INSMED Inc Q4 FY2021 Earnings Call

Welcome to the Insmed Fourth Quarter and full-year 2021 financial results. My name is Juan, and I will be coordinating your call today. If you would like to ask a question during the presentation, please follow the instructions provided. I will now hand over to your host, Eleanor Barisser, from Investor Relations at Insmed, to begin. Please, Eleanor, go ahead.

Thank you, Juan. Good morning, and welcome to today's conference call to discuss our full-year financial results for 2021 and to provide a business and pipeline 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 the results discussed in the forward-looking statements. Please refer to our filings with the Securities and Exchange Commission, 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 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. Today is a very exciting day for us at Insmed. We're going to share with you a robust set of updates that will clarify how we are thinking about our program catalysts, commercial franchise, and capital allocation over the next several years to support our mission of transforming the lives of patients with serious and rare diseases. At Insmed, we're building what we believe is one of the few companies in our industry capable of producing potentially multi-billion dollars of revenue by the end of this decade. During the course of today's call, we're excited to review the path we will be following as we pursue this ambitious goal. Our strategy is centered on developing medicines that have a significant positive impact on patients' lives. Today, Insmed has seven ongoing mid and late-stage clinical trials, commercial operations in three territories around the globe, and a research engine working behind the scenes to identify the most promising early-stage candidates by harnessing innovative technologies. We have segmented all of this work into four pillars. The first of these pillars is the ARIKAYCE franchise, our marketed product for the treatment of refractory MAC lung disease, where we benefit from a commercial footprint in the U.S., Europe, and Japan. As these launches mature, we intend to grow revenue globally by at least 30% this year compared to 2021. In parallel, our front-line clinical trial program is advancing to support full FDA and select international approvals of ARIKAYCE in newly diagnosed NTM patients. This front-line indication represents a multi-fold increase in the addressable opportunity compared to the refractory setting alone. The ARISE study, which is the first of the two studies needed on our path to approval, is currently 50% enrolled, and we anticipate enrollment to be complete this year with top-line data in the first half of next year. We also anticipate the second study, ENCORE, to be fully enrolled next year. For our second pillar, brensocatib, our DPP1 inhibitor, the ASPEN trial exploring the potential treatment of bronchiectasis is now 50% enrolled ahead of internal projections, and we anticipate it will be fully enrolled by approximately this time next year. There is real enthusiasm for this trial around the world as this rapid rate of enrollment testifies. In addition to ASPEN, the Phase 2 PK/PD study in cystic fibrosis patients is underway, and we anticipate topline data by the end of this year or early 2023. In line with our strategy to build a portfolio around neutrophil-mediated diseases using our DPP1 inhibitor, we are excited to report that we have identified the next two potential indications for brensocatib along with Phase 2 clinical trial designs for their exploration. You will hear more about these later on today's call. Our third pillar, TPIP, is a specialized treprostinil prodrug formulation with three parallel Phase 2 programs underway with an initial focus on potential treatments for PAH and PH-ILD. We will also review those trial designs later on the call. Finally, translational medicine is our fourth pillar. Led by several world-class teams, our research engine is working with exciting new technologies to identify the next round of Insmed's early-stage pipeline candidates in the serious and rare disease space. Within this framework, we intend to generate on average one new IND per year. We look forward to hosting a detailed research day in the second half of this year to update you on our progress. Set against the backdrop of one of the more challenging healthcare markets in recent years, I believe Insmed is poised to weather the storm of these turbulent times. Our goals are ambitious, but we have been deliberate in our pursuit, and we have a track record of achieving what we set out to do. The next stage of our growth will depend on advancing more treatments in strategically complementary indications and from there building additional therapeutic areas from our fourth pillar to follow the first three pillars. Let's take a moment to consider what we have accomplished. Our global commercial franchise and infrastructure are already built. We benefit from revenue generation from our marketed products. We have two strategically overlapping pivotal stage programs with brensocatib and ARIKAYCE front line. We have a robust pipeline of focused research efforts to generate impactful medicines in new therapeutic areas and a strong cash position. Insmed is on a path to realize this bright future for the benefit of our patients and our shareholders. All of this is overseen by a world-class leadership team with an impressive track record of executing commercial, clinical, and regulatory pathways, who will now review where we stand in greater detail. Let me start that process by turning the call over to Sara to walk through our financial results.

Thank you, Will. Good morning, everyone. A key priority for 2021 was maintaining financial strength, and we made important strides on this front. We strengthened our balance sheet and continue to benefit from the ARIKAYCE revenue stream while being fiscally disciplined. As a result, we are in a strong position as we assess the opportunities within our existing portfolio. Earlier today, we released our detailed financial results for the fourth quarter and the full year. All results align with our expectations. Let me highlight a few full-year results. We ended the year with $766.8 million in cash and cash equivalents and marketable securities, which we believe will support our business into 2024. Our cash position is influenced by three key factors: revenue from our marketed products, the timing and extent of our development pipeline progress, and how we prepare for the launch of several significant programs, including inventory build. We will take these factors into account as we develop our plan moving forward. Total net revenue for ARIKAYCE was $188.5 million for 2021. Breaking down our commercial regions, net revenue for 2021 was $159.5 million in the U.S., $16 million in Japan, and $12.9 million in Europe and the rest of the world. Notably, our U.S. revenue for 2021 reflects steady performance for the ARIKAYCE franchise from the previous year, despite fluctuations in infection and hospitalization rates amid the evolving COVID situation. We are encouraged by the global adaptation to the new reality presented by COVID, which gives us confidence in our potential for growth this year across all regions. We expect significant growth in ARIKAYCE revenue this year and are forecasting at least 30% revenue growth year-over-year for 2022. Our gross-to-net in the U.S. for 2021 was approximately 13.2%. Looking to 2022, we anticipate gross-to-nets in the U.S. to be in the mid-teens, consistent with our past estimates. Recall that the first quarter in the U.S. is typically challenging due to deductible and co-pay resets for Medicare patients, similar to the historical trend from fourth quarter to first quarter revenue levels. The cost of product revenues for 2021 was $44.2 million, or 23% of revenues, which remains consistent with the previous year. For GAAP operating expenses in 2021, research and development expenses were $272.7 million, while SG&A expenses were $234.3 million. In conclusion, Insmed has entered 2022 in a strong capital position to support the four pillars of our business. We are committed to being responsible stewards of cash and investing now to unlock the potential of candidates that may significantly improve healthcare for patients. I will now turn the call over to Martina for an update on our clinical development pipeline.

Thank you, Sara. And good morning, everyone. 2021 marked another transformational year for Insmed with respect to our clinical trial work. Today, I'm excited to be able to share important updates around several of our programs in development. Let's begin with brensocatib, our DPP1 inhibitor targeting neutrophil-mediated diseases. I'm pleased to report that our Phase 3 ASPEN study for the potential treatment of bronchiectasis is now 50% enrolled, and we anticipate enrollment to be complete at approximately this time next year. Let me remind you that this trial is expected to enroll more than 1,600 patients at more than 400 clinical sites around the world. If there's one takeaway I can leave you with, it is this: for ASPEN to be halfway enrolled in just one year is an extraordinary achievement, and we believe this milestone demonstrates significant enthusiasm for the potential of brensocatib for bronchiectasis patients. We are grateful to our investigators and to patients who have dedicated their time to this program at a very challenging time in respiratory medicine. I'm also pleased to share that the first meeting of the Data and Safety Monitoring Board or DSMB took place at the end of last year, where it was recommended that the ASPEN trials continue as planned. Recall that bronchiectasis is a globally prevalent disease with no approved treatment and with over 1 million patients diagnosed worldwide. This represents an enormous opportunity for our compound. Furthermore, we believe COPD and asthma patients who may have undiagnosed bronchiectasis present additional market opportunities, given the co-morbidity of these indications. Let's now turn to the next area of brensocatib development in cystic fibrosis. We are on track to release results this year or early 2023 from the Phase 2 PK/PD study, which will be instructive as to the appropriate dosing strength for CF patients. The trial is a single-blind assessment of once-daily brensocatib 10, 25, and 40 milligrams versus placebo in 36 patients with CF. Treatment duration is 28 days and we will evaluate PK and safety data as well as reduction of NT levels in sputum and blood, along with other exploratory spirometry measurements, such as FEV1. Following a review of safety and PK data, there is optionality to go to a 65-milligram dose, which may be warranted, as even CF patients often have a different metabolic profile compared to non-CF patients. All toxicology work to support higher dose levels has been completed. The tremendous success of our Phase 2 WILLOW study highlighted the efficacy of DPP1 inhibition in treating bronchiectasis patients and suggests its potential role in treating CF patients. In addition, what excites us is the pathway of DPP1 inhibition for the treatment of many neutrophil-mediated diseases, and we have been doing significant work to explore how our compound may benefit patients in other disease areas. I'm excited to share with you today that we're moving brensocatib into two new potential indications: chronic rhinosinusitis without major polyps or CRS and Hidradenitis suppurativa or HS. These indications are an exciting new chapter in brensocatib development. Echoed by the enthusiasm from the deep bench of experts within Insmed, we have experienced in these disease states. We see clear scientific rationale supporting the potential role of brensocatib in pursuing this indication as we are targeting the neutrophilic activity in the inflammatory pathway of disease. We believe the DPP1 inhibition leading to a reduction of NSP levels may be able to interrupt the inflammatory components of these diseases. First, it's important to distinguish CRS without nasal polyps, which we are targeting from CRS with nasal polyps. Both can be severe diseases, but with CRS without polyps, we generally see more neutrophil recruitment in the inflammatory process, aligning with the mechanism of action demonstrated by brensocatib. There are currently no approved therapies for patients with CRS without polyps, which is the most common type of rhinosinusitis. CRS without polyps is characterized by chronic inflammation and fibrosis of the mucous membranes inside the sinuses. The most common symptoms include nasal obstruction, decreased sense of smell, and facial pain. Patients with CRS also report lower quality of life measures impacting bodily pain, general health, physical and social functioning, and the disease is associated with increased rates of depression. Currently, the only available treatment options for patients with CRS without polyps are corticosteroids, antibiotics, or endoscopic procedures. Deep endoscopic surgeries may have to be repeated. We are targeting patients at the severe end of the disease spectrum for whom surgery does not work. All of the signals indicate an urgent need for a safe oral therapy for these patients. Let's now turn to HS. HS is a chronic inflammatory skin disorder characterized by painful, inflamed, and small lesions affecting hair follicles often in the armpits and groin in skin folds. The clinical course is variable, ranging from relatively mild disease characterized by the recurrent appearance of inflamed lesions and nodules to severe cases with deep abscesses, drained fistulas, and severe scars. Patient-reported quality of life measures indicate a high psychosocial impact from the disease, with increased rates of anxiety and depression. We are targeting the moderate to severe end of the disease spectrum. There's only one approved therapy for HS, which does not work for all patients. And given the complexity of the disease, patients can require multiple treatments and sometimes surgery to maintain control of the disease. We have seen enthusiasm among healthcare professionals for investigational therapies to help identify new effective treatment options for both HS and CRS. Let me take a moment to walk through the study designs. Our current plan is to move CRS into the clinic in a Phase 2 study over a 24-week treatment period, exploring brensocatib 10 milligrams and 40 milligrams versus placebo, followed by four weeks of therapy with a primary endpoint of change in an established measure of total symptoms for CRS. Let's now turn to the trial design in HS. We anticipate that our Phase 2 trial in HS would have a 16-week treatment period, exploring 10 milligrams and 40 milligrams of brensocatib versus placebo, followed by a 36-week open-label extension period. The primary endpoint will be the percentage of subjects achieving Hidradenitis suppurativa clinical response at week 16. All of this aligns with our broader strategy of building a portfolio around the DPP1 inhibition pathway to target neutrophil-mediated diseases. We anticipate advancing one of these new indications into the clinic this year. And we will update you on our overall progress with brensocatib and all indications in the next few quarters. Let's now turn to the ARIKAYCE front-line program. I am excited to report that the ARISE study is now 50% enrolled, and we anticipate reaching enrollment completion this year with top-line data from ARISE in the first half of 2023. We also anticipate ENCORE to be fully enrolled in 2023. As a reminder, data from ARISE will inform and allow us to finalize the PRO utilized in the ENCORE trial. These timelines are consistent with what we have seen in our previous NTM trial, reaffirming that enrollment of NTM trials typically proceeds at a slow pace. As was the case in our previous trials, positive sputum cultures are not always present at the time of patient screening, and it is not surprising to see screen failure rates surpass 40%. Recall that ARISE is preferentially enrolling over ENCORE with randomization of two-to-one. Once ARISE is fully enrolled, we anticipate enrollment in the ENCORE study to accelerate as additional study sites come online, which we also anticipate will help drive enrollment momentum in ENCORE. In addition, ENCORE is a more attractive study from a patient recruitment perspective because it provides an uninterrupted treatment cycle, allowing patients to stay on therapy for a full 12 months versus six months for ARISE. This is a relevant factor for patients and physicians as they evaluate their participation in these clinical trials. We look forward to maintaining our enrollment momentum in both of these studies and will update you on our progress. I will now turn to TPIP. TPIP is our treprostinil prodrug in Phase 2 development for both PAH and PHILD. This is an exciting opportunity as we believe that our compound could unlock the full potential of the prostanoid pathway to benefit patients with certain rare pulmonary disorders. Let me take a moment to walk you through our Phase 2 trials. The first study to discuss is the randomized double-blind placebo-controlled Phase 2b study that will assess the efficacy, safety, and pharmacokinetics of TPIP in patients with PAH over a 16-week treatment period. Target enrollment in this study is approximately 100 patients. Patients will be dosed once daily, and each patient will be titrated to his or her individual maximum tolerated dose. The primary measure is the change from baseline in pulmonary vascular resistance or PVR at week 16. And the key secondary measure will evaluate the impact of TPIP on six-minute walk distance at various time points. As planned, site initiation for the Phase 2b trial in PAH patients began late last year. We will update you on our progress in the coming quarters. The second study to discuss is the randomized double-blind placebo-controlled Phase 2 trial in PH-ILD, which will assess the safety and tolerability of TPIP over 16 weeks. Target enrollment is 32 patients. As with the study in PAH, patients will be dosed once daily, and each patient will be titrated to his or her maximum tolerated dose. Other key endpoints will include TPIP's PK profile, as well as various exploratory efficacy measures, including effect on six-minute walk distance. We think TPIP may be well-positioned for this indication by the way of inhaled route of administration, which delivers basal dilation to the ventilated areas of the lungs. Systemically administered therapies, on the other hand, can lead to vasodilation in the areas of the lung that, due to fibrosis, are not ventilated, leading to a ventilation perfusion mismatch. A TPIP route of delivery is intended to mitigate this problem with the potentially more favorable side effect profile as well as long residency time versus inhaled Tyvaso. Site initiation for the Phase 2 trial in PH-ILD patients is currently underway, and we look forward to keeping you apprised of our progress. Finally, the ongoing Phase 2a 24-hour right heart catheterization study evaluating PVR in PAH patients continues to look for volunteers, and we're hopeful that with Omicron receding we will be successful in identifying volunteers and advancing enrollment. While this study is not weight limiting to the other Phase 2 trials we have discussed, we are excited by the potential the results could suggest for our TPIP program and look forward to providing results from patients in this study as we collect data over the course of this year. I'd like to close by recognizing the significant and growing excitement behind our fourth pillar: translational medicine. This pillar is led by multiple teams and contains several exciting technology programs running in parallel, some of which are complementary to one another and others that are standalone therapies targeting different and unrelated conditions. We envision that some programs within these four pillars may act as platform capabilities, for example, the potential deimmunization of capsids in gene therapy. We anticipate that translational medicine will serve as the IND engine for the incoming future, thereby addressing the question of what may follow the anticipated success of our first three pillars. We hope to make significant progress from these efforts in 2022, culminating in the filing of an IND in a new non-pulmonary indication by the end of the year. In parallel to this program, there are several other components of our fourth pillar, and we envision a detailed research date in the second half of this year, at which time we anticipate sharing preclinical data. While this represents an important pillar for our future, I continue to work closely with Sara to ensure capital allocations to these areas remains measured and is deployed only with successful data along the way. In summary, Insmed realized several major clinical achievements over the past year. 2022 is poised to be a critical year of execution across our clinical operations, and we look forward to delivering on the catalysts we've outlined today. 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, I want to focus on two key areas today. First, I'll discuss the commercial operations related to ARIKAYCE, and then I'll cover the growth of our second pillar, brensocatib, along with the new clinical indications we plan to pursue. With regard to ARIKAYCE, Insmed's commercial operations have shown strong performance throughout 2021, marking a significant year with the product now launched in the U.S., Europe, and Japan. I would like to share our recent progress in each of these regions. In the U.S., the ARIKAYCE franchise has demonstrated resilience during the ongoing pandemic, highlighted by a solid fourth-quarter performance despite the challenges posed by the Omicron variant. We have observed varying impacts from COVID across different regions, particularly affecting the availability of medical staff, including pulmonologists and respiratory therapists. Nevertheless, we believe we have the necessary resources to continue growing, as our therapeutic specialists maintain positive interactions with physicians caring for refractory NTM patients. While COVID has affected the ability of physicians to see NTM patients, we see it also raising awareness of pulmonary diseases and increasing the likelihood of identifying refractory NTM. These factors, along with our adaptability to the COVID environment, suggest potential growth opportunities in both U.S. and international markets. Turning to Japan, we are very encouraged by the progress of our launch which started in July last year. We see significant potential in this market, predicting that Japan will become the second largest revenue contributor for ARIKAYCE after the U.S. Initially, there is a two-week dispensing limit for all drugs, which requires patients to return to their doctors’ offices frequently. This limitation may affect affordability, as multi-patient co-pays are common there. However, once the dispensing restrictions are lifted, patients will be able to receive up to three months of ARIKAYCE at the same co-payment. Furthermore, the Japanese Society for Tuberculosis and Non-tuberculosis Micro-bacteria has published guidelines recommending ARIKAYCE for patients who do not respond adequately to standard treatments, which we see as beneficial for both understanding use cases and managing side effects. Now regarding Europe, we expect the addressable market to be smaller than in the U.S. and Japan, but we've made great strides with physicians. As reimbursement rolls out in more countries, Europe is poised to become a notable revenue contributor for our franchise. We believe that the estimate of 1,400 diagnosed refractory MAC patients in Europe may actually be conservative. Currently, ARIKAYCE is available under a free pricing program in Germany, where we await a final pricing decision in the first half of this year. The product is also available and reimbursed in the Netherlands, Wales, and Scotland, and we look forward to reimbursement decisions from England, France, and Italy this year. We are optimistic about future growth in all three areas where ARIKAYCE is offered. Shifting to our second pillar, brensocatib, we see a substantial market opportunity in the newly targeted indications, specifically CRS and HS. Chronic rhinosinusitis without nasal polyps presents a significant opportunity, with around 33 million diagnosed patients in the U.S., 26 million of whom have the form without nasal polyps. Our focus is on the severe cases, as indicated by the patients requiring surgical intervention—approximately 155,000 undergo surgery each year, with about 15% needing repeat surgeries, which we consider the most severe cases. Pending supportive clinical data, we expect these patients to consider brensocatib as a chronic treatment option. Currently, no treatments are approved for this indication, and if we demonstrate a meaningful clinical impact, we believe physicians may be inclined to try a well-tolerated oral therapy as an alternative to surgery. For ARIKAYCE, we estimate around 300,000 patients in the U.S., with about 100,000 experiencing moderate to severe disease. We aim to target the more severe patients with brensocatib. Presently, HUMIRA is the only approved treatment for HS patients, and we believe that brensocatib, as a well-tolerated oral therapy, will be a valuable addition to how the disease is treated. We expect a strategic launch of brensocatib as we pursue additional diseases, ensuring sustainable pricing if we can deliver clinically significant results. Looking at our broader strategy with brensocatib, involving indications such as bronchiectasis and cystic fibrosis, we see a promising market opportunity. In summary, Insmed's operational outlook remains strong, and I am proud of the team's achievements throughout a productive 2021. I am excited for what I believe will be another transformative year for our company. I will now hand the call back to Will.

Thank you, Roger. I'd like to close out my remarks by emphasizing Insmed's position of strength, backed by a seasoned leadership team, a reliable and growing commercial franchise, a diverse pipeline of early to late-stage assets, and a solid cash position. We have the elements we need to advance this company to the next level of growth. I believe Insmed can reach our goal of becoming one of the next great biotechnology companies. We will work to execute against the objectives we have laid out for you today for the benefit of our patients and our shareholders. I'd like to acknowledge the hard work from the entire Insmed team, and I would like to extend my gratitude to the patients and caregivers who participate in our clinical studies. And with that, I'd like to open the call to questions. Operator, can we take the first question, please?

And the first question comes from Jessica Fye from JP Morgan. Please go ahead, Jessica, your line is now open.

Hey, guys. Good morning. Thanks for all the updates and for taking my question. For the '22 revenue guidance pointing to sales of at least $245 million for ARIKAYCE this year. I know you talked about growth in all regions, but can you help us think about the contribution from each geography that underpins that floor? And maybe talk about the extent to which this might be conservative or how much conservatism you kind of reflect in that number. Thank you.

I appreciate your question. We've all felt the uncertainties of the pandemic's ups and downs. In creating this forecast, we aimed to present a figure we believe is solid in terms of its reliability, regardless of what happens in the pandemic market. The first quarter is typically the most difficult for rare disease products, but we anticipate a positive year overall. Sara, would you like to add anything?

Yeah. No. Thanks, Jess for the question. Maybe just a couple of other things to add. We're obviously very encouraged and excited to be able to share at least a 30% growth that's obviously a meaningful growth year-over-year from '21 to '22, as Will mentioned, Q1 is always sort of the most challenging quarter in the U.S. due to the donut hole, reset and all those good things that we see across high-price rare disease products. And as the year progresses in Japan, we expect to be a meaningful contributor as Roger mentioned, the second largest contributor in our three regions with that June time point as the lifting of the two-week prescription restriction, which really helps patients from a copay perspective. So hopefully that gives you a little more color.

Great, thanks. And if I can have a second question on TPIP. For that Phase 2b in PAH, what background therapies are allowed and what do you expect the mix of single and dual agent background meds to be? And I know you're expecting better coverage with TPIP relative to Tyvaso, but do you expect the PVR data in the Phase 2b to compare well to Tyvaso?

So, I'll ask Martina maybe to take that question.

Yes. So, we expect that TPIP, what we've seen from TPIP in the healthy volunteer study is that we don't go up to such a high Cmax when we have a larger and prolonged exposure along the AUC perspective, we've seen the key half-life in this study going even with our lowest dose to 24, 36, and even to 48 hours. So, we expect that we will have a good impact on the PVR. And from the PK profile that we saw in the healthy volunteer study, there's no reason to believe that that will be significantly different in the PAH patients.

Thank you. Our next question comes from Jeff Hung from Morgan Stanley. Your line is now open.

Hi, this is Melina on for Jeff. Thanks for taking our questions. Can you talk a little bit more about for brensocatib, the CRS and HS indications? What are the determining factors to advance those indications into the clinic this year? Is there any specific data that you are waiting on for each indication? Yeah, thank you.

No, appreciate that. I would say that we went through a pretty significant process and maybe Roger, you want to talk a little bit about that?

We conducted a thorough process with external partners, screening around 150 neutrophil-mediated diseases. We then narrowed that down to over 60 diseases primarily driven by neutrophil involvement. After analyzing the API, we assessed the opportunity size and disease burden, ultimately narrowing our focus further. When selecting CRS and HS, we prioritized the science related to neutrophil involvement, the unmet needs of patients, and the competitive landscape. In HS, only Humira is an approved therapy, while in CRS without nasal polyps—associated with the neutrophilic phenotype—there are no approved therapies. This contrasts with CRS with nasal polyps, where several biologics, like Nucala, are available. The competitive landscape is appealing to us. Additionally, as mentioned, we anticipate that brensocatib will have attractive pricing support in bronchiectasis, and we aim to ensure that payers will provide reimbursement at that pricing across our indications. We are optimistic about our target disease states, including bronchiectasis, CF, CRS, and HS, and the positive impact we will have on patients.

Yeah, and about scientific rationale. So, there's no really good preclinical models for both of these diseases, but they are both associated with neutrophil inflammation. And if you look at CRS without nasal polyps, neutrophils play a key role in the fibrotic remodeling of the mucus membrane inside the sinuses. This remodeling leads over time to tissue damage and worsening of that disease. So, for both of them, brensocatib attracts what is the effector cell. And that is the neutrophilic activity through the DPP1 inhibition.

And I would just say, we're moving forward with all speed in both of these indications. You saw draft designs of clinical trials in the slides today and the discussion that Martina provided. Those are going to continue to be refined. We've had very good KOL interactions, very strongly supportive of pursuing these - the only thing that holds us back from doing perhaps even more of what Roger was indicating is resource and thinking carefully about balancing how many eggs to put in this particular basket. We have excellent data in bronchiectasis. We have a very strong scientific rationale for these next three indications, as you've just heard. And I think what this really represents is the tip of the iceberg for DPP1 inhibition in neutrophil-mediated diseases. We have really unlocked a pathway here. And I think the potential for brensocatib to get even bigger than it already is very real. And that puts this into a pretty enticing blockbuster category. So, lots of work to be done and validation to be provided behind that ambition. But I think the more we look at this and the more science we study, the more excited we get.

Thank you for all the detail and if I can just ask one more quick one on the TPIP program. I think the Phase 2 was pushed back originally from the first half this year to just 2022. Have you gotten any sense from perspective participants what they need to see in order to be willing to go into the ICU, particularly during these winter months when COVID rates may be higher?

Yeah. This is a frustrating one for all of us. Look, the Phase 2a study has been in design and out there for some time. The big challenge here is that, as far as we know, there is no precedent for the study. Doing a right heart catheterization on somebody that lasts more than about four hours, we're not aware of studies that have ever done that. We're proposing to do it for 24 hours. And what's interesting about that is that the key opinion leaders who have opened their centers to pursue this are enthusiastic about doing so. They really think this data is going to de-risk this program's potential very substantially. So, we are excited to get the data, finding someone to volunteer who has PAH in an advanced state and is willing to have a right heart catheterization for 24 hours while they sit in an ICU surrounded by COVID-infected patients. That's a very high bar. I think we probably underestimated how severe and harsh that step was. But we're pursuing it. We have identified some patients by name. They will indicate they time they want to come in and then they get a little bit nervous. So, we're trying to work as productively as we can. And as Omicron recedes, I think we have a very good chance of getting those patients. That's why we've said, look, to get all the data, it may take a little bit longer. But importantly, we plan to get the data, and once we get it, we will share it. And that could be at any time across the year.

Great. Thanks very much.

Thank you, our next question comes from Ritu Baral from Cowen. Please Ritu, your line is now open.

Good morning, everyone. I appreciate the opportunity to ask a question. I would like to inquire about ASPEN and the insights you have gathered so far. Have you been analyzing event rates, specifically the blended event rates for exacerbations in ASPEN? How do these compare to your expectations? Additionally, should we consider any COVID-related effects on exacerbation rates within this population, particularly in relation to fluctuations due to COVID waves, and is there an observable trend linked to COVID in this group? Any clarification you can provide would be helpful.

We are analyzing the event rate on a weekly basis in a blinded manner, and our findings align with our expectations. In terms of COVID, there is an added consideration for respiratory studies, and we are tracking which patients have COVID. It's important to note that our approach is blind, meaning we do not identify individuals but have a clear understanding of the patient population and whether any data deviates from our expectations. Currently, our observations are consistent with our earlier estimates.

And similar to what we saw at WILLOW.

And similar to what we saw in WILLOW.

So, we're in a great spot right now. I mean, this trial is not only enrolling quickly, but the monitoring that Martina is describing has gone remarkably well, and that is something that she said we're tracking on a weekly basis, so we're all over this.

Got it. And then a question for Roger regarding the new brensocatib indications. As we consider the severe CRS population, specifically HS, who do you think will be the target treating physicians? Are they primarily ENTs and specific dermatologists, or is the scope broader than I am currently considering?

Yes. Thanks, Ritu. So, you're right. For CRS, it's the ENTs. These would be the folks who will primarily be performing the surgeries. So, we will be targeting the ENTs. And to be honest, we need to figure out. There are about 10,000 to 12,000 ENTs in the U.S., approximately the same number for derms. We'll need to segment that population and do the work to figure out who we're going to be reaching out to address these diseases and see who are the experts in that field. But yes, the ENTs, and then with the derms, we'll do the same process, right? About 10,000 to 12,000. We'll take a look at probably a really good indicator as you see a dermatologist is using HUMIRA, that's going to give you a really good lead as to who you need to be talking about to bring brensocatib to them. So, we'll update you later with more specifics about that, but those are the specialists that we're focusing on.

Thank you. Our next question comes from Judah Frommer from Credit Suisse. Please, Judah, your line is now open.

Hi, guys. Thanks for taking the question. First, just a quick follow-up on ASPEN. You mentioned the 50% enrollment versus internal projections. Did those change at any time tied to COVID or is that an initial projection that stuck? And then you did talk about enrollment timelines, does that foretell or readout in the mid-2024 inch?

The internal projections were established after COVID began, and they certainly took that into account. We adopted an ambitious approach to what we aimed to achieve. As we mentioned earlier, we committed significant resources to this trial and gave it our full effort. Even with these goals in mind, the results have exceeded expectations. A significant factor contributing to this success is the enthusiasm surrounding the potential of this medicine, which has been referred to by someone at the American Thoracic Society as potentially the holy grail of pulmonary medicine. There is genuine excitement around this program, which is positively impacting enrollment.

Timing for data.

So, this is a 13-month study, 12 months on drug and then one month off drug. So, you can run the math off. Whenever we're finally fully enrolled, it'll be roughly 13 months, plus the time to lock the database and release it in top-line form. So, we say approximately this time next year, we should be fully enrolled.

That's helpful. Can you provide more details about the priorities for cash allocation? Are there specific areas you're considering that might require additional funding, such as accelerating ENCORE enrollment, supporting sales efforts, or promoting new brands or indications? Any insight would be appreciated.

Well, the first thing I would say is as we think about the four pillars, the largest spend is on the first two at the moment where we have pivotal trials that are global in reach and large in scope. TPIP probably follows behind that. And then the fourth pillar punches way above its weight with verylittle resource because it's an earlier stage. Importantly, the medicines that are being produced there, if they prove to be effective, have a potentially shorter pathway through the regulatory maze because they can be highly impactful to very severe patients. So, we have a long way to go to accomplish that, but I'm excited about the prospects of that. And we'll have more to say about the fourth pillar in detail in the second half of this year when you're at our R&D Day. Hopefully, you noticed on the slide where we've enumerated nine different programs, you get some sense for how productive this engine already is and where it could lead us as a company is very exciting. I don't know Sara if you want to talk about guidance or any of those different spends and how we're thinking about it.

Yes, sure. As Will mentioned, our largest focus from a capital prioritization perspective is around ARIKAYCE and Brenso programs, and so as we think about Aspen encore, we are resourcing those programs and ensuring those program heads are as successful as they could be. As you see the success that we've had with ASPEN, over 50% in involves just a degree of that study, just a reminder. That means it's over 800 patients in about a year. That's pretty remarkable as you think about comparator trials. So, we are resourcing these programs appropriately and Martina and I are staying in close contact around prioritizations around all four pillars. Translational medicine, it's an immaterial spend for the number of answers and questions we're going to be able to get out of that pillar.

Thank you. Our next question comes from Joseph Schwartz from SVB Leerink. Please, Joseph, your line is now open.

Hi, I'm Joori Park for Joe. Thank you for taking my questions. First is on pricing in Japan. Does ARIKAYCE get renegotiated after the first year in Japan?

Yes. Thanks for the question. There will be pricing adjustments for ARIKAYCE in Japan. We're not anticipating it for the first year, but I think it's every two years that we are anticipating that there will be pricing adjustments potentially in Japan. It's not guaranteed, but we're anticipating that there may be those negotiations every couple of years.

Okay. Great. Thank you. I'm going to just squeeze one in. I believe the first patient was dosed last late December, and it's like about 14 months to get 50% enrollment. Curious what gives you confidence that the ramp-up of enrollment can happen in the next 10 months or so of the year that's remaining, you're planning to add more sites or are you detecting more interest? Any color on that would be helpful. Thank you very much.

Yeah, if you heard in Martina's comments, one of the challenges of NTM studies is that these patients are very skittish and particularly during a global pandemic. We've been through this before with two other studies and the refractory population, both Phase 2 and Phase 3. So, we're accustomed to it. If you look across this disease state, this is the typical approach. What's interesting is that notwithstanding, getting them in the clinical setting, the commercial opportunity that gets represented by this, the uptake is quite substantial. So, we're excited to get to the other side of ARISE and ENCORE because of what we think it's going to represent. There are a lot of patients out there who are going to benefit from this. It is also important to remember that we're asking in the ARISE study for patients to take the drug for six months and then one month off. And that is not what guidelines call for. So, it's a little bit of a higher hurdle to get them to step into ARISE. It's one of the reasons why we think ENCORE is going to enroll faster. There are several countries that are not participating in ARISE that are participating in ENCORE. And so that will also add additional sites and enrollment horsepower to ENCORE once ARISE is completed. But we know what the screening is. We know what the front end of the funnel is if you will, and that's where our confidence comes from that we think we'll be able to complete this in due time.

Thank you. Our next question comes from Stephen Willey from Stifel. Please, Stephen, your line is now open.

Yeah. Good morning. Thanks for taking the questions. Maybe just to follow up on the last question. I think there was a comment that Martina made around screen failure rate that you guys were seeing in, I believe, it was ARISE or ENCORE being, I think, somewhere north of 40%, and was just wondering if you could maybe provide some commentary around what seems to be driving that specifically and whether or not that's in line with prior studies that you've done in this disease setting, I guess, specifically convert.

Yes. The first thing to remember is that prior studies that we've done, the convert study within a refractory population. So those are already patients diagnosed and they haven't responded to treatment, so you would get this positive sputum cultures already when patients come to physicians and site. In the frontline indication, so these naive patients, it is very often for these patients to produce sputum is already hard. Then to actually get a positive sputum culture is the next hurdle. In addition, today, what you often have to do with these patients is actually help to improve them to induce sputum production. Today is an element of that the sites don't do this today. That's related to the COVID guidance that they often have, and then it takes a significant amount of time until you really get to a culture that is positive. And we want to ensure that we have a high-quality culture and we have the right patient. You don't want patients in the study who just have colonization, but they don't really have a good positive culture. So that is part of that. Now it's a different environment when you are in the study situation than what you would be having in the normal clinical practice setting, there is a higher hurdle on that. And that's part of it. So we've seen this higher screen failure rates often because it's very hard for them to produce it. They just can't come up, and then you have to wait until you get that positive culture to make sure we have the right patients in this study as those are very big drivers for the screen failure rates as well.

Okay. That's helpful. And then I guess just with respect to the Phase 2a study for brensocatib in CF, I think prior guidance maybe suggested that was going to be a '22 disclosure. I think you're now maybe talking really '23, maybe it's just semantics, but is there anything really limiting there in terms of enrollment? Is that COVID-related? Is that you pushing dose escalation a little bit higher than you perhaps were before?

No, that hasn't really changed. What we're trying to indicate is that it's difficult to predict the exact enrollment path at this stage. There is no new information that would alter the timing. We will keep you updated throughout the year as we see progress. I think the additional space we mentioned is in case we need to move up to 65 milligrams, for instance. Martina discussed the three doses we're currently targeting. Depending on patient responses, we may need to increase to 65, and that could extend the timeline. That's the main consideration here.

Alright. Thanks for your questions.

Thank you. Our next question comes from Liisa Bayko from Evercore. Please, Liisa, your line is now open.

Hi. Thanks for taking my question, and I'll reason out the updates. I understand a little bit more about the dynamics of how you're thinking about ARIKAYCE. You're well into the quarter already for the first quarter. Any updates on sort of trends you're seeing? And then as you think about guidance for next year, can you give any color on what is the growth coming primarily X-U.S., U.S.? Maybe you can give us some breakdown of how you're thinking about the 30% growth across the different regions.

Sure, happy to. Thanks, Liisa, for the question. So, we're excited and encouraged to be able to reinstate our revenue guidance, first time in two years that we've been coming out with revenue guidance with a 30% year-over-year growth is a substantial growth. We anticipate that we will see growth from all three of our regions. As I mentioned earlier in the prepared remarks, Q1 is at least the toughest in the U.S. due to the donut hole reset and all those good things as you've historically seen throughout our Q1, and as Roger mentioned in his remarks around the nuances. In the Japan market, the two-week restrictions being lifted in the June timeframe, so some nuances as you think about the different regions, but we do expect to see growth in all three of our regions. And we have, as a global society gotten to a place where we understand COVID and folks are learning how to live in this new environment. So hopefully, that gives you a little more color.

I would like to add a few comments. The first quarter is typically challenging for the U.S. due to co-pays and deductible resets. However, we are encouraged by what we see. Omicron has impacted the country at different times, and while it remains a regional issue, we are noticing significant declines in hospitalizations in the Northeast. Our sales reps are returning to face-to-face meetings with customers, which we believe is crucial. Pulmonologists have faced significant challenges because of COVID, but as the situation improves, we expect patients to return. Many pulmonologists will focus on respiratory health, particularly long COVID, which could increase awareness of conditions like NTM and other related health issues. We are very optimistic about growth in all our regions, particularly with several upcoming catalysts in Europe regarding reimbursement decisions. In Japan, we are pleased with the progress of our launch and will keep an eye on Omicron as it evolves there. Recent data suggests that Japan has been hit harder by this wave compared to the U.S. and Europe, with higher recorded deaths than during the Delta variant phase. The percentage of the boosted population in Japan is around 9%, which is much lower than in western countries. If the situation follows a similar pattern of peaking and then declining sharply, we anticipate a continuation of our launch momentum. The Japanese Society's recommendations for ARIKAYCE and the lifting of two-week restrictions in June make us optimistic for growth in Japan. Overall, we are hopeful across all regions, which is reflected in our guidance.

Okay. Great. Regarding Japan and Europe, does the information you provided reflect the 2021 numbers primarily based on end-user demand, or is there any indication of channel sales? I know the product was recently launched in Japan, so I'm trying to understand the sales dynamics in the channel versus actual end-user demand. Additionally, for Europe, how do you plan to better estimate the number of patients? Given your current market share, it seems substantial, and I'm curious when you'll have a clearer understanding of the available patient pool.

We don't see that. I think your first question was about whether we are seeing stocking, meaning whether we are putting products into the channel. We work with wholesalers in Japan, and this reflects user demand. We sell the devices directly to the hospitals, and ARIKAYCE goes to the wholesalers and hospitals. However, since it’s a fairly expensive product, there isn’t much stocking or inventory carrying. The same situation applies in Europe; we aren't experiencing that kind of phenomenon. What was your second question?

1,400 patients.

More than 1,400 patients. We believe we can provide estimates that may not be fully backed by existing literature. Based on our research and available information, we think there are actually more than 1,400 refractory patients. We are skeptical about the lower numbers for several reasons. Key opinion leaders and CDS patients are eager for the therapy. We're seeing significant revenue already from Europe even without reimbursement, thanks to our named patient program there. Over time, considering the risk factors for NTM—such as being older, having a smoking history, and living near water—these factors are relevant in Europe just as they are in the U.S. and Japan. Thus, we believe the estimated patient population may be underestimated in the literature. While we lack concrete evidence to support this view, we are taking a cautious approach in representing the market potential. However, we expect that over time, this will be validated. Growing that market may take longer, especially given the more specialized medical centers in Europe. Nevertheless, we anticipate that once we have an approved and reimbursed therapy, more patients will be diagnosed and treated, allowing the opportunity to expand over time.

Thank you. Our next question comes from Jennifer Kim from Cantor. Jennifer, your line is now open.

Hey, everyone. Thanks for taking my questions. Maybe starting with TPIP, in terms of timing for the Phase 2b trial, clinical trials have an estimated primary completion date of February 2024. I know that's not the most reliable indicator, but I'm wondering based on how enrollment has moved for that asset in the Phase 2. And then enrollment we've seen with other assets as well, is it fair to call that an aggressive timeline or is it too early to say for now?

I think it's too early to say what the timeline will be for that. We didn't provide it in the risks in the spoken comments. When I wouldn't draw your attention to it, that I think it's very different to be enrolling for this Phase 2B trial and the Phase 2 PHILD trial than it is the 2A trial. 2A is really blocked by the onerous nature of the protocol where a patient has to have the right heart cap for 24 hours. We're not aware of studies that have ever done that. We're proposing to do it for 24 hours. And what's interesting about that is that the key opinion leaders who have opened their centers to pursue this are enthusiastic about doing so. They really think this data is going to de-risk this program's potential very substantially. So, we are excited to get the data, finding someone to volunteer who has PAH in an advanced state and is willing to have a right heart catheterization for 24 hours while they sit in an ICU surrounded by COVID-infected patients. That's a very high bar. I think we probably underestimated how severe and harsh that step was. But we're pursuing it. We have identified some patients by name. They will indicate the time they want to come in and then they get a little bit nervous. So, we're trying to work as productively as we can. And as Omicron recedes, I think we have a very good chance of getting those patients. That's why we've said, look, to get all the data it may take a little bit longer. But importantly, we plan to get the data, and once we get it, we will share it. And that could be at any time across the year.

Great. Thanks very much.

Thank you. Our next question comes from Anita Dushyanth from Berenberg. Please, Anita, your line is now open.

Hi. Good morning. Thank you for the update and guidance and congrats on the results. I have a question. Apologies if I missed this in your commentary. Regarding your application of brensocatib for CRS and HS, will you be investigating both indications this year, or do you prefer one over the other? If there is a preference, could you share the reasons behind it?

So, in response to the first question, I would say we're moving both forward. We have thought in our minds that we would bring one into the clinic by the end of this year. It's not final yet, but that is certainly our current inclination. Both are equally compelling. It's hard to choose between them, to be very candid. I think our preference, because of the potential in these diseases, is to bring them both forward as quickly as possible, but we're trying to work a balance between resource deployment and the opportunity that they represent.

Okay. Thank you. And then, I know you mentioned that there's about 150 neutrophil-mediated diseases that you're looking at. And from the screening, these two indications that are kind of what are given preference. I just wanted to know potentially, would brensocatib find applications in some percentage of that number that you had mentioned?

Yeah. To be clear, we think that what we've unlocked here is the DPP1 inhibition pathway. That interference with the inflammatory cascade is really quite profound in its potential application. So we start with these four indications which rise to the top as the most profitable for impact, but to remind you, we've already done preclinical work in other indications as well, like rheumatoid arthritis and lupus nephritis and some other various substantial indications. For a variety of reasons, it doesn't make sense for us to pursue those clinically, but we certainly are protecting them from an intellectual property standpoint. And so where that preclinical work gets done and validates its potential application we have pursued the IP around that. When we go into diseases beyond this, if we had the resources down the road, yes, we would. I think this pathway presents a very substantial and broad opportunity. I can't emphasize that enough. And I think as we learn more and the scientific rationale is clear and the patient need is clear. Those are things we will continue to evaluate and seriously consider pursuing.

Thank you. We currently have no further questions. So I will hand over back to Will Lewis for any final remarks.

Thank you all for joining us this morning.

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