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

Thank you, Elliot. Good morning, and welcome to today's conference call to discuss our second quarter 2021 financial results and provide a business update. Before we start, let me remind you that today's call will include forward-looking statements based on current expectations. Such statements represent our judgment as of today and may involve risks and uncertainties that may cause actual 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 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 not sufficient for prescribing decisions. Joining me on today's call are members of the Insmed executive management team, including Will Lewis, Chair and Chief Executive Officer; Dr. Martina Flammer, Chief Medical Officer; Roger Adsett, Chief Operating Officer; and Sara Bonstein, Chief Financial Officer. Let me now turn the call over to Will Lewis for prepared remarks. Upon completion of those remarks, we will open the call up for your questions.

Thank you, Eleanor, and good morning, everyone. We are pleased to be sharing our second quarter results with you today. From Insmed's point of view, we have begun to see some signs of improvement in our commercial and clinical activities in the U.S., and we believe, given current information that Europe and Japan are behind the U.S. in terms of recovery trajectory. While the full impact of the delta variant remains unknown, we are closely monitoring the entire COVID-19 landscape and remain optimistic about Insmed's future. Let me frame out the Insmed story in a way that captures the progress we have made and our plans for the future. Insmed is currently advancing programs aligned to 4 strategic pillars. These are ARIKAYCE, brensocatib, TPIP and translational medicine. Within each pillar is the potential for significant expansion well beyond our initial near-term development plans. Let me briefly address each of these 4 pillars. Starting with ARIKAYCE. We are very excited to announce that the launch of ARIKAYCE in Japan kicked off just last month. We now have approval and launch of ARIKAYCE for refractory NTM in the U.S., Europe and Japan. Notably, the list price in each of these territories is roughly equivalent. In the U.S., while uncertainty lingers around the trajectory of the pandemic, we remain confident in growth in the second half of this year. You'll hear more about our commercial progress from Roger later on the call. Our ARIKAYCE frontline program also continues to advance with the goal of establishing a new standard of care for frontline patients suffering from NTM lung disease. Let's now turn to the second pillar, brensocatib, which we view as a launch pad for the treatment of neutrophil-mediated diseases. Our Phase III ASPEN study is underway, and if we see positive results from…

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

Thank you, Sara, and good morning, everyone. Let me begin by addressing the ongoing efforts within Insmed to generate and present data at medical congresses around the globe. As you may recall, data from the Phase II WILLOW study of brensocatib was included as one of the best oral presentation of 2021 at the second annual European ATM and bronchiectasis workshops held in early July. The presentation describes that the activity of Neutrophil Serine Protease, or NSPs, was significantly reduced, both in blood and sputum for patients taking brensocatib during this trial. Further, a larger reduction of NSPs was observed in sputum and in blood, which further supports the anti-inflammatory mechanism of action of brensocatib. DPP1 inhibition by brensocatib during the maturation of neutrophils in the bone marrow, impacts the inflammation [indiscernible]. These effects help explain the clinical efficacy of brensocatib in reducing exacerbation, projecting a relevant role of neutrophil inflammation in the pathophysiology of these events. We're also excited to report that the abstracts for our TPIP Phase I study was recently accepted as a virtual oral presentation at the European Society of Cardiology Congress taking place later this month. Let's now turn to our clinical development program. Our Phase III ASPEN trial of brensocatib in patients with bronchiectasis and/or ARISE and ENCORE studies for ARIKAYCE as a frontline treatment for patients with MAC lung disease both remain on track and enrollment is progressing in line with our expectations. In addition, we're pleased to report that the CS Therapeutics Development Network has endorsed our study protocol for brensocatib in cystic fibrosis. The process for initiating [indiscernible] for the Phase II pharmacokinetics and pharmacodynamics, multiple-dose studies is now underway, and we look forward to keeping you informed on our progress. Let's now turn to TPIP, a dry powder formulation of…

Thank you, Martina, and good morning, everyone. From an operational perspective, Insmed continued to make important advancements during the second quarter. Our global commercial footprint expanded during the quarter, and ARIKAYCE has now launched in the U.S., Europe and Japan. While the impact of the delta variant globally will vary, we are encouraged by the potential of ARIKAYCE in each of these markets. Our current ARIKAYCE sales reflect preliminary signs of positive growth in the U.S. as well as our early efforts in Europe. Starting with our U.S. business. We were pleased with solid ARIKAYCE performance during the second quarter. We continue to keep a close eye on the shifting COVID-19 landscape, where we see regional variability and particularly in the southern states where vaccination rates are generally lower than in the other regions. We anticipate U.S. ARIKAYCE growth will be accelerated by 3 main drivers: the return of our therapeutic specialists in-person in the field; physician offices reopening; and patients returning to in-office visits. Our therapeutic specialists are largely back in the field and have achieved solid customer engagement. While regional variability persists across physician centers in the U.S. we are encouraged by the steady return to in-person interactions with our therapeutic specialists. Across the U.S., the majority of these interactions were in person as of the end of June. We are also seeing a growing trend toward a return to in-person peer-to-peer speaker programs, which we think is beneficial. We've seen similar trends with our ARIKAYCE trainers program, with an increasing number of patients willing to be trained in their home. We're equally encouraged by CDC data indicating that almost 80% of patients aged 65 and older in the U.S. are fully vaccinated. This represents a large proportion of the ARIKAYCE patient population, and we hope that increased…

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

[Operator Instructions] Our first question comes from Joseph Schwartz from SVB Leerink.

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

Sure, Roger, do you want to take that?

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

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

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

Our next question comes from Ritu Baral from Cowen.

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

Sure. I appreciate the question. And I think this is an interesting study. The first thing I want to make clear, this Phase IIa study in no way has any impact on the other Phase IIb study work, which is running independent of that. So the PAH program, the Phase IIb that will kick off at the end of this year is not rate limited or influenced by any of the outcome of this Phase IIa study, nor is the PAH-ILD program, we're going to beginning at the beginning of next year, impacted by it. However, we think the data will be quite interesting. And this IIa data is going to take PAH patients in an ICU bed and monitor them through a right heart catheterization, directly measuring their pulmonary vascular resistance following the administration of 1 dose of our TPIP compound. The interesting thing about this is, as we've seen in animal data work and certainly in Phase I work, we know we can go through titration actually quite high in dosing these patients. But starting out and because it will be only 1 dose, we're going to be obviously cautious and starting low and then perhaps, depending on what happens in this IIa study, we may go up to a higher dose in subsequent patients. I mentioned that because it's not really the quantity of PVR reduction we're looking for. It's the duration. And I think this is really the key to unlocking the entire logic of the program and the compound. If we were able to see a reduction in pulmonary vascular resistance that extends temporarily for a long period of time in animals, we saw it out to 24 hours. To put that into context, Tyvaso, you get about 1.5 hours of PVR reduction, would be a major advance for patients because what it does is it lowers that vascular resistance, which should alleviate the downstream burden on things like the heart and its performance. And in animal models, we saw, in fact, disease modification. So I think what we're looking for is extended time of PVR reduction. We will be able to directly monitor that through the right heart cath. And as soon as we have a handful of patients of data, we look forward to bringing that out and sharing that with you, which we expect by the end of the second -- by the end of this year.

Our next question comes from Anita Dushyanth from Berenberg.

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

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

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

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

[Operator Instructions] Our next question comes from Stephen Willey from Stifel.

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

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

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

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

Our next question comes from Graig Suvannavejh from Goldman Sachs.

One, has to do with Japan. And I'm wondering, I realize Roger mentioned this very early days. Some of us may be watching the Olympics. And so I'm just trying to figure out is COVID -- if you can, kind of, characterize what the COVID dynamic is in Japan right now and how you expect that to play out and how that might impact how we should be thinking about the launch in Japan? So that's my first question. And then my second question, has to do with ARIKAYCE quarterly sales and Sara, I think you mentioned that quarter-over-quarter growth was 13%. And I'm wondering, as we think about the second half and given the uncertainty with delta variant in the U.S. and the regional variability that Roger mentioned. Is 13% perhaps a good, or not, assumption for, kind of, growth throughout the balance of the year?

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

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

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

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

Yes, sure. So the information that I have from the Japanese team is that the vaccination rates still lag behind the U.S., although I think that once it's more widely available, I expect or hope that there will be more of an acceptance of the vaccine, and we'll see more people taking that. From a -- as you think about the ramp, and I think the embedded in your question is probably how do we think about that versus the U.S. ramp. I think it's probably prudent to say we're probably not going to see a steeper ramp in Japan as we did in the U.S. A number of factors for that, as you mentioned, is the push and pull of COVID and potentially being dampening. On the other hand, I do think that there is a significant willingness to prescribe an excitement about the product for these patients who have been waiting for ARIKAYCE to be approved and launched in Japan. There's a couple of other drags. I would say there's the 2-week limitation of prescriptions for the first year of any product that's approved in Japan. So that requires the patient to go back to the physician and the pharmacy to get refills. But as we think longer term and get on the other side of this, I think there's tremendous potential there.

We currently have no more questions. I will now hand back to Will for any further comments.

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

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