Welcome to the Insmed 3Q '13 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, November 5, 2013. I would now like to turn the conference over to Anne Marie Fields. Please go ahead, ma'am.

Thank you. Good morning. This is Anne Marie Fields with LHA. Thank you all for participating in today's call. Joining me from Insmed are Will Lewis, President and Chief Executive Officer; Andy Drechsler, Chief Financial Officer; and Dr. Renu Gupta, Executive Vice President Development and Chief Medical Officer. Earlier this morning, Insmed announced financial results for the third quarter of 2013. If you have not received this news release or if you would like to be added to the company's distribution list, please call LHA in New York at (212) 838-3777 and speak with Carolyn Curran. This morning, Insmed also filed its quarterly report on Form 10-Q for the period ended September 30, 2013, with the Securities and Exchange Commission. Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Insmed. Please review the company's SEC filings including, without limitation, the company's Form 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements and which contain other important information about the company. Furthermore, the contents of this conference call contain time-sensitive information that is accurate only as of the date of the live broadcast, November 5, 2013. Insmed undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call. With that said, I would now like to turn the call over to Will Lewis. Will?

Thanks, Anne Marie. Good morning, everyone, and thank you for joining us. This quarter, we continued to make great progress toward our corporate objectives, achieving a number of important milestones that position us for continued success into 2014 and beyond. We executed a successful $67 million equity offering that attracted top-quality investors, which will support the continued development of ARIKACE through important data readouts and regulatory submissions. We continue to build our infrastructure and human resource talent in anticipation of expected commercial launches in the U.S. and EU. To start things of, let's turn to our clinical program for ARIKACE to treat non-tuberculous mycobacterial lung disease. During the quarter and in recent weeks, we had a number of important pieces come together to advance our NTM strategy, which allow us to stay on track to report topline data and to initiate related dialogue with the FDA by the end of the first quarter of 2014. Starting with the recent announcement that we completed enrollment in our Phase II clinical study of once-daily ARIKACE to treat recalcitrant NTM lung disease in the U.S. and Canada. This is a major accomplishment, particularly given the challenge of enrolling patients who have actually completed at least 6 months on ATS/IDSA guideline therapy, which was a strict entry criterion for this study. The current tolerability challenges of the guideline therapy limit the practical utility of these recommended treatment regimens and are a main reason why approximately half of diagnosed NTM patients do not receive or continue to take these recommended off-label therapies. Another important step along this journey was receipt of orphan drug qualified infectious disease products and fast-track designations from the FDA for ARIKACE to treat NTM lung disease. We believe these designations are evidence of the regulatory awareness of the large unmet need…

Thanks, Will. Good morning, everyone. Thank you for joining us. Before we begin the financials, let me point out that we filed our Form 10-Q with the SEC this morning. You can find all of our SEC filings on EDGAR or on our website. I refer you to the detailed discussion of our business, risk factors and financial disclosures contained in our SEC filings, as well as to other important information. Now to summarize our third quarter financial results. For the third quarter 2013, we posted a net loss of $17.3 million or $0.46 per share. This compares with a net loss of $9.4 million or $0.38 per share for the third quarter of 2012. Research and development expenses in this year's third quarter increased to $12.1 million from $5.7 million a year ago. The increase is due to higher cost for clinical trial activities associated with the Phase III CF clinical trial and 2-year open-label extension study in Europe and Canada, and our U.S. Phase II NTM clinical trial, as well as costs related to the process improvements and related validation work made to manufacturing processes. Also contributing to the increase were higher internal expenses, including compensation and related expenses. General and administrative expenses increased during the third quarter to $4.7 million from $3.6 million a year ago. The increase was primarily due to higher compensation expense and a $1.1 million of expense in market research and related costs associated with preparations for product commercialization. Turning now to our balance sheet and cash guidance. As of September 30, 2013, we had cash and cash equivalents totaling $128 million, and debt of $20 million. During the first 9 months of 2013, we utilized $32.6 million of cash to fund operations. This includes a onetime cash revenue item of $11.5 million received in the second quarter. We estimate that our cash requirements to fund operations in the fourth quarter of 2013 will be in the range of $15 million to $17 million. As we reported, we plan to use the proceeds from our recent public offerings to fund further clinical development of ARIKACE, invest in third-party manufacturing capacity, fund the efforts to obtain regulatory approvals and support preparations for commercialization. In addition to the investment in clinical development, regulatory and commercial preparation, which Will already highlighted, we're also making investments in our global supply chain, as we have discussed with you on several occasions. We continue work closely with our manufacturing partner, Ajinomoto Althea, to expand and improve production capabilities. We are also qualifying second-source suppliers across our global supply chain, including our raw material suppliers, as well as contract manufacturers at larger production scales for potential commercial supply. With that financial overview, I will turn the call back to Will.

Thanks, Andy. Now we'd like to depart from our usual approach to these calls, to explore some of the key questions that we have heard from investors. Since these questions come up fairly regularly and are related to recent or pending clinical data, I thought it would be worthwhile to explore some of them in greater detail. As these involve more specific clinical details, I thought it would be useful to pose these questions to our Chief Medical Officer, Dr. Renu Gupta, and have her respond. At the conclusion of our Q&A session, we will then open the call up for traditional Q&A to all of you. So Renu, let's start with our clinical development program in NTM. One question we're often asked is how we chose the reduction in mycobacterial density as the primary endpoint for our NTM study. Is this a clinically relevant measurement for NTM patients? Can you walk us through the answer to these questions?

Thank you, Will, and good morning, everyone. Will, when people ask questions about the primary endpoint of our NTM study, their question usually has its origin in the observation that this is a measurement that is not used in other bacterial infections, therefore it may seem quite normal. However, there are several reasons why it is the right measure for this patient population. Here, it's important for me to go back in history to explain how came to choose such a measure and its significance. In 1994, Wallace et al published in the blue journal, the results of the clarithromycin monotherapy trials for patients with M. avium complex lung disease. And the major outcome variable was sputum AFB quota results, so acid-fast bacilli or mycobacteria. And a definitive microbiologic response was either conversion of sputum to culture negative or reduction in colony count on 3 successive sputum cultures from 3+ to 4+ to 1+ or countable colonies, which is a semiquantitative scale that we've used. So essentially in layman's terms, they were looking to measure response of patients to therapy, based on the reduction in the semiquantitative colony count. Two years later, in 1996, Griffith et al published in CID, the results of a study utilizing azithromycin monotherapy, rather than clarithromycin for MAC lung disease. The study design was essentially similar, and the same semiquantitative culture method and response criteria were utilized in this study as well. In clinical practice, at centers specializing in the care of this patient population, semiquantitative mycobacteriology is routine practice. So as you know, in the last decade or so, not much development work has been conducted in NTM, and our study has been a significant undertaking for the severely neglected disease. As no controlled clinical trials were conducted in patients with NTM lung disease, the development of the primary endpoint for this study was a collaborative effort between the agency FDA, the clinical experts, including those who had published previously, and Insmed. So you might recall that the study population in the 112 study are NTM patients who have failed cryotherapy and not responding to therapy even after having been exposed to guideline-based regimens for a period of at least 6 months. Therefore, as we entered into our initial dialogue with the agency about the study design, we shared the perspective that I've just outlined. And it was subsequently agreed that the reduction in mycobacterial density would be the most suitable endpoint to examine in order to better understand and evaluate the potential benefits of liposomal amikacin for inhalation for the treatment of recalcitrant NTM patients. It's important to note that evaluation of clinical signs and symptoms, patient-reported outcome measures and sputum culture conversion are also being assessed as important secondary endpoints. It is equally important to understand that it will be an examination of the totality of all these data that will inform us of the assessment of the impact we're having on these patients with our treatment with liposomal amikacin for inhalation.

Renu, the measurement itself is a 7-point scale and we refer to it as a semiquantitative. Is this the measure clinicians use in their practices? And why not just measure reduction in CFUs as we did in the CF study? And practically speaking, how does the 7-point scale work?

So the standardized laboratory methodology uses a semiquantitative assessment, primarily to assure consistency and reproducibility, and the quantitation can consistently be done up to 49 colonies. Thereafter, ranges of colonies are used. And this is in accordance with CDC recommendations published by Kent and Kubica back in 1985, and the Clinical and Laboratory Standards Institute, CLSI, as many of you might know, is an eminent body that standardizes laboratory methodology, and these are the tests and the methodology used in the published papers that I just referred to. So we've recommended the use of this semiquantitative methodology for our study as well. And just briefly, sputum specimens that are obtained from patients in accordance with these published recommendations are cultured in what we call liquid media or broth, as well as solid media or agar. The liquid media is held up to 6 weeks and the results are examined before being reported as culture negative. And the semiquantitative assessment of the NTM culture for sputum comprises of 7 steps. One being culture negative, and culture negativity is only documented when the liquid medium is negative. And 7 is the worst outcome or 4+. So essentially, the report would be as follows, Will: culture negative is confirmed with no growth in liquid medium; growth in liquid medium only as liquid positive; 1 to 49 colonies are manually counted on agar as individual colonies; and thereafter, there is a range of colonies that corresponds to 1+, which is 50 to 100 colonies; 2+, which is greater than 100 to 200 colonies; 3+, which is greater than 200 to 500 colonies; and 4+, which is greater than 500 colonies. These counts, as I mentioned, are actually performed upon visual inspection of the other plates utilizing the standardized methodology recommendation, that I just mentioned,…

Thanks, Renu. I think that was extremely helpful. If I can turn now to our Phase III study results in CF patients. Why did we report the protocol data for change in FEV-1 and not the mITT? Was there a difference in these results? Why use per protocol for the primary endpoint but mITT for the other charts we put on our poster recently highlighted at NACF?

Well, Will, this is definitely far simpler than the semiquantitative in mycobacteriology. So there are guidances. There's an ICH E9 guidance on statistical methodology as well. And very simply put, the European regulators required the use of per protocol population with a non-inferiority design for primary endpoint analysis, and this is thoroughly standardized. All secondary endpoints were presented as mITT in our poster. This is, as we have stated, and we announced as planned, we have indeed a plan to conduct per protocol analyses for all our endpoints, and these are being included in our study, of course. Importantly, data are internally consistent across all endpoints, confirming compatibility with TOBI. And beyond this regulatory experiment for the non-inferiority design, it is important and, I believe, quite useful to remind everyone that the comments we made at the initial release of the 108 trial data results and the data presented in the poster are consistent in indicating that liposomal amikacin for inhalation is comparable to TOBI. So to summarize, the mITT was identified in our analysis plan as the basis for our secondary endpoint analyses, but we're also doing the analyses for the per protocol population. And importantly, all endpoints are trending in the same direction, and internally consistent. So these will form the basis for our reporting and submission to regulators. So the bottom line there is, we believe that the liposomal allocation for inhalation is comparable to TOBI, and the data provides the evidence to support that.

Renu, thank you for taking the time to shed light on some of these questions which can be confusing. I'm glad we had the chance to clarify these points for those listening today. As always, your input and insight is extremely valuable and appreciated. Before we open the call to questions from those on the phone line, I'd like to leave you with a couple of thoughts. At Insmed, we believe in being as transparent as we possibly can. And today's exploration of some of these clinical details is an example of that. Whenever possible, we will empower the clinical experts we are fortunate enough to have involved in these trials to express the results in their own words, so you can hear their views firsthand. This is what we did for the Phase III CF study results earlier this year, and it is why we shared our latest incremental clinical data in the context of the NACF meeting, so there was an opportunity to explore their meaning with key opinion leaders present at this important scientific forum. We also believe it is important for the professional scientists and clinicians involved in our clinical trial to have the opportunity to have their hard work shared in a peer-reviewed journal. To that end, we are preparing a manuscript of the CF trial data that we believe will be published in a peer-reviewed journal sometime around the middle of the year. We are constructing a company that is focused at the intersection of orphan, pulmonary and infectious disease. The first 2 indications we are pursuing are increasingly close at hand. We have what we believe is an approvable indication for ARIKACE with our Phase III study in CF in Europe and Canada. We are now fully enrolled. And very soon, we'll have…

[Operator Instructions] Your first question comes from the line of Ritu Baral with Canaccord.

My question will now only have 4 parts versus 18. The safety portion of the data that you presented at NACFC, Renu, I was hoping you could talk to us about the treatment emergent adverse events, especially the moderate-to-severe which, numerically, I guess, occurred more in the ARIKACE arm. But then the serious adverse events went in the other direction towards TOBI. How should we sort of think about those numbers and reconcile the trends?

I think the observation is that they're really not different between the 2 arms. And more importantly, this is a population of very ill patients that we've brought into the study. We've required these patients to have chronic Pseudomonas infection, and we have permitted patients of -- with an FEV-1 of 25% and above to enter into the study. And the study is evaluating 2 drugs over a period of 6 months across different seasons. And the -- of note is that there are no unusual side effects that are observed in this study. And nothing that has not been seen either in previous studies of ARIKACE or previous studies of TOBI. So I think the way to think about it, Ritu, is that more importantly, one, that there are no unusual side effects; two, there are no statistical differences in the frequencies between one kind of an adverse event, which is serious, it's slightly numerically higher but no different from the ARIKACE arm. So I think that's the way the clinicians, the DSMB evaluate these data. If there was a concern, I think we would have highlighted that. There's one other observation that I wanted to make, and that's been seen as other open-label studies. There's a comfort level with the standard of care. And as you know that these are self-reported by physicians, the adverse events. And in good clinical trials, you don't ask the physicians to change their mind. You actually require that they report adverse events. For example, a little bit of cough, a little bit of hoarseness is more expected and accepted by patients and clinicians with TOBI, because it's been there. With a new drug, they may have different expectations that if there's any little change or shift in cough, which is an underlying system as well, they may tend to over-report. Today, I'm not prepared to talk about any over-reporting. But this is a phenomenon seen in open-label studies, that sometimes the adverse events of mild-to-moderate nature are less reported in the standard of care arm.

So will we see additional granularity on side effects such as severe cough or hemoptysis in the upcoming publication?

Absolutely. The details of the adverse events as we've shown in our Phase II study with the 5% or more reported, it is, indeed, our intent to have those data disseminated through a peer-reviewed publication, and at an appropriate time, put that on clinicaltrials.gov as well.

And is there some -- what is the distribution, I guess, of some of the more serious detailed side effects?

Nothing unusual at all. The serious adverse event, numerically, is slightly higher in the TOBI group. But no unusual or unexpected adverse event at all.

Great. Now a quick question on NTM and then I'll hop back in the queue. How has the patient retention in the trial gone so far? And is there going to be any overlap with NTM discussions and CF discussions, as you move forward talking to the EU?

So with respect to the NTM trial, we're obviously blinded to that data. So we're not talking about any aspect of that study until the data are available. I've always said that with respect to the NTM population, just as Renu mentioned in regards to the CF population, we're talking about a very sick group of people. So we fully expect that this will be, as I've termed it, a noisy trial. But we're not saying anything more beyond that at this point until we get the data and can really interpret it and have something informed to say. With respect to our dialogue with both Europe and FDA, I think, as we've always said, the dialogue with the U.S. will be one that is, in the near term, focused on the NTM data, but will include an examination in the dialogue around CF data, because it's frankly supportive and on point. And the same will be true for our dialogue in Europe.

Your next question comes from the line of Paul Matteis with Leerink.

So my first question was for Renu. So it was nice to learn about your powdering assumptions for TARGET ahead of time, 80% to demonstrate a one-step change. But I'm just kind of wondering if you can take that one-step change and put it in like a clinical perspective? While that might be statistically significant as you do manifest that, what type of change on the 7-step scale do you think is actually clinically significant and meaningful to patients and physicians?

Thank you. This is a very important question you've asked, and a question that we spent a considerable amount of time years ago asking the expert clinicians, 2 of whom have published and Dr. Olivier, what is important. And even in their study, any reduction on the semiquantitative scale showed that it correlated with future state of conversion. And they were looking at non-HIV MAC patient population, and those were important data for us to build upon. Now we've looked -- now we're looking in our study TARGET, in a population that has -- is persistently positive despite 6 months of guideline-based regimen. So here, Drs. Griffin and Olivier have very strong, even more strongly, that any reduction -- so when you look at reduction, it could be either a one-step reduction or attraction of a step reduction. As compared with standard of care, clinical trial with placebo added and requiring patients to take their medication in a clinical trial setting would be considered important. Now the second thing to note is that the randomized portion is for 3 months only. The other studies, we're looking at a longer period of time. And we are hoping that at the end of 6 months, although those analyses are exploratory, they will further inform us of the correlation between reduction in the first 3 months, the randomized phase and any further changes in the open-label.

Great, that's really helpful. And I was also wondering, it sounds like you've been doing some more research in the rest of the world market. How does the standard of care for NTM and the diagnosis rate differ in the U.S., Europe and Japan? I mean, there's still obviously pretty sizable market opportunities of 30,000 patients in each of the -- each of Europe and Japan. But I was -- it was interesting to learn about there only 30,000 patients in Europe versus about 50,000 in the U.S., whereas the EU population is bigger. So are you wondering if it's underdiagnosed in these other markets too? Kind of what are your takeaways from your preliminary market research there?

Yes. Let me ask Renu to answer that question.

Thanks, Will. So I'll just give you the following bullet point answers. So number one, overall, the ATS/IDSA guidelines are being followed in Europe and Japan, and we're very closely knit with those communities. Number two, very recently, a collaborative group working party was formed to look at -- across the 2 sides of the pond, look at guidelines for CF patients, and they've really looked at the ATS/IDSA guidelines for NTM and adapted from that for CF as well. And there's a paper in preparation, and you will all be seeing it in a few months. And number three, during our survey, we actually learned the components that may further strengthen the notion that more work needs to be done to bring awareness of the disease and to further diagnose. So the underreporting in Europe is probably of a similar magnitude as in Europe, if not worse.

Your next question comes from the line of Greg Wade with Wedbush.

Renu, with respect to the baseline sputum density scores in the NTM study, I understand there was a review of baseline data that was conducted, and the company commented that the study remained 80% powered to see a one-step change. Perhaps you might share with us what the baseline density score expectations were? And then perhaps describe where the data fell out, so that we have some understanding of how much of a change is really going to occur in these patients?

Yes. Greg, let me just jump in. I think it's really important to clarify. I don't know what you're referring to specifically, but there was no examination of baseline data or review that gave us any insight of the nature you're describing. We are completely blinded to the study. And so I just want to clarify that for everybody on the phone so there's no misunderstanding. I'll ask Renu to respond specifically to the inquiry though.

I wanted to add to what Will said, that we did not require a certain level of quantification at baseline for screening purposes. All we required at screening was culture to be positive. We obviously have collected the data. And starting with day 1, we will be obviously looking at the data on the semiquantitative scale.

Okay. So we don't really know then if any of the cultures were sufficiently positive to develop the power that was expected in the study? I would have thought that you would have looked at least at baseline characteristics, so that you knew the baseline data was of such a quality that you could see a change.

So yes, let me just shed a little bit of our insight into that. So just to remind us all, that the available data are on MAC, and very little is available on M. abscessus. And so we've stratified patients at baseline by CF and non-CF, as you know, and by MAC and M. abscessus. The only available data that we had to develop assumptions, and we strengthened those assumptions by making sure that, in the powering, we had wide enough standard deviation so that we wouldn't trip or underpower the study. So in our presumptions, we were conservative. So I think that's the message that I can comfortably give right now, that we were conservative in our assumptions based on the available information. So it is our hope and our expectation based on what's been published, although limited previously, at least for MAC, that requiring all patients to have been on guideline-based regimens. And be positive at the end of 6 months, allowed us to construct the design and allowed us with a conservative assumption for the standard deviation of the change to power, we hope adequately to look at any change from baseline on the semiquantitative scale.

Okay. I think I understand that. In terms of your thinking around the changes. So I mean, obviously, patients can go from 7 on the scale downwards, 6 to 5, 5 et cetera, 2 point -- more than a 1-point change. Do you believe in this study that all changes are created equal? And that movement from very high sputum density scores down is -- or could be more meaningful to patients?

So a very important question. I don't think we have data that can provide an informed answer to your question. But we do know one thing, that the higher the bacterial burden, the worse it is for patients. We do know that. However, we also know that intervention in MAC does -- and as long as patients are on a regimen that they're taking and not having macrolide-resistant organisms, that intervention in MAC, and particularly addition of an aminoglycoside, should lead to a better outcome. For in M. abscessus, we do know that M. abscessus is more susceptible to aminoglycoside. So we do not know whether a reduction from 4+ to 3+ is of the same scale as a reduction from a 3+ or to a 2+. And so I think we will learn, secondly, is that different by species. So we don't know the answer. If you talk to the experts, I'm sure the ones that we work with will inform us that any change on the scale is important and appears at least in the published MAC work, appears to correlate with subsequent speed of conversion, as long as the patients are on effective antibiotics.

And there are no further questions at this time. I would now like to turn the conference back over to Mr. Will Lewis for any closing remark.

Thank you, again, everyone for your participation. We appreciate your continued interest and support. And we look forward to addressing you again when we report our fourth quarter and year-end financial results. Have a great day.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.