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Edited Transcript of INSM earnings conference call or presentation 22-Feb-19 1:30pm GMT

Q4 2018 Insmed Inc Earnings Call

RICHMOND Feb 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Insmed Inc earnings conference call or presentation Friday, February 22, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Blaine T. Davis

Insmed Incorporated - VP & Head of IR

* Paolo Tombesi

Insmed Incorporated - CFO

* Roger Adsett

Insmed Incorporated - Chief Commercial Officer

* William H. Lewis

Insmed Incorporated - President, CEO & Chairman

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Conference Call Participants

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* Adam Anderson Walsh

Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst

* Dana Carver Flanders

Goldman Sachs Group Inc., Research Division - Research Analyst

* Ishmael Izakiel Gyimah Asante

Morgan Stanley, Research Division - Research Associate

* Joseph Patrick Schwartz

SVB Leerink LLC, Research Division - MD of Rare Diseases & Senior Analyst

* Joshua Elliott Schimmer

Evercore ISI Institutional Equities, Research Division - Senior MD & Equity Analyst

* Mark William Connolly

Crédit Suisse AG, Research Division - Research Analyst

* Ritu Subhalaksmi Baral

Cowen and Company, LLC, Research Division - MD and Senior Biotechnology Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to Insmed's conference call to discuss the company's fourth quarter and full year financial results. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Blaine Davis, Head of Investor Relations. You may begin.

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Blaine T. Davis, Insmed Incorporated - VP & Head of IR [2]

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Thanks, Keith. Good morning, everyone, and welcome to today's conference call to discuss our fourth quarter and full year financial results for 2018.

Before we start, let me remind you that today's call will include forward-looking statements based on current expectations. Such statements represent our judgment as of today and may involve risks and uncertainties that may cause actual results to differ from the results discussed in the forward-looking statements. Please refer to our filings with the SEC, which are available through the SEC's website at www.sec.gov or from our website for information concerning the risk factors that could affect the company. The information on today's call is not intended for promotional purposes and not sufficient for prescribing decisions.

Joining me on today's call are members of the Insmed executive management team, including Will Lewis, Insmed's Chairman and Chief Executive Officer; Paolo Tombesi, Chief Financial Officer; and Roger Adsett, Chief Commercial Officer. Once we complete our prepared remarks, we'll open the call to take your questions.

With that, let me now turn the call over to Will.

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [3]

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Thank you, Blaine. Good morning, everyone, and thank you for joining us. 2018 was a pivotal year for Insmed, culminating in the approval and launch of ARIKAYCE. ARIKAYCE is a therapy that finally offers hope to patients with refractory MAC lung disease who previously had limited or no alternative treatment options. Prior to the approval of ARIKAYCE, patients suffering from the debilitating effects of this disease had no approved treatments specifically indicated for their condition.

We are very pleased with the strong momentum we have seen in the first few months of the U.S. launch, including the breadth of prescribers and total patients initiating therapy. But it remains early in our launch, and there are still some key variables we need to understand. We have much more work to do in 2019 and beyond to sustain the momentum. However, we are confident enough in our current understanding of the market to provide 2019 full year revenue guidance for ARIKAYCE of $80 million to $90 million.

For those of you who may be new to our story, let me just spend a moment on our commercial product and the disease we're treating. MAC lung disease is a rare, progressive and chronic pulmonary infection associated with irreversible lung damage and declining lung function. The disease typically affects an older population, is associated with an increased mortality rate and is often further complicated by multiple comorbidities.

Based on our 2018 estimates, we believe that as many as 30% or 10,000 to 15,000 MAC lung disease patients in the U.S. do not respond to the off-label antibiotic regimen that is the current standard of care.

ARIKAYCE is a combination of the potent aminoglycoside antibiotic, amikacin, encapsulated in a specialized liposomal technology we now brand as PULMOVANCE. This technology has shown an increased uptake into the lung macrophage and effective penetration of biofilm. I want to draw your attention to my last sentence. We view the ability to penetrate biofilm, formed as a preserved defense mechanism by bacteria over millennia, as a significant capability and one we have been further exploring through our early research to identify other areas where this may be useful.

We have seen the efficacy and safety results of these technologies in ARIKAYCE culminating in its approval last year. ARIKAYCE is the first and only therapy specifically approved by the FDA to treat patients with MAC lung disease, and we are very excited that patients now have a treatment specifically approved for this disease.

I would now like to spend a moment discussing our key priorities for 2019 in detail. I will later ask Roger to provide an update on our commercial launch, and then Paolo will cover our financials.

The first and most important priority is to remain laser-focused on our continued efforts to execute a successful U.S. launch of ARIKAYCE. We achieved strong early success, as demonstrated by our sales results of $9.2 million in the U.S. in the fourth quarter. However, as I mentioned earlier, we believe this is just the beginning. We are pleased with these results, but it remains very early in the launch and much more work lies ahead. Our efforts to further refine our understanding of the market and the performance of the product remain ongoing. And as the year progresses, we expect to have more information to share. For now, we are very encouraged by the early results and remain cautiously optimistic. Roger will cover more detailed aspects of our commercial launch in just a moment.

Our next priority is to complete the design and protocol of the confirmatory clinical study, which will be conducted in a front-line setting of patients with MAC lung disease. This trial is a requirement by the FDA for the full approval of ARIKAYCE, as well as an important part of our life-cycle management plan. Our development teams have been hard at work, and we expect to complete this process in the first half of 2019.

We are also evaluating additional clinical trials to explore the efficacy of ARIKAYCE in patients with NTM lung disease caused by M. abscessus, a particularly virulent pathogen. Interim data from an investigator-initiated study of ARIKAYCE in M. abscessus patients were presented at the American Thoracic Society meeting in May of 2018 and showed roughly 30% culture conversion with ARIKAYCE in these patients, an unprecedented result.

We are also exploring ARIKAYCE for use in a more chronic setting of maintenance therapy, which would seek to treat patients prophylactically to prevent the high rate of recurrent infection seen with this disease. Currently, about 50% of patients with NTM who eradicate the bacteria are reinfected within 3 years. We believe a maintenance indication would represent a meaningful advance in treating NTM.

Collectively, these life-cycle management opportunities comprise what we refer to as the ARIKAYCE franchise. Assuming clinical trial outcomes satisfy the regulatory authorities, we believe these represent substantial label expansion opportunities to serve many patients with unmet medical needs in the coming years.

Our third priority is to continue our global expansion efforts to support potential regulatory filings for ARIKAYCE in Europe in mid-2019 and in Japan in the first half of 2020. These regions represent an important opportunity to help patients suffering from MAC lung disease worldwide. Our life-cycle planning efforts for ARIKAYCE and the compounds in our pipeline also take into account our growing global reach.

Our fourth priority is to continue our efforts to advance our pipeline, which is intended to bring additional therapies to market for patients with serious and rare diseases. This includes completing enrollment by mid-2019 in the WILLOW Study, our 6-month global Phase II trial of INS1007 in patients with non-cystic fibrosis bronchiectasis. This program is a very exciting part of our pipeline. INS1007 utilizes a novel mechanism of action that potentially helps patients with non-CF bronchiectasis who currently have no therapy approved for this specific indication. We expect results from the Phase II study in early 2020. And if the results are positive, we would expect to advance INS1007 development to a registrational trial.

In addition, this year, we will also be advancing INS1007 in 2 small Phase II studies that will explore its potential impact in treating granulomatosis with polyangiitis, or GPA, a rare neutrophil-driven autoimmune disease that is fatal if untreated.

We are also advancing our INS1009 program for the development of an inhaled formulation of treprostinil that we believe will offer a differentiated product profile for patients suffering from pulmonary arterial hypertension, or PAH, including some potential localized benefit seen in recent animal model work that could add an exciting extra dimension to this drug's potential in PAH patients.

As I mentioned earlier, beyond our frequently discussed development programs, we have several ongoing research programs that leverage some of the unique skills and capabilities of our research teams to potentially treat a variety of serious diseases. These areas of expertise include biofilm penetration as well as the unique properties that liposomes and nanoparticles imbue to molecules. Through a concerted effort, our research team is continuing to explore the ways in which this platform of technologies may be applicable to serious diseases.

I'd like to highlight 2 of these programs. The first is an early-stage research program focused on gram-positive lung infections, such as MRSA in cystic fibrosis patients. For this program, we are developing a novel antibiotic that in vitro -- that in, in vitro testing is showing significantly superior potency to Vancomycin, an antibiotic that is the mainstay of treatment for many gram-positive serious diseases.

Our second program is focused on targeting treatment of refractory biofilm infections, such as those that are found in postsurgical settings and can require subsequent surgeries to fix, like heart valve or joint replacement surgeries. While both programs are early, we are very encouraged by their potential to address rare, serious conditions facing patients, and we expect to have more to say about them later this year.

2019 promises to be another very exciting year for Insmed, and we are off to a great start.

Let me now turn the call over to Roger who can provide some additional insights into our commercial activities. Roger?

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Roger Adsett, Insmed Incorporated - Chief Commercial Officer [4]

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Thanks, Will. Good morning, everyone. We remain encouraged by the early ARIKAYCE U.S. launch trends, and I'd like to take a moment today to recap what we saw during the fourth quarter.

Let me remind you that our focus at launch is on the estimated 10,000 to 15,000 MAC lung disease patients in the U.S. who have limited or no treatment options. This population is reflective of both the language in our FDA-approved label and the patients in our pivotal Phase III study. We are very pleased that in the fourth quarter of 2018, which was the first quarter of our launch, we reported net sales of $9.8 million, of which $9.2 million is attributable to the U.S. launch and $600,000 is attributable to our Temporary Authorization for Use program in France.

In early January, we announced that as of the end of 2018, approximately 600 physicians have prescribed ARIKAYCE and more than 500 patients had initiated therapy in the U.S. We continue to start new patients at a steady rate, which, among other things, supports our 2019 ARIKAYCE revenue guidance of $80 million to $90 million that Will mentioned earlier.

To date, we feel that the patients are clearly there and the physicians have an intent to treat. We view these early results as very encouraging for any product launch and particularly so for first-in-class therapy. Notably, we have also seen a roughly equal distribution of prescribing between infectious disease doctors and pulmonologists. We look forward to updating you with additional launch metrics on our first quarter call in May.

Our sales team continues to deliver very strong results as they launch ARIKAYCE. We have approximately 5,000 key physician targets broken down to Tier 1 and Tier 2. Our team has been actively calling on and engaging with these physicians and, as of year-end, had detailed about 80% of our Tier 1 targets and about 2/3 of our Tier 2 targets. Also, as of year-end, approximately 50% of scripts were generated by Tier 1 physicians, with the remainder coming from Tier 2 prospective targets and select nontarget physicians.

I want to turn now to market access where we've had some important early wins. Market access uptake for ARIKAYCE has progressed well, with formulary additions now in place for multiple Medicare and commercial plans, as well as access to Medicaid and federal programs, including VA, DoD and TRICARE. Our efforts currently are focused on negotiating with key payers as they hold meetings with their committees. Our key account directors remain hard at work in support of continued efficient reimbursement. Although there is no guarantee the positive reimbursement trends we have seen will continue, to date, the product is generally being reimbursed through physician attestation for the appropriate refractory MAC lung disease patients, and we are working to ensure that, that process continues.

Additionally, we expect to have select contracts executed during the first quarter, offering modest discounts to ensure smooth and medically appropriate prior authorization process, remove payer blocks and provide an incentive for plans to make a formulary decision during the plan year. Approximately 60% to 70% of our patients are eligible for Medicare. So as we enter a new calendar year, we are also closely watching the impact of the reset of the donut hole in Medicare and deductibles in the commercial plans and how this affects patients' intentions to initiate therapy. While we are not providing gross-to-net guidance, the contracts we execute, plus the impact of the donut hole, will result in an increase in our gross to net in 2019 when compared to the fourth quarter. We will provide an update on these trends during our call in May.

We also remain encouraged by the time-to-fill metrics, which we are currently trending better than our original assumption of 30 to 45 days. As we progress through the launch, P&C committee reviews and their aftermath, we'll be able to provide an update on how to think about this metric.

A key success factor for rare disease launches is patient support in many forms. We have an extensive network of in-house and field-based personnel supporting the patient experience, and thus, the positive launch momentum.

I can't say enough about our ARIKAYCE team and the impact that they're having on our patients with refractory MAC lung disease. Support for our ARIKAYCE program is strong among both physicians and patients. We must continue to execute to maintain that momentum throughout 2019, and I believe we have the right strategy and exceptional team and the resources to do so.

I would also like to reiterate that while our focus today is on the U.S. launch, our global expansion efforts are continuing. With the U.S. approval and launch progressing well, we're even more energized about the potential opportunity to serve patients with MAC lung disease in other regions, like Europe and Japan, following the necessary regulatory approvals.

We are all very excited about the launch of ARIKAYCE at this early stage, and we look forward to sharing our progress with you throughout the year.

And with that, I'll hand the call over to Paolo.

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Paolo Tombesi, Insmed Incorporated - CFO [5]

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Thanks, Roger. Good morning, everyone. I will spend just a few minutes reviewing our fourth quarter and full year financial results of 2018, and then we'll cover our financial guidance for the first half of 2019.

This morning, we reported total revenue of $9.8 million, comprising $9.2 million of U.S. net sales of ARIKAYCE and $600,000 of x U.S. net sales of ARIKAYCE. The x U.S. net sales reflect d'Utilisation from the Temporary Authorization for Use or ATU program in France.

As you will see on our income statement, for the first quarter of 2018, we reported a net loss of $91.6 million or $1.19 per share compared with a net loss of $65.4 million or $0.85 per share for the fourth quarter of 2017. Cost of goods sold for the fourth quarter was $2.4 million.

Please note that prior to approval of ARIKAYCE, the company spent certain manufacturing and material costs as a research and development expense. Since this is the first time we are reporting gross margin, I'd like to add some additional comments that may help with modeling for 2019. We expect to see improvement in the gross margin in 2019 for the following reasons: The gross margin for the first quarter of launch was particularly negatively impacted by the upfront cost of the control unit portion of the nebulizer used in ARIKAYCE that hits gross margin upon the initiation of February for new patients.

Only the COGS associated with vials of ARIKAYCE will continue through the duration of therapy. In addition, we have fully allocated the COGS overhead expenses associated with the production of ARIKAYCE. Since the allocation of cost of the pick-ups overhead is essentially fixed cost, as the sales grow, we expect to see an improvement in the gross margin.

Moving on, research and development expenses were $39.9 million for the quarter compared to $33.9 million in the fourth quarter of 2017. For the full year 2018, R&D expenses were $145.3 million versus $109.7 million for the full year 2017. The increase was primarily due to an increase in external manufacturing expenses for ARIKAYCE, production-related activities associated with the Patheon project and higher compensation and related expenses due to an increase in headcount.

Fourth quarter SG&A expenses were $54 million versus $31.4 million in the fourth quarter of 2017. For the full year 2018, SG&A expenses were $168.2 million versus $79.2 million for the full year 2017. The increase is mainly due to higher compensation and related expenses due to an increase in headcount and an increase in expenses related to the launch of ARIKAYCE. We ended the year with $495 million in cash and cash equivalents.

Let me spend a moment reviewing our financial guidance for the first half of 2019. The company is investing in the following key activities in 2019: first, the continued support of the U.S. launch and commercialization of ARIKAYCE; second, our post-marketing confirmatory study of ARIKAYCE, which will be conducted in a front-line setting as required for the full approval by the FDA as well as clinical trials to support the life-cycle management of ARIKAYCE as well as the WILLOW Study, our Phase II development program for INS1007, along with advancements of other pipeline programs; third, our global expansion in Europe and Japan to support regulatory and pre-commercial activities in these regions; and fourth, the build-out of an additional third-party manufacturing facility for increased long-term production capacity of ARIKAYCE and a new corporate headquarter facility.

As a result of these activities, Insmed expects cash-based operating expenses to be in the range of $150 million to $170 million for the first half of 2019. As a reminder, we define cash-based operating expenses in our earnings press release and exclude cost of products sold, stock-based compensation expense, depreciation and amortization of intangibles.

In addition, the company expects capital expenditures in support of the large-scale manufacturing facility at Patheon and the new headquarters to be in the range of $25 million to $35 million for the first half of 2019. All of our cash expenditure remain stage-gated and are predicated on continued success of the U.S. launch. In this way, our expenses should be seen as an investment to support continued and, ultimately, significantly expanded revenue growth, both here and around the world. As already mentioned by Will, in terms of revenue, 2019 full year guidance for ARIKAYCE is $80 million to $90 million.

With that, I will turn it back to Will.

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [6]

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Thanks, Paolo. Let me close out our prepared remarks by reiterating that 2019 promises to be a very exciting year for Insmed. The opportunities before us have never looked better. We have multiple strategic priorities that we believe will support patients with rare and serious diseases while generating significant value for shareholders.

As we continue our efforts to execute the successful launch of ARIKAYCE in the U.S., we believe we are positioned well to be the global leader in the treatment of NTM lung disease. While our commercial efforts are initially focused on refractory MAC patients, in line with our label, our investments are laying the groundwork for expansion both in the U.S. and around the world.

Our capital expenditures are designed to support the production capacity necessary to bring that opportunity to fruition, and our new headquarters will house the people we need in the U.S. to support this vision for the next decade. Importantly, we also have intellectual property protections in key markets around the world extending to 2035.

We believe we are in the early days of significantly changing the landscape of NTM lung disease, much in the way that other companies broke ground in pulmonary arterial hypertension and idiopathic pulmonary fibrosis.

Beyond the ARIKAYCE franchise and NTM, we are investing to bring potential additional therapies forward to treat serious rare diseases, which we believe will become a topic of increasing investor focus in the coming years. Collectively, we expect these efforts will enable Insmed to grow into a global biopharmaceutical company on a mission to transform the lives of patients with serious and rare diseases. This is within our reach.

As always, I'd like to thank the Insmed team for their hard work and dedication. We have an exceptional team whose talents are clearly demonstrated by our recent success.

And finally, I want to thank the patients and physicians we serve for their continued involvement in our clinical program. We are here to make a difference in the lives of patients and their families. And every day, we work hard to achieve this very important goal.

With that, I'd like to open the call to questions. Operator, can we take the first question, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from Martin Auster with Crédit Suisse.

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Mark William Connolly, Crédit Suisse AG, Research Division - Research Analyst [2]

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This is Mark on for Marty. Maybe my first one, I'm curious just to get a little more details around the COGS rate and more specifically, how you see that rate in the next, say, 1 to 3 years and what you see that turning into longer term. And then my second question is, in terms of the SG&A spend, I guess, can you outline what current SG&A run rate includes and expectations for how those could evolve back-half of the year and into 2020?

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [3]

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I'll ask Paolo to take that call -- that question.

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Paolo Tombesi, Insmed Incorporated - CFO [4]

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Thanks for the question. So the cost of goods for the first quarter of launch was 25%, but this was clearly impacted at the beginning due to the fact that the high ratio of new patients, practically all who are new patients, and so we have a first hit due to the inhaler, our nebulizer. And second, of course, we have started to allocate all the pick-ups overheads when we move from expense to inventory for our production. Both in the 2019, of course, will decrease the incidence because, of course, we will start to have patients on therapy compared to new patients, and the volumes will help to alleviate the incidence of the overheads. So we are expecting during 2019 a progressive decrease in the cost of goods percentage. At the moment, we are not giving specific guidance on the long term. But for 2019, you can expect a lower ratio of the cost of goods sold.

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [5]

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SG&A?

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Paolo Tombesi, Insmed Incorporated - CFO [6]

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In terms of SG&A, of course, we have a lot of support for the commercial launch. We are still in the first phase of the launch in the U.S. So you will -- we will see a lot of investment still needed to support all the launch in terms both on promotional activities, but also increasing our investments in the Arikare that we show our patient support is very critical to help the patients. And so these are the key areas in which we will have the increase in SG&A. We're also starting to also support the global expansion, so there are also some additional investments related to increase the presence in Europe and then to support Japan.

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Operator [7]

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And the next question comes from Matthew Harrison with Morgan Stanley.

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Ishmael Izakiel Gyimah Asante, Morgan Stanley, Research Division - Research Associate [8]

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This is Ishmael on for Matthew. I know you mentioned you are starting new patients at a steady rate. Can you give more detail on how this and potential other key factors are influencing the 2019 revenue guidance? And also, quickly, what kind of persistence are you assuming for new and existing patients?

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [9]

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So the one thing I'll say is that the provision of revenue guidance may come as a surprise to some people because I had originally thought we were going to do that later in the year. But I just have to say, we have a lot of confidence in how the launch is progressing. And so consequently, we feel comfortable putting out the guidance that we've said today, which is revenue in the range of $80 million to $90 million. We haven't provided any other additional detail on this call. As we go forward, we may add some additional detail so that you can get into the weeds. But I think at this stage, 6 weeks into the launch, into the second quarter of launch, we thought we would cut to the chase and just put the revenue guidance out there. So hopefully, that helps you understand where we think things are going. I don't know, Roger, do you want to add anything else to that?

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Roger Adsett, Insmed Incorporated - Chief Commercial Officer [10]

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No, I think that the characterization of the launch and what we're seeing, I think, is -- I'm really very pleased with it. I think we see the positive momentum continues, and that's characterized by the guidance that Will had given out earlier. Around the discontinuation rate, I think it's probably a little too early to comment on that, although it's contemplated in our guidance. And just as a reminder, from the clinical trial, we see that about 30% of patients will discontinue, and most of that happens within the first 30 days. So that's something that we're, as I mentioned, with our Arikares team, working on, on making sure that we're educating physicians and reaching out to patients and working with them about the importance of the therapy, what to expect from the therapy and how to manage through that and hopefully stick to that, to the Arikares regimen.

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Operator [11]

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And the next question comes from Adam Walsh with Stifel.

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Adam Anderson Walsh, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [12]

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I guess, my question is, first, a follow-up on the guidance question that was just asked. And I've been doing some math. If you had 500 patients on it December 31 and those patients stayed on the drug at the current list price for the entire year, that will get you to $66 million, and that's mostly the way to the low end of the guidance. So the implication or the takeaway, at least in my end, is the guidance is either conservative or you're seeing something else in the market that suggests either a slower patient of new patient -- slower pace of new patient adds in 2019 versus the fourth quarter. Or there could be other things, like dropouts or contract negotiations on pricing and the extent to which there may be conservatism built in or some of these other factors could be impacting your guidance. Any other color there would be helpful. And then I just have one follow-up after that.

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [13]

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Sure. I appreciate the question. I wouldn't read beyond the guidance into too much what may be going on behind the scenes. We have expressed a lot of confidence in the launch and the way it's progressing. I think that has not been widely variable. So I think we continue to have a lot of confidence in it. It's very early in the year, so it's difficult to project where this could go or how it will unfold. I think the confidence we have caused us to put the revenue guidance out there so that people can begin to think about where this could go. But as we learn more, we certainly will share that. At this stage, though, there's nothing new to be learned by going into some of the other details, for example, new patient adds or number of prescribing physicians that we provided at the beginning of January, and we'll return to some of those metrics in the future. I don't know, Roger, if you want to add anything to that. I just -- no, I would just caution, Adam, not to read anything negative into what we have indicated.

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Roger Adsett, Insmed Incorporated - Chief Commercial Officer [14]

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Yes, I would agree with that. I think the -- and the gross-to-net guidance is contemplated in that revenue, that revenue guidance, the discontinuation, the adherence. All of those factors are contemplated within that number. And there are things that we're still trying to, honestly, monitor and get our heads around as to what the full year run rate is going to look like. So I would say that the number expresses our confidence in the launch and how that's progressing. And we look forward to updating you more on the metrics as we go forward.

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [15]

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As we learn more.

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Roger Adsett, Insmed Incorporated - Chief Commercial Officer [16]

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Yes.

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Adam Anderson Walsh, Stifel, Nicolaus & Company, Incorporated, Research Division - MD & Senior Analyst [17]

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Yes, that's certainly helpful. And I do appreciate the actual dollar guidance. That's certainly helpful, and it's nice that you put that out there. And then my second question is on the design and protocol for the confirmatory study. Will, if you could just kind of expand on where you are in that process and maybe give us some details about what you're thinking about in terms of the FDA's requirement for some kind of clinical outcome measure. How are you thinking about approaching that in the confirmatory study based on what you're thinking there?

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [18]

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So that -- yes, so that process has been underway. I think our team has been hard at work at coming up with a bunch of different approaches. Maybe just a comment on what we've been doing. We have really, including using some outside vendors, cross-examined the heck out of our Phase III data set to understand what are the impacts of the drug on this patient population and how that might inform trial design for the postapproval requirement. Again, the trial will address, we hope, a front-line setting, which would increase the addressable market if we were to get the indication about five-fold. So it's a pretty big expansion in terms of life-cycle management. I think the -- I would characterize the dialogue with FDA as very productive. They clearly are interested in seeing some symptomatic benefit measure, and we have tried to come up with a design that we think we'll be able to provide that. I think we feel very good about the designs that we have. We have more than one, and we're in dialogue with them to assure that we land on something that we feel good about and that will satisfy their needs. Some of the measures that you've seen us look at and talk about in the past are things like 6-minute walk and PRO, and those 2 for patients who have achieved culture conversion because for those patients who've achieved culture conversion, we have good indication that the result is benefit in those patients over time. And we just need to capture that in a way that is prospectively designed to reflect that outcome. That's the only limitation of our Phase III study, in my mind, as it applied to answering those questions for FDA at AdCom was that the study was not prospectively designed to look at only converters. So our intent is to go down the path of, first, securing patients as converters and then examining the impact.

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Operator [19]

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And the next question comes from Dana Flanders with Goldman Sachs.

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Dana Carver Flanders, Goldman Sachs Group Inc., Research Division - Research Analyst [20]

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My first one here, what are your assumptions, I guess, at this point, on whether or not patients will be able to stay on drug if they do not culture convert after 6 months? Is that something you need to drive more on the physician side or more so present that kind of the case to payers? And then I have one follow-up.

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [21]

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Sure. I'll ask Roger to come in, in a minute. But I'll just make the observation that the current practice is to keep patients on therapy. The comment that sort of is the mantra out there is once patients come into the NTM treatment clinic as a refractory patient, they never leave. So I think the drug represents a real potential advance for these patients in giving them a path to culture conversion. We know from the 212 and 312 study that patients who remain on drug after 6 months do continue to convert, and I think that's an extremely important point. We'll continue to examine that as those data read out. I don't know, Roger, if you want to comment about the market access side.

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Roger Adsett, Insmed Incorporated - Chief Commercial Officer [22]

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Yes. I think that our position on this is informed by the ATS guidelines. And I think that, that's something where we can point to and have pointed to with success to payers as we engage with them and talk to them about what are the medically appropriate prior authorization process looks like. So if you start and you put a patient on therapy for 6 months and if they have not culture conversion -- converted, then you provide another 6 months of therapy according to the guidelines. And that's something that we can point to. And certainly, as Will mentioned, the fact that we see patients continue to convert with that additional therapy is very helpful. And so that's something that we continue to educate the payers on. I think the physicians are there. I think that seeing and continuing patients on therapy, particularly if they think that they see a benefit for these patients, a clinical benefit to these patients, is something that they are absolutely willing to do. And now it's working with payers to ensure that their PAs reflect the guidelines of best medical practice.

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Dana Carver Flanders, Goldman Sachs Group Inc., Research Division - Research Analyst [23]

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Okay. And just my quick follow-up. What are the plans to provide kind of the full durability data? And I think there was also kind of the full data from INS-312. I realize no longer needed for full approval, but just curious if we should be looking out for that anytime soon.

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [24]

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Yes, you bet. So we're looking to put that out in a peer-reviewed setting. So with any luck, we'll be able to get it included at ATS, but that's sort of up to the ATS group. Submissions have been made, and our hope is to present it there.

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Operator [25]

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And the next question comes from Ritu Baral with Cowen.

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Ritu Subhalaksmi Baral, Cowen and Company, LLC, Research Division - MD and Senior Biotechnology Analyst [26]

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Some additional questions on the launch detailing for you guys. You mentioned that 80% of Tier 1s have been detailed, 66% of the Tier 2s. When do you expect -- first of all, when do you expect all of the Tier 1s and Tier 2s to have been detailed by? Second, are you seeing patterns on number of details to those prescription written? And do you guys have a metric on average prescriptions per writing doctor at this point?

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [27]

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I'll ask Roger to address this.

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Roger Adsett, Insmed Incorporated - Chief Commercial Officer [28]

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Yes. Thanks, Ritu. So the numbers that we shared were as of the year-end, so that reflects the fourth quarter effort. So we haven't provided an update on the first quarter effort. We continue to expect that, that will expand as our sales team continues to make calls. I don't know if we'll ever get to 100%. Some doctors are no-see doctors, as you know, and so that's maybe an elusive task. But we certainly think that, over time, we'll be able to reach the vast majority of these physicians. We are actually getting, and I think it's very encouraging, we're actually getting outreach from physicians who we're not calling on, asking to see our rep, and we're able to send them in, and that's through our digital efforts. So we're not entirely relying on just feet on the ground, knocking on doors of offices. We're supplementing that with what I would say as a very extensive digital program. And we don't have any metrics that we're sharing right now as far as number of patients per prescriber. I would say the breadth that we had shared earlier shows that there's a lot of people who are right now in the trial period. And we have seen roughly equal from Tier 1 and the Tier 2 and non-target physicians. I would say it's more likely that the Tier 1 have multiple patients. And the Tier 2 are -- depending on where they are in that Tier 2, they have just a handful down to a couple of patients, depending on where on the scale they are. So it's hard to give an average number but that 10,000 to 15,000 distributed across 5,000 physicians, so it gives you a rule of thumb to work with.

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Ritu Subhalaksmi Baral, Cowen and Company, LLC, Research Division - MD and Senior Biotechnology Analyst [29]

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Got it. And is it fair to say that you expect as many of the Tier 1 and Tier 2s as possible by midyear? Is that a fair assumption?

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Roger Adsett, Insmed Incorporated - Chief Commercial Officer [30]

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Yes, I think that's a fair assumption. We continue -- I mean, we put a fairly sizable, as you know, 72 therapeutic specialists out there sized to reach these physicians, and they're out there on a daily basis doing their calls and working with physicians who have these NTM patients. So I think it's fair that we'll continue to see progress throughout the year to get to the majority of those we haven't yet reached.

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [31]

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And I'll just add, Ritu, the 80% and 66% in 3 months is a pretty impressive accomplishment. And I just want to echo Roger's comments that they're doing a fantastic job.

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Ritu Subhalaksmi Baral, Cowen and Company, LLC, Research Division - MD and Senior Biotechnology Analyst [32]

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Got it. And then I have a follow-up on gating items for the European application, especially the Japanese application. What's left to do, especially given that 2020 timeline for Japan?

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [33]

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Well, so the European application, we indicated will be filed by the middle of this year. Japan, as you know, is an application that even once you have it written, whether it's the U.S. or the European version, needs to be translated and put into their form. So we have the resources now in place to accomplish that task. And once that is done, we will file. We'll also be talking to PMDA prior to that to make sure that we're aligned on what it is we will be filing and that it will be sufficient for their review and, hopefully, approval.

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Ritu Subhalaksmi Baral, Cowen and Company, LLC, Research Division - MD and Senior Biotechnology Analyst [34]

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When are you going to meet with the PMDA? And are you confirming that as far as you know, right this second, there's no clinical data to be generated for the Japanese filing?

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [35]

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That's right. As of right now, we have no reason to believe that the indication that they previously gave us would be any different. But it's always a prudent measure to talk to them one final time before you go in with a submission, as you fully appreciate. I'm not actually sure when the next meeting is taking place, but I think it's the first half of the year. So I don't anticipate any bumps in the road.

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Ritu Subhalaksmi Baral, Cowen and Company, LLC, Research Division - MD and Senior Biotechnology Analyst [36]

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Got it. And last -- I guess, last question, Will. Having known you for some time, you're a reasonably conservative guy. You've got a reasonably conservative team. I think a lot of us were quite surprised by the number this morning to the upside, certainly, on guidance that you gave. Can you, maybe you and maybe Roger separately, can you identify those metrics that you're seeing that give you such confidence in this well above current consensus number for 2019? What are the most important trends that you're seeing?

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [37]

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Yes, no, I appreciate that question, Ritu. I feel really good about, as I said, the way the launch is progressing. It starts with the team, and I think the commercial team of this company is exceptional. And I think the interactions that I've had with them, including at the therapeutic specialist level, gives me a great deal of confidence that when they give me their perspective on what can be accomplished, I can lean on that. And that's the heart of what gives me that comfort. As I look at the metrics and the raw data, as we said at the beginning of January, I think 500 patients initiating therapy from a breadth of physicians in excess of 600 after 3 months is a testament to the fact that I think this drug is viewed as a good drug, period. And I think drugs have different profiles when they first come on the scene. This is really exciting data. This is really a desperate need. And I think that combination is, if you will, selling itself. And so I think that sets us up for favorable tailwinds. As I look out of the year, I think there are a number of drivers that will potentially be of help to us as well, and I think ATS has come up around the corner. We intend to have a big presence there. The 212, 312 data is going to be, hopefully, presented at ATS as well. There's just a lot of attention around this. And the fact that this is -- I think many people see it as the dawning of the world of NTM treatment, much like as I said in my comments, one saw at the beginning of PAH and IPF when it was first getting started. I'll leave it to Roger to comment.

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Roger Adsett, Insmed Incorporated - Chief Commercial Officer [38]

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Yes. Thanks, Will. And I would just say that I think that, as I said in my comments, 2 things are critical: the patients are there, there's an unmet need and the physicians are willing to write. And I would say that just building on Will's comment that the commercial team is executing across the board. So we continue to see the patient adds. Our sales team is executing. They've got terrific relationships with the offices and are working hard to identify these patients and really have a very genuine passion for making sure that ARIKAYCE gets to the patients who absolutely need the product. Our key account directors -- I think the metrics we set out as far as time to fill, as I indicated, we're beating those metrics. And so our key account directors are having great success working with these plans, educating them on the prior authorization. We're seeing success in getting the product paid for, and we expect that to continue. I mean, there's no guarantee, but we absolutely expect that those smoother reimbursement processes we've seen early on, we're working hard to make sure that, that continues. And I think that that's an important element, as you know, for any successful launch. And then I think the patient experience, our Arikares coordinators and as well as the field, Arikares field trainers and the work that they're doing with the patients directly one on one, we get stories all the time about the impact that these people are having on patients in the care. So I just feel the confidence from just the execution of what I think has been a tremendous team that we've assembled so far, and I see that continuing. And that's what personally gives me the confidence that we'll be able to continue to execute and deliver on the guidance that we've provided today.

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [39]

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And I think the only thing I would add as a closing thought, Ritu, is there are variables we still don't know. Duration of therapy and what that's going to be like in the real world, we won't know that until, frankly, late this year. But I think what we're seeing so far, we can speak with some confidence on '19.

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Operator [40]

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And the next question comes from Josh Schimmer with Evercore ISI.

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Joshua Elliott Schimmer, Evercore ISI Institutional Equities, Research Division - Senior MD & Equity Analyst [41]

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Just wondering what you see as the implications of not getting orphan drug status granted in Japan either for your commercial strategy or price point in that territory.

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [42]

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Roger, do you want to take that?

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Roger Adsett, Insmed Incorporated - Chief Commercial Officer [43]

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Yes, thank you. So Josh, so I'm not overly concerned about not getting the orphan status in Japan. I think that we've looked at the pricing implications there, and we feel that it's relatively minor. The most important thing for us is to launch with a good price in Europe. Japan, with the pricing scheme that they have, there's a cost of goods-plus model for what we think for ARIKAYCE. And then take a look at where the product is commercialized outside of Japan and primarily look to Europe. And that strategy is to launch first in the free price markets, as usual, in the U.K. and in Germany, and then Japan will look to those markets to make an adjustment. So we think that the pricing situation in Japan is healthy for us and will support our launch.

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [44]

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And I would just add that the reason for the lack of orphan status is because, first of all, their orphan threshold is lower. But also, they're looking at NTM and our product in particular as ultimately being used across that disease spectrum. So I think while we don't get the orphan status, that impact, as Roger said, is minor. And it really speaks to the appetite that the country has for seeing this therapy, I think, hopefully utilized across the NTM spectrum once we've generated that data. I mean, to a person, the KOLs over there are looking to use this in the front line and the refractory markets.

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Operator [45]

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(Operator Instructions) And the next question comes from Joseph Schwartz with SVB Leerink.

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Joseph Patrick Schwartz, SVB Leerink LLC, Research Division - MD of Rare Diseases & Senior Analyst [46]

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Joe Schwartz from SVB Leerink. So how are physicians monitoring patients' response to therapy in the real world? And how does their patient management compare to what you saw in clinical trials, which had very rigorous criteria defining what a responder looks like?

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [47]

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Roger, do you want to take that?

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Roger Adsett, Insmed Incorporated - Chief Commercial Officer [48]

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Yes. Thanks, Joe. So it's maybe a little early to tell, but I would say that outside of the Centers of Excellence, I would say the community physicians are less inclined to take sputums and to test for culture conversion. Although I think that you're going to see some encouragement from payers to do that at the 6-month mark and at the 12-month mark if they continue on therapy. But for now, I would say that physicians, for the most part, again outside of those centers, are more focused on, can the patient tolerate the therapy? And are they starting to feel better? And do they see some improvement in the patient? And again, we're still early, early weeks into the launch to make those kinds of assessments.

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Joseph Patrick Schwartz, SVB Leerink LLC, Research Division - MD of Rare Diseases & Senior Analyst [49]

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Right. Okay. And then what are some of the options that you foresee for the confirmatory study design? And how much information is available for you to guide your power and considerations there?

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [50]

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Yes. So because we're in negotiation and discussion with FDA, I think I'll hold off on giving too many specifics. I mentioned earlier the focus on and their interest in seeing some kind of benefit to the patient. Their usual metric is feels, functions or survives. One of those 3 needs to be captured in whatever it is you're measuring. So the PRO or the 6-minute walk are manifestations of how a patient may feel or function. And in that regard, those serve as obvious potential places to go. And the data we have, we've gone through exhaustively. And I think, as I mentioned quickly, I'll just perhaps dwell on a little bit more. We've done a lot of looking at this data using some outside, really cutting-edge machine learning tools, some AI. I mean, we have cross-examined the heck out of the database, and that is what is informing what we will do. It's interesting and then it complements where we were originally planning on going in terms of the design of the study and focusing on those 2 elements I mentioned for converted patients. And I think that's where the key to the study design will lie. We're looking to convert patients and then examine how they feel, function or survive after that. So that's kind of the principle guiding our design. And once it's completed in detail, we'll share it all with the community.

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Operator [51]

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And this concludes our question-and-answer session. I would now like to turn the floor back over to management for any closing comments.

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William H. Lewis, Insmed Incorporated - President, CEO & Chairman [52]

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Thanks, everyone, for joining us today. Have a great day.

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Operator [53]

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Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.