Insmed Incorporated (INSM) Earnings Call Transcript & Summary

Good morning. Welcome to the Morgan Stanley Global Healthcare Conference. I'm Jeff Hung, one of the biotech analysts. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. For this session, we have Insmed with CEO, Will Lewis. Welcome, Will.

Thank you.

For those who may not be familiar with Insmed, can you provide a brief introduction?

Sure. So we think of Insmed as organized around 4 pillars. The first pillar is ARIKAYCE, this is our inhaled antibiotic compound liposomal encapsulated antibiotic that is conditionally approved to treat the refractory NTM MAC population. It's approved in the U.S. Europe and Japan, and it is launched in all 3 territories. What's exciting about this product is that it, at least from my perspective, performed remarkably well throughout the COVID era, and now that we're entering the post-COVID world, it has that opportunity to return to growth trajectory. So we're excited about that. And then in addition, the second component is it's in Phase III for approval in frontline. And frontline is about 3 to fivefold times the size of refractory. So while we're going to -- we've given guidance that we would end up around $245 million in revenue this year, one can imagine where this product could go. And since it works in the sicker patients who have been infected longer, there's every reason to believe it will work in the frontline patients. So that's pillar 1. Pillar 2 is our DPP1 inhibitor. This is a once-a-day small molecule pill that we're initially studying in bronchiectasis. We had a very successful Phase II study in what we call the WILLOW study in bronchiectasis, where we hit the primary endpoint at both the 10 and 25-milligram dose. What's significant about this is that this is, what was referred to, as the holy grail of pulmonary medicine. This would be the first-ever approved treatment for bronchiectasis, much like ARIKAYCE was the first-ever approved treatment for NTM. It's in a perfectly synergistic alignment with our call points and our commercial infrastructure around the world. So infectious disease specialists and pulmonologists treat this indication as well. Just to put a sense of how big this opportunity is in the first indication, there are right now we estimate 1 million patients in the territories where we have commercial calling effort that have been diagnosed with bronchiectasis and have nothing approved to treat them. Our Phase II results were published in the New England Journal of Medicine. The first time in almost 20 years, they published in the bronchiectasis space. And I've just come from the European Respiratory Society in Barcelona, where we held center stage in the main hall, standing room only for the discussion of bronchiectasis and the prospect of what this may be able to provide for patients. So we're super excited about that indication and that compound-unlocking DPP1 inhibition as a way to treat neutrophil-driven inflammation unlocks a series of additional disease states. So we're looking at CRS without nasal polyps. That is another additional indication, we'll be starting Phase II work in next year. We have a cystic fibrosis Phase II study underway right now that we'll report out by the end of the year of the PK/PD study. And we're also looking at Hidradenitis suppurativa, or HS, which will get underway in Phase II next year. To put perhaps some more refinement on this, we think this is comfortably a multibillion dollar a year product. This is a monster product that has very strong Phase II data as we approach Phase III readout, which -- this trial we expect will be fully enrolled in the first quarter of 2023. And that would mean that it would read out in the first half of 2024. That's just an enormous event that I think, for the most part, has not been digested by the Street, either in terms of the scope of its opportunity nor its importance for us and for patients. This is one of those singular times in biotech where you can break into a massive previously untreated disease state with a really impactful medicine. So as I said, there'll be other indications behind it, because it really unlocks DPP1 as a way to break up neutrophil-driven inflammation. And so there's a lot of work to be done just getting ready for the successful launch of this drug. CRS without nasal polyps, just as an example, a follow-on indication. There are 26 million people in the U.S. that have this. There's nothing approved to treat it. CRS with nasal polyps is treated by HUMIRA, so the potential of this is -- can't be overstated in my opinion. As we move to the third pillar, this is TPIP. This is a prostanoid that is reformulated to treat pulmonary arterial hypertension and Group 3 versions of that manifestation, so PH-ILD, potentially other indications like PH-COPD and PH-IPF. But we're starting with PAH and PH-ILD. We expect that the PH-ILD study has a chance to read out before the brensocatib Phase III study. So that's one we're excited about. And then our fourth pillar, you will begin to hear a great deal about next year. We expect this will produce at least 2 new INDs next year, and that is -- it's a research-driven effort, but it taps a broad range of technologies, gene therapy, protein engineering, novel manufacturing, all of these have been underway in our company as a result of several acquisitions we did with absolute world-class leading capabilities in terms of personnel. These will be very far a field of the respiratory space. That's by design. The simple way to think about the company is we have 4 pillars. The first 3 are in late stage. We think they will produce. And when we've studied other companies that have been successful, once you have that production, the first question investors ask is what's next. We now have that engine. It's been working inside the company, and we expect that it will continue to produce at least 1 to 2 INDs every year for the foreseeable future. So that's the company in a nutshell. And it is -- we enjoy strong capitalization. And yes, we could not be more excited about where we're right now.

Great. Well, let's start with ARIKAYCE. 2Q was strong, and you beat expectations by over 10% despite FX headwinds. You reiterated revenue growth of at least 30% for the year. And based on the first 2 quarters, that means that you could have a slight decline in sales for the next 2 quarters and still meet guidance. So was that out of conservatism? Or are there other aspects that we should be thinking about for 3Q and 4Q?

So I get pretty passionate and fired up about the company, especially where we are. And so it may ring hollow for me to now say that we're a conservative company. But the truth is, when it comes to our public positioning, we are conservative. We thought 30%, at least 30% growth this year was a pretty ambitious target because it was the middle of COVID at the beginning of the year. We continue to stand by that and we're excited that we're ahead of that. But Q3 does tend to be a little softer for us. And the only overpressure that we're really identifying right now is the degree to which COVID is operative in Japan. It's really quite severe. I'm actually going to be heading there tomorrow. And the hurdles to get into that country to go explore what things are like on the ground level are pretty significant. COVID is as bad over there as it's ever been. But having said that, I think, I would leave you with the sensation that we feel very good about where the ARIKAYCE franchise is for just refractory patients. And the prospect of frontline coming on the heels of that is all the more encouraging.

You're approaching finalizing pricing decision in England, Italy and France. Like how is that progressing? And can you remind us of the timing that you expect for these decisions?

Yes. So the timing is any time between now and the end of the year. We've always had very modest prospects or expectations for Europe because there are only 1,400 diagnosed refractory patients across Europe. We think that's an underdiagnosed number. But the simple truth is, with everything going on in Europe, and I don't mean just COVID and the macroeconomic environment, the invasion of Ukraine, there is a really serious overpressure in that region of the world. And I would caution you for any company that you cover that has significant exposure to Europe to look very carefully and what they're up against, because we are hearing very directly. And as I said, I was just there last week, the pressure on pricing, even if it means the drug won't be available in the country, countries are making that decision because they need to find ways to save money. And so the -- while it won't have a big impact on us and those approvals, we expect to be forthcoming, as we look down the road, we do see this as a significant overpressure for any company trying to get a drug approved in Europe and reimburse. And I think for bronchiectasis, it may be relevant, maybe some headwinds. But yes, I would say the success we've had to date in Europe gives us a bit of an advantage. I think it speaks to the need for this disease and the impact of this drug. We got early approval in the Netherlands through a special program at the same price we got in the U.S. So those are some signs for why it's been a little bit more positive for us. But I was really taken aback about how severe things have gotten in Europe.

And you've been expecting the screening for a rise would be completed in August. Has that happened? And can you remind us of what happens between completion of screening and then completing enrollment by year-end?

Screening has been completed. We are on track. So that is done for ARISE. It takes up to several months to confirm the presence or absence of the bacteria, and there's no way to speed that process up. So that's why there's a gap between screening being completed and enrollment being completed. But as I said, we're completely on track for that process. And what this does is it now opens up the ability to bring all patients into the ENCORE study. And indeed, we will be opening additional sites to feed the ENCORE study, so that should begin to accelerate as well.

And the purpose of the ARISE studies to validate the underlying patient reported outcomes particularly measures sensitivity and responsivity. Can you talk about how you're measuring sensitivity and responsibility? And what should we look for in the data readouts that would confirm this?

Sure. So for those who aren't familiar, the PRO process is a byzantine one, but it begins with a designed questionnaire or a series of questionnaires. In this case, we're using the quality-of-life bronchiectasis questionnaire that's been repurposed to test NTM patients. Typically, with that questionnaire, you would see about an 8-step change around any particular item to show a clinical benefit. It's not established that, that's what it will be for NTM, but it's a good proxy to give us a sense of where things are going. So we would look to that for a step change that would be meaningful, just as a point of departure, and we'll confirm that and ARISE and make a final conclusion for ENCORE once we've looked at the ARISE data. And then you need to see that associated with the patient feeling better overall. So you may have a reduction in cough, you would hope to then see that correlated with the patient feeling better. Once you've established that those 2 dimensions of the PRO are working, then you can compare the 2 arms. So next year, you'll see in the first half of the year, the discussion of whether the PRO is working as expected. And then in the second half how did the 2 arms compare to each other. And the collection of all those data will inform how we approach ENCORE, whether we need to adjust the statistical analysis plan and whether or not we need to change the enrollment in the trial. I don't expect that, that will be the case, but we'll learn more when we look at ARISE.

And just to clarify, in the second half of next year, you mentioned the comparison of the arms. Can you talk about what you're hoping to see there ahead of data from ENCORE?

Yes. So I think if we see even a trend of our arm beating the other arm on the PRO front, that's great. Remember that for the U.S., the PRO is really for the benefit of the FDA. It's not something the market access world cares about. It's not something that the patients or the physicians care about. It's really for the FDA. And so it's designed to be responsive to their needs. This trial also has culture conversion as something that it's monitoring because that's what's required for Japan. So if we can get successful culture conversion in the trial regardless of the PRO, we win in Japan, and that's the biggest market. So it's kind of interesting in terms of number of patients. I think if the PRO is somehow confused as Global Blood had that experience, right, their PRO didn't work, the drug still got approved and obviously recently got taken out. But I look at the landscape, and I think we're entering into the ARISE data readout in a very strong position. We have the patient numbers we want. We have, on a blinded basis, stuff happening that we want to see. Now we need to see how that reads out between the 2 arms.

Let's move on to brensocatib. Your Phase III ASPEN study is for bronchiectasis, as you said earlier, and you're expecting to complete enrollment in the first quarter of '23. So once you complete enrollment, can you remind us the cadence of the data? And what should we expect to see?

Yes. So the first thing I would call out is the impressive nature of the enrollment. I obviously didn't -- wasn't involved with it. But our team has done an extraordinary job in getting these trials in parallel enrolled throughout the COVID era. We are targeting almost 1,700 patients in this study. So this is the largest study ever done in bronchiectasis by far. And that gives us the best probability of success. I think just to put it out there, the understanding when I was at ERS is that AstraZeneca is pulling Fasenra from their bronchiectasis study. So they've now dropped out of the race. That means that's 1 less competitor in that space that might be following us. We also haven't heard anything from Zambon, which had their Phase III data readout at the end of last year. They haven't put out the data yet. So what this tells us is that this field is probably going to be ours alone for a while. What does success look like? We have a 10 and 25-milligram arm. If either one of those hit statistical significance on frequency of pulmonary exacerbations, we win. Just to remind everyone, in WILLOW, both doses hit on time to first pulmonary exacerbation statistically significantly with 80% power to show a 40% treatment effect. Our Phase III study is 90% powered to show a 30% treatment effect. The clinical threshold is in the 15% to 20% range. So that's what made our Phase II so remarkable, the dramatic impact. It was a 40% reduction and in such a small study. So to think that, that could be replicated in Phase III opens the door to just a massive opportunity. And really, the secret of this is DPP1 inhibition. That mechanism of action, it's first in mechanism, it's first in disease and it's the start of a series of disease states where we think we can have impact. So we'll put out the primary endpoint. We'll put out the secondary endpoints. Those would be in the first half of 2024. And that's on the assumption that we're fully enrolled by the first quarter of '23, which is where we are at the moment in our estimates.

And so with your increased confidence and timelines, you've begun to shift attention to the commercial readiness. And you've estimated 1 million addressable patients at launch. So can you talk about how you plan to reach those 1 million addressable patients?

Well, the wonderful thing about this second drug in our hands is that we already have the commercial infrastructure. So we're in the U.S., Europe and Japan. We've already built that out. We have 20 reps in Japan, we have 60 to 70 in the U.S., we have infrastructure throughout the EU and the U.K. So we're in a very good place because all of those calling efforts overlap directly with the same physicians that we will use in brenso and bronchiectasis. Will we scale up and add more? You bet. There's a lot of opportunity, a number of patients out there that are going to need support. So we're focused on this now. I can tell you we've gone to third parties without any guidance on what this opportunity is like. And I want to put this out there, their feedback to us is we need to be thinking about launches like DUPIXENT and HUMIRA for infrastructure needs for the scope of what we're going to be looking at. This is a massive opportunity for us. And so that work begins now. It is significant enough that it's intimidating, but it's not something we can't accomplish. I'll remind everybody that our first year of launch of ARIKAYCE and refractory in the U.S. by the Street was estimated to be $40 million to $60 million, and we did $130 million. So I think we're facing the same dynamic right now. To your earlier comment about our conservatism, I think our positioning externally tends to be conservative. But I think people can sometimes miss the enormity of the underlying market that we're addressing. As we look at brensocatib going into bronchiectasis, this is one where I think people need to raise their sights for where we're going, because what we're learning is that this is going to be very significant.

Great. And then your second indication is in cystic fibrosis. Can you remind us of the Phase II study and what should we expect to see from the readout later this year?

So I'm happy to report that both the CFTR modulated arm and the non-CFTR-treated modular arm are both going to be completed by the end of this year. This is a 28-day PK/PD study. Its primary objective is to determine whether or not the 10 or the 25 or a 40, or even a 65-milligram dose would be needed for CF patients to be treated with this drug. Their metabolism is different, and sometimes that can alter the way they metabolize drugs as well. And so consequently, you may have to give a higher dose to get the same effect level seen in non-CF patients. So we'll have that data by the end of the year. I don't expect since it's only 28 days, and this mechanism takes 2 to 4 weeks to get to full effect that we'll see efficacy of any kind. But I would tell you, if we do, that will be striking. And we will be looking at things like FEV1 and other markers. We'll look at NSP, the neutrophil serine proteases that the DPP1 impacts. We'll track those biomarkers. Collectively, I think this is going to be confirmatory information. I don't expect there to be any revelations, but if they are, they're going to be positive, and that's going to open up the possibility of going directly into a single Phase III in cystic fibrosis which would be a pretty exciting prospect.

And you talked about this earlier, but if you can just talk about the additional indications that you're planning for next year and beyond and the opportunities in those indications?

Yes. So the most striking of which, right, we start with bronchiectasis. We're going to have the CF data this year. We already have on design and ready to go study in CRS without nasal polyps and a study in HS. We've done preclinical animal model work that has been positive with the DPP1 inhibitor in rheumatoid arthritis, lupus nephritis. Those aren't necessarily indications we would go after, but it confirms that DPP1 looks like it is pretty essential in the intervention of neutrophil-driven inflammatory conditions, and that opens a prospect of additional opportunity. We'll start with CRS without nasal polyps and HS, both have a clear unmet medical need. Our drug is a once-a-day small molecule pill, would position very favorably in the case of HS over what's already out there. And in the case of CRS without nasal polyps, by definition, because there's nothing approved to treat that. Both are very substantial indications and would complement where we are in bronchiectasis, both in terms of price because we think this is a Fasenra-like price, call it in the neighborhood of $40,000 a year. We haven't done that work yet definitively, but that is certainly what people think about in their modeling efforts. And one can do quick math to understand an uncontested market of 1 million patients with that kind of a price point, what kind of a drug we're talking about here. And as we move into these other indications, it's only going to get bigger.

Moving on to TPIP. You have a Phase II study in PH-ILD, Phase IIb in PAH. How is enrollment going for each trial? And then can you remind us how you're thinking about timelines for the top line data?

Yes. So we really have turned our attention to these 2 Phase II studies, the Phase II in PH-ILD, which I think will enroll quicker. It's about 33 patients. And we should have that data hopefully by the end of next year, although it's not clear yet because we don't yet have a pace of enrollment to make that kind of prediction. But back of the envelope, we hope end of next year, beginning of the following year. And in the case before the brensocatib readout, that's our ambition. And then PAH is kicking off as well. That's a larger study. That's 100 patients. But we'll check on the enrollment curves there, and let you know as we get a better sense of that. Both of these are very high likelihood of success. If you think about the company, ARIKAYCE was developed in our lab. This drug was developed in our lab. This drug is a reformulation of a prostanoid treprostinil. It's dry powder, it's once a day. That's really a significant accomplishment for this patient population, but we think there's more. Once we get into these studies, we're going to be looking for hints that we're creating a change in the disease process itself. And that's because you're effectively getting a sustained vasodilation in these patients which hasn't been able to be accomplished with any other medicine that's out there.

And on the 2Q call, you gave an update on the Phase IIa in PAH. Can you just remind us what you saw and what learnings or changes in confidence do you have from the 1 patient as you shift your focus to the Phase IIb?

Yes. So that 1 patient gave us at least some insight into the idea that this is a drug that can go up in dose comfortably. So that patient went all the way up to 320 micrograms for 16 weeks. Think about that in context, treprostinil has a max dose of 54 micrograms in its label. So physicians are constantly looking for ways to push above that, and it's challenging because of the side effect profile. We had this patient at 320 for 16 weeks, and this is a PAH patient, and we saw what we wanted to see in this patient in terms of safety profile and efficacy to the extent that we could see those trends. What I would say generally is, we are very happy with what we saw there. We can't wait to turn over the data cards in groups of patients with this disease. And I think what we've heard from KOLs, which is that this could become the cornerstone of therapy in this treatment area is within reach.

You talked about Research and Commercial Day. What should investors watch for at that meeting?

So that's going to be where we take the wrapping of the present of our fourth pillar. This is a collection of, as I mentioned earlier, different technologies that we think are world class in terms of team and deliverables. It's going to be very far a field of respiratory. That's by design. We know with our first 3 pillars, we've got plenty in that field that will keep whatever commercial infrastructure we have busy. So we turn our attention as a rare disease company to other areas where we can have impact. And some of the modalities we have acquired, we've done 3 acquisitions in the last couple of years that have been hard at work sort of quietly in the background. We think are going to make a material difference in some disease states. And I think this is going to surprise people. The caliber of the team, the positioning we'll have at the time we go with our first IND, our expectation is in the field, let's just take an example of gene therapy. The things that haunt companies in this area, they don't have experienced teams. They don't look at CMC carefully enough. And as they progress, they find that they have to sort of backfill all those efforts. By the time we file our IND, we expect to have everything we need lined up and ready to go with the FDA in terms of path to commercialization, because we think there's a possibility that with a Phase I/II in some of these indications, we will be able to go for conditional approval.

Great. Well, looks like we'll have to leave it there. Thanks so much for your time.

Thank you.