development of the follow-on biologics program which could provide huge returns for Insmed. And third, I have highlighted our activities with IPLEX which continue to demonstrate that this drug has important properties in the management of several unmet medical need conditions.

And with these points I will close today's discussion and open to questions. Thank you.

Thank you. (Operator instructions) Our first question is coming from Philip Coley from Aberdeen Assets. Please state your question.

Gentlemen, good morning. First of all, congratulations on a great job of turnaround. The results are very impressive.

I wanted to just touch base on the biologics market. It's getting a lot of press lately, and what -- basically, if you could expand a little more on this issue, and maybe let us know if you think that the competition among manufacturers in this market is going to be as vigorous as it is -- some of the manufacturers in the generic pharmaceuticals market.

Thank you, Philip, for those comments. Let me pass to Steve Glover, who will perhaps answer that question for you.

It's a very good question, and an analysis that we've done so far is it's a very significant opportunity. I mentioned in the products that I outlined are what we call the near-term products is $9 to $10 billion of near-term sales. As we done our assessment and business plan, as you begin to look at the skill sets and the timing on these patent expirations, there's very few competitors, quite frankly, near-term in the US marketplace that have the complete capacity that we have and the skill sets to produce these proteins, and get them to market at the patent expiration date. We're very confident of our position there.

Excellent. Thank you very much.

Our next question comes from Morgan [Stolz] with UBS. Please state your question.

Good morning, gentlemen. I have a question. Do we see any further revenues in the second half from NAPO, and any idea what might be coming from the EAP program?

Thank you, Morgan. Let me pass that question to Kevin.

Morgan, on the NAPO situation, we don't expect any milestones over the next six months. They are milestone license payments. In terms of the expanded access program, I think I've previously indicated we expect to see revenues around $3 million for that. We're ahead of that, and I would expect that to be somewhere around $3 and $4 million for the full year.

And lastly, I keep reading someplace about an EMP report from Europe that's controversial as far as critical of the plant in (inaudible). What is that above?

I think -- I'm not quite sure what report you're referring to, but we discontinued our application in Europe of IPLEX as a result of our settlement agreement with (inaudible)-Genentech. We discontinued that earlier this year. We notified the (inaudible) of that intent, and I think what you might be referring to is that they issued, I guess, an interim report on the status of the application. And we simply did not address the issues because we had terminated the activity.

Thank you, Doctor.

(operator instructions)

There are no further questions at this time. I'd like to turn the floor over to management for any closing comments.

Okay, well, thank you for listening this morning, and as always, we look forward to presenting our next quarter results to you, and continuing to execute on our business. So have a happy summer and we'll speak to you soon. Bye-bye.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.