Welcome to the Insmed Second Quarter 2021 Financial Results Conference Call. My name is Elliot, and I will be coordinating your call today. I'll now hand over to our host, Eleanor Barisser, to begin. Eleanor, please go ahead when you're ready.

Thank you, Elliot. Good morning, and welcome to today's conference call to discuss our second quarter 2021 financial results and provide a business update. 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 materially from those discussed in the forward-looking statements. Please refer to our filings with the Securities and Exchange Commission, which are available through the 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 is not sufficient for prescribing decisions. Joining me on today's call are members of the Insmed executive management team, including Will Lewis, Chair and Chief Executive Officer; Dr. Martina Flammer, Chief Medical Officer; Roger Adsett, Chief Operating Officer; and Sara Bonstein, Chief Financial Officer. Let me now turn the call over to Will Lewis for prepared remarks. Upon completion of those remarks, we will open the call up for your questions.

Thank you, Eleanor, and good morning, everyone. We are pleased to be sharing our second quarter results with you today. From Insmed's perspective, we have begun to see some signs of improvement in our commercial and clinical activities in the U.S., and we believe that, given current information, Europe and Japan are behind the U.S. in terms of recovery trajectory. While the full impact of the Delta variant remains unknown, we are closely monitoring the entire COVID-19 landscape and remain optimistic about Insmed's future. Let me frame out the Insmed story in a way that captures the progress we have made and our plans for the future. Insmed is currently advancing programs aligned to four strategic pillars. These are ARIKAYCE, brensocatib, TPIP, and translational medicine. Within each pillar is the potential for significant expansion well beyond our initial near-term development plans. Let me briefly address each of these four pillars. Starting with ARIKAYCE, we are very excited to announce that the launch of ARIKAYCE in Japan kicked off just last month. We now have approval and launch of ARIKAYCE for refractory NTM in the U.S., Europe, and Japan. Notably, the list price in each of these territories is roughly equivalent. In the U.S., while uncertainty lingers around the trajectory of the pandemic, we remain confident in growth in the second half of this year. You'll hear more about our commercial progress from Roger later on the call. Our ARIKAYCE frontline program also continues to advance with the goal of establishing a new standard of care for frontline patients suffering from NTM lung disease. Let's now turn to the second pillar, brensocatib, which we view as a launch pad for the treatment of neutrophil-mediated diseases. Our Phase III ASPEN study is underway, and if we see positive results from this study and receive regulatory approval, we see the opportunity for brensocatib in bronchiectasis as very significant, underscored by the potential applicability of the mechanism of action in a range of indications regulated by the DPP1 pathway. We believe our third pillar, treprostinil palmitil inhalation powder, or TPIP, has the potential to be the cornerstone of therapy for the treatment of PAH and PH-ILD. By unlocking the full potential of prostanoid therapy, we believe TPIP could provide a disease-modifying impact for patients in need. Our fourth pillar, translational medicine, is built upon our core competency of treating serious and rare diseases and is not limited to a particular technology or therapeutic area. Our approach will follow the same historic pattern where we progress through animal work, followed by a public announcement of candidates ready to enter a Phase I study. We look forward to sharing developments from our translational medicine efforts in the next 12 months. We expect that these four pillars and the capital and talent behind them will enable us to achieve our vision of becoming a globally recognized leading biotechnology company. I believe that this framework will deliver for patients and, therefore, our shareholders, a very bright future for Insmed. With that, I'll turn the call over to Sara to walk through our financial results.

Thank you, Will, and good morning, everyone. Insmed made several important accomplishments across our business during the second quarter. Earlier today, we issued our detailed second quarter financial results in the press release. Let me highlight just a few of those results for you now. As reported this morning, including the proceeds from our recent financing, we ended the second quarter with $928 million in cash and cash equivalents. We anticipate this cash position will support our operations for the next several years, including data readouts from the ARIKAYCE frontline program, the Phase III trial in brensocatib and bronchiectasis, as well as Phase II results for TPIP. In line with our internal expectations, our second quarter cash burn level was lower compared to that of the first quarter, demonstrating our commitment to a prudent use of cash. For the second quarter 2021, total net revenue for ARIKAYCE was $45.4 million, which marks our highest global net sales since the pandemic began. Our second quarter revenue reflects 13% growth compared to the first quarter of this year and a 7% growth compared to the second quarter of 2020. Please note, this does not include any revenue from Japan as we launched in July. Our gross-to-net for the second quarter of 2021 was approximately 11%. As previously disclosed, we anticipate our gross-to-net to be in the mid-teens for the full year 2021. Cost of product revenues for the second quarter was $10.8 million or 24% of revenue, which was in line with our cost of product revenues in the second quarter 2020. Let's now turn to our GAAP operating expenses. For the second quarter 2021, research and development expenses were $64.7 million, and SG&A expenses were $57.2 million. These spending levels were in line with our internal expectations as we support our growing development pipeline and invest in our research and development capabilities. With that, I'll turn the call over to Martina for an update on our pipeline.

Thank you, Sara, and good morning, everyone. Let me begin by addressing the ongoing efforts within Insmed to generate and present data at medical congresses around the globe. As you may recall, data from the Phase II WILLOW study of brensocatib was included as one of the best oral presentations of 2021 at the second annual European ATM and bronchiectasis workshops held in early July. The presentation describes that the activity of Neutrophil Serine Protease, or NSPs, was significantly reduced in both blood and sputum for patients taking brensocatib during this trial. Further, a larger reduction of NSPs was observed in sputum and in blood, which further supports the anti-inflammatory mechanism of action of brensocatib. DPP1 inhibition by brensocatib during the maturation of neutrophils in the bone marrow impacts inflammation significantly. These effects help explain the clinical efficacy of brensocatib in reducing exacerbations, projecting a relevant role of neutrophil inflammation in the pathophysiology of these events. We're also excited to report that the abstracts for our TPIP Phase I study were recently accepted as a virtual oral presentation at the European Society of Cardiology Congress taking place later this month. Let's now turn to our clinical development program. Our Phase III ASPEN trial of brensocatib in patients with bronchiectasis and/or ARISE and ENCORE studies for ARIKAYCE as a frontline treatment for patients with MAC lung disease both remain on track, and enrollment is progressing in line with our expectations. In addition, we're pleased to report that the CS Therapeutics Development Network has endorsed our study protocol for brensocatib in cystic fibrosis. The process for initiating studies for the Phase II pharmacokinetics and pharmacodynamics multiple-dose studies is underway, and we look forward to keeping you informed on our progress. Let's now turn to TPIP, a dry powder formulation of treprostinil palmitil. Our current plan to pursue TPIP in PAH involves two Phase II studies. The first study will measure the impact of TPIP on pulmonary vascular resistance, or PVR, over 24 hours. We anticipate sharing data from this study in a small number of patients with PAH in the second half of the year. The second study will assess the impact of TPIP on PVR and 6-minute walk distance in patients with PAH over a 16-week period. We look forward to initiating the studies in the fourth quarter of this year. We also remain on track to initiate early next year a Phase II study of TPIP in pulmonary hypertension associated with interstitial lung disease or PH-ILD. As Will mentioned, in addition to our clinical development program, our translational medicine capabilities are a key focus as we work to grow this platform, so we can continue to build our pipeline from within Insmed. Important to this work is the early identification and validation of preclinical targets based on the predictability of animal model work, which we hope will allow us to pursue potential quicker development and regulatory pathways in a range of indications. We have continued to build these capabilities during my tenure, as I'm a strong believer in leveraging the proven drug development capabilities of Insmed. We will continue to support and develop novel and cutting-edge technologies across a broad range of rare diseases and therapeutic areas. We look forward to sharing updates from our translational medicine efforts in the form of expected Phase I ready candidates within the next 12 months. With that, let me turn the call over to Roger to discuss some key operational updates.

Thank you, Martina, and good morning, everyone. From an operational perspective, Insmed continued to make important advancements during the second quarter. Our global commercial footprint expanded during the quarter, and ARIKAYCE has now launched in the U.S., Europe, and Japan. While the impact of the Delta variant globally will vary, we are encouraged by the potential of ARIKAYCE in each of these markets. Our current ARIKAYCE sales reflect preliminary signs of positive growth in the U.S. as well as our early efforts in Europe. Starting with our U.S. business. We were pleased with solid ARIKAYCE performance during the second quarter. We continue to keep a close eye on the shifting COVID-19 landscape, where we see regional variability, particularly in the southern states where vaccination rates are generally lower than in other regions. We anticipate U.S. ARIKAYCE growth will be accelerated by three main drivers: the return of our therapeutic specialists in-person in the field; physician offices reopening; and patients returning to in-office visits. Our therapeutic specialists are largely back in the field and have achieved solid customer engagement. While regional variability persists across physician centers in the U.S., we are encouraged by the steady return to in-person interactions with our therapeutic specialists. Across the U.S., the majority of these interactions were in person as of the end of June. We are also seeing a growing trend toward a return to in-person peer-to-peer speaker programs, which we think is beneficial. We've seen similar trends with our ARIKAYCE trainers program, with an increasing number of patients willing to be trained in their home. We're equally encouraged by CDC data indicating that almost 80% of patients aged 65 and older in the U.S. are fully vaccinated. This represents a large proportion of the ARIKAYCE patient population, and we hope that increased vaccinations will lead to a greater number of patients returning to in-person visits with their physicians. Our commercial efforts in Japan are now underway. Last month, our first product was shipped to patients. We are very excited about this milestone and equally optimistic about the opportunity in Japan, which, of the territories we are currently pursuing, is estimated to be the largest global market for the refractory MAC patient population, with the U.S. as a close second. We have seen several positive signs from physicians in Japan who are actively working to manage patients in this challenging environment. I'm very excited to see our team manage through these challenges and look forward to providing you updates on the Japan launch in future quarters. Our launch in Europe is also underway, and we continue to make progress as we go country by country to secure reimbursement. To date, we have successfully secured reimbursement and launched ARIKAYCE in Germany and the Netherlands. The French government also agreed to extend the ATU program. Our efforts now turn to securing reimbursement in Ireland, the U.K., Italy, and France. Let me take a moment to address our technical operations. We are producing drug products to support demand in all three territories where ARIKAYCE is commercially available, and we continue to benefit from a strong ARIKAYCE inventory position. As we support our ongoing trials for ARIKAYCE, brensocatib, and TPIP, we continue to operate on solid footing with respect to manufacturing of clinical supply products. In closing, Insmed has made tremendous progress during the second quarter. With our lead marketing product now approved and available in three major territories around the globe, we have seen incredible growth throughout our organization, marked by expansion across our employee base, clinical programs, product revenue, and global footprint. I'll now turn the call back to Will.

Thank you, Roger. I'd like to close out our prepared remarks by thanking the entire Insmed team who have worked tirelessly toward our goal of altering the course of disease for patients. The diligence of our employees was unwavering at a time of unprecedented uncertainty during this global pandemic. I would also like to acknowledge the patients and caregivers who participate in our studies. At Insmed, patients remain at the center of everything we do, and we thank you for trusting us to advance medicines for your benefit. With that, I'd like to open the call to questions. Operator, can we take the first question, please?

Our first question comes from Joseph Schwartz from SVB Leerink.

Congrats on all the progress. I was wondering, first, if you could talk about how patient adoption patterns in Japan have compared to what we saw play out in the U.S. early on. Can you quantify in any way for us how we should expect the launch trajectory there to compare to what we saw here in the U.S. after accounting for obvious things like the difference in prescription duration or anything else that's significantly different?

Sure, Roger, do you want to take that?

Yes, sure. So I think it's still very early days in Japan. We have had success. The team has had quite a lot of success in engaging with the target accounts and accessing them despite the COVID situation there. And so while I think it's probably optimistic to expect that we're going to see the same kind of ramp in Japan that we saw in the U.S., we are really encouraged by the early signs and early indications that we're getting back from our team, the KOL engagement, and the interest from physicians to prescribe ARIKAYCE for their patients. So all the signs we're seeing are very encouraging for us, and we look forward to updating you further as we get more in-depth into the Japanese launch.

Okay. And then question on the pipeline. Can you walk us through the range of outcomes from ARISE that you foresee when considering whether you will need to make any changes to ENCORE study design? And how far away from that point are we currently?

Yes. So I appreciate the question. This is for the frontline potential use of ARIKAYCE in the treatment of frontline MAC patients. ARISE is designed as a kind of sentinel study to test all of the assumptions that we have for our ENCORE study. The ENCORE study will be looking at the full approval study for ARIKAYCE for frontline patients, and ARISE is sort of a small version of that to make sure that the primary endpoint that's used in the U.S., which is a PRO, or patient-reported outcome measure, works as intended. To put this into context for everybody, the PRO that was developed here, we have some experience with, and we tested it through a number of different mechanisms and got alignment with the FDA on this PRO. The FDA has been very supportive of our efforts to bring this drug to frontline patients. They have encouraged us to do so. So this PRO effort that we're making is intended to address their need to see what they require for a full approval, which is that it helps the patient feel, function, or survive better. ARISE will look at that in 100 patients and that trial is enrolling. If we find that the PRO does exactly what we expect, then no changes will be needed. If we learn that some portion of the ARISE questionnaire seems to respond better in a practical setting of a clinical trial, then we have the opportunity, but not the obligation, to make modifications to the PRO itself or to the statistical analysis plan for the ENCORE study, which will still be blinded, and this is something we've talked extensively about with the regulatory authorities. So I feel very good about the design here. I think it's a belt and suspenders approach to give us the best possible chance of winning. We feel highly confident that we will, but we'll have to see how this plays out, and ARISE gives us an early look. As far as timing, we've been hesitant to give any specific guidance around any of our clinical trials just because of the presence of COVID and the potential influence that could have on timelines. We do have internal timelines. We're hitting all of those, and that's very encouraging. But I think the arrival of the Delta variant and the uncertainty have introduced grounds for caution about providing any further guidance, and I know it's frustrating, but we're not giving any more specifics at this time. Once we get a little further down the road, I'm sure we'll be able to give you a book and time. We just want to make sure we're going to hit it.

Our next question comes from Ritu Baral from Cowen.

This is Lyla on for Ritu, and congrats on the quarter. Maybe just very quickly on TPIP and PAH. Can you talk a little bit about how to frame expectations for that early data in terms of the 24-hour based on feedback from KOLs, what improvement in 24-hour PVR they would find clinically meaningful? And what are the aspects of the profile they are going to be looking for?

Sure. I appreciate the question. And I think this is an interesting study. The first thing I want to make clear is that this Phase IIa study in no way has any impact on the other Phase IIb study work, which is running independent of that. So the PAH program, the Phase IIb that will kick off at the end of this year is not rate-limited or influenced by any of the outcomes of this Phase IIa study, nor is the PAH-ILD program, which we're going to be beginning at the beginning of next year, impacted by it. However, we think the data will be quite interesting. This IIa data is going to take PAH patients in an ICU bed and monitor them through a right heart catheterization, directly measuring their pulmonary vascular resistance following the administration of one dose of our TPIP compound. The interesting thing about this is that, as we've seen in animal data work and certainly in Phase I work, we know we can go through titration actually quite high in dosing these patients. But starting out and because it will be only one dose, we're going to be cautious and starting low and then perhaps, depending on what happens in this IIa study, we may go up to a higher dose in subsequent patients. I mentioned that because it's not really the quantity of PVR reduction we're looking for; it's the duration. This is really the key to unlocking the entire logic of the program and the compound. If we were able to see a reduction in pulmonary vascular resistance that extends temporarily for a long period of time, in animals, we saw it out to 24 hours. To put that into context, Tyvaso gives you about 1.5 hours of PVR reduction, which would be a major advance for patients because what it does is it lowers that vascular resistance, which should alleviate the downstream burden on things like the heart and its performance. In animal models, we saw, in fact, disease modification. So I think what we're looking for is extended time of PVR reduction. We will be able to directly monitor that through the right heart cath. As soon as we have a handful of patients' data, we look forward to bringing that out and sharing it with you, which we expect by the end of the second quarter.

Our next question comes from Anita Dushyanth from Berenberg.

Just one for me here. I was kind of curious to know about whether you will still be considering investigating brensocatib in other conditions of the neutrophil elastase activity now that it has shown some effect in the COVID-19 patients?

I appreciate that question. We absolutely are going to be bringing it forward in other indications. The work for that is well underway. As we've mentioned previously, one of the really exciting things about brensocatib is that not only did it show such clearly definitive positive results in bronchiectasis, but in many of the preclinical animal models we've been looking at in other disease states, we've seen very encouraging data. Functionally, what we're doing here by inhibiting the DPP1 pathway is impacting the inflammatory cascade, and that's relevant in a whole range of neutrophil-mediated diseases. The obvious first follow-on candidate was cystic fibrosis, and as you heard today, that program is advancing. We are looking at several others, and I would say the preclinical work to inform the selection of those is largely completed. We will be able to direct you to what those programs might be and when those trials might kick off. But we're super excited about this compound. I think if there was ever the potential for a pipeline in a product, it's brensocatib.

Just to clarify, so it's more of a 2022 story that we might see other studies being initiated?

Yes. I think for study initiation, that's probably fair, but the identification is, I would say, well underway.

Our next question comes from Stephen Willey from Stifel.

Can you maybe just talk a little bit about the pace of site activation that's happening in the registrational studies right now, both for brensocatib and for ARIKAYCE? And maybe just kind of frame that with respect to where internal expectations are? And I guess I'm just trying to think about this from a COVID-related perspective, if getting these sites open is kind of the rate limiting step or do you think that recruitment into the sites once open will be the rate limiting step?

Well, so it's a great question, Steve. Thank you for it. It goes to the heart of strategy for clinical trial operation and drug development. The path we've followed here for our clinical trials is to identify some fast enrolling sites. Like when you look at the spectrum of clinical sites that get open in any clinical trial, there are some universal truths. If, for example, you were to open 100 sites, fully 25% of them or more will never recruit a single patient. There will also be a selection of sites that do a significant number of patient recruitment efforts. Because we have experience in both of these areas, we know the sites that are high recruiters, and we targeted them first. The priority was to get these sites open early, and we managed to do that. We have since expanded to the broad range and reach of the list of sites that we're going after. We've really seen no impediment in our ability to get those sites open. And that's why I think we're able to say with some conviction that our internal timelines have been met, and we continue to be excited about the progress we're making in all our clinical trials.

That's very helpful. And then maybe just a quick question for Sara. I know you gave a gross-to-net for this quarter. I'm not necessarily sure one was provided for the first quarter. But just wondering if, I think the implied guidance would suggest that we should see this maybe tick up by, I don't know, 200 or 300 basis points at some point through the second half of the year?

Sure, Steve. Happy to answer. So in Q1, our gross-to-net was around 17%. This quarter, we were around 11%. So full year guidance is mid-teens typical to any product like ourselves. Highest gross-to-net in Q1 tends to drop Q2, Q3, and maybe ticks up a little in Q4. So full year guidance mid-teens, and then you have some of the history of Q1 and Q2 here.

Our next question comes from Graig Suvannavejh from Goldman Sachs.

I have questions related to Japan. I'm curious about the current COVID situation there and how it might affect our launch plans. Additionally, I want to ask about ARIKAYCE's quarterly sales. Sara, you mentioned a 13% growth from the previous quarter. As we look into the second half of the year, considering the uncertainty from the Delta variant in the U.S. and the regional differences Roger pointed out, is it reasonable to estimate a 13% growth rate for the rest of the year?

So I'll ask Roger to take the question. Roger, you can take a question on Japan. And Sara, you can take the quarter one.

Yes, perfect. So you're right. COVID in Japan, I think as we look at this, they're behind the U.S. significantly, and we look forward to them rolling out the vaccine and catching up as quickly as possible. I will say that talking to the Japanese team, we have been able to access the accounts, and patients are accessing physicians and are getting treatment. We've shipped our first shipment of ARIKAYCE to patients last month. So we are able to get access to the physicians, and they can access patients. I think it's reasonable to say that the access is somewhat limited. I think we don't have any basis to say that in Japan it's going to be any different than we see in the U.S. As we see more vaccination rates, as we see more in-person visits, I think we're going to see increased traction for ARIKAYCE. But certainly, as we think about this as potentially the largest market for refractory MAC patients, we're really encouraged by the interactions. We think that this has great long-term potential based on just the literature and the epidemiology, but also the reaction and the engagement we're seeing from the physicians.

And Graig, thanks for the question. It's good to hear from you. We were obviously encouraged by Q2 sales amid the pandemic on a global basis, actually our highest since we've launched. We obviously have the Delta variant, which is adding an additional variable in the equation. So we're optimistic. We see some regional variability depending on, as Roger mentioned, on some potential, specifically in the southern states in the U.S. that don't have the same vaccination rates as other areas. We do have the Japan launch now in July. So we are not providing guidance, so I can't provide you with specific color on a certain percentage growth quarter-over-quarter, but hopefully that gives you a little color as to what we're thinking.

I can follow up just on Roger's comments. Given that you're launching in Japan and that, I assume, vaccination rates are higher relative to the U.S. as the product is rolling out, but given that maybe culturally, there are some differences with the elderly wanting to go to their doctors. Is there a way to think about the different pushes and pulls on how we should be thinking about that Japan launch? Should we maybe just more conservatively think of that as just a gradual lower launch? Or any other color you can provide there?

Yes, sure. The information that I have from the Japanese team is that the vaccination rates still lag behind the U.S., although I think that once it's more widely available, I expect or hope that there will be more of an acceptance of the vaccine, and we'll see more people taking that. As you think about the ramp, and I think the embedded in your question is probably how do we think about that versus the U.S. ramp. I think it's probably prudent to say we're probably not going to see a steeper ramp in Japan as we did in the U.S. A number of factors for that, as you mentioned, is the push and pull of COVID and potentially being dampening. On the other hand, I do think that there is a significant willingness to prescribe and excitement about the product for these patients who have been waiting for ARIKAYCE to be approved and launched in Japan. There's a couple of other drags. I would say there's the two-week limitation of prescriptions for the first year of any product that's approved in Japan. That requires the patient to go back to the physician and the pharmacy to get refills. But as we think longer term and get on the other side of this, I think there's tremendous potential there.

Thank you very much for joining our call today. Have a great day.

This concludes today's call. Thank you for joining. You may now disconnect your lines.