Insmed Incorporated (INSM) Earnings Call Transcript & Summary

Okay. Great. Well, thanks for staying for the next session. I'm pleased to have Will Lewis, the CEO of Insmed with us here. Just a reminder, before we get started, I have to just make a disclosure statement. Remember that personal holdings disclosures can be found on the Morgan Stanley website at morganstanley.com/researchdisclosures. And with that, I'm going to turn it over to Will to make a couple of opening comments on the pillars of the company, and then we'll jump into Q&A.

Thank you very much. I appreciate the opportunity to be here. Insmed is in an interesting place because we've just come off our strongest quarter in our history, and I've been at the company for 10 years now, and we think of ourselves as being made up of 4 pillars. One is ARIKAYCE, our approved product for the treatment of refractory MAC lung disease. It's approved in the U.S., Europe and Japan. We built out our own commercial infrastructure in each of those regions. That gets interesting because as we plan to go into Frontline, which should be at least threefold larger than the refractory market, that infrastructure is already in place and shouldn't need to be modified, if at all. The second pillar is really quite exciting. A lot of people have a lot of attention on that. That's called brensocatib. It's a DPP1 inhibitor. It's currently being used to test out its efficacy and safety in bronchiectasis, which is a very substantial market. But the tip of the iceberg for the DPP1 mechanism. That's in Phase III right now, that will read out in the second quarter of 2024. That drug alone could be worth a stand-alone company, I venture to say. Our third pillar is TPIP. That's a treatment for pulmonary hypertension. It's in Phase II for 2 different indications, PAH and PH-ILD. The PH-ILD program will read out by the end of this coming year or the beginning of the following year. And finally, the fourth pillar is what we refer to as translational medicine. It's really our research engine, and that will be producing its first INDs next year, 2 INDs next year, 2 the following year and 2 the following year after that. Those are more cutting-edge technologies, far afield of respiratory, utilizing technologies like gene therapy, protein engineering and that sort of thing. We've just done a very substantial capital raise. So we sit today with about $1.2 billion of cash. So ending 2022 with all the capital we'll need to turn over data cards that are very significant for each of these 4 pillars. And that's the company in a nutshell.

Perfect. Thank you, Will. So maybe we'll start on ARIKAYCE outlook. As you highlighted, right, very, very strong third quarter, didn't really change the guidance. So -- is it conservative? I mean basically the guidance implies that you'll have a sequential down quarter in the fourth quarter. So is that conservatism? Are there factors people should be paying close attention to? Were you worried as you've seen in the past, where COVID can spike and that's had an impact. Is that -- anyway. So just give us some thoughts on that.

Yes. I think the way to think about it, we guided to at least 30% growth this year for ARIKAYCE in refractory MAC lung disease. We're entering our fourth year of launch in the U.S. So I do expect the overall growth rate in that product to slow as we get into 2023. The largest part of the new growth is going to come from Japan. And right now, Japan is coming out of its worst COVID quarter since the inception of that disease in terms of the lockdowns and the difficulties that creates. This is a product that is prescribed by pulmonologists and infectious disease specialists. So they're directly impacted by the, if you will, the waves of COVID or the fear of those waves. In the current circumstance, Japan is starting to come out of that, but that's a bit of a headwind in Japan. To put that in perspective, about little over 20% of our global revenue in the third quarter came from the Japanese market. We also got hit as did everybody by the foreign exchange, but that's a somewhat common feature. We probably lost $10 million this year to that change. So I would still say this is going to continue to grow in each market. It's just going to grow at a slower rate. It had a drop in diagnosis of almost 30% during the COVID epidemic. So the fact that we maintained a flat revenue means we actually gained market share. So as those patients come back into the system, that bodes well for growth. It's just hard to describe what that's going to look like right now given the cross currents. And so I would just anticipate a slowing of the growth but continued growth.

Okay. Great. Great. And then obviously, you're pursuing label expansion in earlier lines with ARIKAYCE. You have 2 trials ARISE and ENCORE. ARISE obviously is sort of demonstrating the endpoint that you're going to use in ENCORE and we're likely to get some of that data next year. So just what's the outlook for ARISE? And how do you think about the timelines of the pieces of data we're going to get for that next year?

Yes. So the data that everyone is really going to be interested in from ARISE will be in the third quarter of next year. It will be a comparison between the 2 arms in the study of our drug plus some additional combination therapies versus what is used to treat those patients now. And that readout will give us a snapshot of whether ENCORE, which is the main approval trial, whether it's going to work. And the reason we are running this is, if anyone remembers Global Blood Therapeutics, they had a primary endpoint of a PRO that they missed. They still got the drug approved, but it was a big headache surrounding the unpredictability of PROs and it reminds us how difficult those are to get right. In our case, we wanted to try to circumvent that. So we have run a canary in a coal mine kind of trial to test the PRO in this ARISE study. That data, when it comes out in the third quarter will tell us if it's doing what we think it's supposed to do. And indeed, if it does, we won't have to change ENCORE at all. But if it does need to be changed, we have the ability to do that because the ENCORE study remains blinded. So that's a really important aspect of this program. It increases our likelihood of success dramatically. I'd also like to mention that where we are now with this drug and its use is very different than when it was first conditionally approved by the FDA. As I mentioned before, it's approved in Europe and in Japan, but those are not conditional approvals. Those are full approvals. We've gotten 4 years of commercial launch under our belt with this drug without any major incident around the world of any kind. So that's a very promising profile. This is widely viewed at the FDA as one of their better success stories in and around the infectious disease space. Consequently, when they go to evaluate whether it's appropriate to be used in Frontline, we have a much more benign backdrop than the uncertainties that surrounded this drug when it was first conditionally approved. And I think we've unearthed this market. No one was in NTM before we came along. This was a first-in-disease approval. At the time we launched it, you may remember the estimates were we would do more between $40 million and $60 million in the first year. We ended up doing more than $130 million. So this has been a very successful product, it's helped a lot of patients. And I think as we move into Frontline, it's going to grow dramatically. And that's going to make for a lot of positive impact on patients and consequently a lot of value creation, just in that first pillar with a very high probability of success.

And just to remind people, so you'll obviously have the sort of PRO readout of ARISE before you get this comparison later in the year. What do you learn from the PRO readout? And mechanistic will you -- is that when you change anything? Or do you wait until you get the head-to-head?

Yes, we'll wait and we'll also be very transparent about any changes we propose to make. It may be that we don't need to make any. But in the event that we do see something in the PRO that is informative, and I'll give you an example to perhaps illustrate. In a PRO, you're looking at many different domains, cough, expectoration, fatigue. If we find that one of those is an area where we have particularly strong impact, we'll weight that more heavily for the final analysis, and we have the ability to do that. The FDA supports that because what they're really trying to do is demonstrate how the drug helps patients feel, function or survive better. And so this will give us the opportunity to look at that. When you're developing a PRO, you first have to validate that the PRO is sensitive to the patient symptoms. So are they seeing a change in cough? And is that improvement correlated with the patient's overall feeling of well-being because it's possible you could see a reduction in cough theoretically and not feel better? Unlikely, but it's possible and PROs need to be aligned in that regard. So that's the first part of it. And then we'll do the actual comparison between the ARMs. And it's that second comparison that is really important.

And then just frame the commercial outlook, especially now that you have a better sense for what the late line market looks like, how to think about the frontline market and especially in the different geographies as well?

Yes. I mean these are very substantial changes. Just to give you a sense of the ramp that this company is going to experience in the next 18 months. The existing refractory market is probably 30,000 patients between the U.S., EU and Japan. When you look at the frontline market, it goes comfortably over 100,000 approaching 200,000. So it's a big step up in the number of addressable patients we could be targeting. And that means that the implications for our revenue growth are very substantial. When we think of where we go with that frontline indication into the second pillar, brensocatib, the current estimate of the addressable market at the time of launch of that drug is over 1 million patients. So we are going to be going through a transformation as a company that few small to mid-cap companies enjoy the opportunity to experience.

Great. Great. So maybe we should talk about brensocatib because that's obviously a sizable opportunity. I mean maybe before the main NTM data, you have some CF data coming up. So just talk about how you think about that opportunity and that data set?

So the excitement for brensocatib came when we did a Phase II study that was pretty sizable, about 250 patients in bronchiectasis that was very successful, showed a 40% reduction in pulmonary exacerbations. Pulmonary exacerbation is sort of the equivalent -- think of it like a heart attack of the lung. It's damaging permanently to the lung. It is -- there's nothing approved to treat it right now for bronchiectasis patients. And so when we show that 40% reduction in Phase II, statistically significant, it turned a lot of heads and we were published in the New England Journal, the first time they've done that in 20 years in that disease indication. So it was a big deal. This program really unlocks the mechanism of DPP1 inhibition, any neutrophil-mediated disease has the potential to be -- perceived benefit from this particular drug in this -- utilizing this pathway? Those would include diseases like bronchiectasis, but also cystic fibrosis, CR, chronic rhinosinusitis without nasal polyps, hidradenitis suppurativa, skin disease, there's a number that this could impact. So this becomes very quickly a pipeline and a product and people liken it a lot to Solaris in terms of complement and what it could produce. Bronchiectasis alone is enormous. But because it is this neutrophil-mediation that we're involved in, we look to CF as another example of a disease we could impact. And we have a Phase II study, a PK/PD study running right now, that is going to read out this month. The data from that will tell us whether or not we need to go to a higher dose when treating CF patients because their metabolism is different. We're looking at both CFTR-modulated patients and non-CFTR-modulated patients. So patients on the VERTEX drug and not on the VERTEX drug. And our hope is that we will be able to reveal the appropriate dose for treating these patients, and the consequence of that is we may not need to run a Phase III program. We can simply provide that information to physicians who will then choose to treat these patients for their bronchiectasis and the exacerbations they experience. So that becomes an added market early in the game and a pretty exciting one for CF patients because it really represents the final mile of what they have to overcome.

Got it. Okay. Perfect. So -- but the way to think about that is bronchiectasis is the clear indication and this would just be helping treat specific subpopulations or give some more data to those subpopulations?

Yes. And one of the interesting questions that was raised at the European Respiratory Society this year was, is there any difference between a CF and non-CF bronchiectasis patient. And that unlocks quite a substantial additional set of populations, right? We talk about asthmatics. We talk about patients with COPD. Some percentage of those patients who are experiencing exacerbations have been misdiagnosed and have not been diagnosed as bronchiectasis. Why would you? You have to image them to get that diagnosis and there's nothing to treat them. If our drug gets approved for that indication those patients suddenly become on-label targets and that's an additional several million patients over what I've already described. So this is really a very substantial potential market and one that I know a lot of people are paying close attention to. It seems a little too good to be true, but this is over 1,600 patients in Phase III, and we've been through 3 data safety monitoring meetings with no issues. The trial is running very well. It was a clear win in Phase II, and we feel very good about Phase III.

Great. So maybe just remind people, I think you talked a little bit about this at the beginning, but ASPEN is the study there? When is that fully enrolled? When should people expect data? And then you also talked about the 40% delta you had in Phase II. What do you need to win in Phase III?

Yes. So I'm a big believer that your Phase II study should look like a Phase III study, so that when you go to Phase III, you're not trying or doing anything new, you're simply scaling up what you saw in Phase II. That's not what most companies follow. In Phase II, we studied the primary endpoint needed to be examined in Phase III. So as we go to Phase III, we scale up the number of patients. We actually reduced the threshold that we need to clear for success. So we saw a 40% reduction in Phase II. We're targeting a 30% reduction in Phase III, and we were 80% powered to accomplish that in Phase II. We're 90% powered to accomplish it in Phase III. We've also saw an event rate in Phase II that was 1.37 events per patient per year. In Phase III, we're assuming it's 1.2. So we're taking a more conservative assumption set that drives larger patient recruitment requirements, but it increases our chances of success. And it means that we could be statistically significant down into the low 20% effect range. If you ask physicians and regulators, they're looking for a 15% to 20% reduction in exacerbations to be clinically meaningful. So we were more than double that threshold in Phase II, and we're targeting slightly less than that -- that was achieved in Phase II and Phase III to give us a better chance of success.

Great. And sorry, just timing.

So I'm -- fully enrolled by the end of the first quarter is the current assumption and we will produce that data in the second quarter of 2024.

Because it's a 1-year endpoint.

It's a 1-year endpoint, and that's what the regulatory agencies require. I should just mention we have the accelerated pathway approval. We're the first respiratory product to ever get it in Europe, prime designation. So there is a lot of enthusiasm in the marketplace of the regulatory world and the clinician world for this program. And actually, James Chalmers, who is out of Edinburgh in Scotland is the PI on that study.

And then talk a little bit about -- so you say 1 million patients, it sounds like a pretty big opportunity. How do you think about -- are there certain subgroups that you go after first? Are there certain patients like CF patients as we just talked about? How do you think about commercially success with this drug?

Yes. So we've spent a lot of time on this. I would represent comfortably that I think the number is probably bigger than 1 million. We are looking for patients who are clearly exacerbating. So we know that the drug is going to be able to have a demonstrated effect and, therefore, clear any market access questions. So that 1 million patient market that I'm describing is the addressable market at launch. It's not a subpopulation, that is in itself a subpopulation. We think the pricing here is probably consistent with other specialty respiratory drugs like FASENRA, which is $40,000 a year. So this is a multibillion dollar market opportunity. But the most important point is, for the first time, patients who experience these exacerbations will have a once-a-day pill to address that condition if our Phase III trial works. This is -- was described as the holy grail of pulmonary medicine. It's the last large pulmonary indication that has no medicine approved for it. So this is as exciting a respiratory study as has come out in the last 10 years or probably the next 10.

And then as you think about -- obviously, it's a big market, right, but there are other opportunities to look at this. So what are the other opportunities and what's the company's plan as a gating on Phase III results to maybe look at that?

So we're going to pursue one more. We were originally going to pursue two more, but we think it's better to gate off of the results of bronchiectasis before we start the third -- so we are going to kick off a Phase II program in CRS without nasal polyps. This, again, is an indication that has nothing approved to treat it. Just to put some numbers on this, in the U.S. alone, there are 25 million people that have this disease. Nothing approved to treat it. We are going to target the severe end of the spectrum, starting out because we're not going to become a primary care company, but the enormity of the opportunity for this drug in these conditions where there is currently nothing is -- can't be overstated. And so we think it's important to start that study. The other indication after that would be hidradenitis suppurativa, or HS. That's a condition that has some biologics that are used to treat it. These are infused. There are some issues with them. We think this drug could be a fabulous addition in the sense that it's a once-a-day pill. So the burden on the patient is dramatically lower and the safety profile looks good so far. So for all those reasons, I think we're sitting on really a monstrous potential product here that we're pretty excited about.

Could we talk about TPIP?

Sure. Third pillar.

So I guess maybe just rationale for PAH and PH-ILD, and just give people a little familiarity on -- because obviously, PAH has a bunch of approved treatments. And so what you're trying to do there and then why the second indication?

Yes. So PAH and PH-ILD, these conditions do have approved therapies to treat them. So in contrast to our first and second pillar, which are targeting really untreated diseases, this is going after a disease that has a lot of therapies. But the prostanoid class that is utilized in this disease state has always struggled because it passes through tissue so quickly that its efficacy is only held for a short period of time. It's very clear from the early work in this area that if you could sustain the prostanoid effect over a 24-hour time frame, that would likely have disease-modifying effects and would represent a substantial advance clinically for these patients. So what we've effectively done with our drug is to create a formulation that accomplishes that chemically. So it's a 16 carbon chain appended to a prostanoid. It's breathed in as a dry powder once a day that in of itself, that convenience is a huge advance from the point of view of many in this space. But from my point of view, I want to see a clinical improvement in the patient's outcome and I think if we get this 24-hour release profile where that carbon chain is cleaved off by esterases in the lung, what it means is that this drug is slowly released over time above the therapeutic index level and it basically helps to return the patient to something that approaches a normal state of vascular pressure. And that eliminates the downstream effects or at least it has in animal models. So the Phase II programs that are reading out right -- will read out by the end of next year or the beginning of the following year are pretty exciting stuff. The last time someone came forward with something that really made a big dent, it was Sotatercept. And we know what Merck did to that one, stepped up and paid close to $10 billion for it. So there's a lot of embedded value in this asset. The simple truth for this program, we have on staff, the former Chief Medical Officer of United Therapeutics, who pioneered this disease state. When he got excited about this drug, that's when I began to pay attention. And he is also the former Deputy Director of the Pulmonary division of FDA. So his enthusiasm carried a lot of water for us. And now we'll see if we can demonstrate that in patients. I think next year, we will be able to release -- at least I'm hoping we will be able to, the level of titration we're able to reach because the way the trial is designed, patients will go to the max tolerated level. To put this in perspective, Tyvaso, which is an approved drug prostanoid, gets to 54 micrograms after titration. We have gotten north of 600 in our Phase I study. In a Phase IIa single patient, we got to 320 micrograms. So we are getting more drug to these patients in a sustained way. That is a high predictor that we're going to see a positive outcome here. So I think we're going to be derisking this trial if we can show an average level of titration that approaches that threshold. And this would be a very substantial advance for patients in this area.

Great. Good. And then maybe PH-ILD, just different sort of indication, maybe something people are less familiar with, how do you think about that as an outcome and an opportunity?

Yes. So PAH is the one that's very crowded. PH-ILD has only 1 drug approved to treat it. It is, in fact, a prostanoid so our drug, because of its profile, if that one works, this should work substantially better. It's the same size in terms of number of patients and its low competitive landscape means it's one we'll probably be able to dominate. So from that point of view, it's a more interesting commercial opportunity. The patient need is clearer. So we're looking forward to that one reading out first, and it's also going to be easier to enroll because there's less competitive landscape.

Okay. Great. I guess maybe -- yes, yes. fourth pillar. So I guess the question is, right, you've got a lot of -- I mean there's 2 questions for the fourth pillar. The first part is you've got a lot of stuff going on already. Why invest in this and especially why outside sort of the core respiratory area?

Yes. It's -- the 2 are actually linked. If you think about the first 3 pillars that's all in the realm of rare -- not necessarily exclusively orphan, but rare cardiopulmonary. The commercial infrastructure we've built around the world will be leveraged to the hilt to get all of those accomplished. And I think to add another respiratory asset there, we would have to replicate a decent part of that infrastructure because it's going to be fully burdened in just chasing refractory NTM, front-line NTM, bronchiectasis, the possibility of cystic fibrosis. That's a lot for a sales force and a support network to take care of, particularly when the patients number in the hundreds of thousands. So in my mind, we need to start to turn our attention to other therapeutic areas. And I'm a believer that the right way to do that is to start early and to use platform technologies to accomplish that. So I want to be very clear, the vast majority of the money we're going to spend now and through the end of 2025, will be on the first 2 pillars. But it is prudent to deploy some capital in the development of a pipeline because as we all know, the moment the data is good in these other pillars, the first question is going to be what's next. And so I think the answer to that is our fourth pillar. We have within that pillar, some artificial intelligence technologies we've brought in to help protein engineering. That includes both therapeutic proteins as well as de-immunizing proteins so that the immune system is not targeting them, that could allow for redosing down the road of things like gene therapy which we are also very actively involved in. I will share with you a little bit since we're here, why not? So -- because it's a bit out in the open. This is the AveXis team. So this is the scientific group and the regulatory group that actually got SMA-1 approved and launched that was subsequently purchased by Novartis for around $8 billion. It's a very talented group of people. Their impact is -- and that disease is very well known. It's impossible to watch the video of the 6-year old girl, dancing with her physician when her diagnosis would have previously resulted in a 100% certainty of death before the age of 2. So we're talking about transformational scientific impact here. And I think it's important if you're in rare disease to harness that and to master it. And so for the last 1.5 years, very quietly, we've been developing these capabilities in-house. Our plan is to come forward with 2 INDs next year in the gene therapy space. And these will be in disease states far afield of respiratory by design. The plan is for these to not only -- and we already have the preclinical data, it's good. We know what this can do in animal models. We want to scale up our production capabilities, and we want to have all of our assays complete so that by the time we announced this and we show it to FDA, all of the questions that the investment community would normally have will be asked and answered. And from that perspective, it really -- it puts us in a very strong position. Over the course of between now and the end of 2025, it's probably at least another half dozen programs we'll be bringing forward. But they are all predicated on successful data and execution, and they should represent a nice complement to the main programs that we've talked about in the first 3 pillars. The final thought I'll leave you with is that from my point of view, biotech needs productivity improvements. Gene therapy is the first such improvement that allows you to -- with a single Phase I/II trial potentially secure conditional approval. So it shortens the time to commercialization. It reduces the amount of capital needed and it has dramatic potential patient impact. So from that point of view, it's a really exciting technology and one we're really happy to be sharing in the second quarter of next year in detail.

Perfect. Will, thanks for being here. Appreciate it.

It's a great pleasure.