Brian Ritchie – FD
Geoff Allan – President and CEO
Kevin Tully – EVP and CFO
Insmed Incorporated (INSM) Q2 2008 Earnings Call Transcript August 8, 2008 8:30 AM ET
Good day, ladies and gentlemen, and welcome to the second quarter 2008 Insmed Incorporated earnings conference call. My name is Lacy and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. (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. Please proceed.
Thank you, operator. Good morning, everyone. This is Brian Ritchie from FD, and welcome to Insmed’s second quarter conference call. Today, we are joined by Geoff Allan, President and CEO, and Kevin Tully, Executive Vice President and CFO. Geoff will provide a business update, followed by Kevin’s review of the financials.
Insmed issued a press release this morning containing second quarter results, which is posted on the company's Web site. If you have 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 webcast.
Please go ahead, Geoff.
Thank you, Brian. Good morning, everyone, and welcome to our second quarter conference call. Once again, I am pleased to report that significant progress continues to be achieved within both areas of our business, our follow-on biologics platform and our IPLEX program.
I’d like to begin today’s call by expounding on these positive developments. Specifically, I will address the recent INS-19 results; Insmed’s partnership with Former Chairman of the House Ways and Means Committee, Bill Thomas; our retention of RBC Capital Markets as a strategic adviser; the company’s recent meeting with NASDAQ; and, Insmed’s potential near term capital requirements.
As the company has stated in the past, Insmed continues to remain at the forefront of the evolving follow-on biologics industry, and is developing one of the most robust follow-on biologics platform in this space. As you know, we have follow-on biologics candidates in various stages of development. And with more than an estimated 250,000 patients in the US being treated for neutropenia with G-CSF and pegylated G-CSF, our two leading programs, INS-19, a follow-on of Neupogen, and INS-20 a follow-on of Neulasta, if approved, will target the market that produced sales of over $4 billion in 2007.
Last quarter, I reported that the company has received regulatory approval to initiate a clinical trial for INS-19, and that screening for participants for the phase one study had begun. As announced in early July, this study was rapidly completed, and the results demonstrated bioequivalence between INS-19 and Neupogen. G-CSF blood concentration profiles for the two products were identical. Absolute neutrophil count, the primary pharmacological dynamic marker, the G-CSF products, exhibited the same response profile to dosing with INS-19 as with Neupogen. And this statement complements Insmed’s extensive analytical testing and comparative data from preclinical assessments.
To reiterate my comments when this data was first announced, these results are critically important. To our knowledge, Insmed is the first US company to demonstrate the ability to replicate a protein product, to bring that product rapidly through the clinic, and to prove clear bioequivalence to the innovator drug. In producing this human bioequivalence data, we believe we have validated the idea that follow-on biologics can be a scientific reality in the US. And that our company is well positioned to be a leader in this field.
While we acknowledge that additional clinical work remains, it is important to point out that demonstration of bioequivalence is typically the sole clinical requirement to support FDA approval of generic drug products today. Thus, as we have previously announced, Insmed intends to request a meeting with the FDA to discuss potentially initiating a phase three clinical program for INS-19 based on this data.
As I have mentioned, Insmed is positioned to be a leader in the follow-on biologics program beyond its successes with INS-19. And as such, INS-20 has followed INS-19 through each stage of development. And despite the inherently added complexity of INS-20, the candidates have already completed preclinical pharmacological and pharmacokinetics studies, in which it has demonstrated comparability to FDA-approved Neulasta. Based on these data, Insmed intends to initiate a phase one bioequivalence study of INS-20 in humans in the fourth quarter of 2008. Insmed intends to seek approval of both products in the US, and launch the products on expiration of the relevant innovative patent.
I now would like to turn to the legislative process that will ultimately define the pathway that the FDA uses to evaluate follow-on biologics candidates. Insmed recently announced that it has retained the services of Former Chairman Thomas as a strategic adviser to assist the company’s efforts to bring follow-on biologics to US consumers. During his 28 years of service in the US House of Representatives, Chairman Thomas played a critical role developing key health legislation culminating in the passage of the Medicare Modernization Act of 2003, which created Medicare part D prescription drug coverage to seniors. This will be an integral and laying the ground work to allow biologic competition from follow-on biologics, and will work to demonstrate to Washington policymakers that the capability to produce safe, effective, and more affordable biologics exists today and needs to be accessible to US consumers as quickly as possible. Chairman Thomas’ appointment as well as the recent Congressional brief that I participated in is an example of the latest effort undertaken by Insmed to help move the pathway from discussion to formal legislation.
While we are certainly confident that a pathway will be established, we will continue to focus our efforts on what we know best, and that is drug development. It is our game plan to continue the development of these products, in parallel with the enactment of legislation. And therefore, by doing so, we believe we will maintain a leadership position, which will be crucial for successful commercialization of these products.
Moving on to a topic possibly on the minds of many investors, I would now like to address the role that RBC has and will continue to play in, in helping Insmed move forward as a company, especially with respect to our follow-on biologics initiatives. As we stated when we announced this arrangement, RBC has been brought on board to help Insmed prioritize all of its strategic initiatives. These initiatives include execute non-strategic relationships with the right partner to advance our follow-on biologics platform. One of RBC’s primary tasks will be to underpin our ongoing partnering efforts. And it should be noted that the company’s top priority remains securing an FOB partnership. And we continue to be pleased with the directions of the ongoing discussions we are having.
In addition to business development, RBC may also be helpful to us in our efforts to secure additional funding to support the continued development of our pipeline. The key takeaway, though, for investors from Insmed’s relationship with RBC is that we see them as having the ability to help us leverage all of our core assets. And of course, as this process moves along, we will continue to keep you updated.
Turning to the other side of the business, I’m quite pleased of the advancements we have made with IPLEX over the past several months. We recently provided an update to the IPLEX program, and I will briefly reiterate them here.
Insmed’s phase two trial of IPLEX with myotonic muscular dystrophy was initiated in 2007. We have seen strong patient and physician interest, and this trial is now fully enrolled. The trial is a six-month, randomized, double-blind, placebo-controlled study, which was conducted at 13 research centers across the US. The trial endpoints include the six-minute walk test, an FDA accepted measure of endurance, and various conventional measures of muscle function, muscle strength, cognitive function, gastrointestinal function, general health, pain, insulin sensitivity, and safety and tolerability.
As we have noted on various occasions, the substantial proportion of the external costs associated with the study are expected to be covered by an approximately $2.1 million grant, which is awarded to Insmed by the Muscular Dystrophy Association in late 2007.
IPLEX also continues to be used as part of an expanded access program in partnership with the Italian Ministry of Health for the treatment of ALS. Additional subjects are being enrolled as the program progresses. And IPLEX continues to demonstrate that it is safe and well-tolerated in this subject population. To date, this program has grown to include 22 physicians, and approximately 100 patients have been enrolled.
Through the second quarter of 2008, cost recovery revenue from the expanded access program was $2.6 million. This compared to $1.2 million during the same period last year, and compared to $2.3 million in the first quarter of 2008. For the first half of 2008, this program has generated $4.9 million in cost recovery revenue, compared to $1.9 million in the first half of 2007, and $5.4 million generated during the full year of 2007.
In terms of the NASDAQ listing issue in July, as allowed, we requested and attended a hearing with the NASDAQ listing qualifications panel where we presented a plan for compliance with the NASDAQ minimum bid price rule to satisfy the $1 bid price requirement. We are presently awaiting the ruling from the panel, and will announce this as soon as we receive it.
Before turning the call over to Kevin, I want to say a few words about the state of our balance sheet. Last quarter, we reported the company had approximately $12 million in cash-on-hand, with a burn rate, at that time, of $1.5 million per month. Three months later, I’m happy to announce that while our cash reserves are now at $9.4 million, our burn rate has been reduced to under $1 million per month.
As I mentioned earlier, part of RBC’s role could be to aid us in any capital raising initiatives. While the need exists for additional capital in order to continue operating from a position of strength, I am confident that RBC can help the company make sound financial decisions as appropriate, and that this need will be satisfied. The ideal source of funding continues to be a partnership for our follow-on biologics initiatives, but other potential options still exist for us.
I would now like to pass the call up to Kevin for his review of the financials. Please go ahead, Kevin.
Thank you, Geoff, and good morning, everyone. As Geoff explained, the first quarter was positive in a variety of important areas. To begin, total revenues for the second quarter ended June 30th, 2008 rose $1.3 million to $2.6 million, as compared to $2.3 million for the corresponding period in 2007. The increase was primarily attributable to a $1.4 million improvement in cost recovery from our expanded access program to treat patients with ALS in Italy. This was partially offset by the absence of license income from our agreement with Napo Pharmaceuticals Inc., from which we reserved a milestone payment in the second quarter of 2007.
The net loss for the second quarter of 2008 was $4.7 million or $0.04 per share, compared with a net loss of $2.5 million or $0.02 per share in the second quarter of 2007. This was due mainly to a $2.2 million rise in total expenses. This $2.2 million total expense increase was due primarily to a $1.8 million in research and development expenses; a $340,000 increase in selling, general, and administrative expenses; and, realization of a $54,000 non-cash loss on investments.
The higher R&D expenses reflected a rise in clinical trial costs during this most recent quarter as our work within our FOB and IPLEX programs intensify. The increase in SG&A expenses was due primarily to higher investor relations and public relations activities. And the realized loss on investment arises from the write down of our investments in Napo. This investment, which is funded by a milestone payment from Napo, was recorded as part of our agreement with Napo in 2007.
For the six months ended June 30th, 2008, revenues totaled $5 million as compared with $3.9 million in the first six months of 2007. Consistent with second quarter results, this increase was primarily attributable to a $3 million improvement in cost recovery from our expanded access program to treat patients with ALS in Italy. This was partially offset by the absence of license income from Napo and revenues lost from our withdrawal of IPLEX in the short stature market pursuant to the terms of our March 2007 settlement agreement with Genentech Inc. and Tercica Inc.
The net loss for the six months ended June 30th, 2008 was $9.5 million or $0.08 per share, compared to $12.8 million or $0.12 per share for the first six months of 2007. Year-over-year, R&D expenses increased to $10.8 million for the first half of 2008 from $9.8 million in 2007, reflecting an increase in clinical trial activity for our FOB and IPLEX programs.
SG&A expenses fell to $3 million for the first half of 2008 from $6.5 million a year earlier due to the elimination of litigation expenses following the March 2007 settlement and the removal of commercial expenses associated with our business restructuring plan.
The $446,000 realized loss on investments represents the write down on the Napo investment during the first half of 2008, and the elimination of the cost of goods sold resulted from our withdrawal of IPLEX from the short stature market.
Interest income for the second half of 2008 was $375,000, and was a reduction from the $525,000 earned in the same period of 2007. This was primarily due to the contribution and to the combination of a lower interest rate environment and lower average cash balance.
Interest expense increased to $682,000 in the most recent six-month period from $306,000 during the corresponding period of 2007. The reduction was due to an increase in the discount amortization resulting from the quarterly payment of our 2005 convertible notes, which began in March 2008.
As of June 2008, we have total cash equivalents and short term investments on hand of $9.4 million, compared to $16.5 million on hand as of December 31st, 2007. The $7.1 million decrease in cash equivalents and short term investments primarily reflects the use of $6 million of operating activities and a $1.1 million principal payment of our 2005 convertible notes, which began on March 1st, 2008.
That concludes the second quarter conference call. If there are any questions, Brian Ritchie is available to answer them at 212-850-5683.
Thank you for your participation in today’s conference. This concludes your presentation. You may now disconnect. Good day.