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Edited Transcript of INSM earnings conference call or presentation 23-Feb-17 1:30pm GMT

Thomson Reuters StreetEvents

Q4 2016 Insmed Inc Earnings Call

RICHMOND Feb 23, 2017 (Thomson StreetEvents) -- Edited Transcript of Insmed Inc earnings conference call or presentation Thursday, February 23, 2017 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Laura Perry

Argot Partners, LLC - IR

* Will Lewis

Insmed Incorporated - President and CEO

* Andy Drechsler

Insmed Incorporated - CFO

* Roger Adsett

Insmed Incorporated - Chief Commercial Officer

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Conference Call Participants

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* Dae Gon Ha

Leerink Partners - Analyst

* Adam Walsh

Stifel Nicolaus - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Insmed fourth-quarter 2016 financial results conference call. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Ms. Laura Perry with Investor Relations. You may begin.

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Laura Perry, Argot Partners, LLC - IR [2]

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Thank you, Saundra. Good morning, and welcome to today's conference call to discuss our fourth-quarter and year-end financial results. 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 risk 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 from the SEC or from our website, for information concerning the risk factors that could affect the Company.

Joining me on today's call are members of the Insmed executive management team, including Will Lewis, Insmed's President and Chief Executive Officer; Andy Drechsler, our Chief Financial Officer; and Roger Adsett, Chief Commercial Officer. For today's call, Will will provide a corporate update and Andy will then review the fourth-quarter financials. Following brief closing comments from Will, we will then open the call for questions.

At this time, let me turn the call over to Will.

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Will Lewis, Insmed Incorporated - President and CEO [3]

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Thank you, Laura. Good morning, everyone, and thank you for joining us today. Over the past year we've made significant progress toward our goal of building a self-sustaining biopharmaceutical company that addresses the unmet needs of patients with rare diseases. We are now approaching the pivotal moment that we have been working towards for many years: the readout of our Phase III CONVERT study for our lead product, ARIKAYCE.

ARIKAYCE is a combination of the aminoglycoside antibiotic amikacin, encapsulated in a specialized liposome made up of DPPC and cholesterol which enhances its potential to treat certain infections; and delivered directly to the lungs, through a customized ultrasonic nebulizer. Positive results have the potential to put Insmed on a new trajectory of growth.

As many of you know, we are developing ARIKAYCE initially as a treatment for the thousands of patients who suffer from refractory nontuberculous mycobacteria or NTM lung disease. This disease is caused by Mycobacterium avium complex, or MAC. NTM lung disease is a debilitating, pervasive, and costly disorder with no approved therapies. It typically affects an older population, many of whom have multiple comorbidities, and it is associated with a high mortality rate.

This past November, we announce that we achieved our patient enrollment objective in CONVERT. We remain on track to report top-line data in the second half of this year, most likely in the September time frame, plus or minus a month. CONVERT is a rigorous and robust study that was informed by our Phase II study results, input from KOLs, and discussions with regulators. It is the largest study in NTM undertaken to date; and when fully completed, we believe the data will inform the most thorough understanding of the treatment of NTM.

The study is being conducted in 18 countries and over 125 sites around the world. We randomized 336 patients, with 2-to-1 randomization in favor of the ARIKAYCE treatment arm. Patients receive either ARIKAYCE plus standard of care, or standard of care alone. The primary endpoint is the proportion of patients achieving culture conversion by month six, with culture conversion defined as three consecutive negative monthly sputum cultures. This is the gold standard for measuring culture conversion. We have powered the study at a 90% confidence level to demonstrate a 15% difference between the treatment group and the control group.

Patients who achieve culture conversion by month six will continue in the CONVERT study for an additional 12 months of treatment, mirroring clinical practice. Non-converting patients have the option of enrolling in the 312 open-label study to receive ARIKAYCE plus guideline-based background therapy for 12 months. With these extension studies, we will be able to evaluate the durability of culture conversion as well as the impact of ARIKAYCE on other longer-term clinical objectives.

We continue to remain blinded to the data. However, we can provide an update on some aspects of the trial conduct thus far. The pace of enrollment was steady throughout the course of the study; and as of today, over half the patients have completed the six-month treatment period. The dropout rate seen to date continues to be consistent with our expectations. Additionally, there have been a total of six Data Safety Monitoring Board, or DSMB, meetings thus far. With each of those reviews, the DSMB has recommended that the study continue without modification.

In terms of our regulatory efforts, we continue to interact with regulatory agencies worldwide, including the US Food and Drug Administration, or FDA; the Pharmaceuticals and Medical Devices agency, or PMDA, in Japan; and the European Medicines Agency, or EMA, in Europe. Should we achieve the primary endpoint we will move quickly to file for approval in the US under Subpart H. This regulation enables sponsors to file on an accelerated basis, and subsequently complete post-market activities to verify and further describe clinical benefit. It continues to be our understanding that the successful completion of the entire CONVERT study will provide the data needed for full approval.

We are already working to advance some of the necessary aspects of the regulatory filings so that we are in a position to finalize the submission in a timely fashion. In addition, we will be pursuing parallel efforts to support regulatory submissions in other geographies.

In anticipation of a successful approval of ARIKAYCE, we have invested in our manufacturing and supply chain capabilities around the world. As we mentioned last quarter, we now have two sources of clinical and commercial supply up and running. We believe this will provide adequate supply to address the estimated demand for ARIKAYCE, as well as improve the margins as a result of this scale-up.

We are also continuing to strengthen our intellectual property position. Just this month, we announced the issuance of a new patent covering the drug device combination. This extends our coverage an extra five years in the US into 2034. Importantly, this represents a significant extension of protection at the time we anticipate the product will be at a mature point of sales. Together with the multiple drug designations in US and Europe, we have multiple layers of market exclusivity to protect our leading position in this underserved market.

Finally, let me touch on a couple of other priorities, including pricing research and building disease awareness. Regarding pricing, our strategy has always been value-based and data-driven. It considers the unmet need in NTM, the significant disease burden, cost to the health system, and the 10-plus years of investment we've made in this innovative treatment. Recent pharmacoeconomic studies support our view of the unmet need and disease burden associated with NTM. Cost for NTM patients exceed the annual cost for asthma, COPD, or tuberculosis. Moreover, in the first year following diagnosis, cost to treat NTM exceed those associated with lung cancer patients and idiopathic pulmonary fibrosis, and are almost more than those two combined.

As part of our ongoing effort to understand the NTM cost burden, we commissioned a review of data from an insurance database and found NTM patients are costlier than age-matched controls across a variety of metrics, including frequency and duration of hospital stays as well as emergency room visits. Most importantly, once treated to a point where they culture convert, the cost associated with NTM patients drop dramatically. The reduction in cost of treatment is driven primarily by reduced hospitalization. A recent study in Germany found that patients with NTM had a high mortality rate, exceeding that for patients with COPD, bronchiectasis, or cystic fibrosis; and that the management of NTM lung disease was associated with substantial healthcare resource utilization.

Clearly, treatment that achieves durable culture conversion remains the key objective and gold standard for both patients and healthcare systems. We will continue to refine our understanding of the size of the target addressable market based upon our expected label. We expect to publish more in this regard in the future.

Another strategic priority is raising disease awareness and providing physician education. Our website, NTMfacts.com, is part of our non-branded disease awareness campaign designed to help physicians understand the importance of an appropriate diagnosis. Through this campaign, we provide valuable information on how to recognize the signs and symptoms early to better manage NTM lung disease. The site also incorporates patient perspectives, sharing the daily challenges of living with NTM.

Our awareness campaign is targeted specifically to pulmonologists and specialty infectious disease physicians through medical meetings, emails, banner ads, and journal ads. We've seen an impressive response thus far, with a high level of physician engagement. This highlights both the appetite that exists for expert involvement in this disease state, and the bridges we are building between Insmed, physicians, and NTM patients.

Now I'll provide an update on our next-highest clinical development priority, INS1007, a reversible oral DPP1 inhibitor which we acquired global exclusive rights from AstraZeneca last October. The Phase-II-ready asset is a perfect complement to our ARIKAYCE program, as it leverages our established expertise in the rare pulmonary space and directly overlaps with NTM lung disease. We are very excited about the potential 1007 has in multiple disease states.

Initially, we will focus our development efforts on non-CF bronchiectasis, a rare chronic pulmonary disorder. Approximately 40% of non-CF bronchiectasis patients are believed to have NTM lung disease, so there is a very good strategic overlap with our current efforts. Patients with this condition experience a vicious cycle of bacterial colonization, inflammation, airway destruction, and abnormal mucus clearance. The unmet need here is great, since as with NTM, there are currently no FDA approved treatments for this disease. Current standard of care focuses on treating the symptoms of the diseases, such as clearing the airway, reducing the infection, and managing exacerbations. These treatments do not target the underlying inflammation.

As a novel oral inhibitor of DPP1, 1007 impairs the activation of three neutrophil serine proteases that reside within our neutrophils: neutrophil elastase, proteinase 3, and cathepsin G. When they are released in excess of endogenous inhibitors, they become destructive and trigger excessive mucus release and pro-inflammatory events. This then contributes to lung matrix destruction and information.

A Phase I study of healthy volunteers conducted by AstraZeneca pointed to the potential of the mechanism, with 1007 demonstrating a dose response of inhibition of neutrophil elastase activity. Data from a Phase II study evaluating AZD9668, a neutrophil elastase inhibitor with a related mechanism of action, provides insights on the potential activity of 1007. AstraZeneca evaluated 9668 in a randomized, placebo-controlled Phase II study in non-CF bronchiectasis. After four weeks of treatment, a significant increase in lung function was observed, specifically at FEV1 and forced vital capacity.

These results suggest that a DPP1 inhibitor, which acts upstream of the neutrophil elastase inhibitors, could have a similar or even greater impact. In addition, data suggests that 1007 may also impair the production of active neutrophil serine proteases and their accumulation at inflammatory sites, which is what contributes to lung matrix destruction and inflammation.

We are working to finalize our plans for a Phase II study which we expect to initiate this year. Key next steps include a pre-IND meeting with FDA where we'll discuss our proposed study design and the development program in non-CF bronchiectasis. It is our expectation that we will develop 1007 in other disease states as well. We are in the process of evaluating 1007 in several ongoing preclinical studies. Based on the outcomes of those studies, we plan to provide details for other Phase II studies in additional indications later this year.

Regarding our internal research efforts, our talented team of scientists at Insmed are advancing a number of preclinical programs in rare disorders. The most advanced program from our internal pipeline, and the only one I will touch on today, is INS1009, a nebulized prodrug formulation of treprostinil. We have been encouraged by the Phase I data from this program, which we presented at the ERS conference in September. We continue to believe that this program holds tremendous value, and we are currently evaluating our options to further advance its development.

With respect to our financial position, we ended the year with roughly $163 million in cash. This leaves us well-positioned to share top-line convert results and advance INS1007 into a Phase II study in non-CF bronchiectasis.

So, in summary, we're pleased to share the progress that has been taking place over the prior quarter at Insmed. We are excited by the year ahead, and look forward to sharing top-line results with you as they become available. We're continuing to advance our regulatory activities for ARIKAYCE in the US, Japan, Europe, and other geographies. And we're furthering NTM lung disease awareness among physicians. Beyond ARIKAYCE, we are investing in our pipeline with 1007, and we look forward to bringing that program into Phase II development this year.

With that, I will have Andy share with you this quarter's financial update. Andy?

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Andy Drechsler, Insmed Incorporated - CFO [4]

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Thanks, Will. Good morning, everyone. Turning now to our quarterly results, this morning we reported a net loss of $68.4 million or $1.10 per share compared with a net loss of $31.2 million or $0.51 per share for the fourth quarter of 2015. Research and development expenses increased to $54.9 million compared to $19.6 million in the fourth quarter of 2015. The increase was primarily due to the $30 million upfront payment made to AstraZeneca for the exclusive global rights to INS1007. In addition, there were increases in expenses related to the advancement of the Company's global Phase III CONVERT study of ARIKAYCE in NTM lung disease, and an increase in headcount and related expenses.

Fourth-quarter G&A expenses were $12.2 million versus $12.9 million in 2015. The expenses were relatively flat compared to the prior year, and include $3.7 million of expenses related to pre-commercial activities for ARIKAYCE.

We ended this year with $163 million of cash and $55 million in debt. We had $64 million of second-half 2016 cash-based recurring operating expenses. We would note that this does not reflect the one-time $30 million payment to AstraZeneca for the acquisition of 1007, or stock-based compensation or depreciation expenses.

With regard to cash guidance, we expect cash operating expenses to land within the range of $67 million to $77 million for the first half of 2017. This range primarily reflects spending for the CONVERT study, the follow-on 312 study for those NTM patients that do not convert, and continued regulatory and commercial development of ARIKAYCE. The estimates also include expenses related to INS1007, including inventory purchases as well as preclinical and clinical startup activities.

Going forward, we will remain disciplined in our use of capital, and we will ensure our two priority programs, ARIKAYCE and INS1007, are appropriately resourced.

With that, I'll turn the call back to Will.

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Will Lewis, Insmed Incorporated - President and CEO [5]

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Thank you, Andy. As a team, we are committed to developing what we hope will be the first approved drug for a globally prevalent rare disease where nothing is approved. We believe ARIKAYCE has the potential to trigger a significant shift in the entire NTM lung disease treatment paradigm, and offers hope for the patients suffering from this disease and the doctors working to treat it.

We are leveraging our expertise to address unmet needs in other rare diseases. We are excited about the potential for our new 1007 program to address the underlying pathway involved in bronchiectasis.

2017 is shipping up to be a transformational year for Insmed, and we're looking forward to updating you on our progress. We're planning for an R&D Day this summer, so please stay tuned for details on that event.

With that, I will hand the call back to the operator to begin Q&A. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions). Jason Schwartz, Leerink Partners.

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Dae Gon Ha, Leerink Partners - Analyst [2]

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Thanks for taking the question. I guess I misspoke; it's Joe Schwartz. This is Dae Gon dialing in for Joe. Thanks for the clarity on the progress, and congratulations.

So, looking forward, I was wondering if you could provide whether the CONVERT study data will be released in a PR format or in a major medical meeting platform. And also, at this point, what are your current thoughts if you could just remind me on the post-marketing. You said full Phase III data could support a full approval, but maybe you can go into a little more detail. And I have a follow-up. Thanks.

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Will Lewis, Insmed Incorporated - President and CEO [3]

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Sure so the answer to the first question, whether it will be a press release or a medical meeting, it will be a press release that announces the top-line results. We'll obviously go into greater detail on the content of the study at the most proximate medical meeting. So that's how we intend to address the data and the only reason we would put more limited top-line results as is often the case in the press release, is because we don't want to corrupt the ability to participate in a significant peer-reviewed medical meeting subsequent to that.

On the second question, when I make reference to the full Phase III, remember that this study begins with a six-month primary endpoint. But then the study continues in 312 for an additional 12 months of treatment, and then one year off all drugs for follow-up. So we are looking at a study that will span the better part of three years of treatment and observation. And at the conclusion of all of that we will have very good longitudinal data about treatment, culture conversion, durability; perhaps things like mortality. And it's the totality of that data that we think will be supportive of a full approval, and that has been consistent with our dialogue with FDA to date.

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Dae Gon Ha, Leerink Partners - Analyst [4]

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Great. Thank you for that. In terms of the INS1009, I was just wondering what your thoughts were, given sort of the current developments, if you will -- so Actelion and J&J, for example, and the United Therapeutics announcement yesterday. What are some of the strategies that you are contemplating at this point? Thank you.

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Will Lewis, Insmed Incorporated - President and CEO [5]

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Well, at this stage, I think 1009 is a product that we think has an important potential role to play. How we would bring that forward is the subject of internal discussion right now. We want to be prudent with our use of cash while we are awaiting the top-line results of the ARIKAYCE study. And so I think we're going to continue to evaluate both internal and external development options until we have that data card turned over. And at that point, we would expect to update you with the next steps for 1009.

But just to refresh everyone's recollection, this is a prodrug formulation of treprostinil. The Phase I data was published last year. And it showed the possibility, for the first time, of having a once -- or if we wanted to, a twice-daily administration of that drug. And the advantaged that provides: for the first time, patients would have nighttime coverage with pulmonary arterial hypertension. So that's a significant advance clinically and one we want to continue to explore.

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Dae Gon Ha, Leerink Partners - Analyst [6]

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Great, thank you so much.

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Operator [7]

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(Operator Instructions). Adam Walsh, Stifel.

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Adam Walsh, Stifel Nicolaus - Analyst [8]

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I think this is going to be Andy's last conference call. And I just want to congratulate you, Andy, on a great job at Insmed; and wish you well going forward in your future endeavors.

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Andy Drechsler, Insmed Incorporated - CFO [9]

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I appreciate that, Adam. Thank you very much.

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Adam Walsh, Stifel Nicolaus - Analyst [10]

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I have a couple of questions. First, just can you clarify the timing of filing in ex-US geographies? And then also discuss the commercial prep as it relates to your anticipated filing timelines.

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Will Lewis, Insmed Incorporated - President and CEO [11]

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Sure. Thanks for those questions. With regard to ex-US filing, we're not going to be giving specific guidance on that. What I would say is clearly the first priority is to get the US NDA submitted, and we'll be doing that in as timely a fashion as we possibly can manage. We've already begun that process now; everything from cleaning the database early so that we can get it released as quickly as possible, to framing out the various elements of the NDA submission so that we can drop data in where that's possible; and advancing things that won't be informed by to 212, 312, like CMC and preclinical. So those modules are well underway.

And with that, obviously that would form the backbone of a submission in a territory like Japan where, frankly, the biggest hurdle is translating the submission document. In places like Europe, it will be dialogue and finding the fastest path for filing there; and so on and so forth, in other territories. But we'll provide more detail about that as we move forward with the first and greatest focus on the US submission.

For the second question I'm going to ask Roger to address that.

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Roger Adsett, Insmed Incorporated - Chief Commercial Officer [12]

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Yes, thank you. So the pre-commercial activities we have underway in the US primarily are focused on disease awareness and education. One of the things we've discovered as we talk to physicians and patients is that there is a great need for education around the diagnosis of the disease, the symptoms and the burden of the disease. So we spent an awful lot of time thinking about how to best communicate that and educate physicians on the unmet need and on the burden of the disease.

So our campaign, Will mentioned earlier, we've got NTMfacts.com is our website. We will be primarily targeting pulmonologists and infectious disease physicians through these efforts, including digital, medical meetings, emails, journal ads, et cetera.

Ex-US, we do have a small, dedicated team in Europe. And they are continuing to interact with the thought leaders in the space. We have some compassionate use programs up and running in France and Germany, where we are able to gain significant experience and insight as to how patients are utilizing our product at this time. But we'll adapt and use as we find instructive for our US launch.

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Adam Walsh, Stifel Nicolaus - Analyst [13]

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Roger, thanks. That's really helpful. Just one final question. Can you speak to your anticipated capital needs going forward? The balance sheet seems to be in good shape. You do carry a little bit of debt, but you've got a big launch coming up ahead. Can you just speak to the balance sheet, where it stands right now, and kind of what you think your additional capital needs may be as you approach and go through launch? Thanks.

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Andy Drechsler, Insmed Incorporated - CFO [14]

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Sure, Adam, this is Andy. We ended the year with $163 million in cash. As we mentioned, we put out the range there for the first six months of the year. So when we get to data, we'll obviously have around six months of cash remaining. And on the heels of good data, we'll obviously look to access the capital markets so that we properly fund the filing and launch preparations, and eventually launch of ARIKAYCE. That's kind of what we've communicated at JPMorgan, as well as our last conference call, and we are sticking to that plan.

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Will Lewis, Insmed Incorporated - President and CEO [15]

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Yes and just perhaps I'll add to that. The $0.21 top-line -- or bottom-line miss that is the subject of headlines today obviously is reflecting the $30 million upfront payment for the AstraZeneca asset. So we have very good control over our spending at the moment, and feel very good about our financial position.

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Adam Walsh, Stifel Nicolaus - Analyst [16]

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That's great. For the record you, missed our estimate by $0.01. Thanks.

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Operator [17]

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And I'm showing no further questions at this time.

I would like to return the call to Mr. Will Lewis for any further remarks.

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Will Lewis, Insmed Incorporated - President and CEO [18]

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Thank you, and thank you for your questions. Before we conclude today, I'd like to take a moment to recognize that this is Andy's last call at Insmed. Andy has been instrumental in helping to bring Insmed to this critical point in its evolution. I want to thank him for his dedication and shared commitment to building a company that can rightly claim a culture of integrity and hard work, with a passion for helping patients. While he is stepping down from his role as a CFO, Andy has generously agreed to remain available to us in an advisory capacity as we continue to work through this transition. He will be missed.

Andy, do you want to say a few words?

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Andy Drechsler, Insmed Incorporated - CFO [19]

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Thank you, Will. I would like to acknowledge the team here at Insmed. I want to thank my colleagues for their support and diligent efforts during my tenure. I'm very proud of what we've accomplished to date. And I can leave here with the confidence that our resources and systems are in place to allow for Insmed's sustained growth.

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Will Lewis, Insmed Incorporated - President and CEO [20]

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Thanks, Andy, and thank you all for joining us today. We look forward to updating you on our progress throughout 2017.

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Operator [21]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.