Insmed Inc (INSM) 2007 Q3 法說會逐字稿

Greetings, and welcome to the Insmed, Inc., third quarter financial results conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

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 afternoon.

I want to thank everyone for participating in today's call. We will shortly be presenting Insmed's financial results for the third quarter and nine months ended September 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 for IPLEX for indications beyond severe primary IGF-1 deficiency.

We will be discussing possible financial plans; future financial 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 subjects to risks and uncertainties that would cause actual results to differ materially from results contemplated by the forward-looking statements. These risks and uncertainties include, among other things, the risk that products candidate may fail in clinical trials or may not successfully be marketed, that we may be unable to successfully enroll our patients in clinical trials, our common stock may be delisted from NASDAQ Global Market, or 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's 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 excluding (sic), but not limited to, form 10-Q and 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 to you today 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 Insmed Therapeutic Proteins.

I'm now going to turn the call over to Geoff. Good afternoon, Geoff.

Thank you, Zachary.

We will start today with a look Insmed's financials for the third quarter ended September 30, 2007. Kevin Tully, our Chief Financial Officer, will go over these results in detail. He will be followed by Steve Glover, the President of Insmed Therapeutic Proteins, who will give you an update on the progress of our follow-on biologics program. And then, finally, I will offer some concluding observations before opening this call to questions. Kevin?

Thank you, Geoff, and good afternoon everyone.

I'm again pleased to report that our results for the third quarter of 2007 continue to reflect a business which is running well, as both revenues and expenses show improvements in the corresponding periods in 2006.

For the three months ended September 30, 2007, Insmed reported total revenues of $1.5 million, a $1.2 million increase from the same period in 2006, as a $1.4 million rise in cost recovery from our Expanded Access Program easily offset an $0.2 million loss in IPLEX sales due to our withdrawal from the short stature market pursuant to the terms of our settlement agreement with Genentech and Tercica.

The net loss for the three months ended September 30, 2007, was $3.9 million, or $0.03 per share, as compared to a net loss of $12.4 million, or $0.12 per share for the corresponding period of 2006. This $8.5 million reduction in our net loss year on year is due to a $7.4 million decline in expenses, combined with a $1.2 million rise in revenues, which was partially offset by an $0.1 million decrease in net interest income.

Total expenses for the third quarter of 2007 were $5.6 million, as compared to $13 million reported for the third quarter of 2006. The $7.4 million reduction in expenses consisted of a $6 million decline in SG&A expenses, an $0.7 million drop in R&D expenses, and the elimination of $0.7 million in cost of goods sold.

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 Q3 2006, and the elimination of cost of goods resulted from the withdrawal of IPLEX from the short stature market.

Interest income for the third quarter of 2007 was $0.4 million, which was $0.1 million below the same period 2006, due to a combination of a lower average cash balance during the third quarter of 2007 and lower interest rates.

For the nine months ended September 30, 2007, revenues totaled $5.4 million, which represents a $4.9 million increase from the first nine months of 2006, driven primarily by a rise of $3.2 million in cost recovery from our Expanded Access Program, the addition of $1.5 million in licensing com--from our agreement with NAPO Pharmaceuticals, and an$0.2 million increase in the commercial sales of IPLEX, which occurred during the first quarter of 2007.

The net loss for the first nine months of 2007 was $16.7 million, as compared to $34.7 million for the corresponding period of 2006. This $18 million narrowing of our net loss was due to the $4.9 million rise in total revenue, which I previously mentioned, combined with an $11 million decline in total expenses, and a $2.1 million fall in net interest expense.

The $11 million decline in total expenses resulted from an $8.5 million reduction in our SG&A expenses, a $2.4 million decline in R&D expenses, and an $0.1 million reduction in cost of goods sold.

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

The reduced R&D expenses, were due to lower litigation costs, which were included in R&D during the first quarter of 2006, while the reduced cost of goods again reflected the withdrawal of IPLEX in the short stature market.

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

In terms of cash, we ended the first nine months of 2007, with $18.9 million of cash on hand, as compared to $24.1 million as of December 31, 2006. The $5.2 million decrease in cash reflected the use of $22 million for operating activities and $0.5 million 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 $0.3 million from a reduced letter of credit.

To summarize, our overall losses for the third quarter of 2007 were almost 70% lower than the same period of 2006, as we increase revenues and reduce costs.

In terms of cash, we have slashed our quarterly burn from almost $12 million per quarter at the start of the year to between $3million and $4 million per quarter at present. And we've accomplished this while making significant strides in our follow-on biologics program and advancing our proprietary protein platform.

As I said, the business is running well, and we are executing on the strategy we laid out earlier in the year within the time line we set, and we have been able to do this in an extremely cost-effective manner. We believe our assets, capabilities, and the prospects which we see as real have not yet been fully appreciated by the market. Our chAllange is to change that by continuing to execute on our plans and demonstrate that we have the will and fortitude to forge success from this unique opportunity.

Finally, I would like to clarify our situation with regards to the compliance with the NASDAQ minimum bid price rule for continued listing on the NASDAQ Global Market. Although we have a deadline of December 17 to come into compliance, we also have the opportunity of an extension to this date through appeal, which we can take advantage of should we need it, to allow more time for the potential of our strategy to be recognized in our stock price. We've experienced this issue before and survived, and we believe we will come through it again.

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

Thanks Kev, and good afternoon everyone.

Next, I would like to provide an update in progress on our follow-on biologics strategy. As you may recall from our last conference call, we identified a three-point strategy. That strategy was where Insmed would identify and start development on a comprehensive portfolio of five follow-on biologics products for the treatment of neutropenia, anemia, and multiple sclerosis.

A second part of that strategy was that Insmed has planned to launch these products in the United States upon patent expiration of a blocking patent for the respective brand products; thus, being the first to market for follow-on biologics. The third part of the strategy was for Insmed to find a strategic partnership to optimize the market penetration of the follow-on biologics products.

Let me first provide some updates and context to the current marketplace. If you look at the context of follow-on biologics, the majority of drugs prescribed in the United States are generics. Biologics clearly are the next major target. Over 90% of generic drug applications are approved by the FDA, while only 8% of NCEs get approved. Follow-on biologics provide the next great step into this evolution of the marketplace.

Based upon our protein development expertise, FDA-approved [CGB] manufacturing facilities, and our regulatory expertise, we think this provides a great entry point for us into the follow-on biologics marketplace. And through our discussions, we have--clearly believe that we will sustain first-mover advantage in the U.S. marketplace.

As we identified on the last conference call, our portfolio consists of Neupogen, Neulasta, Betaseron, Epogen, and Avonox follow-on biologics efforts. This has identified a portfolio, that will expire in the next eight years,of products with annual sales of nearly $9 billion.

From a status perspective, product development is well under way. As we've mentioned in our several conference call, as well as presentations, we have made significant progress in our follow-on biologics targeted at G-CSF, PEG G-CSF, Interferon 1b, [arithapolta] alpha, and Interferon 1a.

Today I would like to announce the completion of our initial development effort on two key follow-on biologics at our facilities in Boulder, Colorado. This initial phase of development of G-CSF, known as Neupogen; and PEG G-CSF, known as Neulasta, represents a significant milestone for Insmed. By achieving these critical development milestones, Insmed has positioned itself to initiate clinical studies in the first half of 2008. I believe that Insmed is at the forefront in the United States for the development of follow-on biologics. Insmed's leadership and utilization of its advanced therapeutic protein capabilities and application of state-of-the-art protein characterization approaches, analytical methodologies of protein manufacturing processes, has demonstrated it has the science capabilities to develop follow-on biologics.

Insmed has significantly invested in expanding its comprehensive competencies to develop, manufacture, and initiate trials of follow-on biologics over the last six months, and applied these critical capabilities in the development of our first two follow-on biologics.

These first two biologics represent more than 250,000 patients in the United States that are estimated to be treated for neutropenia with the G-CSF and PEG G-CSF, which is marketed, as I mentioned, under the brand names of Neupogen and Neulasta in the United States. Annual sales in the United States are estimated at more than $4 billion. Insmed's strategy is to bring these products to market, manufactured at high quality, and bring to the market with savings for patients and payers, therefore expanding access to these critically-needed medicines.

Just some context on some of the background information on the two products. When you look at G-CSF, we have scaled up and completed the initial development of the product. We have achieved 99.5% purity. We have initiated in the last week and a half our pre-clinical toxicology program. We are targeting Phase I in April of '08 and Phase III in the Q3 of '08. Concerning Neulasta, or our version, PEG G-CSF, we have completed site-specific PEGylation. We have achieved 99.7% purity. We look to initiate toxicology in Q1 of '08 and Phase I in Q3 of '08.

From a regulatory perspective, just a brief update. Insmed continues to believe that it is a matter of when, and not if, there will be a regulation pathway created by the FDA for follow-on biologics. In fact, if you look at some of the recent news events and recent meetings, as outlined at GPhA, several key insights from the FDA were revealed. In essence, the FDA is urging Congress to pass a follow-on biologics bill. Two key points that have been communicated by the FDA -- the FDA official urged Congress to pass the biologic legislation and said the agency is scientifically prepared to approve such products.

Secondly, they stated they thought it was very important that we get these very important drugs out to stakeholders and consumers at a much lower price. And lastly, the FDA stated at the conference that it was naïve to think that follow-on biologics would not be a part of the future.

From an external viewpoint, we have spent a lot of time looking at the business model of follow-on biologics. In a recent Bernstein research report, several quotes are noteworthy. From the report, most aspects of the biogeneric law have been agreed upon by Congress and the FDA. The FDA, they stated, has made significant progress in thinking through its regulatory approach to biogenerics, molecule-by-molecule approach clearly in demonstration of bio-similarity.

The commercialization of biogenerics rely more on payer pressure and less on detailing and have a central rule for PBNs but, yet, clearly a brand strategy. And from a market penetration perspective, time to market will be critical. Advantage to early entrants such as Insmed, with penetration rates between 50 and 60% of the innovator.

Next, let me move to partnership progress with our efforts around strategic alliances. We continue to have significant and extensive discussions with potential partners. We also continue to be very encouraged by the substance and tone of the discussions. Their interest level is very high, and they clearly are impressed with our capabilities and exceptional progress we have made with our follow-on biologics product development efforts.

We continue to be optimistic that a partnership may be obtained by the end of the year, but we also recognized that we are not fully in control of the time line due to their pace of decision-making.

In conclusion, I'd like to outline future activities. Insmed expects to follow three follow-on biologics INDs between 2008 and 2009 for our lead candidates. Those INDs will be followed by our plan to file NDAs for those lead candidates between 2009 and 2011. Insmed continues to expect approval of these filings one year prior to the blocking patent expiration, and we continue to believe that we'll be the market at day one in the United States. And as I stated, we continue to be optimistic that a partnership may be obtained by the end of the year.

At this point, I'll turn it back over to Geoff.

Okay. Thank you, Steve, and thank you, Kevin.

Before I summarize, I'd like to give you a brief update on IPLEX. As you know, we have four ongoing clinical programs with IPLEX. Earlier this week, we announced initiation of a clinical study to study the effects of IPLEX in myotonic dystrophy. This will be a randomized, double-blind, placebo-controlled, multi-center study in 60 patients. The objective is to replicate the findings we have observed in an ongoing open label study. The findings from this study will be presented to the FDA to allow initiation of Phase III clinical studies to seek approval for this [indication].

Why are we initiating this trial? Simply because we and our clinical collaborators are excited about the recent data we have observed in the ongoing open-label trial. As you know, 15 patients have been treated for up to six months at the University of Rochester. The University of Rochester is a specialized center of excellence in myotonic dystrophy treatment. In that study, up to 70% of patients treated with IPLEX have demonstrated improved endurance, cognitive function, and improvement in their GI symptoms.

We have gone one step further and specifically assess the effects of IPLEX on endurance. We use a six-minute walk test, which is a well-accepted FDA approval endpoint to establish the effects of IPLEX on endurance. And we have seen positive results to date, and we'll keep you informed as these data become more complete. Difficulty in walking is a major feature of neurological disease and loss of mobility is the activity of daily living on which patients placed the most value.

Let me put this trial data into context with what we know about the disease and the opportunity it represents to Insmed. Myotonic muscular dystrophy is a genetic-based disease characterized by weakness and wasting of muscle tissue, cognitive defects, and GI symptoms. Therefore patients suffer from multiple, debilitating symptoms which severely compromise their quality of life. This disease affects approximately 37,000 individuals in the U.S. There is no cure, and there is no specific treatment that has yet been discovered to reverse or ameliorate the muscle weakness and wasting and, therefore, at present, neurologists can only treat the symptoms rather than the underlying condition.

We have evaluated the market opportunity. We've conducted primary market research and that data demonstrates that 50% of patients, at least, suffer multiple symptoms. Neurologists that we have interviewed have expressed considerable dissatisfaction with available therapies, and they have rated the attractiveness of IPLEX greater than 80%. The key benefits they have cited, with regard to the product profile of IPLEX, is the ability of this drug to treat the multiple symptoms associated with the disease, address the underlying issue of insulin resistance, and improve the muscular performance.

Furthermore, the physician likelihood of prescribing IPLEX was demonstrated to be greater than 90%,and, therefore, based on the physician response, the addressable patient population is somewhere around like 28,000 patients which, obviously, represents a very sizable market opportunity for this drug. Needless to say, we are very excited about the initiation of this next clinical trial.

Moving on, we continue to supply IPLEX through our expanded IPLEX program to patients in Italy with ALS. To date, there have been no reports of any safety issues with the drug, and we continue to hear reports that patients benefit from the drug. But as I have said before, and I must emphasize, it is very important the data collected must be in a robust fashion in a significant number of patients before drawing conclusions as to the activity of the drug. This access program is very much under the control of the Italian government, and it is difficult to provide precise guidance on the progress of the program. We continue to enroll patients, and we continue to use every effort to meet the goal of this program.

Our programs with heart at UCSF and retinopathy of prematurity at the University of Gothenburg in Sweden, also are continuing to enroll patients and generate data.

Now, let me summarize what you have heard today. We continue to execute on our strategic plan in an extremely cost-effective fashion. I believe that's very clear from the numbers that Kevin has presented to you. And as Steve has said, we have two [ethyl B] candidates which have been developed well ahead of schedule and are positioned to enter clinical trials in '08. These products represent approximately $4 billion in current sales and, as Steve says, our partnership efforts are being very well received. With IPLEX, we have ongoing clinical trials in four indications. We are particularly excited about, and have increased our focus, in the myotonic muscular dystrophy indication, which we believe represents the best marketing opportunity for the Company with this product.

As you know, we have limited cash and that requires us to have laser-like focus and ensure prioritization. If we look at the portfolio of activities that we have ongoing in the Company it jumps out to us that the ethyl B program where we have made exceptional progress in the myotonic dystrophy indication, where we have exciting data, is where we need to apply our immediate focus and prioritize our resources. These represent the high-value opportunities for the Company, and it is these opportunities I look forward to updating you on over the next several weeks.

Thank you very much, and we'll address any questions at this time.

Thank you. (OPERATOR INSTRUCTIONS). Our first question is coming from Matt Osborne with Lazard Capital Markets. Please state your question.

Hi, and thanks for taking the question. Actually, this is for Steve. Steve, can you just comment on what a Phase I and Phase III trial would look like in terms of timing and what you're looking for number of patients? And, secondly, what's to prevent current manufacturers of biologics from also producing the same biologics under FOB criteria?

Great question. Let me first start with the clinical trial piece. In general, we're in the final stages of refining those in the time line that we presented before. But in general, we've been following the guidance provided through the EMEA documents. We've looked at the Omnitrope approaches that were used with the FDA, and it's very clear to us and our thinking that these will be very small trials, identified at one indication with an innovator's label, and I think you're looking at a range of 60 to 120 patients with one clinical endpoint. For example, with neutropenia, it's obviously with breast cancer and raising white blood cell counts. We're taking that approach with all the portfolio and then, obviously, that will be finalized at the pre-IND meeting.

The second part of your question, with the other bio companies, I think it's very important to realize that they all have their own programs in place. At least in the discussions I've had, I think it's very unlikely that they would scrap their own programs and their current utilization capacities to pursue these programs. Most of the efforts will come from, obviously, we believe, the specialty generics companies.

Okay. Thank you.

(OPERATOR INSTRUCTIONS).

Okay. Operator?

Gentlemen, it appears there are no further questions. I'd like to turn the floor back over to Management for any closing comments.

Okay, thank you, Claudia.

It's late on a Thursday night, and we'd like to thank you for tuning in this afternoon. I would just like to reiterate, I think we have a very exciting program. Thank you all for listening, and we look forward to continuing to update you on this program. We have a very busy end-of-year schedule, and we would like to continue to update you on that schedule as it progresses. Once again, thank you very much.

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