Insmed Inc (INSM) 2013 Q2 法說會逐字稿

Welcome to the Insmed second-quarter financial results conference call. (operator instructions). As a reminder, this conference is being recorded August 6, 2013. I would now like to turn the conference over to Anne Marie Fields. Please go ahead, ma'am.

Thank you. 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 Anneounced financial results for the second quarter of 2013. If you have not received this news release or if you would 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. This morning, Insmed also filed its quarterly report on Form 10-Q for the period ended June 30, 2013, with the Securities and Exchange Commission.

Before we begin, I'd like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operation and future results of Insmed. Please review the Company's SEC filings including, without limitation, the Company's Form 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements, and which contain other important information about the Company. Furthermore, the content of this conference call contains time-sensitive information that is accurate only as of the date of the live broadcast, August 6, 2013. Insmed undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

With that said, I would now like to turn the call over to Will Lewis. Will?

Thanks, Anne Marie. Good morning, everyone, and thank you for joining us. As I look at the first half of this year, Insmed has made significant progress toward achieving our goal to become a patient-centric biopharmaceutical Company developing therapies that respond to unmet medical needs at the intersection of pulmonary, infectious, and orphan diseases. The second quarter and recent weeks have been an extraordinary time for Insmed, highlighted by key events in both of our ARIKACE development programs. First, we achieve the primary endpoint in our European and Canadian registrational Phase III clinical trial to treat cystic fibrosis patients with pseudomonas aeruginosa infections. We also received qualified infectious disease product designation and fast-track designation for ARIKACE in NTM lung infections. We believe these designations will play an important role in obtaining what we hope will be approval in the NTM indication.

In addition, three weeks ago, we completed a capital raise. These funds are intended to be used for the final development of ARIKACE; the pursuit of regulatory approvals in Europe, Canada, and the US; and, ultimately, if we secure the appropriate regulatory approvals, commercialization. Our ability to accomplish so much in such a short time is the direct byproduct of the outstanding leadership team we have built. It is through their collective efforts and enthusiasm that we have been able to advance our plan and succeed. Over the past nine months we have built our team across many functions, with the addition of exceptionally talented professionals in technical operations, finance, corporate operations, regulatory, commercial, and program management.

Most recently, we welcomed Christine Pellizzari to our team as General Counsel. Christine is my former colleague from Aegerion, so I know that she has the right skill set, insight, and leadership to guide our transition to a global commercial entity. In addition, we have just added Wes [Companen] as Vice President of Corporate Development and Commercialization. Wes comes from a background in principle investing, operations, and investment banking. And he and I also worked together many years ago, so I can again attest to his capability, work ethic, and integrity. With additions like these to our senior management team, Insmed is resourced to continue its dedicated pursuit of creating shareholder value as we bring important treatment options to patients in need. Let's now turn to a review of our clinical status and plans.

Our lead product candidate, ARIKACE, is a proprietary novel liposomal formulation of inhaled amikacin that delivers a proven and potent anti-infective directly to the site of serious lung infections once daily for two indications -- the treatment of Pseudomonas lung infections in CF patients, and for NTM lung infections. Last month, we reported that we successfully achieved the primary endpoint in our Phase III study in Europe and Canada, which compared our once-daily ARIKACE to the standard-of-care twice-daily TOBI on the primary endpoint of mean relative change in FEV1 at the end of three treatment cycles for CF patients with Pseudomonas lung infections. We expect to have the complete data set released at the upcoming North American Cystic Fibrosis meeting in October, and also hope to have it published in a peer-reviewed journal. We are in the midst of preparing the modules for our regulatory submissions in Europe and Canada, and we remain on schedule to file these submissions with the EMA and Health Canada in the first half of 2014.

The second indication for our liposomal amikacin for inhalation is to treat NTM lung infections. These are chronic and progressively debilitating infections. Currently, there are no approved treatments for NTM, and very little clinical work has been done in NTM over the past 10 years. This is a woefully underserved population, and we are very excited to be developing what we believe will be the first approved treatment for this potentially life-threatening disease. We are currently enrolling a 100-patient Phase II clinical study of once-daily ARIKACE to treat NTM lung infections in the US and Canada. We previously reported that this trial is over 80% enrolled. With QIDP status in hand, we've already reached out to the FDA to initiate a dialogue regarding the regulatory pathway for registration and approval of ARIKACE to treat NTM. We expect to complete the clinical data review and related dialogue with the FDA by the end of the first quarter of 2014.

Regarding our commercial strategy, we continue to strengthen our knowledge base as we refine our commercial strategy for both CF and NTM. It remains our intention to market the product ourselves in Europe if we receive regulatory approval. Under the direction of Matt Pauls, our Chief Commercial Officer, we are evolving the strategy to initially focus on certain geographies in the EU including the UK, France, Germany, and Ireland. More than 50% of current CF patients reside in these four countries. We believe a small focused call point can be effectively reached with a relatively modest infrastructure that we can scale up as we meet with success. This is important infrastructure that we expect would also serve the NTM lung infection market if we receive regulatory approval in that indication.

I'll now turn the call over to Andy, who will provide a review of our second-quarter financial results, as well as some additional detail on how we are choosing to deploy our capital. We believe the path we are pursuing will enable us to launch a commercial product that will address serious unmet patient needs and ultimately drive shareholder value if we are successful in receiving regulatory approvals. Andy?

Thanks, Will. Good morning, everyone. And, again, thanks for joining us. We have made great progress in a number of key areas critical to building a sustainable biopharmaceutical Company. We strengthen our balance sheet with our recent public offering, a key achievement that will allow us to support our clinical studies in regulatory filings and better position us for commercial success. We were particularly pleased with the level of interest in the offering, as it was oversubscribed in place of blue-chip institutional investors.

Before reviewing the financials, let me start by noting we filed our Form 10-Q with the SEC this morning. I refer you to the detailed discussion of our business, risk factors, and financial disclosures contained in our SEC filings, as well as to other important information contained therein. Turning now to our second-quarter financial results.

For the quarter, we posted a net loss of $8.9 million, or $0.28 per share. This compares with a net loss of $9.7 million, or $0.39 per share, for the second quarter of 2012. The narrowing of the net loss is primarily due to $11.5 million in revenue recorded during the 2013 second quarter, related to a one-time payment for the sale of the Company's right to receive future royalties under its license agreement with [Premicure], which is now part of Shire. This one-time revenue item was partially offset by higher research and development and general and administrative expenses. Specifically, our research and development expenses in the second quarter of 2013 increased to $12.2 million from $7.7 million a year ago. The increase is mainly attributable to higher costs for clinical trial activities associated with the Phase III registrational CF clinical trial and two-year open label extension study in Europe and Canada, and our US Phase II NTM clinical trial. General and administrative expenses increased during the quarter to $7.5 million from $2.2 million a year ago. The increase was primarily due to higher compensation expense, which included $2.6 million in non-cash stock-based compensation expense and $1 million in market research and related costs associated with preparations for product commercialization.

Overall, our second quarter 2013 results included approximately $4 million of non-cash stock-option compensation expense.

Regarding our balance sheet and cash guidance, as Will mentioned earlier, we continue to make progress across a number of areas as we pursue our goal of securing approval and launching ARIKACE commercially. We are deploying our recently raised capital to support this pursuit. In addition to investment in clinical development, regulatory and commercial preparations, which Will already highlighted, we are also making investment in our global supply chain, as we've discussed with you on several occasions. We continue to work closely with our manufacturing partner Ajinomoto Althea to expand and improve production capabilities. We are also qualifying second-source suppliers across our global supply chain including our raw-material suppliers, as well as contract manufacturers at larger production scales for potential commercial supply.

As of June 30, 2013, we had cash/cash equivalents and a certificate of deposit totaling $76.8 million and debt of $20 million from a secured loan agreement we entered into in June 2012. In July, as a result of hitting certain development milestones, we elected to exercise our option to extend the interest-only period under this loan agreement. This extension will go for the remainder of 2013, and principal repayments for those notes will not begin until January 1 of 2014. Excluding one-time payment of $11.5 million from Shire, we utilized $27.8 million of cash to fund operations in the first six months of 2013. As discussed, we plan to fund further clinical development of ARIKACE, invest in third-party manufacturing capacity, and fund the efforts to obtain regulatory approvals. As a result, we estimate that our cash requirements to fund operations in the second half of 2013 will be in the range of $28 million to $33 million. We believe our cash balance of $76.8 million as of June 30, 2013, plus the proceeds from our recent -- recently completed public offering will be sufficient to fund our operations through 2014.

With that financial overview, I turn the call back to will.

Thanks, Andy. We've made great progress over the past months. And while there is still much to do, we are very excited about our prospects for the coming year. I am confident we have the team, the strategy, and now the resources to position us for continued success. With that, I will open the call up to your questions. Operator?

(operator instructions).

While we're waiting for our first question, I'd like to note that we'll be presenting at the Wedbush Life Sciences Management Access Conference next Tuesday, August 13 at 2.30 PM in New York City; and also at the Canaccord Genuity Growth Conference next Wednesday, August 14 at 5.00 PM in Boston. We hope you're able to participate, either in person or via webcast on Insmed.com. Okay operator, we are ready for our first question.

Ritu Baral, Canaccord.

Thanks for taking the question. My first question is on the size and cost of the commercial infrastructure that you're envisioning for Europe. How many reps are you considering, and how many CF centers and docs are there, and are you targeting in the countries that you mentioned?

Thanks for the question. I would characterize our strategy with respect to Europe as continuing to evolve. What we're doing at this time is digging into the detail of what is going to be the optimal launch strategy. What we outlined today is a snapshot of our initial thinking, which is, let's roll out in a very staged and thoughtful fashion so that we meet with success from a cash flow point of view. That's going to be the compass point that will guide all of our plans with respect to our commercial rollout strategy in Europe. And we'll keep a weather eye on the utility of any infrastructure, should we choose to build it out, that would be constructed so that it is able to support our NTM indication as well. So I wouldn't be more specific than that at this stage. I think it's a little too early. But we wanted to share with you some of the initial thinking we're doing, which is that you can access more than 50% of the market just by going to those four countries we indicated. There are some helpful analogues out there in the form of other companies that are launched with inhaled antibiotics that I think can give some guidance, as well as other orphan companies that have launched in Europe. These are targeted sales force -- sales forces there in the tens, not exceeding 50 to 100 people, when you talk about infrastructure.

And, overall, do you have an idea at this point about how many centers of excellence there are in the UK, Ireland, and Germany?

We do. And, actually, we've got that information at quite a granular level. What I would share today is perhaps one of the other guideposts we're using, which is those centers of excellence that exist that are home to 50 or more patients. We have identified down to the center level those specific sites so that not only are we calling on a center of excellence, but we are calling on a center of excellence where there is a high concentration of patients. And, again, the strategy here is by going to those centers where there is a high concentration, we can really essentially own those centers. And, as a result, the greatest ramp-up in terms of patient acquisition.

Got it. One more question before I hop into the queue. The Q1 meeting with FDA on NTM that you mentioned, do you plan on going to that meeting with data in hand? And do you anticipate sort of hashing out with FDA a delta on the semi-quant scale on NTM that is clinically meaningful to them at that point?

So that's a great question. And I think it highlights one of the advantages that we have in our current circumstance, which is that with QIDP status in hand, we're actually able to have an ongoing conversation with FDA. So, as mentioned briefly on the call, we've already reached out to the FDA to begin that dialogue. And if I were to describe it, one of the great advantages of QIDP and the FDA's interest in and around the space is the fact that they want that ongoing dialogue. They want to be a part of our development process. We've all got the same objective in mind here. You've got a patient population for which there is no approved therapy. We have the first development program in that indication in more than 10 years. I would characterize there as being a tremendous amount of enthusiasm among KOLs, places like the NIH and the FDA, about the prospects of our program. And so, it is our intention to have an ongoing dialogue with the FDA about the evolution of that program and their thoughts with respect to the pathway to regulatory approval. So, by the end of the first quarter, certainly, we will have had dialogue with the FDA, and it's our hope and belief that we will have been able to have shared the data from the NTM trial and received their feedback and direction on the path to approval.

Great. Thanks. I'll hop back in the queue.

(operator instructions)Paul Matthews, Leerink SwAnne.

Thanks for taking my question, and congrats on the progress this quarter. So I was wondering what specifically should we be looking for in target to determine whether or not it's successful? Beyond the primary endpoint, do you think that, in order for approval, you need validation from a secondary time to rescue with anti-mycobacterial drugs?

Yes, so that's a great question, Paul. And what I would say is, in terms of success in this -- I think we can think of it viewing it through a couple of different lenses. The first is, obviously, the regulatory hurdle for approval. And I just want to hit on this primary endpoint again because so many people have asked questions about it. This primary endpoint, the change, which is a semi-quantitative measure and change in bacterial density, was arrived at through dialogue between key opinion leaders in this area including folks at the NIH, as well as the FDA, through an iterative process where we were collectively trying to come up with what would be meaningful clinical endpoint in an indication where there's been no clinical development and not terrific analogues that can serve as a backdrop for an example.

And with that in mind, we came up with this change in bacterial density using the semi-quantitative measure that you've all come to learn about. And I think that we have a lot of comfort with that, and the clearing hurdle that is both meaningful to the key opinion leaders in this space as well as the regulatory authorities. We are going to be looking at a number of other secondary measures as well, which include things like six-minute walk test, time-to-pulmonary exacerbation, sputum conversion, all of the traditional measures you would think of as being relevant in and around an anti-infective being used with localized delivery in the lung. And so, from that collective data set, I think we'll have both a clear answer for the FDA, but, as well, the ability to shape a dialogue around the efficacy of the drug in the clinical setting in a way that is both familiar and meaningful to treating physicians.

Sounds good. And so also, what kind of breakdown do you expect between MAC- and M. abscessus-afflicted patients? And is this something that you are stratifying and balancing the proportions of between drug and placebo?

Again, a great question. I think we do stratify for the difference between MAC and M. abscessus in patients coming into the study, as well I'll just note for CF and non-CF patients. You know, the breakdown between them is not inconsistent with what you see more broadly. I think perhaps a little bit more abscessus, only by virtue of the fact that these patients that are coming in are severe refractory patients. So these are folks that have been on ATS/IDSA guidelines and still, with this multi-drug regimen for at least six months prior to screening, are showing persistently positive mycobacterial culture. So, with that as a backdrop, they come in. I think we've quoted in the past that you are getting about a quarter of the patients or so with abscessus, and the balance with MAC. And, of course, all these patients come with comorbidities that include things like CF but also include non-CF bronchiectasis, COPD, etcetera.

Right. Okay great, thanks. And one more, and I'll hop back in the queue. So how are you thinking about pricing for ARIKACE in Europe and CF? And then beyond that, how do you think these pricing discussions for cystic fibrosis will affect your ultimate pricing power in NTM? You know, which is obviously an indication that, because there are less treatments, could impart stronger pricing power.

It's a great question, and one that we are continuing, as I mentioned earlier, as we go through our commercial thought process to think about and really refine. I think there's no question from the market work we've done to date, there are plenty of analogues out there in and around the CF space to give us a guidance on what a price point might be. I think, obviously, with the first drug approved for once-daily treatments, which we believe, as we mentioned in the past, will lead to better compliance, which is really the cornerstone of the challenge in CF right now. Not only are we comparable to TOBI, but as the only once-daily, whereas TOBI is twice-daily, we increase the likelihood, we believe, of patient compliance for using the drug, and therefore ultimately achieving the objective of taking it in the first place, which is suppression and hopefully eradication of the underlying pathogen. So I think the price point surrounding that is -- that's a material improvement. I think you've heard that from other KOLs. And I think that's going to support good pricing in the CF indication in Europe.

NTM, our research is continuing there. We clearly have heard back from folks that there is very little price sensitivity in and around NTM. And I think how we resolve those two is something that we're going to continue to work on. There is no doubt that if we launch NCF, we need to understand very clearly how that will impact our NTM price point over in Europe. In the US, of course, our strategy continues to be to launch in NTM. And we think that the NTM launch in the US could be, if everything goes well, at or around the time that we would be launching for CF in Europe.

Okay, sounds good. Thanks. I'll hop back in the queue.

Ritu Baral.

Thanks for taking the follow-up, guys. Can you take us through the status of the European manufacturing section inspections for the Ajinomoto manufacturing facilities that you have access to? And also, should the nature of the investments -- the CapEx investments that you will be making in these plants -- sort of -- like what part of the technology is it around? And also do you have an IP covering those investments?

Thanks again for the question. With respect to the European inspection on the manufacturing front, while we're not giving out specific timelines or moments when that's expected, what I will tell you from a resourcing point of view is that we are following the path that you would expect in preparation for that. So at that facility, we are undertaking both internal and third-party reviews of how that facility looks and would be interpreted from a preapproval inspection from both the EU and the FDA's perspective, and from that GAAP analysis to the extent we identify any -- or deploying resources to address any of those issues. I mean, Ajinomoto Althea is an experienced commercial production site. So this is not their first time through this process. I will say that I think we feel very good about the approach we've taken here, which, I think I mentioned on the last call, really begins with the key personnel. And so by bringing in Peter Clark, who is a veteran of this area and his oversight of the function, which is included resourcing --. Even at the local level, we have a person in the plant, out at Althea Ajinomoto as an example, of how we are resourcing to ensure what I would say are belt-and-suspenders approaches to manufacturing.

I just want to dwell on this topic for a second because CMC and manufacturing issues generally can be the cause of a delay or problems at a company. I think the reason we keep hitting on them and mentioning them in these calls is not because we anticipate an issue. On the contrary, it's that we are cognizant of the fact that this can be a tripping point if you're not resourced and focused appropriately. And so we're just trying to message to the Street that we are on this. And I think we feel very good about where we are in our plan for execution.

In terms of actual resourcing, I'll turn it over to Andy in a minute to talk about how the capital is being deployed. And we're not going to get super specific. What I will tell you is that this process that we followed does include some IP. And since we're on the topic of IP, I just want to highlight the recent allowance of patents, both in Europe and in Canada. We now have two patents allowed in Europe and three, I believe, allowed in Canada. So our IP focus continues to build. And just to refresh everyone's recollection, we are now covered in the US through the early part of 2029. So, whatever our commercial launch strategy ends up being and however we ramp up, there's going to be a long time before we run out of IP protection. And I would add that our manufacturing capability is significant. And that capability is very difficult to replicate, which gives us additional protection even after IP ends.

So let me turn it over to Andy to just talk about how we're deploying capital for both scale and redundancy.

Yes, absolutely. So if we look at the guidance we just put out there, the $28 million to $33 million range, the driver in that number is, in fact, investment of several million dollars at Althea to address some of the things Will just touched on. You know, reengineering it, getting it ready for inspection-ready, if you will. We also plan to next year, in 2014, make additional investments there in order to increase capacity as we get ready for commercialization. And as mentioned in the script, was the fact that we will be investing throughout the supply chain including second-source manufacturers that will come online in much larger scale as we've discussed. Historically, we're at a 25-liter scale today. We think that we can scale up to somewhere in the area of 200 liters and do that over the next 12 months. And that will make us much more prepared for the commercial launch and to meet demand that we expect to be there. All of these expenditures -- not all of them, Ritu, but a majority of the expenditures here are actually -- will hit our income statement. There is relatively limited capital here as far as hardware and tanks and whatnot. A lot of it's around infrastructure validations, process improvements, and whatnot, which will flow through our P&L and the R&D line item.

Got it. That's helpful. Thanks so much for taking the follow-up.

There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Thanks very much. I just want to thank everyone again for dialing into the call today. We look forward to touching base with you during the third quarter and appreciate, as always, your interest and support in the Company.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.