William H. Lewis - Chief Executive Officer, President and Director
Insmed Incorporated (INSM) Q3 2012 Earnings Call November 7, 2012 8:30 AM ET
Good day, ladies and gentlemen, and welcome to Q3 2012 Insmed Earnings Conference Call. My name is LuLu [ph], and I will be your operator today. [Operator Instructions] As a reminder this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Brian Ritchie of FTI Consulting. Please proceed, sir.
Thank you, operator. Good morning, everyone. This is Brian Ritchie from FTI Consulting, and welcome to Insmed’s third quarter 2012 conference call. Insmed issued a press release this morning containing third quarter 2012 financial results, which is posted on the Company’s website. Today, we are joined by Will Lewis, President and CEO, who will provide a business update and review the financials. Following the prepared remarks, Will will be available for a question-and-answer session.
Before we proceed with the call, I would like to remind everyone that this conference call and webcast will contain forward-looking statements. Such statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. For additional information about the factors that could cause results to differ materially from those in the forward-looking statements, please refer to the cautionary language in the Company's previously filed Form 10-K and Forms 10-Q in today's press release -- and in today's press release, which information also pertains to this conference call and webcast. Please go ahead, Will.
William H. Lewis
Thank you, Brian. Hello, everyone, and thank you for joining us today. As you know, I was appointed President and CEO of Insmed in September. I began this position and remain very much so today, extremely excited and enthusiastic about the prospects that lie ahead. I'd like to begin the call by giving you a sense of these prospects.
Today we are at the threshold of several potential value-creating milestones, with our recent successful $25.7 million financing, we are now poised to effectively execute our strategies. As planned, we intend to report data from 2 ongoing clinical trials in our primary indications next year. We are aligning our team for the successful commercial launch of our lead candidate, ARIKACE, in the U.S. and Europe, following receipt of the required regulatory approvals. Let me now back up a bit, and talk some about why I was so pleased to join Insmed.
I was drawn to Insmed because of my interest and experience in bringing new treatments to patients who suffer from orphan diseases, which are often among the most severe and life-threatening. I and everyone at Insmed, believe that they deserve our attention, and we are fully dedicated to delivering innovative treatments that can change their lives. Our initial focus is on 2 orphan patient populations who face very serious and debilitating chronic lung infections. The first is CF patients who are battling chronic Pseudomonas lung infections. In fact, these infections are so pervasive that 70% of adult CF patients have chronic infections. The second indication, and let me stress equally important and prevalent, are patients suffering from non-TB mycobacteria or NTM lung infections. NTM lung infections are chronic and progressively debilitating. There is currently no approved treatment for NTM. Both of these patient populations must now deal with the very inconvenient and time-consuming treatments. Inhaled antibiotics are required 2 to 3 times a day and must be repeated. If ARIKACE is approved, we will be able to offer these patients what we believe is an effective, safe and convenient once-a-day treatment. This is a significant point because there are no other once-a-day treatments currently available. I am confident that this treatment, if approved, will deliver a profound improvement in the lives of these patients.
As many of you are aware, our European Phase II clinical trial program for ARIKACE in the CF indication demonstrated statistically significant improvement in lung function. The data generated from this trial give us great confidence in the potential value of this compound for CF and NTM patients. Our late stage clinical trials for these 2 initial indications are progressing on schedule. For CF patients with Pseudomonas lung infections, our European and Canadian Phase III pivotal study continues to enroll patients and remains on track to deliver top line results in May -- mid-2013. NTM patients are also coming online in our U.S. Phase II study, and we continue to expect to report results by the end of 2013.
With our momentum gaining, we are now able to turn our attention to commercialization and successfully bringing ARIKACE to market. We have received approval from the USPTO for our second composition of matter patent, which provides long-term protection for ARIKACE in the U.S. through mid-August 2028. Additionally, we plan to file our MAA for European approval in the CF indication as soon as possible. Preparation for regulatory filings is already underway and will accelerate through 2013.
Our commercialization strategy is also the driving force behind how we are building out our senior management team. We've already made some important changes. We are confident that we have assembled an energetic, aggressive and entrepreneurial team of senior executives. To this group, we will add others who have the experience and expertise to successfully execute on the launch of ARIKACE in Europe and the U.S.
A key leader of this team will be our new CFO, Andy Drechsler, who was appointed today. Andy brings 15 years of financial and operational experience, specifically in the life sciences industry both private and public. He combines a strong track record of public company financial reporting, with broad demonstrated leadership beyond solely finance. And he joins us from VaxInnate Corporation, a privately-held clinical stage biotechnology company developing vaccines for infectious diseases, where he was CFO. Throughout his career, Andy has overseen numerous strategic initiatives and led several significant financial transactions. Most recently, he was influential in securing approximately $200 million in government funding and more than $55 million through multiple financing transactions for VaxInnate. Andy has a proven track record of financial stewardship and his diverse expertise will be invaluable to Insmed as we prepare for the commercial launch of ARIKACE.
The opportunities that are now in our sights are due to the efforts of everyone at Insmed over many years. On behalf of the Company, I would like to thank my predecessor, Tim Whitten, for his considerable contributions over the last 6 years. We also thank Kevin Tully, our outgoing CFO, for 11 years of valuable service and leadership. It is important to remember that we are where we are today as a company because of the work that has been completed over the course of more than 10 years by many dedicated Insmed employees.
An obvious key asset in driving towards the commercialization of ARIKACE is our strong balance sheet. With our recent $25.7 million offering, we are in a position of significant financial strength. Under the terms of the deal, Insmed sold approximately 6.3 million shares of common stock to Ayer Capital, RA Capital and Quaker Partners at a price of $4.07 per share. We were extremely pleased with the terms of this offering, as the purchase was for common stock off our shelf and the price reflected no discount to the closing market price on the day prior to the offering. There have been only a handful of companies able to command terms this favorable amongst small-cap Biotech companies in recent years.
Importantly, this deal came to us, and we believe it is reflective as is the recent stock price performance of the Street's increasing awareness of and interest in Insmed. We are also gratified to see continued insider buying support from Quaker Partners, who is a large shareholder and to add 2 new top-tier life science investors to our shareholder base, RA Capital and Ayer Capital.
At the end of the quarter, total cash on hand was $91.9 million. Clearly, this puts us in an excellent financial position moving forward.
Now let me provide you with the quarter's
Financial report. For the third quarter of 2012, we did not record any revenues. This compares to the $0.4 million recorded for the corresponding period in 2011 due to discontinued product programs. Likewise, Insmed did not record any revenue for the 9 months ended September 30, 2012, compared to $3 million in revenues recorded in the prior year period for the same discontinued product programs.
Net less -- net loss attributable to common stockholders for the quarter was $9.4 million, or $0.38 per share, as compared to a $34.6 million, or $1.39 per share reported for the third quarter of 2011.
The $25.2 million improvement in the net loss was primarily due to a noncash impairment charge of $26 million in Q3 2011 relating to the material impact on the valuation of in-process research and development and goodwill associated with delays to the ARIKACE program at the time. This reduction in expenses was offset by a $0.4 million decline in discontinued revenue, a $0.2 million reduction in investment income and a $0.2 million increase in interest expense.
Net loss attributable to common stockholders for the 9 months ended September 30, 2012, was $25.9 million, or $1.04 per share, compared to a net loss of $60.7 million, or $2.66 per share in the prior year period. The $34.8 million reduction in the net loss period on period was primarily due to the combination of the previously mentioned $26 million noncash impairment charge incurred in Q3 2011 and 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. This increased the net loss attributable to holders of our common shares in the 2011 period and in turn, increased our loss per common share on a basic and diluted basis in the 2011 period by $0.40.
Additionally, a reduction in other operating expenses of $3.3 million in the 9 months ended September 30, 2012 was fully offset by a revenue reduction of $3 million, a decline in investment income of $0.5 million and an increase in interest expense of $0.2 million.
R&D expenses decreased to $5.5 million in the third quarter of 2012 from $6.9 million in the year-ago period. The $1.4 million decrease is primarily attributable to a reduction of $2.3 million in development costs associated with initiating 2 ARIKACE-related clinical trials, as compared to the same period in 2011 when our clinical program was being planned. This reduction was partially offset by an increase of $0.4 million in manufacturing costs, associated primarily with initiating a nonclinical study and a buildup of clinical trial drug supply for the ongoing ARIKACE Phase III CF and Phase II NTM clinical studies, a $0.4 million increase in regulatory and quality assurance costs driven by the purchase of comparator drugs used in our clinical study and a $0.1 million increase in compensation-related expenses as headcount increased to support the ongoing trials.
For the 9 months ended September 30, 2012, R&D expenses decreased to $17.6 million from $21.4 million for the 9 months ended September 30, 2011. This $3.8 million decrease is, again, attributable primarily to a reduction of $4.5 million in development costs and $0.9 million for regulatory and quality assurance costs, associated with initiating 2 ARIKACE-related clinical trials, as compared to when our clinical program was being planned in the same period of 2011. These reductions were partially offset by an increase of $1.5 million in manufacturing costs in the 9 months ended September 30, 2012, associated with initiating a nonclinical study and building drug supply for the ongoing Phase III CF and Phase II NTM clinical trials.
G&A expenses increased $1.3 million to $3.8 million in the 3 months ended September 30, 2012 from $2.5 million in the 3 months ended September 30, 2011, due primarily to employee-separation costs recorded in the third quarter of 2012.
In the 9 months ended September 30, 2012, G&A expenses increased by $0.6 million to $9 million. The increase was due largely to the $1.2 million employee-separation costs incurred in Q3 2012, which were partially offset by the absence of finance, legal and consulting fees which were incurred in the 9 months ended September 30, 2011 in relation to post Transave merger matters and the March 2011 reverse stock split transaction.
Moving to investment income, this decreased to $0.9 million in the 9 months ended September 30, 2012 from $1.4 million in the prior year period. The decrease is a result of the lower overall average cash and short-term investments balance for the current year-to-date period, as compared to the year-to-date period ended September 30, 2011.
As of September 30, 2012, Insmed had total cash, cash equivalents, short-term investments and certificate of deposits on hand totaling $91.9 million, consisting of $89.7 million in cash and short-term investments and $2.1 million in the certificate of deposit, as compared to $78.4 million of cash on hand as of December 31, 2011.
The $13.5 million increase in total cash was due primarily to the $35.4 million of net proceeds received in relation to the third quarter financing activities. These financing activities consisted of $9.7 million from debt and $25.7 million from the sale of common stock, which was partially offset by $22.1 million used in operating activities.
The third quarter was clearly one of significant progress for the company and for ARIKACE. We rapidly moved ARIKACE forward in the clinic in our 2 initial orphan disease indications, augmented our executive team and further solidified our financial position. In conclusion, we are pleased with the progress we are making toward commercialization of ARIKACE. We believe 2013 is primed to be a hallmark year for Insmed. Our focus is on obtaining regulatory approvals and launching ARIKACE in Europe and the U.S. as quickly as possible, which is in the best interest of both patients and Insmed shareholders. I am quite confident in Insmed's future prospects, and believe there is significant value in the Company still to be unlocked. As such, I will be initiating a 10b5-1 plan, through which I will be making a personal investment in the company. And as the plan clearly states, I will continue to invest in this company's stock over the course of the next calendar year. You can view more information on this investment in the associated 8-K filing. This 10b5-1 plan is truly a reflection of my belief in the intrinsic value of ARIKACE and the positive impact it will have on the lives of patients. The resulting value-creation for investors will, I believe, be significant. With that, I would like now to pass the call back over to the operator for questions.
[Operator Instructions] And the first question comes from the line of Aaron[ph] Hoftersen [ph] of Carco[ph].
Mr. Lewis, my question is somewhat of a 2-part question. I've been invested in Insmed for quite some time. Is IPLEX of no value or is there something working behind the scenes? And if the answer to your question is there's something going on, when will we hear about IPLEX, especially with ALS and when?
William H. Lewis
It's a question that I obviously, looked at the right when I came on board. I think the simple answer to the question from the point of view of the company is the focus of Insmed going forward is on ARIKACE. That's not to say that IPLEX and the role it's played in the past is of no value. It's that it is not our focus. And what I would tell you by way of guidance is that our strategy continues to be, as it has been, that we will look to license opportunistically these technologies so that someone else who may feel that they are of value can pursue them. We are underway in that regard as you know, with respect to Premacure. We've signed an amended agreement there. We have one waiver in place with Roche. The second, with Ipsen, is pending signatures. So we feel good about where that is. I think any further licensing activity that may be underway or in discussion, as soon as we have progress made that's definitive and material, you can be assured that we'll disclose that.
We have no further question in the queue. [Operator Instructions] Sir, we have no more questions in the queue. I will now hand the call back to Mr. Will Lewis for closing remarks.
William H. Lewis
Thank you, operator, and thanks, again, to everyone for joining us today. We genuinely appreciate your interest in and support of Insmed. And we look forward to providing you with future updates. Please enjoy the rest of your day.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Thank you.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: firstname.lastname@example.org. Thank you!