Brian Ritchie – Investor Relations, FTI Consulting
Timothy G. Whitten – President, Chief Executive Officer and Director
Christopher N. Marai – Wedbush Securities, Inc.
Insmed, Inc. (INSM) Q2 2012 Earnings Call August 7, 2012 8:30 AM ET
Good day ladies and gentlemen, and welcome to the Second Quarter 2012 Insmed Incorporated Earnings Conference Call. My name is Jeanine and I’ll be operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.
I would now like to turn the conference over to Mr. Brian Ritchie, FTI Consulting. Please proceed, sir.
Thank you, operator. Good morning everyone. This is Brian Ritchie from FTI Consulting, and welcome to Insmed’s second quarter 2012 conference call. Insmed issued a press release this morning containing second quarter 2012 financial results, which is posted on the company’s website. Today, we are joined by Mr. Tim Whitten, President and CEO, who will provide a business update and review the financials. Following the prepared remarks, Tim will be available for a question-and-answer session. We would ask you to please limit yourself to one question and one follow-up, so we have time for as many questions as possible.
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.
Timothy G. Whitten
Thank you, Brian. Hello everyone and thank you for joining us on today’s second quarter 2012 conference call.
The second quarter was a landmark in our history, as we transformed Insmed into a Phase 3 development stage company, and achieved several significant milestones. First, we made substantial progress in advancing ARIKACE in the clinic in our two priority orphan diseases, and we remain on track for achieving top-line results for CLEAR-108 and TARGET-NTM in mid-2013 and the fourth quarter of 2013 respectively.
Second, we substantially strengthened our financial position through the $20 million loan agreement with Hercules Technology Growth Capital. And finally, we reinforced our already strong intellectual property position as a second composition of matter patent was issued in the U.S. for ARIKACE and liposomal aminoglycosides in general.
Following a careful and thoughtful evaluation of the ARIKACE clinical development options, we announced in May that the company’s resources would be applied towards the CLEAR-108 Phase 3 European and Canadian registration study in Cystic Fibrosis patients who had Pseudomonas Lung Infections and the TARGET-NTM Phase 2 trial of ARIKACE in patients with recalcitrant or resistant non-tuberculous mycobacteria lung disease.
CLEAR-108 compares ARIKACE to TOBI, the market-leading inhaled antibiotic from Novartis for three complete 28-day on-treatment and 28-day off-treatment cycles in about 300 patients. We dosed the first patient in April and remain on target to have top-line data in mid 2013. We are rapidly bringing sites online, in fact about 65 of the 80 planned sites have been activated and are recruiting patients.
As a reminder, patients who complete CLEAR-108 are eligible to enroll in CLEAR-110, which is an open-label study in which patients receive ARIKACE every other month for up to two years to assess primarily safety and tolerability.
Open-label simply means physicians and patients will know that the patients are receiving ARIKACE. As previously reported, we are deferring plans to initiate CLEAR-109, a Phase 3 study of ARIKACE in the U.S. for CF patients who have Pseudomonas Lung Infections until the company reviews top-line results from CLEAR-108. These results could provide additional clarity on the scope, design and conduct of the U.S. study. In addition, the deferral of CLEAR-109 allows us to allocate capital resources to our prioritized ARIKACE studies.
Moving on to non-TB mycobacteria, or NTM. Interest from potential participants in our TARGET-NTM Phase 2 clinical trials recalcitrant in or resistant patients has been strong, and we are well underway; we’re screening patients for this study.
As previously announced, we dosed our first patient in TARGET-NTM in June and plan to include about 100 patients in the trial. To-date, we have selected approximately 18 sites to participate in the study, and many of them are actively recruiting patients.
NTM lung infections often cause severe chronic debilitating and progressive lung disease, and can produce significant lung damage if not effectively treated. Unfortunately, current treatment options for these patients are sorely lacking. NTM lung infections are a growing health problem. Based on recent market research, we estimate there are about 50,000 patients in the U.S. with NTM lung infections, and about 40,000 of those have either non-TB mycobacteria avium complex or non-TB mycobacteria abscessus, which are the two pathogens included in the TARGET-NTM study.
The prevalence of these infections is growing rapidly, a study conducted by the National Institutes of Health on the prevalence of NTM lung disease was published just this past April in the American Journal of Respiratory Critical Care Medicine, this paper based on data from the Medicare database, showed NTM lung infections were growing at over 8% annually.
If ARIKACE is shown to be effective in treating these infections, they could prove to be a substantial advancement in the treatment of this chronic progressive debilitating disease. We remain on track to achieve top line results from the randomized portion of the study in the fourth quarter of 2013. In addition to the ARIKACE clinical program, we’re conducting a nine-month dog inhalation toxicity study of ARIKACE, which started in late April.
Beside the significant progress achieved in moving our ARIKACE development program forward, we recently announced a $20 million loan agreement with Hercules Technology Growth Capital that will extend our cash run rate well into 2014 and provide us with further financial stability and flexibility on the other side of our important 2013 ARIKACE related milestones.
The first $10 million of the term loan was funded at closing and includes an initial interest-only period of 12 months that is extendable through December 31, 2013, contingent upon completion of certain ARIKACE-related development milestones.
Pursuant to the loan agreement, Insmed issued Hercules a warrant to purchase 329,932 shares of Insmed common stock at an exercise price of $2.94 per share. Remaining $10 million of the term loan is available at Insmed’s option, any time between now and December 31, 2012. For further details please refer to the 8-K filing.
Also in further support of our corporate development, we announced in the second quarter the appointment of Don Hayden as Executive Chairman. I’m excited to be working very closely with Don on overall strategic planning and corporate development for the company.
Prior to the business combination between Insmed and Transave, Don served as a Transave Executive Chairman. Don is an extraordinarily talented executive who has a deep experience in the pharmaceutical and biotech industries, which makes him uniquely suited for the Executive Chairman role. I worked closely with Don for almost 27 years and look forward to his continued value counsel as we stay focused on moving Insmed and ARIKACE forward.
Lastly, as previously announced, I’m disappointed at Kevin Tully, Executive Vice President and Chief Financial Officer who will be leaving Insmed for family reasons.
I would like to thank Kevin for his considerable contributions to Insmed in the 11 years he had spent with the company. He was instrumental in enabling the successful combination of Insmed and Transave as well as completing a number of other critical initiatives during his tenure.
We wish him well in all his future endeavors and I’m pleased that he will continue with us until December 1, 2012. We have already begun our search to fill a CFO position and will further update the market when the position is filled.
In summary, the second quarter was one of the significant progress for the company and for ARIKACE; we have transformed Insmed into a Phase 3 development stage company, we’ve been rapidly moving ARIKACE forward in the clinic in two priority orphan diseases and importantly, we further solidified both our ARIKACE intellectual property and our financial position.
With that, I will now briefly review the financials.
For the second quarter of 2012, we did not record any revenues, this compares to the $1 million recorded for the corresponding period in 2011; the reduction in revenue was due to the elimination of IPLEX, Expanded Access Program or EAP revenues following the depletion of IPLEX inventory in December 2011.
Insmed also did not record any revenue for the six months ended June 30, 2012; this compares to $2.6 million in revenues recorded in the prior-year period; the $2.6 million decrease was also due to the $2.3 million elimination of IPLEX EAP revenues, in addition to the receipt of $0.3 million in license fees for our CISPLATIN Lipid Complex in 2011, which also contributed to the decrease.
Net loss attributable to common stockholders for the quarter was $9.7 million, or $0.39 per share, as compared to $10 million, or $0.40 per share, reported for the second quarter of 2011. The $0.3 million improvement in the net loss was due to a $1.5 million reduction in operating expenses, which was partially offset by a $1 million decline in IPLEX revenue and a $0.2 million reduction in investment income.
Net loss attributable to common stockholders for the six months ended June 30, 2012 was $16.5 million, or $0.67 per share, compared to a net loss of $26.1 million, or $1.19 per share, for the first half of 2011. The $9.6 million reduction was primarily due to the $9.2 million non-cash charge for the beneficial conversions feature of the Series B Conditional Convertible Preferred Stock incurred in the first quarter of 2011, which is detailed in our press release and has been explained in full on our last several earnings calls. Additionally, a reduction in operating expenses of $3.2 million was partially offset by revenue reduction of $2.6 million and a decline in investment income of $0.3 million.
R&D expenses decreased to $7.5 million in the second quarter of 2012 from $8.7 million in the year-ago period; the $1.2 million decrease is attributable primarily to a reduction of $2.9 million and development costs associated with initiating two ARIKACE-related clinical trials, as compared to the same period in 2011, when three trials were being planned; this includes the one-time start-up costs for each of the three trials in 2011 which were not duplicated in 2012; this reduction was partially offset by an increase of $1.8 million in manufacturing costs, as a result of beginning the nine-month dog inhalation toxicity study and a build-up of clinical trial material for the ongoing ARIKACE CLEAR-108, and TARGET-NTM clinical studies.
For the six months ended June 30, 2012, R&D expenses decreased to $12 million from $14.5 million for the six months ended June 30, 2011. This decrease is again attributable primarily to a reduction of $3.5 million in development costs associated with initiating two ARIKACE-related clinical trials, as compared to the same period in 2011, when three trials were being planned. This was also offset by an increase of $1.1 million in manufacturing costs associated with initiating the dog toxicity study and building clinical supply for the ongoing CLEAR-108 and TARGET-NTM studies.
G&A expenses, at $2.5 million for the three months ended June 30, 2012, were $0.2 million lower than the $2.7 million for the same quarter in 2011, due mainly to a reduction in external finance and legal fees.
In the six months ended June 30, 2012 G&A expenses decreased to $5.2 million from $6 million in the prior-year period. The $0.8 million decrease was due largely to lower finance, legal and consulting fees related to post Transave merger matters and the March 2011 reverse stock split transaction.
Moving to investment income, this decreased to $0.7 million for the first half of 2012, compared to $1 million for the same period last year, as a result of the lower average cash and short-term investments balance during the first six months of 2012, as compared to the corresponding period in 2011.
As of June 30, 2012, Insmed had total cash on hand of $75.2 million, consisting of $73.1 million in cash and short-term investments, and $2.1 million in a certificate of deposit, as compared to $78.4 million of cash on hand as of December 31, 2011. $3.2 million decrease in total cash was due primarily to funding operations, primarily R&D activities, totaling $12.9 million. This is primarily offset by the net $9.7 million in debt funding received from Hercules after deduction of fees.
With this additional net $9.7 million funding now in our balance sheet, plus the remaining $10 million of the term loan from Hercules available to us at our discretion anytime between now and year-end. And based on our current ARIKACE related development commitments, we now expect that we will end the fiscal 2012 year with a cash position of $60 million to $64 million.
This forecasted cash position will take us comfortably through a number of key value inflection points, including the availability of top line data for CLEAR-108 and top line data for the randomized portion of TARGET-NTM. And as I said earlier, we are projecting our cash run rate will extend well into 2014.
With that, I would like to pass the call back over to the operator for Q&A.
(Operator Instructions) Your first question comes from the line of Chris Marai with Wedbush Securities. Please proceed.
Christopher Marai – Wedbush Securities, Inc
Hi, good morning Tim. Thanks for taking my question.
Sure, good morning, Chris.
Christopher Marai – Wedbush Securities, Inc
So just a quick update, with respect to the ARIKACE study in NTM, it sounds like you’re getting a lot of interest from investigators in enrollment, is that still on track for full enrollment in Q1 2013?
Yes Chris. We are on track to achieve top line results from the randomized portion of that study in the fourth quarter of 2013. So you can pretty much calculate how long it will take us to enroll that trial by just backing it up by about seven or eight months, and that would be when we will project that we would complete enrollment in that trial.
And yes, there is a lot of interest from physicians, as well as patients, in participating in that trial. We’re the only game in town, so to speak, and we’re really excited about it and believe that if we can show benefit in this patient population and we can really become the leader for treating this disease, which is growing 8% a year.
Christopher Marai – Wedbush Securities, Inc
Okay, great. And then also, I see the enrollment criteria is pretty open to, in terms of age of enrollee, 18 to 75, is there any indication from the sites about sort of the average age, or the targeted age, or common age of patients that might be enrolled in the trial?
So the short answer of that is, we don’t have any information on that so far. Based on the patient population, our expectation will be that the vast majority of patients in that trial would be in the 50s, 60s and 70s; but it’s just too early to know, have any demographics on the patients.
Christopher Marai – Wedbush Securities, Inc
Okay, great. That makes sense. And just one quick follow-up then, additionally, is there any indication from your discussions with the FDA that this could be a potential registrational trial, just given the unmet medical need in NTM, I know initially it was Phase 3 and then the clinical hold and all that, but have you updated any discussions with the FDA, or is that potentially your plan? Thanks.
Sure. So the plan with our NTM study is, when we get the results of the trial in the fourth quarter of 2013 and in the follow-on three months results from the extension to that trial, then we will go to the FDA and have our customary end of Phase 2 meeting, and we’ll talk with them at that point about what potential next steps are. Chris, I appreciate the questions.
Christopher Marai – Wedbush Securities, Inc
Thank you. Very helpful.
Your next question comes from the line of (inaudible) with ThinkEquity. Please proceed.
Sure, great, thanks, good morning, Tim.
Thank you, how are you?
I feel pretty good. Just a kind of a quick question for you, in terms of possible pricing strategy, is there a range that you’re looking at, or is there like a benchmark example out there that you could give us for a sort of guidance on pricing?
Sure. It’s a little early for us, in terms of coming up with a definitive price or even a very tight range. If you look in Cystic Fibrosis patients who have Pseudomonas Lung Infections that are treated with inhaled antibiotics, the pricing for the TOBI’s and the patients of the world are in that kind of $4,000 to $5,000 range. And if we potentially at some point get an indication, there’s an inhaled antibiotics for treating those patients, you would expect that we would be competitive in our pricing. We view NTM differently and while we don’t have exact pricing, it’s way too early, we think the price point in NTM is potentially significantly higher for those patients than it is in CF.
Okay. And obviously, you talked about the Hercules $10 million, could you just comment on your intentions for the remaining $10 million?
Sure. I think it’s almost very likely that we’re going to take down the additional $10 million between now and the end of the year and we’ll likely take it down at the very end of the year, the way the agreement reads is that we have the opportunity to take $10 million down between now and December 31 of 2012, and we would likely do that at the last possible time, but I’m pretty confident we are going to take it down.
Okay, great. Thank you so much.
Okay, thank you.
Timothy G. Whitten
So it sounds like there are no other questions, so thank you operator, and thanks to everyone for joining us today. We appreciate your interest and support of Insmed and look forward to providing you with future updates. Enjoy the rest of your day. Thank you.
Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.
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