Insmed Inc (INSM) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2007 Insmed Incorporated earnings conference call. My name is Lauren and I will be your operator for today. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call Mr. Brian Ritchie with FD.

Thank you, operator. Good morning, everyone. This is Brian Ritchie from FD and welcome to Insmed's fourth quarter full year 2007 conference call. Today, we are joined by Geoff Allan, President and CEO; Steve Glover, President Insmed Therapeutic Proteins; and Kevin Tully, Executive Vice President and CFO. Geoff will provide a business update followed by Kevin's review of the financials. We will then open up the call for questions. The company issued a press release this morning containing fourth quarter and full year 2007 financial results which is posted on the company's website. If you have any questions after the call or would like additional information about Insmed, please contact me at 212-850-5683. Before we proceed with the call, I would like to remind everyone that the Safe Harbor language contained in today's press release also pertains to this conference call and web cast. Please go ahead, Geoff.

Thank you, Brian. Good morning, everyone, and welcome to our fourth quarter conference call. Insmed moves into 2008 with a continuing commitment to a dual cost business strategy focused on appropriately positioning the company in the involvement follow-on biologics industry and developing Insmed's propriety IPLEX therapy in multiple orphan indications. Of course, both of these business segments are supported by our extensive expertise in protein-based drug development. We outlined a number of key accomplishments within both of these areas in our press release this morning. While we continue working hard to ensure that the market recognizes the significant value in our business model, it is important that our shareholders understand that from an operational perspective, we believe that Insmed has never been in such a strong position. What I would like to do today is take you through both segments of our business so you can gain a better understanding of the market dynamics, the political environment, and Insmed's position within each of its areas of focus.

I would like to start by giving you an update on our follow-on biologics program because we believe this will be the primary driver of our long-term growth. The company's FDA approved ITP site in Boulder, Colorado, in combination with its highly-trained staff specialized in protein development, provide the capacity and the intellectual capital to appropriately position Insmed to effectively leverage the opportunities available in the follow-on biologics market. We believe these assets are rare, particularly in the United States, and will provide Insmed with significant competitive advantages. Because of the complexity of the science involved and the capital resources necessary, we believe that that competition will be initially relatively limited and slow to emerge.

In November of 2007, Insmed completed the product characterization and the scale of manufacturing of its first two follow-on biologics product candidates, and we intend to initiate clinical studies in 2008 with these candidates Our first two products in the area of neutropenia represent over $3.5 billion in current sales through the innovative products. As you know, securing a partnership for our follow-on biologics program remains a key objective for the company and we continue to work diligently on this front. The recent emphasis by the White House, by Congress, the FDA, and bio to pass a regulatory bill for FOBs has driven broad discussions within the industry. And recently, a number of leading health care companies have announced the development of initiatives to find the right strategies and approaches for entering this market.

The company is in ongoing discussions with several major generic biotech and pharmaceutical companies in regards to securing a partnership agreement. Our goal is to secure the right partnership that is in the best interest of our follow-on biologics program and our shareholders, and we look forward to updating you on our progress with this program as we move through 2008. While we have been hard at work on the the product and the business development front, a number of developments have surfaced in Washington surrounding a potential approval pathway for follow-on biologics. 2007 began with my testimony at two congressional hearings focused on establishing a regulatory pathway for follow-on biologics in the U.S. As the year progressed and we moved into 2008, the issue now clearly possesses sustained momentum. We were very pleased to see the White House include specific language in its full-year 2009 budget on the need to establish a regulatory pathway, and we were further encouraged by the FDA's support of the establishment of the regulatory pathway.

In order to leverage this momentum and ensure we are positioned at the forefront of this issue, Insmed recently launched a national awareness campaign on the issue of follow-on biologics. This campaign is intended to educate both consumers, policy makers on the potential benefits that a follow-on biologics market could provide. And this ongoing campaign includes or will include an enhanced Insmed website, contain additional FOB resources and updates, and interactive advocacy program utilizing user-generated content and social networking platforms, and stakeholder outreach and events with patients, healthcare providers, employers, and policy groups.

The cornerstone of our initiative, though, has been the release of an Insmed commissioned econometric study by former Under Secretary of Commerce in the Clinton Administration, Dr. Robert J. Shapiro. Dr. Shapiro's report found what Insmed would consider to be both an enormous market potential and a possible cost savings of more than $370 billion over the next two decades as health care transitions further in the direction of protein-based therapeutics. In the near term, according to published reports, an estimated $10 billion worth of biologic drugs are expected to come off patent by 2010 with an additional $10 billion by the year 2015.

Based on the political environment, the substantial market potential and Insmed's unique positioning, it is clear that the follow-on biologics program represents a significant opportunity for the company and we believe will be our primary growth driver in years to come. An important driver for our business is our continued development of IPLEX. 2007 was an important year in terms of moving this product forward in the clinic. Before I discuss a number of the IPLEX-related milestones achieved this past year, I want to address the conclusion of the IPLEX-related litigation with Tercica and Genentech. As many of you know, this litigation was a significant overhang for the company for some time. We were pleased to put this issue behind us and move forward with a clear development plan for IPLEX. With a settlement agreement in place that clearly defines the therapeutic areas we are pursuing, we are now able to focus our IPLEX-related efforts on drug development. Clearly, a more preferable use of management's time.

We were pleased to deliver a number of significant accomplishments in this area during 2007. At the beginning of the year, we were requested by the Italian Ministry of Health to make IPLEX available to physicians in Italy to treat patients with myotrophic lateral sclerosis, ALS, also known as Lou Gehrig's disease. This was conducted through an expanded access program with Insmed receiving payment for drugs from the Italian health authorities. This program currently includes 15 physicians and approximately 70 subjects, and Insmed has received cost recovery of approximately $5.2 million for drug supplies for the full year. Most importantly, IPLEX appears to have been safe and well tolerated in the subject population to date, and no individuals have dropped out of the study for reasons related to IPLEX. We look forward to continuing to work with the Italian health authorities and clinicians to advance this important study, and in conjunction with them, we will proceed with a thorough analysis of the data from the study at an appropriate point in the future.

In addition to the ALS indication, we also made significant progress in the myotonic muscular dystrophy indication for IPLEX during 2007. Insmed announced positive results from the Phase II investigator-sponsored study of IPLEX in six patients with myotonic muscular dystrophy that met the primary study end points of being safe and well tolerated and indicated improvements in patients' muscle mass, cholesterol, and triglycerides. The company expects to release the complete data set from this trial during the second half of 2008. To date, up to 70% of patients that have been treated with IPLEX with this indication have reported improvements in one or more of several symptoms commonly associated with the condition. Third of all, patients undergoing a standardized six-minute walk test which is a well-accepted FDA end point for endurance, have significantly improved their walking distance.

In order to confirm the above results and move this program forward as efficiently as possible, we have initiated a 24-week multi-center randomized double-blind placebo-controlled Phase III enabling trial with IPLEX in 60 patients with myotonic muscular dystrophy, and there are now several clinical centers across the country currently actively recruiting patients for this trial. In December, Insmed was awarded a grant of $2.1 million by the Muscular Dystrophy Association which will cover a substantial portion of the external costs associated with this study. Beyond the monetary considerations associated with this grant, we believe a third party validation like this from such a well-respected organization speaks volumes to the validity of our approach to treating patients with this severely debilitating disease. Also in December, we were granted drug designations for IPLEX by the FDA for the treatment of this condition. This important designation grants Insmed seven years of market exclusivity upon approval for the indication and, in addition, the company is eligible for tax credits relevant to its development costs as well as assistance from the FDA in advancing the drug candidate through the regulatory process.

As you know, IPLEX is in various stages of development for a number of additional niche indications. However, based on our comprehensive analysis of the market opportunity and the competitive landscape in the context of the resources we concurrently allocate to IPLEX, our strategy for this drug in the near term is focused primarily on the myotonic muscular dystrophy indication and the continued treatment of subjects with ALS. It is important to note that our focus in these two areas in no way reflects a wavering of our confidence in the efficacy of treating diseases like HIV, associated adipose redistribution syndrome. To the contrary, we believe IPLEX has potential in a number of additional indications. Assessing our IPLEX development program is an ongoing process, and we will continue to provide the market with the appropriate updates regarding our plans for further monetizing IPLEX.

Before I turn the call over to Kevin, I would like to address a couple of important financial-related matters. As you know, we recently had our shares transferred from the NASDAQ global market to the NASDAQ capital market. While our goal is obviously to soon have our shares traded on the global market again, it is important to note that the difference between the global and capital markets is quite minimal. The NASDAQ capital market, which currently includes over 500 companies, is not related to nor does it operate similarly to the over-the-counter markets including the OTC bulletin board in (inaudible). And NASDAQ capital security satisfies all applicable qualification requirements of NASDAQ securities and all companies listed on the NASDAQ capital market must meet certain financial requirements and adhere to NASDAQ's corporate governance standards.

With this said, as I mentioned earlier, we are hard at work attempting to educate the market on the evolving Insmed story. Follow-on biologics is a new and not yet fully defined industry for investors, so it is important that we effectively communicate the market potential and Insmed's unique position in this area. And we are using a number of Investor Relation and public relations initiatives to accomplish this. It is important to note that at this time we do not intend to execute a reverse split. However, market conditions may dictate that we consider this alternative.

Finally, as my just-completed commentary clearly indicates, we have a number of exciting drug development programs ongoing with our product candidates. We have a clear plan of action for these activities and we will focus on execution in 2008. Of course, given the vagaries of the drug development process, we will consider raising capital in 2008 to fund our various clinical projects. As always, there are several vehicles that could be available to raise any funds required, including strategic partners, debt or equity. I would now like to pass the call off to Kevin for his review of the financials. Please go ahead, Kevin.

Thank you, Geoff, and good morning, everyone. Our fourth quarter financial performance as well as that for the full year 2007 was reflective of a lean and focused organization. Importantly, we made significant progress in reducing our expenses and entered 2008 in a strong financial position. Before I review the full-year financials, I will start with the fourth quarter.

For the three months ended December 31, 2007, Insmed reported total revenues of 2.1 million. A 1.6 million increase from the same period in 2006. That's a 1.9 million rise in cost recovery from our expanded access program, easily offset a 1.3 million loss in IPLEX sales due to our withdrawal from the short stature market. The net loss for the three months ended December 31, 2007, was 3.3 million, or $0.03 per share, as compared to a net loss of 21.4 million, or $0.21 per share, for the corresponding period of 2006. This 18.1 million reduction in our net loss year on year is due to an 8.5 million decline in expenses, the elimination of both 7.1 million impairment charge and 9.8 million in cost of goods combined with a 1.6 million rise in revenues and a (inaudible).1 million increase in net interest income. Total expenses for the fourth quarter 2007 were a 5.5 million as compared to 21.9 million reported for the fourth quarter of 2006. The 16.4 million reduction in expenses consisted of an a 8.8 million decline in SG&A expense and the elimination of over 7.1 million asset impairment charge and (inaudible).8 million in cost of goods sold which was partially offset by a (inaudible).3 million rise in R&D activity.

The SG&A decline was primarily from reduced litigation expenses together with the elimination of commercial expenses associated with our business restructuring plan. The assets impairment charge resulted from the expensing of certain capital equipment and inventory in 2006 and the elimination of the cost of goods sold, resulting from our withdrawal of IPLEX from the short stature market while higher R&D spend reflected an increase in clinical trial activity. Interesting for the fourth quarter of 2007, is 0.3 million below the same period of 2006, due to a combination of a lower average cash balance during the fourth quarter and lower interest rates. Interest expense for the fourth quarter was also 0.3 million lower than the corresponding period of 2006 due to a reduced debt discount amortization charge followed by a smaller conversion of inter common stock in the last quarter.

For the 12 months ended December 31, 2007, revenues totaled 7.5 million, which represents a 6.5 million increase from the full-year 2006 driven primarily by a rise of 4.8 million in cost recovery from our expanded access program, the addition of 1.6 million in licensing income from our agreement with NAPO Pharmaceuticals, and a 0.2 million increase in the sales of IPLEX which occurred during the first quarter of 2007. The net loss for the full-year 2007 was 20 million as compared to 56.1 million for the corresponding period of 2006. This 36.2 million narrowing of our loss was due to the 6.5 million loss of total revenue, which I previously mentioned, combined with a 27.4 million decline in total expenses and a 2.2 million fall in net interest expense. The 27.4 million decline in total expenses resulted from a 17.2 million reduction in our SG&A expenses, a 2.2 million decline in R&D expenses, the elimination of a 7.1 million asset impairment charge resulting from the expensing of certain capital equipments and inventory, and a 0.9 million reduction in cost of goods sold.

The drop in SG&A expenses were the result of reduced commercial expenses together with the elimination of litigation costs which were included in the 2006 SG&A expenses for the final three quarters of the year. The reduced R&D expenses were also due to the impact of lower SG&A costs as these were included in R&D during the first quarter of 2006, while the assets impairment reflected the expensing of certain assets and the reduced cost of goods reflecting the withdrawal of IPLEX in the short stature market. Net interest expense for the full year 2007 was 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 triggering an acceleration of the debt discount associated with these notes. In terms of cash, we ended 2007 with 16.5 million of cash on hand as compared to 24.1 million as of December 21, 2006. The 7.6 million decrease in cash reflected primarily the use of 25.3 million for operating activities and 0.5 million utilized for our investment in NAPO Pharmaceuticals. These we were partially offset by net proceeds of 17 million from the offering of our common stock and 1 million from the reduction of an outstanding letter of credit. To summarize, our overall losses for the full year 2007 were almost 65% lower than the full year 2006. As we increase revenues and more significantly this stage of our development, reduced costs. That concludes my financial review. I will now open the call for questions. Operator.

(OPERATOR INSTRUCTIONS)

Well, operator, it doesn't appear that we have any questions.

Yes, this concludes our question-and-answer session. I will now turn the call back over to Dr. Geoffrey Allan for closing remarks.

Okay, well thank you, everyone, for listening to our fourth quarter update. And as we move forward through 2008, we look forward to continuing to update on our quarterly calls. Thank you very much. And have a nice day.

And thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Good day.