Insmed Incorporated (INSM) Earnings Call Transcript & Summary

Hi, everyone. I'm Judah Frommer. I cover smid-cap biotech here at Credit Suisse, and we're thrilled to have Will Lewis, Chair and CEO of Insmed here with us for this session. So well, maybe we'll just start out with a quick intro on the company. You've outlined the framework of 4 strategic pillars.

And to better understand the Insmed story, can you walk us through those pillars and where the organizational and economic leverage is between them?

Yes, sure. So I have to say this is our first conference since we've completed our recent financing, and it is a particularly exciting time at the company because entered that financing and probably the strongest position the company has ever been in since I joined 10 years ago. We did that in probably the worst financial markets we've ever been in, in the last 10 years, but you can't have everything. It's exciting because the capital that we've raised is now going to fully finance all of the major inflection points coming out of these 4 pillars. Pillar one is ARIKAYCE. That's our approved product for refractory MAC lung disease. It's conditionally approved in the U.S., fully approved in Europe and Japan. We are running a trial right now that will examine frontline indication in MAC lung disease patients. That's a three to fivefold increase in addressable market. Most research analysts have us somewhere in the $250 million revenue line this year. And so if you think about that, just back of the envelope, that's a huge opportunity for us to expand in an area where we have no competition, and we are strongly recommended for you. So that first pillar really is a cornerstone of value for the company and one we're very happy with. The second pillar is brensocatib. This is the DPP1 inhibitor. This is perfect overlap in the world of strategy. It just doesn't get any better than this. We're going to have the same call point. This is pulmonologists and infectious disease specialists. It's initially for bronchiectasis, and we're also looking at cystic fibrosis, a couple of other indications, happy to talk about. But that Phase III program is moving along, and we expect data from that in Q2 of 2024, that really marks the other book end of all of the data that's going to be coming out. So if we go from Q2 of 2024 back, we know next year we'll have ARISE data for the first pillar. In the third pillar, TPIP, we believe PH-ILD data will be out. And our fourth pillar, which we'll talk more about, translational medicine. The first 3 are all on the sort of cardiopulmonary area. The fourth pillar is a platform of technologies that we'll be addressing many different other therapeutic areas as we try to make that leap based on the success of the first 3 into what is a broader biotech company. And to do that, we have to be active under the rare disease umbrella in many different disease indications.

Okay. Perfect. I'm going to try to get through all 4 pillars here in the time we have left. So maybe just starting with ARIKAYCE and you've been getting this question for a few years now, but it's interesting to kind of look at the answer stacked on top of each other. How has COVID affected the ARIKAYCE launch? And how is COVID affecting new patient starts? Today, maybe we can break that down by your 3 marketers geographies.

Sure. So if we think about the U.S., we've been on the market for more than 3 years now with this drug, and COVID was the ultimate test of a drug that is marketed to pulmonologists and infectious disease specialists. And what we saw was a revocable from our point of view, a very remarkable stable performance of this drug, which I think speaks to the underlying need for the therapy in this disease population. We expect now that we're in a post-covid world that we will continue to grow. The degree of growth is unclear because we're still coming out of this and learning as we go. But I continue to feel good about the U.S. market opportunity for refractory MAC. I don't think we're anywhere near being done with that opportunity in terms of growth. And I think 2023 and 2024 are going to be good years for that franchise as we pivot toward frontline. So if we think about Japan, this is the highest in terms of numbers of diagnosed patients, both with MAC generally and also refractory MAC. Having been approved there and on the market for a little over a year, we've seen real contribution more than 20% in the last quarter to our global revenue number. So that's very validating. I think there's a lot more there. We're trying to navigate what is a more severe over pressure from COVID in Q3. There was quite a bit of shutdown and denial of access to hospitals and physicians, and it tends to linger longer in Japan, coupled with the FX pressures that made it very challenging to deliver the performance we would like to see out of Japan. But my expectation is that as we make our way through 2023, that will start to improve. And we put, hopefully, COVID in the rearview mirror for everyone's say. And then as we go to Europe, it's less important, but it's still a contributor. And I would just say there that much lower level of diagnosis, but the people over there are doing fantastic work on a number of fronts. And so 2023 there will also yield some improvements.

Okay. And just coming back to Japan for a second, given the commercial opportunity there. Can you give us any insight into the commercial organization there? Has it -- was it kind of set early on and you're growing into that organization? Or is it growing as the launch matures.

So we have about 20 therapeutic specialists on the ground in Japan right now to cover all of the Japanese market. Certainly, we could think about whether that goes up a little bit or not. That isn't on the immediate to-do list. Right now, I think we want to get our arms around how do we access the networks that we already know exist and where we have very good penetration up until now. I think there's more to be done there. And I would say over to our very capable team in Japan to deliver on that promise, I just came back from Japan where I managed to address our entire company collected it's probably 80 people. So it's still got room to grow as we think about going into frontline, which is a very significant market over there and bronchiectasis.

Okay. Got it. And then moving over to frontline. Maybe just a quick 30 seconds or a minute on the Phase III studies ARISE and ENCORE and the design of those trials. And what's the relative positioning of each trial with regards to supporting regulatory approval in the U.S. versus abroad between those trials?

So to be very stark in description here. The U.S. requires a PRO, or patient-reported outcome as the primary endpoint, although that will not be the only data that the FDA will review, and that's important to keep in mind. The data from our trial testing our PRO in ARISE, the so-called ARISE study will come out next year. In Japan, the primary endpoint for full approval is culture conversion. But again, that won't be the only data they look at. But those are the primary end points that both regulatory authorities are viewing. Both the ARISE and ENCORE will produce all of the data we need. ARISE comes out next year will give us a snapshot. ENCORE will be the final answer.

Okay. And like you said, you'll be reporting comparison data between the arms of ARISE ahead of ENCORE. So what would you hope to see in that comparison?

So I want to see a win. I really want to see a win in the treatment arm versus the non-treatment arm or the control arm. But of course, the numbers are -- it's 100 patients. So it's not a substantial trial. I'm less focused on the statistical win, much more focused on the numeric win because if we see the trends we want to see, we know at scale and in longer time in ENCORE, they'll deliver. And that's what ARISE is all about. It's to give us a canary in the coal mine or a snapshot of what we think ENCORE will need to do. And here's the beauty of it. If a rise teaches us something that is unexpected, we can change ENCORE to adapt to that and to ensure we get the best possible outcome.

Okay. That certainly makes sense. And you talked about the potential size of the market opportunity for frontline. But how would reimbursement conversations change is your sense that payers were amenable to a new first-line treatment here?

Yes, I think there's a lot of room for us to be in a pretty strong position with regard to market access. We've enjoyed fantastic market access through the excellent work of our commercial team from the day of launch pretty much everywhere around the world. And that, I think, speaks to the recognition of the unmet need and the efficacy and safety of the drug. As we move to front line, obviously, the market gets much larger, but it's still rare disease and orphan territory. So I think it puts us in a strong position taking note also that there's nothing approved to treat that frontline indication. So that gives us certainly a strong position as we think about the unmet need and whether we're satisfying.

Okay. And then just directionally for this program, it's a relatively high cost of goods product. Like could that change in a material way if you unlock the frontline setting?

We don't really think it's going to change in a material way. I mean, this is a difficult drug to make. And I would say that, that will pay dividends down the road as we think about generic competition potentially emerging someday. There's by no means a certain path to do so as the folks in our tech ops would tell you. But I would also reiterate that we have gone with uninterrupted supply since I've been at the company, and that's because of the excellent work that they've been doing. It is a challenge though. And I think that, that cost profile will remain even as we get to scale.

Okay. Got it. Moving to Brensocatib. So for those who are newer to the story, focus seems to be on the Brenso opportunity, but people forget I guess what was demonstrated in the Phase II. So can you take us back to the Willow readout and what is considered clinically meaningful within this indication?

Sure. If you speak to [ physics ] and you talk about Bronchiectasis, they're focused on impact on exacerbations, pulmonary exacerbations. The simplest way to think about a pulmonary exacerbation is it's kind of like a heart attack for the lung. And as we think about the impact that we have there, reducing that is a big deal. We saw a 40% reduction in Phase II. Clinically meaningful is 15% to 20%. So this was a wow outcome. It was one that was published in the New England Journal, and it is one that has generated a lot of enthusiasm as we go through and into Phase III in no small part because we studied exacerbations in Phase II and most companies, all the ones that I'm familiar with, never had that as a primary endpoint in Phase II.

Got it. And one of the questions we get, and again, it's probably tied to the size of the trial, but dose response within Willow, what you saw on exacerbations between the 10 and the 25 mg doses and what data from the Phase II trial gives you confidence that there is functional benefit in bronchiectasis?

Yes. The most important thing to take away is that we saw a statistically significant reduction of 40% in exacerbations, which is the endpoint that matters for market access for regulators, for everyone, including patients, most importantly. And as we think about the difference between the arms, we only need 1 of these 2 doses to work in Phase III to win. If both work, and we have a dose separation, so much the better, but it's not a prerequisite for approval or even for efficacy in terms of patients or use in the marketplace. We think it's very explainable, the difference between the 10 and 25 and why there was a dose plateau, largely accounted for by 3 hyper exacerbating patients, which you can see very clearly in the baseline data in the 25-milligram arm. We've stratified for that in Phase III, so we should not encounter that. And very importantly, a prespecified analysis that looked at data starting after day 30 when the effect of the drug will have been started through the end of the study showed a clear dose response curve. That's not a post hoc analysis that was prespecified.

Okay. Got it. And I think there was a dose response on neutrophil elastase inhibition if...

There were, very clear.

Can you talk about the relationship of neutrophil elastase and bronchiectasis? And how does neutrophil elastase contribute to pathogenesis of of COPD and bronchiectasis?

So it's highly associated with the pathogenesis of those diseases and in particular, inflammation and some tissue destruction. When we think about the mechanism we're exploiting here, DPP1 inhibition. By inhibiting DPP1, we're preventing the catalyzing of the activation of the NSPs or the neutrophil serine proteases of which neutrophil elastase is one. There are others cathepsin G, proteinase 3 that are also inactivated. And by accomplishing that, we break the inflammatory cascade as neutrophils are recruited from the bone marrow to the area of interest, in this case, the lung, but without impacting the ultimate ability to fight infection. So that's a -- why this is such a promising mechanism to see that data clearly demonstrated is an incredibly promising thing for the company and for this group of patients that currently have nothing approved to treat them.

Okay. Great. And then just moving into the Phase III ASPEN trial. Can you walk us through design for that trial and maybe highlight similarities and differences versus Willow?

So first principle, when you're going into Phase III, change as little as possible from Phase II. Phase II worked, all we're doing is scaling it up. We have the exact same definition of an exacerbation, which requires a physician's judgment and for that physician to change the actual underlying therapy the patient is taking. So it's a higher standard, more reliable. And as we move into the study, we had an assumed exacerbation rate in patients that is more conservative than what we saw in Willow. So we saw 1.37 events per patient per year in Willow. We assume 1.2 in ASPEN, and we are 90% powered to show a 30% treatment effect, whereas in Phase II, we were 80% powered to show a 40% treatment effect, and we hit it. So with more numbers, longer study over a period of a year, we should really have a winner.

Okay. And any concerns about placebo response for this one, given what you've seen?

No. So we track very carefully the exacerbation rate on a blinded blended basis in the study, and it is tracking almost perfectly to Willow in our expectations. So that seems to suggest that we should be on track with the right type of patient which is patients who have experienced 2 or more exacerbations in the last 12 months. If we can get those patients in the study, our drug should have an ability to show its effect. And that would be the winning formula.

Okay. Got it. And can you help us with the market opportunity for this one? I think when you're reading out Willow, you certainly highlighted that bronchiectasis is misdiagnosed. Has that changed over time? And what do you see as the addressable population or launch?

So we start with the currently diagnosed and exacerbating patient population. That's 1 million patients between the U.S., Europe and Japan. It is a massive market opportunity. It is one that has nothing approved to treat it. And this is a once-a-day pill that was statistically significant in Phase II, hitting that endpoint of exacerbation reduction. To note that from a safety point of view, the dropout rate was higher in placebo than it was in either the treated arms. So that is really quite striking. It means we probably have a substantial winner here. And just targeting that initial million patients, this is a multibillion-dollar product.

Okay. Got it. And between now and a Phase III readout, are there any upcoming milestones that we should be keeping our eyes on?

So we'll have data from the PK/PD study in cystic fibrosis patients, both CFTR and non-CFTR in terms of patients taking modulators. And that data will be out by the end of this year. In our hands, anyway, we'll probably put it out at a certain undisclosed conference in January. But again, we're looking for biomarker data. They are not clinical readouts because it's only 28 days in length. If we were to see a clinical readout that would be a shocking upside, but I don't expect that to be blunt. And I think if we were to see that the doses we're using in regular way bronchiectatic patients are similar to what we need in CF that would mean we could rely on all of the existing data from WILLOW and ASPEN to support our application for cystic fibrosis patients, and that would be pretty exciting.

Okay. Got it. So how should we think about the CFTR or versus the non-CFTR and within the Phase II?

Well, we just wanted to look at all the patient profiles, right? I mean obviously, there are companies that have products that are having a profound and beneficial effect on patients with cystic fibrosis through the use of the CFTR modulators. I think for us, we're focused on all CF patients who are experiencing exacerbations and whether or not our drug can have benefit for them. And if indeed, we see that, we want to make sure that there's no background profile or medication that might otherwise impact that. So we're studying both.

Okay. And in the event of success within CF, do you think that would look like an expansion of bronchiectasis product label? Or do you think these would be potentially different products?

No, I think this is an expansion of that label. I think it would be sitting at the same kind of price point and all that sort of thing. We don't segment the market in any other way. To us, it's a logical extension because if you think about a CFTR modulated patient, they're effectively now a bronchiectatic patient. And they're experiencing exacerbation still as the data will show. So we want to be able to help them. This sort of represents the last mile for these patients.

Okay. Got it. And you did touch on this, but there are some functional and beyond the biomarker-based endpoints in the Phase II. So the functional are kind of nice to have in your view?

Oh, they'd be fantastic to have. I just don't think it's reasonable to think that we would see change in something like FEV1 in less than a month. We -- I suppose it's always possible we might, but that would be really shocking because it would suggest that the drug is having effect that quickly. And we don't have any frame of reference for it, but I wouldn't expect that. What I'm hoping to see is dose-dependent reduction in NSPs and an understanding that the dose that we're using is adequate. We don't have to go up in dose. We have preserved the ability to go higher in dose. We've got all the tox data to support that. It's probably a point of comfort in safety for the ASPEN study to note that we're going to be dosing 10, 25, 40 and up to 65 milligrams in these patients if we need to. But I'm hopeful we won't.

Okay. Got it. All right. Moving on to TPIP. So maybe we could start with the key differentiating factors of TPIP versus standard of care TYVASO? And how does the formulation differ specifically, how does half life compare?

So when we think about the -- under the umbrella of prostanoids, we're thinking about TYVASO, we're thinking about these DPIs that you hear about, these are dry powder inhaler versions of treprostinil, which is a prostanoid that causes vasodilatation in patients. And that alleviates the increase in pulmonary arterial pressure that you see that causes right heart hypertrophy, which is often what causes these patients to succumb. So the therapeutic benefit of prostanoid is not really in question. The issue is how do you extend the duration of that benefit over time. Our formulation is unique in its ability to accomplish that. We just need to prove that in a clinical trial setting. In animal settings, we show that we extend this benefit over a 24-hour time frame. If we can provide a once-a-day dry powder formulation that extends that benefit and alleviates pressure over a 24-hour time frame, we are essentially taking that patient on a journey back to normalcy, and that should have disease-modifying benefits that would be profoundly better we hope and believe, than what is currently available we're not aware of anything that comes close to that. All the other DPIs and TYVASO that's out there are for temporal benefit, this would be daisy changing that benefit to an extended period of time, including overnight, it would be, we think, a game changer for that disease state.

Okay. And beyond the administrative convenience of a long reacting product that you've talked about an efficacy benefit for these patients. So what could that look like based on what you've seen?

So that's that discussion about right heart hypertrophy and how the right heart has to pump harder to overcome the pressure increase from the constriction in the vessels. So if we can create an alleviated setting where that pressure increase does not take place, and the right heart doesn't have to work, then you're talking about really attacking the part of the disease pathophysiology that causes the patient to succumb, that could be something that would be really quite remarkable, and I think is within our reach.

Okay. And is this one where market access conversations have started against the backdrop of potential TYVASO generics? How do you think this product could potentially come to market in that setting?

This is a profoundly different clinical profile if we accomplish what I've just described, that target product profile, TYVASO can replicate. So even DPIs, it's just the same underlying drug, and that means it's going to pass through tissue very, very quickly. Generic will still be administered 4 to 7 times a day in the label for TYVASO. After titration, they get to a max dose of 54 micrograms. In our patient from Phase IIa, we had -- that patient go up to 320 micrograms. So we are just a totally different drug profile. And so I don't think our market access discussion will be anything -- in any way impaired or influenced by what they're doing.

Okay. And digging a little deeper on the Phase IIb in PAH. I think it's a 16-week trial, and you'll be looking at 6-minute walk and PBR. Is there anything else you're looking at from an endpoint perspective that you haven't looked at previously?

No. I mean a lot of that stuff will be there's obviously more we're looking at than just that. But I think those are the 2 key measures that people are going to be looking at. And the same thing in our PH-ILD program oxygenation and that sort of thing in the case of PH-ILD. But I think these will be clear reads. And I think PH-ILD will read out before PAH. So we're hopeful that, that will come out before Q2 of 2024 when the ASPEN brenso data will read out. And that's really what is starting to build from this moment with the capital we've raised, we are now starting the flywheel of data readouts. If the company is self-critical, we would say it's been a bit of a desert in clinical data from our side. We've been focused on ARIKAYCE, the global launch and expansion of that drug, but it's been 3 years since we put out clinical data at this company. And in the next 18 months, we're going to have clinical data from every one of our pillars, and that's going to begin to change the nature of this company and transform it from a single product story into a 4-pillar story, each of which is going to be having a material impact, we think, on value creation.

Okay. And maybe taking a step back to some of the data you've generated with this asset so far. The Phase I in healthy and how that readout compared to other prostacyclin drugs? And then in Phase IIa, like you said, it was one patient, but it's certainly informed dose and just curious if you continuing to follow that patient.

Yes. When we talk to the KOLs, they want us to take the dose up as high as we possibly can. And as I said, with TYVASO at 54 micrograms is the max tolerated dose after titration, seeing our Phase I data where we went in healthy normals north of 600 micrograms for a once-a-day administration was really a major advance. To see that then pulled through in Phase IIa with a single patient going up to 320 micrograms without any real issues is -- and the performance we wanted to see like that, that was the first step on the path. Now 2a was a bit of a nightmare to find patients to undergo a right heart cath for 24 hours. That's a hurdle you just can't clear. But seeing that we got the 1 patient in and they stayed on the drug for 16 weeks and went up to 320 and stayed there, that portends very positive things for our other 2 Phase II studies.

Okay. Great. And you touched on the timing for PH-ILD trial to read out. But can you help us with market opportunity in PH-ILD is probably not as well understood as PAH.

So there's another company out there that has a drug. The only drug approved for PH-ILD, and that's TYVASO, and they size the market at about 30,000 patients. So not dissimilar from PAH. So this is quite a substantial market opportunity. The uptake that they've seen in this market with their 4 time of day nebulized treatment is a sign of what's to come, I think, in this market opportunity. And of course, if we improve the convenience and the clinical profile, I think that will only increase. So this is, we believe, between the PAH and PH-ILD these spaces clearly established as a $1 billion opportunity.

Okay. Got it. And moving into the fourth pillar. I think we get the question. It seems like you could have doubled down on antifungals, you could have doubled down on long-acting formulations. Why not increase the efforts in the first 3 pillars as opposed to moving into what seems like a diversion from core competency here. But I know it isn't.

No, I appreciate that question more than you can know because I think this is a really important part of the story. We have now today almost $1.3 billion in cash on our balance sheet. We have 4 pillars. Each of these pillars stands in its own right as a potential major creator of value for investors and each will read out data over the next 18 months. So as I describe it, the flywheel is starting to turn. The fourth pillar is designed to be a series of platform technologies that in a world where the first 3 perform all of our respiratory assets, all of our respiratory capabilities will be fully engaged and brought to bear in support of those assets. You're talking about refractory MAC, frontline MAC, bronchiectasis, cystic fibrosis, just to name the first 4 that come to mind. That's a lot for a commercial infrastructure to take on. To pile more assets there, you don't get the synergy that you might intuitively think you would. And so it makes sense for us to begin to think under the broad banner of rare, where do we go next. And so we have to explore new therapeutic areas that harness technology that can make a difference for patients in the rare disease space. The single most important thing to understand about this is that from my point of view, the only new form of productivity that has arrived in biotech in recent years is gene therapy. With gene therapy, you are in a position to get an approval and a commercial product on the basis of Phase I/II data. So that accelerates the time line, reduces the overall expenditure cost and still has a profound impact on patients. We now have that capability. I would argue it's second to none in the world. You'll hear more about that in the second quarter of next year. But alongside that, we also have other acquisitions we've done that look at protein engineering. So this is a totally different part of the fourth pillar that is creating therapeutic proteins, looking at deimmunizing those proteins so that we can redose including things like AAV capsids. So you're going to see a strategic approach to therapy that will include novel approaches to impact safety, delivery, efficacy, manufacturing as well as novel proteins themselves that are deimmunized for redosing in other areas. So probably in the early part of next year, I'll begin to frame out the different therapeutic areas we're targeting so that people can begin to wrap their mind around it. But you should think of a broad umbrella of rare disease under which set a variety of technologies that we will harness for maximal patient impact and in a way that are the most efficient use of dollars that our investors have given us.

Okay. And maybe just to wrap up, you talked about being a tough fundraising environment, but you did certainly pay your cash runway recently. So what was behind the decision to diversify the financing sources and not to lead you too much in this question, but what can we read from a sub 1% royalty on Brenso?

I'll take that one first. The sub 1% royalty on Brenso should be read as the profound promise of that product. Anybody who's willing to loan $150 million on an unapproved product for less than a 1% royalty gives you some idea of how big they think that program is going to be. As far as the structure of the deal, we took -- I've talked about the capital we have. The idea here was not to take only permanent capital. We want to be able to maximize and leverage the readout of these clinical trials for the benefit of our shareholders, and we think this is the most blended cost of capital available. We're very grateful that we were able to access it in such a difficult market.

Okay. Great. I think we'll wrap it up there. Thank you very much for the time.

You bet. Thank you.