Earnings Call Transcript - INSM Q2 2023

Operator, Operator

Thank you for standing by. My name is Enrique, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Insmed Second Quarter 2023 Financial Results Conference Call. Operator provided instructions. Now I would like to turn the call over to Bryan Dunn, Executive Director, Investor Relations. Please go ahead.

Bryan Dunn, Executive Director, Investor Relations

Thank you, Enrique. Good day, everyone, and welcome to today's conference call to discuss Insmed's second quarter 2023 financial results and provide a business update. I am joined today by Will Lewis, Chair and Chief Executive Officer; and Sara Bonstein, Chief Financial Officer, who will each provide prepared remarks before we open it up for your questions. Before we start, please note that today's call will include forward-looking statements based on our current expectations. These statements represent our judgment as of today and inherently involve risks and uncertainties that may cause actual results to differ materially from the results discussed. Please refer to our filings with the Securities and Exchange Commission, which are available at www.sec.gov and on our website, for more information concerning the risk factors that could affect the company. As a reminder, the information on today's call is for the benefit of the investment community. It is not intended for promotional purposes and it is not sufficient for prescribing decisions. I will now turn the call over to Will Lewis for prepared remarks.

Will Lewis, Chair and Chief Executive Officer

Thank you, Bryan. And good morning, everyone. What an incredibly exciting moment we are in at Insmed. From a commercial perspective, in the second quarter of 2023, we achieved the highest quarterly sales in our history, up 18% compared to an already strong first quarter. As a result of this outperformance, we are raising our revenue guidance for the year, making what was the best-case scenario under our previous range of expectations now the midpoint of our current guidance. Clearly, the commercial engine at Insmed is really humming. And I want to thank the customer-facing part of our organization throughout the world for their extraordinary efforts, which led us to this result. If we are successful with clinical trials and approvals, these same colleagues will one day be the teams to launch brensocatib and our other pipeline assets, which increases my confidence in the company's future as a profitable and sustainable commercial organization. As impressive as this quarter's performance has been, even more exciting is what we have in store. We are now finally arriving at the time we have been anticipating for years when we expect to produce meaningful data across our entire research and development portfolio, culminating in the release of the ASPEN data for brensocatib in the second quarter of next year. I mentioned ASPEN as the culmination of this period of catalysts because it will undoubtedly mark a huge milestone in the history of this company. But ASPEN is by no means the end of our meaningful R&D updates. Let me give you a taste of what I mean, and please keep in mind that this list will not be exhausted. In 2024, we anticipate a steady stream of updates from our gene therapy program, including first patient data in DMD and an additional one to two IND filings for other gene therapy programs, including Stargardt disease. In parallel, we believe we will have accomplished the production of complete capsids using Algae, potentially validating our AlgaeneX manufacturing platform. Then moving into 2025, we expect our first IND submission from our de-immunized by design platform and potentially the successful scale up to full commercial manufacturing of proteins using Algae. We also expect to file an IND for Ataxia-telangiectasia, which is related to a recent acquisition that I will tell you more about in a moment. All of these data catalysts would be in addition to potential top line results from several other studies from our first three pillars, which could significantly de-risk large commercial opportunities for Insmed, if they are successful. One of those is our ongoing study of TPIP in patients with pulmonary arterial hypertension. Another is a study, which we plan to initiate before the end of this year for our second indication using brensocatib in patients with chronic rhinosinusitis without nasal polyps. Much like bronchiectasis, CRS without nasal polyps is an area of high unmet need with few or no treatment options and very large numbers of affected patients. The timing for top line readouts from each of these studies will ultimately be determined by the respective pace of enrollment. All of that is to say that the next year, as exciting as it is, is only the beginning for Insmed, and we can't wait to deliver it. It will all start next month with the release of top line results from our ARISE study of ARIKAYCE in patients with newly diagnosed or recurrent MAC lung infection who have not started antibiotics. I spoke about this data set at length last quarter. But as a reminder, the goal of this data readout is to validate a patient-reported outcome tool, which will be used as the primary endpoint in the registration-enabling ENCORE trial. I'm often asked, what would good look like in this data set? From my perspective, the ideal outcome would include three key elements. First, we will, of course, want to see that the medicine demonstrates a safe and well-tolerated profile for use in this patient population. Second, ideal data would clearly show that we have a PRO that works without the need for a significant amount of modification. This would give us confidence that the PRO can be relied upon to predict when patients are feeling a meaningful improvement in their symptoms and can therefore be used as the primary endpoint measure in ENCORE. And third, we would want to see at least a trend toward PRO and culture conversion superiority for the ARIKAYCE arm compared to the control arm. Both the PRO and culture conversion trends would ideally be at levels which give us a clear path to achieve a statistically significant outcome in the ENCORE study. To be more specific on culture conversion, if we can achieve a placebo-adjusted improvement in the conversion rates in the 10% to 20% range in ARISE and/or if we see meaningful improvements in time to conversion in the ARIKAYCE arm of the trial, we believe that would be very encouraging. If ARISE checks all of those boxes, then I would consider it an extremely positive result, one which would significantly add to our confidence in the ARIKAYCE opportunity in the broader MAC lung disease indication, which is three to five times larger than the current refractory indication in which even on its own, we believe, would greatly strengthen our financial position by adding a potentially significant source of revenue growth as we move towards financial sustainability. As a reminder, we will host a conference call to discuss the data once the ARISE top line results are shared. While we are discussing the ARIKAYCE development program, let me give you an update on ENCORE as well. Enrollment in the trial has remained strong, and we continue to expect to enroll 250 patients by the end of this year. Following the ARISE data, we will quickly have another data set to share, this time from our Treprostinil Palmitil Inhalation Powder, or TPIP, program, which we currently are studying in Pulmonary Hypertension associated with Interstitial Lung Disease, PH-ILD, and Pulmonary Arterial Hypertension, PAH. We continue to expect to share blinded dose titration data from our Phase 2 PAH and PH-ILD studies in the second half of 2023, with the Phase 2 PH-ILD top line readout expected to follow in the first half of 2024. In my opinion, TPIP is probably Insmed's most underappreciated pipeline asset. Given that treprostinil is a well-known and widely used medicine for patients with PAH and PH-ILD, we already know quite a lot about its profile. First, we know that administering higher doses of treprostinil results in a dose-dependent improvement in patient response. Second, we know that treprostinil has a relatively short half-life, which requires patients to inhale doses of it four or more times per day in an attempt to maximize the dose delivery. This results in spikes and troughs of drug exposure throughout the day and patients unable to maintain the drug's effect during a full night of sleep. And finally, we know that there is already a large and rapidly growing market for treprostinil in these indications. TPIP is a prodrug, which gets converted slowly and steadily to treprostinil once inside the lungs. If successful, TPIP could allow patients to cut their dosing schedule down to once a day while maintaining a steady treatment effect throughout the day and even while they sleep. Beyond that, we believe that TPIP has the potential to safely deliver treprostinil at significantly larger quantities than even the highest approved dose of the currently available inhaled treprostinil products. We believe that these higher daily doses could result in enhanced efficacy. Now you might say that blinded dose titration data from a study that is still ongoing is not likely to be very meaningful. And normally, I would agree with you. However, TPIP could be an exception given what we already know about treprostinil and how it is currently dosed. For context, the highest FDA-approved maintenance dose of Tyvaso DPI is 64 micrograms, four times per day, totaling 256 micrograms being delivered to the lung each day. Our Phase 2 studies are designed to titrate up to 640 micrograms once per day. That is nearly a 60% higher daily amount of treprostinil being delivered when you exclude the weight of the 16 carbon chain of our molecule. This blinded data will show us whether that can be done in a safe and tolerable manner. If this blinded data show that we can successfully titrate patients up to 640 micrograms per day, I would argue, given the history of the mechanism, that it is a very encouraging early sign of the potential for TPIP to provide greater benefits for these patients. To emphasize that point about efficacy, we are also watching with great interest some of the key efficacy signals from those studies, such as reduction in pulmonary vascular resistance. Granted, the patient numbers are small and the data is still blinded at this point. But what we see so far is very encouraging. We look forward to sharing more about the blinded efficacy signals we've seen with you in the future, apart from the dose titration data. The next exciting clinical data readout we expect will come from our early-stage research engine or our fourth pillar, which we unveiled at our recent R&D Day. In the first half of 2024, we anticipate releasing biopsy data for at least one patient from our Duchenne Muscular Dystrophy gene therapy program. This will be our first look at human data using intrathecal dosing, which we believe could lead to enhanced safety and efficacy for these patients based on the preclinical work that we showed you in May and have continued to produce since that time. Importantly, this data readout for DMD, if successful, could also serve as an important point of validation for our gene therapy platform more broadly, which would add to our confidence in the additional INDs that I mentioned earlier. Now I want to conclude with the clinical development program I'm the most enthusiastic about at the company, our ASPEN trial of brensocatib in non-CF bronchiectasis. This is clearly the single most important trial running right now at Insmed, and I remain as confident as ever in its likelihood for success. The ASPEN top line readout in the second quarter of next year will be the most impactful event in the company's history, and we can't wait for it. I can tell you that we aren't the only ones excited about this program. Just two weeks ago at the World Bronchiectasis Conference in New York City, one KOL said to us that they believe this data set next year will change everything and will be the most exciting time in the history of bronchiectasis for that patient community. We agree 100%. Before I turn it over to Sara for some remarks on the quarter's financials, I want to briefly touch on another important development within our early-stage research, which we could not yet discuss at our R&D event. In June, we completed the acquisition of a privately held company out of Cambridge in the United Kingdom called Adrestia Therapeutics. Adrestia's focus has been in the area of synthetic rescue, which could open up the possibility of addressing diseases which have been untreatable in the past even with gene therapies. Through the application of advanced CRISPR screens, combined with human genetics, Adrestia is identifying novel targets across a broad range of diseases. They then select the best modality for these targets based on the intended patient population, be it small molecules, oligonucleotides, such as ASOs and siRNA, or gene therapy. The first indication will be Ataxia telangiectasia, a devastating condition that is often fatal by the second or third decade of life and currently has nothing approved to treat it. Although Adrestia is a relatively lean company in terms of head count, they have made tremendous strides in terms of establishing themselves with patient advocacy groups and moving their work forward on behalf of that community. We expect to have an IND filed for this indication in 2025. This acquisition would make sense just for the technologies being brought into Insmed alone. But in addition to that, we also welcomed some of the brightest and most impressive scientists and colleagues you will find anywhere in the world, including Professor Sir Steve Jackson from the University of Cambridge, whose past work in the DNA damage repair space led to what we know today as Lynparza, the world's first synthetic lethal medicine, which is now a blockbuster medication, benefiting thousands of cancer patients around the world. As good as the people at Adrestia are, history has shown that combining companies only works well when culture is aligned. I'm pleased to say that we couldn't have asked for a better fit. What we have found with Adrestia is not just a group of great scientists but kindred spirits with the culture of Insmed. There will undoubtedly be much more to share about Adrestia in the future. For now, we are excited by the developments coming from this team's work and the early interactions and plans for collaboration between the Adrestia team and our other researchers at sites in New Hampshire, New Jersey and San Diego. We look forward to updating you on the cutting-edge work being done and giving you a chance to meet some of the incredible people behind it. Importantly, this acquisition changes nothing about our previous commitment to keep the investment in our fourth pillar activities to less than 20% of our overall spending. Furthermore, as we look to the future, our estimates for the revenue production flowing from our first two pillars will more than cover the anticipated cash needs of the early-stage programs we are currently contemplating, putting Insmed on a path to financial sustainability even as we bring multiple new medicines through clinical development to the market for the benefit of patients around the world. I'll now turn the call over to Sara to walk through our second quarter financials.

Sara Bonstein, Chief Financial Officer

Thank you, Will. And good morning, everyone. I am pleased to share some of the details of Insmed's financial performance for the second quarter of 2023. We ended the quarter with approximately $918 million in cash, cash equivalents and marketable securities. Consistent with what we told you on our last quarterly call, this represents a significantly lower cash burn in the second quarter compared to the first quarter of the year. We continue to believe that our current cash on hand positions us to be able to read out all of our expected clinical updates through the ASPEN results in the second quarter of 2024, leaving a meaningful amount of cash remaining on the balance sheet at that time. Now turning to our commercial performance in the second quarter of 2023. Total net revenue for ARIKAYCE was $77.2 million, reflecting 18% growth year-over-year. This represents the strongest quarter for ARIKAYCE sales since its launch. On a regional basis, net revenue was $57.7 million in the U.S., $15.6 million in Japan and $4.0 million in Europe and rest of world. Notably, each of these regions posted meaningful sequential growth compared to the first quarter. Based on this strong performance to date and our continued confidence in ARIKAYCE's growth trajectory for the remainder of the year, today we are raising our full year 2023 revenue guidance range to $295 million to $305 million compared to the previous range of $285 million to $300 million. This new range reflects year-over-year sales growth for the company in excess of 20%. In the U.S., ARIKAYCE delivered an exceptional quarter and the best in its history, up 22% compared to the prior year second quarter and up 18% compared to the first quarter of this year. This quarter's results further support our belief that ARIKAYCE is still in a growth phase. Sequential growth in the U.S. in the second quarter was driven primarily by the exceptional execution of our field force, which is delivering the highest level of engagement since prior to the COVID-19 pandemic. In Japan, ARIKAYCE grew 19% this quarter compared to the first quarter of 2023 despite the 9% price decrease which went into effect in June and which I discussed on our last call. This improvement in performance, although anticipated, began even earlier than we expected and again speaks to the potential for growth in Japan now that COVID restrictions have loosened and our access to physicians has begun to normalize. In fact, our engagement with health care providers in Japan has roughly doubled compared to just one quarter ago, which highlights the great work being done by our new commercial leadership in Japan as well as our dedicated sales colleagues in that region. We continue to believe that ARIKAYCE can produce solid growth in the second half of the year under these conditions. Finally, Europe saw a 33% sequential growth this quarter, driven primarily by our targeted patient identification efforts in both Germany and the U.K. Let me now turn to a few additional financial items. In the second quarter of 2023, our gross CNS in the U.S. were approximately 14%, which is consistent with our expectations for the second quarter. We continue to expect our gross CNS to be in the mid-teen range for the full year, in line with historical performance. Cost of product revenues for the second quarter of 2023 was $16.6 million or 21.5% of revenues, which is comparable with the past several quarters on a percentage basis. Turning to our GAAP operating expenses. In the second quarter of 2023, research and development expenses were $197 million and SG&A expenses were $84.4 million, reflecting continued investment in both our early and mid- to late-stage pipelines as well as launch readiness activities for brensocatib. Excluding noncash charges related to acquisitions, R&D expenses this quarter were comparable with R&D spending in the first quarter of this year. R&D expenses this quarter included a noncash charge of $76.5 million related to the acquisition of Adrestia Therapeutics in June, which Will mentioned a few moments ago. In closing, Insmed continues to deliver on its promises with strong commercial execution and a cash position that can support its business through the exciting period of data readouts ahead. I'll now turn the call back to Will for closing remarks.

Will Lewis, Chair and Chief Executive Officer

Thank you, Sara. Before we move to Q&A, I want to mention a couple of other recent updates that continue to make me proud to be a part of this company. We are an organization made up of people driven by a singular purpose to deliver life-changing treatments for patients in need. And I see that passion in the people around me every single day. We recently learned that for the third year in a row, Insmed has been designated as a great place to work in the U.S., reflecting our exceptional workplace culture. I am enormously proud that 97% of our employees said that this is a great place to work, our highest rating yet. I also want to draw your attention to the first-ever World NTM Awareness Day being held tomorrow. This effort being led by the incredible people at NTM Info & Research aims to educate and support physicians, patients and caregivers who are impacted by this disease. This is expected to be an annual event, and we are honored to be a part of it. As we strive to do the right thing for our patients, we are also mindful of our broader commitments to those around us. We recently released our first-ever responsibility report, which you can find on our website. The report, which will be updated annually, details the commitments and actions we undertake as an organization to act responsibly in everything we do, from serving patients and our employees to supporting our communities and natural environment. What we've built and continue to build in Insmed is what I like to refer to as an intentional community, a place where people check in with each other and offer help when needed so that all people feel cared for and supported. This results in an environment where people are motivated and can do their best work. Please take a moment to look over the report if you want to learn more about the ways we are ensuring that Insmed is a responsible corporate citizen, both now and as we grow into the future. Finally, I would like to again thank all of those who have been on this journey with us, our patients, our investors, our colleagues and all of our other stakeholders. The future is bright for Insmed, and we look forward to continuing to deliver on our promises to each of you. Our long-held ambition to build the next great biotechnology company is finally coming to pass. With that, I'd like to open the call to questions. Operator, can we take the first question, please?

Operator, Operator

Operator provided instructions. Your first question comes from Ritu Baral from TD Cowen. Ritu, please go ahead.

Yaneel (on for Ritu Baral), Analyst, TD Cowen

Hi, guys. This is Yaneel on for Ritu. My first question is on the frontline program. Are you thinking of a minimum clinically important difference for your fatigue and quality-of-life measures for the PRO? And is there a delta on these that you're looking for? And then a quick follow-up.

Will Lewis, Chair and Chief Executive Officer

I'm not sure I understood the question. Are we looking for what on the PRO?

Yaneel (on for Ritu Baral), Analyst, TD Cowen

A minimum clinically important difference on the PRO. Like what are you thinking in terms of the scale and the delta that's desirable that you're looking for?

Will Lewis, Chair and Chief Executive Officer

I see. Well, the truth of the ARISE program is that it is designed to answer that exact question because no PRO has ever been developed for NTM. There really is no frame of reference. So, if you think about what the goal of the ARISE study is, it is to both establish that the PRO works by showing that it can measure changes in how patients feel and also the degree of change needed to capture a patient feeling better. We are using two measures in parallel. One is a general measure that asks over the last seven days whether the patient feels worse, the same, or much better. That scale has about five rungs from best to worst. A patient has to improve one step on that scale in order for us to conclude that a clinically meaningful change has taken place in that patient's condition, as established by the FDA. We then use the more detailed Quality of Life Bronchiectasis questionnaire and the fatigue PRO to determine a numeric change on those scales. If there is a one-step change on the overall symptom score, we then correlate that to the numeric change on each of the PROs. That's how we establish what constitutes a clinically meaningful change on the PROs. Once we know that, then we can determine whether or not we've seen that degree of change in this study. I know that's a lot of complexity and a lot of detail, but I'm hoping to get to the heart of the question, which is how will we know that this is working and how will we quantify it. We intend to share that information with you.

Yaneel (on for Ritu Baral), Analyst, TD Cowen

Yes, it is. Thank you for taking that. And then a quick follow-up on the TPIP program. Can you give a little more granularity on the data points that you'll be reporting? And what you're hoping to see, just setting expectations there?

Will Lewis, Chair and Chief Executive Officer

Yes. What we're doing right now is we have some ability to observe in the earliest patients blinded blended data. We look at the same kinds of measures that others look at for other products that are on the market. There's a good frame of reference for what constitutes an impressive change in certain metrics, such as pulmonary vascular resistance. These are measures that typically don't idiosyncratically change in very sick patients. So, if we're seeing a significant change on those measures, we consider that encouraging. Patients are randomized 3:1 on the drug to placebo in PH-ILD and 2:1 in the PAH program. So there is a good number of patients likely on drug even with early patient numbers. As we look at these blended blinded details, we see some encouraging signs. As we amass more data and gain greater conviction that these are not one-offs, we will look to share some of that potentially with the market. We think TPIP is an incredibly valuable asset based on precedent in this space with programs that have demonstrated impact on parameters like pulmonary vascular resistance. For example, at the upper end in this space is sotatercept at its highest dose showing a reduction of about 33% on pulmonary vascular resistance on average, and at the lower end reductions as low as about 14%. Seeing something in that range would mean we are directly competitive. If we see something above that range, that would be very encouraging. It's early and patient numbers are small, but what we're seeing is very exciting. If we share anything publicly it would be raw data; we would avoid statistical hypotheticals. We will let the market make its judgment on the potential promise of this program.

Yaneel (on for Ritu Baral), Analyst, TD Cowen

Thank you. That was helpful.

Bryan Dunn, Executive Director, Investor Relations

Next question please, operator.

Operator, Operator

Your next question comes from Judah Frommer from Credit Suisse. Judah, please go ahead.

Judah Frommer, Analyst, Credit Suisse

Hi, guys. Congrats on the quarter and thanks for taking the questions. Maybe just going back to your ideal ARISE scenario, Will. In the event that you validate the PRO, but you don't see what you'd like on culture conversion, how do you see the program moving forward from that perspective? And is the opposite possible that you see culture conversion but not validate the PRO?

Will Lewis, Chair and Chief Executive Officer

To be transparent, that's the heart of the question for ARISE. What we're trying to convey is success with this program is clear and simple. As complexity increases, it affords us the opportunity to make changes for ENCORE, but we'll have to walk people through that if necessary. I'm anxious to see the data. On both measures, the PRO is designed to inform us about their applicability in this setting. No one's ever used them before in the frontline setting. We have some data from the refractory setting that guides us and five years of commercial experience. These will be quantifications and we'll learn a lot from this study. Success is a PRO that shows patients get better. A home run is a PRO that shows patients on our drug get better than those on the control arm. For culture conversion, it's two measures: overall culture conversion comparing arms and time to culture conversion, both of which have typically trended positive in favor of ARIKAYCE in the past. There are many variables, and I hope to have a clear answer in about a month's time.

Judah Frommer, Analyst, Credit Suisse

Okay. And just a quick one on the refractory setting. It's been a couple of years we've been talking about pent-up demand or under-diagnosis for refractory MAC patients as we've gone through, but it sounds like things are normalizing globally. Are you seeing evidence of that under-diagnosis or pent-up demand in the refractory patients?

Will Lewis, Chair and Chief Executive Officer

I don't know how to precisely characterize it. We're back in growth mode, and everyone feels good about where things are with the refractory patient populations around the world. Our expectation, and that's why we raised guidance today, is that momentum will carry into Q3 and Q4. I'm relieved to not have unexpected events in the quarter for this commercial opportunity. The team has done incredible work through one of the most challenging times, and we're past that now. We believe there's opportunity ahead.

Judah Frommer, Analyst, Credit Suisse

Thanks.

Operator, Operator

Your next question comes from Vamil Divan from Guggenheim. Vamil, please go ahead.

Vamil Divan, Analyst, Guggenheim

Great. Thanks for taking the questions. I appreciate all the insight around ARISE. As you've been talking to investors a couple of questions have come up and I want to get your updated thoughts. I know you've given peak sales for ARIKAYCE plus brenso. I'm wondering if you have any thoughts — if you could give your perspective on ARIKAYCE alone, especially the refractory setting, if the frontline opportunity doesn't come about, what do you see as the longer-term growth opportunity in refractory MAC? And then, do you see any risk to accelerated approval if the frontline study does not read out positively?

Will Lewis, Chair and Chief Executive Officer

We haven't given guidance on peak sales for refractory alone. We remain in a growth mode there. We see patients in the field who will benefit from this medicine and are appropriately on label. That's our focus and we expect that growth to continue into next year. Regarding accelerated approval and ARISE, ARISE is a learning study, not powered for statistical significance, but powered for us to learn how to ensure ENCORE is a success. We have levers to pull once we see the data. I don't see a lot of risk to the refractory market if parts of ARISE go sideways because we still have ENCORE before we need to answer success definitively in the U.S. and Japan. Remember that the U.S. primary endpoint is the PRO and Japan is culture conversion, so somewhere in there we believe we will find a path to expanding the addressable market. Also, FDA is approaching the assessment from a different perspective than when it first gave conditional approval. Now we have five years of commercial experience without major safety issues and full approvals in Europe and Japan with successful launches. That collection of data bears on their assessment of the product's viability to help earlier-stage patients.

Sara Bonstein, Chief Financial Officer

I would add and remind folks of the inclusion of the international treatment guidelines with a strong recommendation for use of ARIKAYCE in the refractory setting.

Vamil Divan, Analyst, Guggenheim

Okay. Thank you.

Operator, Operator

Your next question comes from Jennifer Kim at Cantor Fitzgerald. Jennifer, please go ahead.

Jennifer Kim, Analyst, Cantor Fitzgerald

Hey. Good morning. Thanks for taking my questions and congrats on the quarter. I have two questions. First, post Adrestia acquisition, what is your appetite or potential need for further BD? And on ARISE, is the sizing of ENCORE determined by culture conversion rates alone? If culture conversion lands at the lower end of that 10% to 20% range, what would be the potential impact on enrollment size? Or if it falls below that, but improvement in time to conversion is meaningful, what potential adjustments would you have room to make?

Will Lewis, Chair and Chief Executive Officer

On Adrestia, we're excited about the acquisition. It completes our fourth pillar in terms of components needed to produce multiple INDs. Strategically, we will always look at other opportunities and be opportunistic, but I don't feel the need to do anything more necessarily to reach adequate capacity. We now have capabilities that are second to none in terms of IND production and acceleration. These technologies allow us to introduce productivity to the biotech equation and get drugs to market faster and more impactfully. We aim to design and advance programs such that a successful Phase 1/2 trial could apply for conditional approval. That's the reason we built the fourth pillar. Regarding ARISE and ENCORE sizing, we will learn from ARISE about culture conversion and the PRO and that will inform the ultimate size for ENCORE. It may be adequate as designed or it may need to increase. The important point is ENCORE must succeed. We typically add a few more patients beyond what we think is adequate to give the drug the best chance to demonstrate impact. That's the theory behind our bronchiectasis study and it will guide ENCORE.

Jennifer Kim, Analyst, Cantor Fitzgerald

Okay. That's helpful. Thanks.

Operator, Operator

Your next question comes from Leon Wang from Barclays. Leon, please go ahead.

Leon Wang, Analyst, Barclays

Hey, congrats on the quarter. I have one on the PRO readout. There was a recent CHEST article that discussed PRO response in NTM MAC showing around a 7 to 8 point improvement on a certain scale for patients on two- and three-drug regimens. How does that play into your expectations on ARISE? Also, any thoughts on the two and three drug regimens? And a follow-up on ARIKAYCE: for ex-U.S. growth, specifically Japan, with the one-time price decrease this past quarter, can you characterize the volume growth you see and whether any volume growth was due to anticipation of the price decrease and stocking?

Will Lewis, Chair and Chief Executive Officer

I am not fully familiar with the details of that article, but the Quality of Life Bronchiectasis PRO in bronchiectasis has been considered to have an 8-point intra-patient change as clinically meaningful on a 100-point scale. That may or may not be relevant to NTM, and ARISE will answer what point change constitutes a clinically meaningful improvement in this population. Regarding Japan, we don't think the recent price decrease alone explains the improvement. We have added leadership capabilities in Japan, and COVID restrictions were lifted in May, opening access to physicians and increasing engagement. Our outreach activity has increased significantly since then. The leadership changes and lifting of restrictions are the main drivers for the early signs of success in Japan, and we expect Japan to perform strongly in the second half of the year.

Leon Wang, Analyst, Barclays

Great. Thanks and congrats again on the quarter.

Operator, Operator

Your next question comes from Jason Zemansky from Bank of America. Jason, please go ahead.

Jason Zemansky, Analyst, Bank of America

Good morning and congratulations on the quarter. A couple of questions on the pipeline. The landscape of treprostinil and PH-ILD is changing with DPI formulations and potential launches, and sotatercept may be disease-modifying. As you think about these shifts, where could TPIP fall in the evolving paradigm? And a follow-up on ASPEN.

Will Lewis, Chair and Chief Executive Officer

An investor described TPIP as potentially a category killer. A once-a-day treprostinil formulation that covers patients all day and night at higher doses than current formulations could be best in class and become the cornerstone of prostanoid therapy. Sotatercept is very encouraging as a new mechanism and could pair with TPIP to produce better results. This is a combination therapy market in PAH type 1 patients, and we believe we can be the prostanoid of choice. Our dry powder formulation is fundamentally different because the 16 carbon chain makes the molecule inert when inhaled, reducing cough, which is a major issue for PH-ILD patients and a reason many cannot tolerate Tyvaso. We see ourselves going into PAH successfully and likely pairing with other molecules. Key metrics are sustained improvement in pulmonary vascular resistance. While early, the blended blinded data hints are very encouraging.

Jason Zemansky, Analyst, Bank of America

Got it. And the update regarding the DSMB's May review of ASPEN — any additional color and how does that factor into your optimism for next year’s readout?

Will Lewis, Chair and Chief Executive Officer

Every time a DSMB meets and nothing adverse happens, it's encouraging. The study continues to behave as we wanted. ASPEN is more than 50% larger than any prior study in bronchiectasis, so the volume of data will be significant and helps address outlier effects. Our Phase 2 study, WILLOW, was 80% powered to show a 40% treatment effect and was statistically significant at both doses. The Phase 3 study, ASPEN, is 90% powered to show a 30% treatment effect, so we have more power to show a more modest impact. The study is behaving well and baseline characteristics are almost identical to WILLOW. We have reason to believe ASPEN will look as successful as WILLOW, which could unlock the first ever approved therapy for bronchiectasis and validate DPP1 inhibition as a neutrophil-mediated disease approach. That would open additional therapeutic areas, including chronic rhinosinusitis without nasal polyps, a neutrophil-driven condition where we expect benefit and plan to start a Phase 2 study by year-end. If ASPEN is successful it could be transformative.

Jason Zemansky, Analyst, Bank of America

Great. Thanks for the color.

Operator, Operator

Your next question comes from Stephen Willey with Stifel. Stephen, please go ahead.

Stephen Willey, Analyst, Stifel

Good morning. Maybe a couple of ARISE questions. How do you think about characterizing disease severity in NTM MAC beyond presence or absence of cavitary disease? Where would ARISE patients sit on that spectrum based on baseline characteristics seen thus far?

Will Lewis, Chair and Chief Executive Officer

These patients have to be diagnosed with MAC and symptomatic such that physicians have an instinct to treat them. This definition was developed with physicians. The North Star is how can we benefit the patient. Our trial designs responded to regulatory guidance and physician input. The FDA directed us to go after frontline to validate the drug beyond refractory. If ARISE and ENCORE are successful, we would have a drug valid for treatment of NTM MAC patients which is three to five times the size of refractory today. Currently there isn't another approved drug for that broader patient population.

Stephen Willey, Analyst, Stifel

And how tightly correlated do you think the culture conversion data between ARIKAYCE and placebo in ARISE and ENCORE might be given differences in time off therapy at which conversion is measured?

Will Lewis, Chair and Chief Executive Officer

Culture conversion is measured separately from the PRO. The FDA does not require a correlation between those two measures. For culture conversion we look at overall conversion rates and time to conversion. We've typically seen faster and greater conversion with ARIKAYCE relative to control in past settings. We expect a 10% to 20% improvement in our arm versus control. The one-month off drug window used in ARISE is not a concern for a waning effect and we have shown durable conversion well past a year in refractory patients. We expect durability to be a strong selling point.

Stephen Willey, Analyst, Stifel

Great. Thanks for taking the questions.

Operator, Operator

Your next question comes from Graig Suvannavejh from Mizuho. Please go ahead.

Richard (on for Graig Suvannavejh), Analyst, Mizuho (on for Graig Suvannavejh)

Hi, good morning. This is Richard on for Graig. Congrats on the quarter. A question on the PRO for ARISE: I know the company has talked about an 8-point change on the QOL-B for bronchiectasis, but any expectations for the fatigue PRO?

Will Lewis, Chair and Chief Executive Officer

We don't have specific guidance for the fatigue PRO. The QOL-B measures experiential conditions such as cough and sputum production and the fatigue measure is a derivative symptom. There's less data on fatigue measures, but it's an important symptom and we want to quantify it. We will know both the fatigue and the QOL-B results in about a month. If ARISE gives the information needed to ensure ENCORE is successful using either PRO, we believe it will secure approval for the broader MAC-NTM indication in the U.S. which is very exciting.

Richard (on for Graig Suvannavejh), Analyst, Mizuho (on for Graig Suvannavejh)

And on clinical trials, you have multiple primary endpoints and two of them are the CDF and PDFs measured at different time points from the QOL-B and fatigue scores. Can you talk more about those?

Will Lewis, Chair and Chief Executive Officer

These are two different PROs and ARISE is designed to learn what degree of change is needed for a clinically meaningful improvement on either. If either PRO works, we'll use those learnings to inform ENCORE. Also, culture conversion is the primary endpoint in Japan, so there are distinct focuses across regions. Success with either PRO would be well received and we would seek to include it in labeling, but the driver for physicians and market access tends to be eradication of infection, and Japan focuses on culture conversion.

Richard (on for Graig Suvannavejh), Analyst, Mizuho (on for Graig Suvannavejh)

If I could sneak in one more on DMD: How are you positioning your product versus Sarepta's or other programs?

Will Lewis, Chair and Chief Executive Officer

We expect our DMD program to be best-in-class. Intrathecal delivery could improve efficacy and safety based on preclinical models we shared in May. We see better transduction across muscle groups including cardiac and diaphragm, which are critical. Intrathecal delivery avoids liver loss seen with IV dosing and could be a game changer. We'll have first human biopsy data in the first half of next year and ideally before ASPEN, which would help validate these expectations.

Richard (on for Graig Suvannavejh), Analyst, Mizuho (on for Graig Suvannavejh)

Great. Thank you and congrats again.

Operator, Operator

Our next question comes from Liisa Bayko from Evercore ISI. Liisa, please go ahead.

Liisa Bayko, Analyst, Evercore ISI

Hi. I have a couple across different programs. Starting with ARISE, how are you thinking about the change in PRO and the sustainability of culture conversion one month after therapy, which can be a bit of a missing link in the literature? How are you thinking about that?

Will Lewis, Chair and Chief Executive Officer

The one-month off drug assessment is ideal. When the FDA accepted that design it was a win because it allows us to capture the full effect of the drug and then step away from side effects associated with the delivery regimen. These regimens are challenging for patients. Checking in one month after off all drugs is key to understanding how patients feel after the drug cocktail has had its effect. Regarding culture conversion, we've shown durable culture conversion beyond a year in refractory patients. We don't have concerns about checking culture conversion one month off drug; durability is expected and will be an important part of the value proposition.

Liisa Bayko, Analyst, Evercore ISI

Great. With respect to TPIP, you talked about much greater exposure if you titrate up to 640 micrograms. Is there a ceiling effect in terms of efficacy? Would you expect greater efficacy as you dose up to that range or are you at a plateau?

Will Lewis, Chair and Chief Executive Officer

We heard from KOLs that the key to benefit is getting as much prostanoid into patients as possible and that physicians and patients are willing to manage side effects to achieve benefit. The trials are designed as max tolerated dose approaches. Phase 1 established doses up to 640 micrograms. The Phase 2 titration will show how high patients can get and whether side effects prevent reaching 640 micrograms. If we can get to 640 micrograms, that's 60% more treprostinil daily delivered than any currently approved dose when excluding the 16 carbon chain weight. That is a substantial increase in drug delivery and should result in meaningful improvement in outcomes. It may be possible to go above 640 micrograms, but first we need to see whether we can get patients to 640 micrograms safely. The more drug we get into patients, the better they tend to do based on existing evidence.

Liisa Bayko, Analyst, Evercore ISI

Interesting. And on brensocatib, have you done any market research on uptake? There's a lot of bronchiectasis comorbidity and I'm getting questions ahead of the data. Any feedback?

Will Lewis, Chair and Chief Executive Officer

The question is timely because we just returned from the World Bronchiectasis meeting. The physician community is excited about the possibility of brensocatib approval. We are hearing that, assuming data is favorable, physicians intend to treat broadly. We have done market research and will continue to do more as we get closer. Disease awareness work is already underway at major conferences. There is a substantial unmet medical need. We estimate immediate on-label addressable diagnosed patients at launch of up to about one million across the U.S., Europe and Japan. Beyond that there are patients with comorbid COPD and asthma who may be bronchiectatic and currently undiagnosed; if diagnosed by CT they could be eligible for our drug. This could be a very large opportunity if the regulatory path is successful. If the data and approvals clear, this could be a blockbuster drug.

Liisa Bayko, Analyst, Evercore ISI

Thanks, Will.

Operator, Operator

Our next question comes from Andrea Tan from Goldman Sachs. Please go ahead, Andrea.

Andrea Tan, Analyst, Goldman Sachs

Hi. Sara, can you speak to the assumptions underpinning your updated guidance? Is this driven more by the U.S. versus Japan? And any updates on what you're seeing with re-treatment with ARIKAYCE would be helpful.

Sara Bonstein, Chief Financial Officer

Thanks for the question. We were excited to increase our full-year guidance to $295 million to $305 million. We haven't provided a regional breakdown, but Q2 showed strong growth across all three regions. Japan's growth happened a little earlier than expected, and we almost doubled our interactions with health care professionals quarter-over-quarter as COVID-related restrictions eased. We're encouraged by the leadership in Japan and the team's execution. In the U.S. we are back in growth mode with pre-COVID levels of engagement. Europe, while smaller, had strong sequential growth driven by targeted patient identification efforts. On re-treatments, we see retreatments and view them positively; it suggests patients successfully completed a course of therapy and are returning after a new infection, indicating confidence in the brand and continued need for the drug.

Andrea Tan, Analyst, Goldman Sachs

Thanks, Sara.

Operator, Operator

Our next question comes from Joseph Schwartz from Leerink Partners. Please go ahead.

Joseph Schwartz, Analyst, Leerink Partners

Hi. Thanks for the updates and congrats on the progress. A couple of questions on brensocatib. How much subjectivity is there in the pulmonary exacerbation definition used in ASPEN? With the wide global footprint of the study, is there anything you can do to harmonize the definition and avoid heterogeneity? Second, I noticed ASPEN includes patients age 12 and up versus 18 and up in WILLOW. You mentioned baseline characteristics are almost identical. Is there any difference in disease characteristics or how younger patients might handle the drug?

Will Lewis, Chair and Chief Executive Officer

We are using the same exacerbation definition as WILLOW. To overcome subjectivity, we used a strict definition: it must be agreed upon by the physician and result in a change in clinical treatment, such as additional medication or hospital admission, so it is a high hurdle and not subjective. Regarding global heterogeneity, we monitor site enrollment and characteristics at country and weekly levels to ensure no unexpected behavior. WILLOW was broad-ranging and ASPEN is even larger, but we've put controls in place. The study is behaving similarly to WILLOW and we expect similar performance. On the lower age enrollment, there is a pediatric regulatory requirement, but it will not be related to the main analysis for the study. The primary analysis is 18 and older and pediatric inclusion does not affect that.

Joseph Schwartz, Analyst, Leerink Partners

Very helpful. Thanks for the color.

Operator, Operator

I will now turn the call back over to Will Lewis, Chair and CEO for closing remarks.

Will Lewis, Chair and Chief Executive Officer

I just want to thank everyone for joining us today. It's an exciting time at Insmed. We look forward to talking to you hopefully within about a month. Have a good day.

Operator, Operator

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.