Insmed Inc (INSM) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2012 Insmed Incorporated earnings conference call, hosted by Anne Marie Fields, VP of LHA. My name is Annette and I am your conference coordinator today. Throughout the conference, your lines will remain on listen-only. (Operator Instructions).

I would like to advise all parties that this call is being recorded for replay purposes. And now I would like to hand the call over to Anne Marie. Over to you, Anne Marie. Thank you.

Thank you, Annette. Good morning. This is Anne Marie Fields with LHA. Thank you all for participating in today's call. Joining me from Insmed are Will Lewis, President and Chief Executive Officer and Andy Drechsler, Chief Financial Officer.

Earlier this morning, Insmed announced financial results for the fourth quarter and year ended December 31, 2012. If you have not received this news release or if you would be like to be added to the Company's distribution list, please call LHA in New York at 212-838-3777 and speak with Carolyn Curran.

Insmed also this morning filed its annual report on Form 10-K for the year ended December 31, 2012 with the Securities and Exchange Commission.

Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Insmed. Please review the Company's filings with the SEC, including, without limitation, the Company's Form 10-K filed this morning, which identifies specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements and which contains other important information about the Company.

Furthermore, the contents of this conference call contain time-sensitive information that is accurate only as of the date of the live broadcast, March 18, 2013. Insmed undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

So with that said, I would like to turn the call over to Will Lewis. Will?

Thanks, Anne Marie. Good morning, everyone, and thanks for joining us. 2012 was an important transition year for Insmed during which we achieved a number of critical milestones necessary to delivering important new therapies to address pressing patient needs in orphan lung diseases. Since I came on board last September, we have been building on the more than 10 years of clinical development and financial investment accomplished by my predecessors. We will continue to drive these efforts forward, upgrading and implementing improvements for every aspect of the Company's operations as we accelerate Insmed's transformation toward commercialization in 2013.

This year, we expect to have the final elements of clinical data that will allow us to seek regulatory approval for our lead indications for ARIKACE, and we are building the commercial foundation to enable a successful launch. Let me start by highlighting four key updates that illustrate our momentum towards becoming a commercial organization.

First, today, we announced that Matt Pauls will be joining Insmed on April 1 as Chief Commercial Officer. Matt joins us from Shire, where he was most recently Senior Vice President, Head of Global Commercial Operations, Shire Regenerative Medicine. In this role, he led the global commercial function of a business unit with a staff of approximately 300, including a 200-person US sales team with $250 million in sales. Matt has successfully launched and built several global product portfolios, making him ideally suited to lead our commercial efforts.

Importantly, Matt's intense focus on patient needs fits perfectly with our Company philosophy and vision.

Second, as reported in our 10-K this morning, we received the interim results of our nine-month dog toxicity study and have submitted an unaudited interim report to the US Food and Drug Administration stating that the macrophage response was similar to that seen in our previous three-month dosing study in dogs and that there was no evidence of neoplasia, squamous metaplasia or proliferative changes. We believe these results will go a long way towards addressing concerns regarding the strength of our preclinical toxicity package.

Third, we continue to advance our work on regulatory filings which we will submit for approvals in the EU, Canada and the US following on positive data from key clinical trials currently underway, which I will speak to more specifically in just a moment.

Fourth, we are adding significant resourcing to our global supply chain to ensure our production capacity will be where it needs to be at the time of our anticipated commercial launch. Toward that end, we are pleased to report that Peter Clarke will be joining the Insmed team as Vice President of Manufacturing as of April 1. Peter joins Insmed with nearly 30 years' experience in biopharmaceutical manufacturing at both startup and established pharmaceutical companies in Europe and the US, including Chyron, Bayer Biologics, Introgen Therapeutics and Savient Pharmaceuticals, to name a few.

Now let me review a few key areas of the Company's operations. In the clinical realm, we advanced our two lead programs for ARIKACE, our proprietary, novel liposomal formulation of inhaled amikacin. We are initially focused on securing approval of this product, which will be called ARIKACE, in Europe for two orphan populations, cystic fibrosis patients who have chronic Pseudomonas lung infections and patients who have non-TB mycobacterial lung disease. Our first indication addresses a desperate patient need for more effective, more convenient therapies.

Pseudomonas lung infections are a main cause of the shockingly short 37-year average lifespan for cystic fibrosis patients who develop these infections. Unfortunately, by the time they are adults, more than 70% of cystic fibrosis patients are chronically infected with Pseudomonas. These patients are among the most heavily burdened in terms of treatment in the medical community. A high school student afflicted with this disease who visited us here at Insmed described how he often rises by 5 A.M. so he can complete the more than two-hour medical treatment routine he faces every day before going to a normal day of school. Sadly, his situation is not unusual. Many of these patients take up to 30 medications each day and spend more than two hours a day administering them. Despite these intense efforts, current treatments do not provide sufficient or lasting benefit.

Finally, these patients are caught in the crosshairs of one of the greatest challenges facing medicine today, one recently described by the Chief Medical Officer of the United Kingdom as a risk greater than terrorism, and that is the growing resistance to antibiotics. This is a specific and serious concern for all cystic fibrosis patients who have pseudomonas infections today. It has had a dramatic impact on the efficacy of the most commonly-prescribed agent to treat this condition, a fact highlighted by the manufacturer in testimony to the FDA during an Ad Comm panel last year, in which they reported that resistance to their drug has grown by more than 85% in the last 10 years.

We believe that, if approved, our drug will represent a significant improvement for CF patients with Pseudomonas lung infections for a number of reasons. It will be the first and only once-daily treatment. The administration time of approximately 13 minutes once daily is significantly less than that required for the most commonly-prescribed agent. We believe this reduction in treatment burden will result in greater compliance, and thereby reduce the opportunity for resistance development due to poor compliance that curses current treatment options.

In addition, the efficacy profile our drug produced in Phase 2 clinical studies suggests our candidate has the ability to perfuse effectively throughout the pulmonary tree and may have a greater ability to penetrate the biofilm that acts to protect the underlying infection. In so doing, we are delivering a potent aminoglycoside antibiotic to the site of infection. Importantly, ARIKACE demonstrated sustained durability during on- and off-treatment cycles.

Our Phase 3 trial in Europe and Canada for this indication completed enrollment last November. The swift enrollment of this trial is a clear indication to us of the high physician and patient interest in and need for this treatment. We expect to report top-line data in mid-2013.

Our second indication is to treat NTM lung infections, which are chronic and progressively debilitating and for which there is no existing approved treatment. Last year, there were 50,000 cases of NTM lung disease in the US alone. Generally speaking, NTM patients are older, sicker and often immunocompromised with a variety of comorbidities. Patients are burdened with a cocktail of antibiotic therapies, including IV amikacin, which present significant toxicity issues and often do not adequately treat these patients. To be clear, this is a serious disease, especially for those who contract it over the age of 65, as they are 40% more likely to die. As a consequence of these chronic lung infections, patients face an average of 7.6 courses of antibiotics and more than 10 days of hospitalization per year.

The infection itself is resident in the macrophage of the lung, and this is where our drug candidate has an advantage. Our drug is taken up by the macrophage in the lung and then the potent antibiotic is released at the very site of the infection. Current treatments lack this ability to target the infection at the point of its origin. As I have described, these are very sick patients and we believe that any arrow in the quiver of viable treatment options for NTM will be welcomed. Our US Phase 2 trial is underway for this indication and we expect to report data by year-end. In the interim, we plan to file for qualified infectious disease product status under the GAIN Act.

To be able to take advantage of the significant progress we are making in the clinic, we are resourcing ourselves appropriately and will continue to do so. In 2012, we significantly strengthened our balance sheet with the addition of approximately $46 million through debt and equity financings. This foundation of capital will allow us to invest in building infrastructure, including key additions across our company's leadership and in manufacturing enhancements, and we believe it will give us the runway to achieve a number of value-creating milestones, including readouts of clinical data, regulatory filings, and prelaunch commercial activities for ARIKACE in its first two orphan indications.

Critical to our continued success is the expansion of our leadership team with dynamic, experienced executives who share our passion for bringing innovative therapies to patients with rare diseases. Toward that end, we have recently added strong leaders in key areas of finance, human resources and commercialization. We look forward to near-term additions in clinical operations, European and US regulatory, manufacturing and program management to support the filing process underway and to further position us for commercial success.

Let me take this opportunity to highlight the capabilities of a senior executive who joined Insmed last fall, our Chief Financial Officer, Andy Drechsler. Andy joined us in mid-November from VaxInnate. He brings more than 15 years of financial and operational experience in the life sciences industry with both private and public companies. Since joining Insmed, Andy has demonstrated significant leadership in his areas of responsibility, which include finance, information technology, program management and business development.

I will now turn the call over to him for a review of our 2012 financials and to give you greater detail on some of the investments we will be making in 2013. Andy?

Thanks, Will. Good morning, everyone, and again, thank you for joining us. I am happy to be joining you following my first few months as CFO of Insmed. I was delighted to join Will and the team and was drawn by the opportunity to help take a late-stage asset with compelling Phase 2 data and transition it through to commercialization.

Let me begin with a brief review of our financial results, starting with the fourth quarter. But first, please note that we filed our 10-K earlier this morning. I would refer you to the detailed discussions of our business, risk factors and financial disclosures contained therein, as well as other important information.

With that said, for the fourth quarter of 2012, we posted a net loss attributable to common stockholders of $15.5 million, or $0.49 per share. This compares with a net loss of $8.2 million, or $0.33 per share, for the fourth quarter of 2011. The fourth-quarter results also reflect an increase in net loss over the third quarter of 2012. The overall increase in net loss is reflective of our increased clinical and manufacturing activities.

Specifically, research and development expense increased to $12.2 million from $6.8 million in the prior-year quarter and $5.5 million in the third quarter of 2012. The increase in R&D expenses is directly attributable to our active clinical development programs for ARIKACE in CF patients with Pseudomonas lung infections and in NTM patients.

Despite the increased level of R&D activities, general and administrative expense for the fourth quarter of 2012 was $3.6 million, which is consistent with the $3.5 million we recognized a year ago and the $3.8 million we recognized in the third quarter of 2012.

Now, moving to our full-year financials, for 2012, we posted a net loss attributable to common stockholders of $41.4 million, or $1.56 per share. This compares with a net loss for 2011 of $68.8 million, or $2.95 per share. It is worth noting that the net loss attributable to common stockholders for 2012 includes $2.9 million in severance costs related to the termination of certain executives and employees. The net loss attributable to common stockholders for 2011 includes a $26 million non-cash impairment loss for the writedown the of certain carrying amounts of the Company's in-process research and development and goodwill intangible assets, a $9.2 million non-cash charge for the beneficial conversion feature of the previously outstanding Series B preferred stock issued in the Transave merger and $1.2 million in expenses related to the discontinued use of our Virginia facility.

I would also like to take a few minutes to highlight some items from our balance sheet and provide some cash guidance. We ended the year in a strong financial position largely due to the approximately $46 million we added to our cash position during the year. In September, we raised nearly $26 million in an equity financing transaction where the shares were sold at the market with no discount, no warrant coverage and no underwriting fees. We also raised $20 million in debt from a secured loan agreement we entered into last June.

These financings allowed us to end the year with cash and cash equivalents of $92.9 million, which we expect will fund operations into 2014. As of December 31, 2012, working capital was $75.7 million. During 2012, we used $31 million in cash to support operations. We forecast cash usage for operations in 2013 to be in the range of $45 million to $55 million. This increase in cash required for operations, consistent with Will's comments earlier, will be used to complete our current clinical trials, prepare regulatory filings and build the infrastructure and team needed to get us to our goal of being a sustainable biopharmaceutical company.

In addition to these items, another area that will receive significant attention this year is manufacturing. One of the keys to the successful launch of ARIKACE will be our ability to scale up production. We are already working with Althea, our manufacturing partner, on these initiatives. Althea has provided all of Insmed's clinical trial supplies and they continue to be an important partner for us as they have extensive experience with our formulation process, aseptic processing and with the fill-and-finish process.

In addition to scaling up our production with Althea, we are qualifying second sources across our supply chain to ensure that we have redundancies.

I continue to be excited about the opportunities ahead for Insmed as we build an orphan drug franchise focused on serious lung infections. With that financial overview, I will turn the call back to Will. Will?

Thanks, Andy. In closing, we are pleased with the advances we have made. We have an exciting year ahead, which will be characterized by the expected receipt of data from two pivotal trials that in turn will support our continued progress towards filing for CF and NTM in Europe, Canada and the US.

2013 is a pivotal year not only for Insmed, but more importantly, for patients, as we move closer to bringing a more effective, less burdensome treatment option to those who suffer with these debilitating lung infections.

Let me close by repeating a line that many of you have heard me state since my arrival. We believe we are well on our way to achieving our goal of commercializing ARIKACE in two indications in two geographies in two years.

While we are waiting for our first question, let me just mention that Andy will be giving a corporate presentation at the ROTH Capital Partners Investment Conference in Laguna Niguel, California tomorrow at 9.30 A.M. local time. We hope you are able to participate either in person or via webcast, which is available on our website at www.insmed.com.

Operator, we will now open the call up to your questions.

(Operator Instructions). Joseph Schwartz, Leerink Swann.

Good morning. Thank you very much for taking the question. I wanted to ask first if you could give us an update on when we should expect some clarity on whether ARIKACE may qualify under the GAIN Act for NTM.

Good morning, Joe, and thanks for the question. We are going to file for QIDP designation under the GAIN Act for NTM, and we would expect to hear the response from that by sort of mid-year. But we -- it's certainly our intention to move that forward.

Okay, great. Good luck on that.

Thanks.

And a quick follow-up, in CF, in the CLEAR-108 study, what proportion of the patients do you think will be relatively heavily TOBI experienced? I know Cayston is not a great comparator for ARIKACE, but in the Cayston study, it appeared that the patients that did best -- it appeared that the patients that did the best on Cayston had the most TOBI experience.

Yes, so we haven't disclosed the exact percentages, and of course, we are blinded to the totality of the data. But what I would say is that if you look at treatment practices today, the vast majority of patients are receiving, if not TOBI, some other inhaled antibiotic as a part of their treatment. Indeed, it would be very difficult for a physician to have a patient that is diagnosed with Pseudomonas and not being treated with an inhaled antibiotic. So our expectation is that we will see a significant portion of patients pre-treated.

Okay, great. Thanks and I will get back in the queue.

[Aaron Masterson, Carr Corp].

-- moving is exciting and invigorating, and congratulations on that, bringing Mr. Paul aboard. I don't want to throw any cold water on the ARIKACE thing, because I know it is your primary -- our primary approach. But I have two questions pertaining to IPLEX, especially since you are bringing the gentleman in from Shire.

Will there be a marketing agreement or a licensing agreement with Shire on the Premacure matter? And do you anticipate any licensing agreement with PCUT on ALS?

Right. So thanks for the question. On Premacure, predating my arrival, there was actually already a license agreement in place for IPLEX to Premacure. Premacure, for those who aren't aware, was recently acquired by Shire, so that license transfers to Shire.

Within that license agreement, and as we disclosed in our 10-K this morning, there was already a buydown option for a portion of the royalty. We have now extended an option to them to buy down the entirety of the royalty for IPLEX. It is important to reiterate that IPLEX is not a development priority for Insmed. It is something that we chose deliberately to outlicense, and it is certainly my hope that Shire will invest the substantial amount of resources that will be required for the complex manufacturing associated with IPLEX and to be able to move it forward for retinopathy of prematurity. They do have the option to buy down the balance of the royalty and all our obligations related thereto.

So by the end of April, as we have disclosed in the 10-K, we will know whether or not Shire is going to take that option. I should just highlight that there is -- it is a complete coincidence that Matt Pauls is joining us from Shire. There is no relationship between that and the Premacure IPLEX transaction.

On PCUT, as soon as anything happens there by way of final definitive progress, we will announce that.

Okay, I don't say this often, but you are doing a good job.

I appreciate that very much. It's not just me. We are building off a foundation of a lot of good work done by a lot of people that predated my arrival. And frankly, we have been able to attract top-shelf talent which is going to help us take this thing forward. But I appreciate the comment.

Thank you. I will go back to the queue.

Greg Wade, Wedbush.

Thanks for taking my question as well. I wonder if you might just give us a little more detail about the macrophage response that you referred to in the dog study. Thanks.

Sure. So I mean the specifics of what we saw in the dog tox study are consistent with what one would expect for any study of this kind where you are having the animal respond to inhaled particulate matter. It is what we would describe as a normal response. There is nothing in the response profile, as we specified in the 10-K and in my comments earlier, that we consider concerning.

So the reason we refer back to the three-month dog tox study that was previously discussed with the FDA is I think that that study in itself was a point of great comfort. What this represents is a longer-term exploration of that to see whether or not a consistent macrophage cascade response, which you would expect, would result in any other kind of proliferative change, and we did not see any.

Okay, thanks. And just my follow-up, have you evaluated the opportunity to file for breakthrough therapy designation for ARIKACE in the NTM study? And if so, could you give us your thoughts on that? And thanks.

You bet. Greg, thanks for the questions. The breakthrough therapy is something we are keeping a weather eye on. I would say that we want to see the data, at least the DSMB's interpretation of the data, before we would be in a position to judge whether or not there is some subset of population there where their response is strong enough to justify that consideration. We are well aware of it and we will continue to be reflective about whether or not that is a good path forward.

You highlight an excellent point, though, more broadly, which is that in the anti-infective space generally, what we are seeing is a real engagement on the part of regulatory authorities where there is efficacy and safety to find a pathway forward to get these drugs onto the market, whether it is through breakthrough therapy, QIDP designation, or indeed, just evaluation of final data outcomes, has been seen with other products as well. There is just a real need for anti-infectives generally, and any arrow in the quiver is going to be welcomed by the regulatory authorities, we believe, both here and in Europe.

Thanks.

There are no further questions at this time. (Operator Instructions). Robert Hopkins, private investor.

Yes, thank you for the opportunity to speak. I am very interested in the progress that you have made. It seems like it is a very important turnaround for the Company.

I am also very interested in whether or not you might be considering filing a master file for just the liposome as part of your regulatory increased regulatory efforts in the near future. That seems to me to be very important to the future of Insmed. Thank you for the opportunity to ask the question.

Well, Robert, if you mean with respect to the underlying technology, it is probably worth commenting that while we don't draw a lot of attention to it, there are other projects that are ongoing within the Company. I like to characterize for investors that the myopic focus of the Company right now is securing the approval of ARIKACE in cystic fibrosis patients who have Pseudomonas lung infections and patients who have NTM lung infections.

But this technology does have broader application, and there are certainly some other areas where we are seeing opportunities. And I would say at this stage, we are quietly pursuing those. It would be important for people just from a capital use point of view to understand that should we continue to see progress in those areas, it would be our intention to partner those development efforts so that capital will continue to be mainly focused on the approval of ARIKACE in those first two orphan indications I have mentioned, CF with Pseudomonas and NTM. I hope that answers the question.

That's great to hear. Thank you very much.

I would now like to turn the call over to Mr. Lewis for closing remarks.

Well, thank you again for your participation. We hope you come away from this call with a greater understanding of Insmed, as well with a sense for the enthusiasm and confidence we have in our continued success. As ever, we appreciate your interest in and support of Insmed and we look forward to addressing you again in our first-quarter financial report. Have a great day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.