Insmed Incorporated (INSM) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Insmed Incorporated Earnings Conference Call. My name is Stephanie, and I'll be your coordinator today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Brian Ritchie with FTI Consulting. Please proceed.

Thank you, Stephanie. Good morning, everyone. This is Brian Ritchie from FTI Consulting, and welcome to Insmed's First Quarter 2012 Conference Call. Insmed issued a press release this morning containing first quarter 2012 financial results, which is posted on the company's website. Today, we are joined by Mr. Tim Whitten, President and CEO; and Mr. Kevin Tully, Executive Vice President and CFO. Tim will provide a business update, followed by Kevin's review of the financials. Following the prepared remarks, Tim and Kevin will be available for a question-and-answer session. [Operator Instructions] 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 webcast. Please go ahead, Tim.

Thank you, Brian. Hello, everyone, and thank you for joining us on today's first quarter 2012 conference call. I'm pleased to report, as you all likely saw yesterday, that FDA has lifted the clinical hold previously placed on ARIKACE in cystic fibrosis patients who have Pseudomonas lung infections. We're certainly pleased by the complete lifting of the clinical hold, and it is really a milestone event for the company, which I'll come back to in a minute. It's also very important to discuss the significant progress we've made moving our current ARIKACE development program forward in the 2 months since our last quarterly call. We have started dosing for our clinical evaluation of ARIKACE Phase III study with CLEAR-108, which is being conducted in Europe and Canada in CF patients who have Pseudomonas lung infections. And as you may know, we've previously announced our intention to proceed with the Phase II clinical trial of ARIKACE in patients with nontuberculous mycobacteria or NTM lung disease. We expect to begin dosing patients in that trial in the middle of the year and are currently taking a number of important steps towards meeting that objective. Finally, we initiated the 9-month dog inhalation toxicity study towards the end of April, which is in line with our previous projection of starting the study in the second quarter. With that as a brief overview, let me first provide further detail on CLEAR-108. Our goal is to conduct this trial in about 18 countries. In most countries, you need both the individual country's competent [ph] or regulatory authority to approve the trial, as well as the relevant ethics committee approval. We've made significant progress in obtaining these approvals. And to date, we've received regulatory and ethics committee approvals from 14 countries, including what I referred to as…

Thank you, Tim, and good morning, everyone. For the first quarter of 2012, no revenues were recorded as compared to $1.6 million recorded for the corresponding period in 2011. The reduction in revenue was due to a combination of the elimination of the IPLEX Expanded Access Program cost recovery following the depletion of IPLEX inventory in December 2011 and the receipt of $250,000 in license fees for our CISPLATIN lipid complex in Q1 2011 as compared to 0 in this year's first quarter. Net loss attributable to common shareholders for the quarter was $6.8 million or $0.28 per share compared to a net loss of $16.1 million or $0.85 per share in the first quarter of 2011. The $9.3 million reduction in the net loss was primarily due to the $9.2 million noncash charge for the beneficial conversion feature of the Series B Conditional Convertible Preferred Stock incurred in the first quarter of 2011, which increased the net loss attributable to holders of our common shares and, in turn, reduced our loss per common share by $0.48 per share for that period. As a reminder, the charge represents the $1 difference between the conversion price of the Series B preferred stock of $7.10 per share and its carrying value of $6.10 per share. The carrying value of the preferred stock was based on its fair value at issuance, which is estimated using the common stock price reduced for a lack of marketability between the issuance date and the anticipated date of the conversion. R&D expenses decreased to $4.5 million from $5.8 million in the year ago period. The decrease of $1.3 million in 2012 is attributable primarily to the lower development and manufacturing costs associated with initiating 2 ARIKACE-related clinical trials at present as compared to the same period in…

[Operator Instructions] Your first question comes from the line of Greg Wade with WedBush Securities.

Tim, I wonder if you just might go through the various touch points in the decision-making process around whether to pursue a Phase III study in the U.S. for CF.

Okay. Sure. Greg, I appreciate the question, and I think it's an important question. So let me kind of set the stage by saying that we're still working through just an off-hold detail in terms of the protocol with the FDA. So we just got off hold we're still in discussions with them about these final details of the protocol. We're going to -- and we're in the process of assessing our ARIKACE strategy for CF in the U.S. And we'll do that in light of the significant progress we're making with CLEAR-108, which I'm very pleased with. And in fact, I don't know if you've picked it up but we changed -- moved our guidance there to the earlier part of our broader guidance that we've shown before. So we're making significant progress with that trial. There were some significant advantages in doing that trial, including for example, getting our data earlier than with any other trial, allowing us to compare ourselves to Tobi, the market leader, which if we actually can achieve superiority there could have an important commercial implications for us down the road. So we'll do in light of our commitments to CLEAR-108, our priority in initiating the non-TB mycobacteria trial. We'll see where we are with that, and then we will come out by the end of this quarter is the plan to announce our plans for what we're doing with ARIKACE CF in the U.S., as well as our other priorities.

All right. Now if I just may follow up, do you see any barrier to filing the CLEAR-108 data with the U.S. regulators if that study is positive?

I don't think there's a barrier to filing. We don't have agreement with the U.S. FDA that we can use that as the only pivotal trial. But if we do have those results, the FDA actually does want to see that data or at least, that's what they told us in the past.

Okay. And just remind me, did they indicate they wanted to randomize Phase III studies with FDA?

FDA, well before we were put on hold, we had agreement that we could do the one CLEAR-109 study, which was the ARIKACE versus placebo study. And that if we had the data from the European trial -- European and Canadian trial , then they obviously wanted to see that data as well.

Your next question comes from the line of Aaron Masterson [ph] with Corcap [ph] Inc.

Mr. Whitten, my question is simple but there's 3 phases. What is your plan for IPLEX? And are you going to prevent PCUT to have a license, and when will you make those decisions?

Okay. So the plan for IPLEX. Well, the first point there Aaron [ph] is that ARIKACE remains almost the complete focus of the company, and that's our priority. At the same time, I've said that we think that IPLEX can potentially -- is potentially a valuable asset for the company. We announced I think towards the beginning of the year that we are looking to potentially out-license the compound, and we are pursuing that. In terms of individual discussions with individual companies such as PCUT, I really can't comment upon those. And they are often -- and in fact, PCUT is no difference. Those discussions are handled under confidential disclosure agreements. So I'm not really at liberty to talk about individual companies such as PCUT, but we are in discussions around licensing.

Your next question comes from the line of Craig Lap [ph].

My question is really a follow-up to the IPLEX. I've been in the stock for over 8 years, bought it for IPLEX. I want to know what is our plan for any future trials with IPLEX? Is there something that has been discussed as far as Phase II for ALS? And when are the deadlines for the patent infringements that we lost for full use of IPLEX, 2018 or is it -- is there anything that's lifted before then that we can pursue with IPLEX?

So to answer your last question first, to the best of our knowledge, that's 2018. You're right about that. In terms of our plans to conduct additional trials, Insmed has no plans right now to conduct additional trials with IPLEX. Our plan is to license the product as we announced in -- or seek licensing opportunities as we announced in January.

Okay. Is it possible for us to -- obviously if PCUT is going to be making the drug for their use and that's something that we determine at later point, can we get our own stockpile of IPLEX for usage ourselves, which there could be a limitless usage with licensing and so forth to have the drug ourselves?

So those would be discussions that we would have with any potential company that we might license IPLEX to. Those things haven't been worked through yet.

Have they even -- do they even have a plan for making IPLEX as far as the facility or anything?

When you say they, Insmed does not have a plan to make a facility.

PCUT.

And PCUT, I can't really comment on the discussions that we've had with PCUT. Those are under confidential discussion agreement.

[Operator Instructions] Your next question comes from the line of Hamid Traek [ph] with Sherpak [ph].

I had a question regarding the nature of the clinical hold that you previously did not disclose. Do you have any intentions of selling the market? What was the nature of the clinical hold?

So we did actually announce that, and I think it was in our annual 10-K. And the reason for the clinical hold was the rat findings from a 2-year rat carcinogenesis study. And we also announced that, that was because 2 rats had a single lung tumor from that 2-year study in which they were dosed daily for 2 years, and that was the reason for the hold.

Great. So I missed that, sorry. And regarding the challenge of the NTM trial, especially regarding recruiting the patients since the disease is quite rare and it's so hard to identify this patient, maybe a few words about how you're going to address this challenge.

Sure, Hamid [ph]. So let me correct, I guess, at least one misperception that might be out there because people, a lot of them haven't heard about non-TB mycobacteria because nobody is focused there. However, the NTM patient population is at least as big, we believe, as the cystic fibrosis population. And there's extraordinarily high unmet medical need. And to our knowledge, there are no other competitive programs out there to treat non-TB mycobacteria. Current therapies are inadequate. So while you never want to take for granted that you're going to be able to recruit patients, we do believe because of the high unmet medical need, there's a reasonable number of patients out there, even though it is an orphan drug, that are looking for new therapies. This is a high priority for the NIH. This is a high priority for the FDA, that we believe that we'll be able to accrue and enroll patients into the trial, such that as we indicated before, we will have the top line results from the randomized portion of the trial in the fourth quarter of next year.

Ladies and gentlemen, that concludes the question-and-answer session. I would now like to turn the call over to Mr. Tim Whitten, President and CEO of Insmed. Please proceed.

Thank you, operator, and thanks to everyone for joining us today. We appreciate your interest. We appreciate your support of Insmed and look forward to providing you with future updates. Enjoy the rest of your day.

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