Q4 2019 Earnings Call

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 took me cause actual results to differ materially from the results discussed in the forward-looking statements. Please refer to our filings with the SEC which are available through the ftc's website at www.sec.gov or from our website for information concerning the risk factors that could affect the company. We plan to reference a non-gaap financial measure during today's call for a recommendation of that measure to our Gap results. Please refer to the earnings release we issued earlier today. Additionally the information on today's call is not intended for promotional purposes and not sufficient for Life decision.

Joining me on today's.

Our members of the internet executive management team including the Louis chairman and chief executive officer Rodger Edson Chief Operating Officer. Dr. Martinez Slammer chief medical officer after Eugene Sullivan. She's product strategy officer and Sarah Ballentine Chief Financial Officer. Let me know turn the call over to will Louis for prepared remarks upon completion of those remarks. See you open the call up for your questions. Thank you Eleanor. Good morning everyone and thank you for joining us 2019 proved to be a remarkable year for in submitted. We executed across all areas of our business and advanced our mission of transforming the lives of patients with serious and rare diseases the start of 2020 finds us with significant momentum having just conclude our first full year as a commercial Enterprise following the successful launch of Eric Hayes and having released the top-line results of our phase to Willow study in Nancy f bronchiectasis.

in addition several new

First of the senior management team recently joined our ranks to help us accomplish our mission these include dr. Martina flammer our chief medical officer Sarah Bernstein our Chief Financial Officer Zeus our senior vice president of Business Development their arrival Heralds the start of a new chapter in its history as we prudently resource the advancement of several incredibly promising programs and international expansion efforts. Today's call will also feature a more detailed look at our Pipeline and the introduction of two new programs, as you can see on Slide Five with the talent resources and history of successful execution is met is poised for significant potential growth over the coming years importantly what this means for our investors wage is that we are now a company guiding both commercial and clinical development in several programs Each of which we believe has the potential to generate in excess of 1 billion dollars in Revenue. Yep.

markets with no alternative approved treatment options in particular

Enjoys multiple layers of Market exclusivity and has issued patent protection into twenty thirty five in the United States Europe and Japan and who 2033 in China similarly 407 we have broad patent protection into twenty thirty five in the United States Europe, Japan and China with the opportunity for additional patent extensions. It is rare to find a company with such a wealth of promising development opportunities for diseases with unmet needs built upon a successful commercial track record.

Behind each of those substantial potential opportunities are a vast number of patients who will potentially benefit from first ever approved compounds in their respective diseases. This is what drives us execute against these significant opportunities.

2019 was arguably the strongest year yet an intimate history and our achievements across all areas of the business have laid the groundwork for our next wave of growth as we seek to build a leading global multi-product biopharmaceutical company. Let me now turn the call over to Rodger for an operational update Rodger.

Thanks will go.

Morning, everyone from an operational perspective. I'm pleased to report that we are well-positioned to execute on our strategy. We continue to deliver across all areas of our organization including research and development manufacturing International expansion and Commercial execution and look forward to another standout year during today's call. I want to primarily focus on our commercial organization.

As shown on slide seven. I'm pleased to report that we had a strong finish to the year maintaining the solid performance around the commercialization of our case and when continued inroads into our Global expansion opportunities, that's now turns lady as being now announced earlier today. We reported total net sales of 136.5 million dollars for 2019 coming in at a higher wage guidance of 133 238 million dollars for the year.

132.1 million dollars of these sales is attributable to the US and four point four million dollars is attributable to our compassion use an impatient programs in France and Germany for the fourth quarter. We reported net sales and 45.7 million dollars with 44.3 million attributable to US sales at one point four million attributable to our compassionate use and patient programs. Sarah will discuss that twenty-twenty Financial guidance later in the call, but I wanted to provide our perspective on the landscape in the year ahead.

We believe there are no.

Number of potential catalysts to play as we look to build Upon Our 2019 success.

First we expect a peer-reviewed paper will soon be published that will provide potential practical solutions to address the most common Adverse Events that can accompany uses of Erica's in the treatment of refreshing lung disease second. We anticipate the near-term introduction of new guidelines for multiple scientific societies, including the American thoracic Society or 80's and 90's is a disease Society of America or idsa, which we remain optimistic will support the use of our case for appropriate patients.

Third while we made strong inroads with patients in the first fifty months since launch it remains a significant number of the estimated $12,000 to $17,000 refractory am still eligible for treatment while we have made great progress in reaching Physicians have had over 1,900 Physicians prescribe our case that leaves approximately three thousand of our initial thoughts. It's not yet initiated patience on therapy. Finally twenty-twenty will be the first year where we will begin to get a greater understanding of the duration of therapy for patients as well as the potential replacement of patients who experience a reinfection with that said his background. I'll first address new patient starts which were approximately 550 in the fourth quarter this number down slightly from the third quarter of consistent with our expectations for variability of the metric quarter-to-quarter.

in the fourth quarter we had

Dissipated a decline in patients initiating therapy around the year end due to the holidays.

Early signs in the first quarter 2020 indicates that the annual donut hole effect resulting in an extended time to fill prescriptions will be significant as many of you know, at the beginning of the year many patients deductible reset forcing patients to pay out-of-pocket. This can be particularly problematic for patients in short through Medicare as in bed is unable to directly assist patients with government insurance long as you may recall approximately 55% of our patients are insured by a Medicare this trend is, at this time of year, and we do not expect it to impact to extend beyond the first quarter.

Despite these two seasonal Trends. We believe that for 2020 it is reasonable to expect new patient starts to remain on average consistent with prior quarters. We see a continued strong propensity to prescribe application the treating community and believe there are still many reflecting Mac patients who have not yet been prescribed our case who may benefit from our product.

We expect to make steady progress with.

Physicians to initiate appropriate patients on therapy and look forward to seeing how the growth drivers mentioned earlier play out over the course of the year.

Both remain steady and the number of prescribers with over 1,900 physicians in the US having written at least one prescription since launch. We remain very focused on our efforts to increase the rent and I'm not prescribing recently. We have been engaged with those positions with a history of prescribing Eric case with the expected upcoming publication of new treatment guidelines, and the peer review publication proposed solutions to help manage Adverse Events. We intend to introduce a new addition to Target and educate those positions with less experiencing treating refractory Mac.

We believe the impact of these new features in 2020 could serve to maintain commercial momentum.

As we advance the commercialization of our case roommate proudest of the patient experience. We continue to invest in education of both Health Care Professionals and patients to educate them on the potential adverse. It's associated with our case as well as training on our nebulizer.

Discontinuations of our case and the first 90 days remained steady compared to the prior quarter and continue to train better than the 34% reported in our face three converts study. We believe this is the result of appropriate setting of expectations with patients and Physicians as well as continued support from our Eric Harris patient support team. We expect that the publication of the paper proposing practical solutions to manage the events will further enhance these efforts we anticipate that this discontinuation rate may improve slightly over time.

We now have a large number of patients using our case in the u.s. We are learning more about the average patient usage profile. But there are some important trends that remains to be seen these include direct used for patients as well as re-infection and subsequent treatment rates, which are not yet consistent enough to allow accurate forecasting. We expect these Trends will come into clearer Focus later this year.

We expect the most significant potential catalysts impacting the patient usage profile will be the issuance of new guidelines. We do their arrival as an important opportunity to reinforce the appropriate approach to treating refractory patients, including the recommended duration of therapy for these patients as a reminder, the current guidelines recommend treating with a triple combination that includes a macrolide if at all and found into culture conversion plus an additional 12 months on therapy the patient's you do not achieve conversion. These guidelines recommend that Physicians evaluate whether there is a benefit to continuing

We are also.

Closely monitoring adherence to the treatment regiment and we see a modest improvement over recent quarters with adherence remaining slightly above the Benchmark range of 60 to 70% seen with other inhaled out of life.

As far as reimbursement, we continue to experience a supportive environment and positive transfer our case with initial approval generally achieved through position at that station or appropriate refraction Mac. Lung disease patients. We fully expect this practice to continue in 2020.

We also continue to observe that reauthorization have not been an issue.

The executed a handful of contracts with major payers and continue to evaluate other potential Contracting Arrangements. We only plan to execute these when we feel that the terms are fair and will enhance access for patients.

Operator: You may press star, then 1, on a touchtone. To withdraw your question, please press star 3. Note, this event is being recorded. I would now like to turn the conference over to Eleanor Barrister, Investor Relations. Please go ahead.

Eleanor Barrister: Thank you, Elisa. Good morning and welcome to today's conference call to discuss our fourth quarter and full year financial results for 2019 and provide a business update. Please note that this conference call features slides, which can be found through the webcast on the events and presentations page of the Insmed website. Before we start, let me remind you that today's call will include forward-looking statements based on current expectations. Such statements represent our judgment as of today and may involve risks and uncertainties that may cause actual results to differ materially from those discussed in the forward-looking statement.

Global expansion efforts as seen on slide 9 in Japan, which has a reminder has the highest diagnosed Mac patient population. We are on track to file for regulatory submission of faith in the first quarter of 2020 slightly ahead of our previous guidance of a first-half submission.

in addition

We are extremely excited to announce a new strategic pre-commercial agreement in Japan.

We have partnered with a top generic manufacturer one of the approved components of the current standard-of-care a macrolide unlike in the US and Japan the standard of care a macrolide example to all and repackage is approved for the treatment of Mac lung disease through this collaboration. We're able to deploy an intimate sales force that will be dedicated to educating Japanese positions on Mac lung disease and promoting a standard of care regimen including use of a macrolide to treat patients.

Eleanor Barrister: Please refer to our filings with the SEC, which are available through the SEC's website at www.sec.gov or from our website, for information concerning the risk factors that could affect the company. We plan to reference a non-GAAP financial measure during today's call. For a reconciliation of that measure to our GAAP results, please refer to the earnings release we issued earlier today. Additionally, the information on today's call is not intended for promotional purposes and is not sufficient for prescribing. Joining me on today's call are members of the Insmed Executive Management Team, including Will Lewis, Chairman and Chief Executive Officer, Roger Adsett, Chief Operating Officer, Dr. Martina Flammer, Chief Medical Officer, Dr. Eugene Sullivan, Chief Product Strategy Officer, and Sara Bonstein, Chief Financial Officer. I 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.

Maintain this Innovative partnership to allow our sales force in compliance with Japanese law to establish and build relationships with Physicians who are seeing and treating Mac lung disease patients would expect to begin to hire our sales team in the first half of the year to execute on this opportunity.

In Europe, we continue to work with the European medicines agency or with respect to a marketing authorization application or MAA Ki MAA has been validated by the EMA and we expect if approved we could potentially launch our case by the end of the year in Germany where the UK following shortly thereafter.

We continue to believe.

At the undiagnosed patient population is sizable in Europe. However, we anticipate up taking Europe will be much slower than the u s because once approved will have to secure pricing in each country before sales can be generous. The modeling Europe is also different than the US with a heavy focus on centers of excellence for the treatment of Mac lung disease as such would not expect any material sales from a European law this year, but rather than expect to see an uptick beginning in 2021 that said we expect to continue to see compassionate use and name patient sales in 2020 from certain markets outside the US.

William Lewis: Good morning, everyone, and thank you for joining us. 2019 proved to be a remarkable year for Insmed. We executed across all areas of our business and advanced our mission of transforming the lives of patients with serious and rare diseases. The start of 2020 finds us with significant momentum, having just concluded our first full year as a commercial enterprise following the successful U.S. launch of EraCase and having released the top-line results of our Phase II Willow study in non-CF bronchiectasis. In addition, several new members of the senior management team recently joined our ranks to help us accomplish our mission.

We've made significant progress with the commercialization of aggregation in the US. We are working diligently to maintain the strength of the brand and maximize the long-term potential Americans in the US Europe and Japan. I'm very excited about what lies ahead want to congratulate the team for their continued commitment to the NTM community.

William Lewis: These include Dr. Martina Flammer, our Chief Medical Officer, Sara Bonstein, our Chief Financial Officer, and Fred Zusa, our Senior Vice President of Business Development. Their arrival heralds the start of a new chapter in Insmed's history as we prudently resource the advancement of several incredibly promising programs and international expansion efforts. Today's call will also feature a more detailed look at our pipeline and the introduction of two new programs. As you can see on slide 5, with the talent, resources, and history of successful execution, Insmed is poised for significant potential growth over the coming years. Importantly, what this means for our investors is that we are now a company guiding both commercial and clinical development for several programs, each of which we believe has the potential to generate in excess of $1 billion in revenue in markets with no alternative approved treatment options. In particular, Aerocase enjoys multiple layers of market exclusivity and has been granted patent protection into 2035 in the United States, Europe, and Japan and through 2033 in China.

William Lewis: Similarly, for INS 1007, we have broad patent protection into 2035 in the United States, Europe, Japan, and China, with the opportunity for additional patent extension. It is rare to find a company with such a wealth of promising development opportunities for diseases with unmet needs built upon a successful commercial track record. Behind each of those substantial potential opportunities are a vast number of patients who will potentially benefit from the first ever approved compounds in their respective diseases. This is what drives us to execute against these significant opportunities.

anticipation

So additional launches and product demand from new geographies and label expansion opportunities. We are on track for that third and largest manufacturing facility. We have partnered with Patheon and expecting this 450 facility online in 2021, which will more than double our manufacturing capacity.

With that. Oh Hanna call over to our chief product strategy officer in Sullivan to provide an update around the clinical and development programs Jean. Thanks Rodger. This is a particular rating time for his met with a number of important clinical advances taking place across all of our programs. I will address each of these to begin with we were thrilled with the outcome of the willow studied once-daily ins 10007 in patients with non CF bronchiectasis.

Let's now turn to slide eleven 4.

Overview to remind you i n s 1 double o seven is a novel oral reversible inhibitor of dipeptidyl peptidase one or dp1 an enzyme that catalyzes activation of neutrophils serine protease has or nsps nsps our key mediators of neutrophils driven inflammation tissue damage and excessive You Construction which are prominent features of bronchiectasis.

The willow data has highlighted a significant opportunity for instead of representing a promising new approach to modulating neutrophil activity given its novel mechanism of action is 10007 could have applicability in a broad range of diseases resulting in a pipeline and a product.

William Lewis: 2019 was arguably the strongest year yet in Insmed's history, and our achievements across all areas of the business have laid the groundwork for our next wave of growth as we seek to build a leading global multi-product biopharmaceutical company. Roger, would you now turn the call over to you for an operational update?

We are proud to have what we believe to be the most advanced program in development leveraging this new mechanism of action and are pleased with this first data in non CF bronchiectasis.

Emphasis stands out as one of the more significant pulmonary diseases with no approved therapies. It is marked by frequent pulmonary exacerbations requiring antibiotic therapy and or hospitable Nation prevalence estimates for non CF bronchiectasis range from about $340,000 to $520,000 in the US with significant overlap. We've talked to a Pentium lung disease given the strength of the top-line results. We observed in the willow study. We plan to focus the face reprogram on bronchiectasis patience with two or more exacerbations within the prior year according to our market research this profile could represent approximately two-thirds of the potential us patient population or 225 to 350,000 patients side 12 depicts the phase to Willow study design.

Roger Adsett: Thanks, Will. Good morning, everyone. From an operational perspective, I am pleased to report that we are well-positioned to execute our last strategy. We continue to deliver across all areas of our organization, including research and development, manufacturing, international expansion, and commercial execution, and look forward to another standout year. During today's call, I want to primarily focus on our commercial... As shown on slide 7, I'm pleased to report that we had a strong finish to the year, maintaining the solid performance around the U.S. commercialization of Arrakes and with continued inroads into our global expansion opportunities. Let's now turn to slide 8.

Roger Adsett: As we announced earlier today, we reported total net sales of $136.5 million for 2019, coming in at the higher end of our guidance of $133 to $138 million for the year. $132.1 million of these sales are attributable to the U.S., and $4.4 million is attributable to our compassionate use and named patient programs in France and Germany. By the fourth quarter, we reported net sales of $45.7 million, with $44.3 million attributable to U.S. sales and $1.4 million attributable to our Compassionate Use and Named Patient programs. Sara will discuss her 2020 financial guidance later in the call, but I wanted to provide our perspective on the landscape in the year ahead. We believe there are a number of potential catalysts at play as we look to build upon our 2019 success. First, we expect a peer-reviewed paper will soon be published that will provide potential practical solutions to address the most common adverse events that can accompany the use of aricase in the treatment of refractory MAC lung disease. Second, we anticipate the near-term introduction of new guidelines by multiple scientific societies.

256 adult patients were randomized to one of three arms ten milligrams of 10007 25 milligrams 10007 or Placebo for 24 months with a four-week post-treatment follow-up.

Think it's like thirteen which shows the Baseline characteristics across the three groups the patient demographics highlight the severity of the condition over 30% of patients had been hospitalized for exacerbation in the preceding two years. It is also notable to see that a significant portion of the patients and co-existing COPD or asthma conditions. Where is just one double O7 might also be expected to have an impact based on their underlying disease processes.

Roger Adsett: Including the American Thoracic Society, or ATS, and the Infectious Disease Society of America, or IDSA, which we remain optimistic will support the use of Arachase for appropriate patients. Third, while we made strong inroads with patients in the first 15 months since U.S. launch, there remains a significant number of the estimated 12,000 to 17,000 refractory MAC patients in the U.S. still eligible for treatment. And while we have made great progress in reaching physicians and have had over 1,900 physicians prescribe our case, that leaves approximately 3,000 of our initial targets who have not yet initiated patients on therapy. Finally, 2020 will be the first year where we will begin to get a greater understanding of the duration of therapy for patients as well as the potential re-treatment of patients who experience a reinfection.

Turning now to slide fourteen based on Top Line data the willow study met its primary endpoint of time to First Pony exacerbation over the 24-week treatment. For both the birth of Graham and 25 milligram dosage groups provide as 10007 compared to Placebo as we have previously disclosed the pre-specified primary analysis demonstrated mystically significant results for both treatment groups with P values of 0.027 and 0.044 for the ten milligram and 25 milligram groups respectively off.

today

Share the hazard ratios for each group. As you can see for the ten milligram group that has a great show with 0.58 with a P value of 0.029 or the same group that has a ratio was 0.62 with a P value of 0.046.

We believe these results are compelling.

For a patient this means that the risk of having an exacerbation over the course of six months could be reduced by up to 40% when treated with ins 10007.

Let's drill down in this data and look at the hazard ratio by subgroups as shown on the forest plots on five fifteen here. You can see that for both the ten milligram and took em doses the point estimates of the hazard ratios favorite ins 10074 nearly every subgroup leave you the consistency in this data across the various subjects as quite compelling the only subgroup that falls to the right side of the hazard ratio of one is the small group of patients aged 75 and older in the 25 milligram dose group. There were fourteen patients in this subgroup which resulted in very large coffin samples.

Roger Adsett: With that said as background, I'll first address new patient starts, which were approximately 550 in the fourth quarter. This number is down slightly from the third quarter, but consistent with our expectations for variability of the metric from quarter to quarter. In the fourth quarter, we anticipated a decline in patients initiating therapy around the year-end due to the holidays. However, early signs in the first quarter of 2020 indicate that the annual donut hole effect, resulting in an extended time to fill prescriptions, will be significant. As many of you know, at the beginning of the year, many patients' deductibles reset, forcing patients to pay out of pocket. This can be particularly problematic for patients insured through Medicare, as Insmed is unable to directly assist patients with government insurance.

Want to slide 16 as we disclosed in our top-line we release treatment with ins 10007 also resulted in a reduction in the frequency of pulmonary exacerbation versus placebo. This is an endpoint of particular interest because the FDA has indicated that frequency of pulmonary exacerbation should be the primary endpoint in our phase 3 Program.

Roger Adsett: As you may recall, approximately 55% of our case patients are insured by Medicare. This trend is common at this time of year, and we do not expect its impact to extend beyond the first quarter. Despite these two seasonal trends, we believe that for 2020, it is reasonable to expect new patient starts to remain, on average, consistent with prior quarters. We see a continued strong propensity to prescribe our product in the treating community and believe there are still many refractory MAC patients who have not yet been prescribed our product who may benefit from our product. We expect to make steady progress with physicians to initiate appropriate patients on therapy and look forward to seeing how the growth drivers mentioned earlier play out over the course of the year. Growth remains steady in the number of prescribers, with over 1,900 physicians in the U.S. having written at least one prescription since launch.

Over the course of the six months study patients treated with ins 10007 experienced a 36% reduction in the frequency of events. And the ten milligram armed with a P value of 0.01 and a 25% reduction in the 25 milligram arm and the P value of 0.167 versus placebo.

We expect that. Our face reprogram will run for one year. So we may see a magnified impact or more evidence of a dose-response during that longer study.

As we did for the primary endpoint. We also conducted a number of analyses to look at results for the frequency of exacerbations in various subgroups. The forest plots for both doses. Are you showing on slide 17 the results of these subgroup analyses were very similar to those seen with the primary endpoint with nearly all the point estimates favoring ins 10007.

Roger Adsett: We remain very focused on our efforts to increase the breadth and depth of prescribing. Recently, we have been engaging with physicians who have a history of prescribing Araken. With the expected upcoming publication of new treatment guidelines and a peer-reviewed publication proposing practical solutions to help manage adverse events, we intend to introduce a new initiative to target and educate those physicians with less experience in treating refractory meth. We believe the impact of these new features in 2020 could serve to maintain commercial momentum. As we advance the U.S. commercialization of our case, we remain proudest of the patient experience. We continue to invest in education for both healthcare professionals and patients to educate them on the potential adverse events associated with our case, as well as training on the nebulizer.

Let me take a moment to address some questions. We receive about the dose-response Curve.

Because the effect sizes for the ten milligram and the 25 milligram group were similar in the top-line analyses. It is reasonable to wonder whether the ten milligrams is already at the top of the nose response curve for clinical efficacy. We think it is very important to examine the data carefully in order to understand whether the 25 milligram dose might be expected to offer important additional clinical took over the ten milligram dose particularly in the setting of a longer faced reprogram.

Roger Adsett: Discontinuations of our product in the first 90 days remain steady compared to the prior quarter and continue to trend better than the 34% reported in our Phase 3 CONVERT study. We believe this is the result of the appropriate setting of expectations with patients and physicians, as well as continued support from our Our Cares patient support team. We expect that the publication of the paper proposing practical solutions to manage adverse events will further enhance these efforts.

Therefore we are conducting a series of additional analyses to further explore the will of data.

For instance, we're evaluating whether factors such as randomization imbalances or outliers may have impacted the observed effect sizes and weather events that occurred soon after randomization month before i n s 1 double o seven could be expected to exert its effect may have obscured a signal of increased benefit of the 25 milligram dose in addition examination the secondary endpoints and pharmacokinetic exposure response modeling will help us to better assess both dosing options. I know some of you have asked if we have seen evidence of an inverted direct response, but that is not the case.

Roger Adsett: We anticipate that this discontinuation rate may improve slightly over time. We now have a large number of patients using Arrowcase in the U.S. We are learning more about the average patient usage profile, but there are some important trends that remain to be seen. These include duration of use for patients, as well as reinfection and subsequent re-treatment rates, which are not yet consistent enough to allow accurate forecasts. However, we expect these trends will come into clearer focus later this year.

As we have drilled out.

Out into the data including the subgroup and sensitivity analyses discussed here today. We believe that we may have two viable doses to consider taking forward the top-line results suggest that Tech might be nearing the top of the dose-response curve but additional analyses may suggest that 25 milligrams might provide additional clinical benefit in a longer based reprogram.

Roger Adsett: We expect the most significant potential catalyst impacting patient usage will be the issuance of new guidelines. We view their arrival as an important opportunity to reinforce the appropriate approach to treating refractory MAC patients, including the recommended duration of therapy for these patients. As a reminder, the current guidelines recommend treating with a triple combination that includes a macrolide, ethampetol, and rifampin to achieve conversion, plus an additional 12 months on therapy. For patients who do not achieve conversion, these guidelines recommend that physicians evaluate whether there is a benefit to continuing therapy.

We are very encouraged by the strength and consistency of the efficacy data across both those groups and patient populations.

Trying to safety shown on slide eighteen I ask what was generally well-tolerated in the study were generally my life in nature the most common eighties in patients in the willow study were cough headache sputum increase dyspnea fatigue and upper respiratory tract infection.

Roger Adsett: We are also closely monitoring adherence to the treatment regimen, and we see a modest improvement over recent quarters with adherence remaining slightly above the benchmark rates of 60-70% seen with other inhaled antibiotics. As far as reimbursement is concerned, we continue to experience a supportive payer environment and positive trends for our case, with initial approval generally achieved through physician attestation for appropriate refractomatic lung disease patients. We fully expect this practice to continue in 2020. We also continue to observe that reauthorizations have not been an issue.

Roger Adsett: We have executed a handful of contracts with major payers and continue to evaluate other potential contracting arrangements. However, we only plan to execute these when we feel that the terms are fair and will enhance access for patients. Turning to our global expansion efforts, as seen on slide 9. In Japan, which, as a reminder, has the highest diagnosed MAC patient population, we are on track to file for regulatory submission of our case in the first quarter of 2020. Slightly ahead of our previous guidance of a first half submission. In addition, we are extremely excited to announce a new strategic pre-commercial agreement in Japan.

Roger Adsett: We have partnered with a top generic manufacturer of one of the approved components of the current MAC standard of care, macrolide. Unlike in the U.S., in Japan, the standard of care of macrolide, ethambutol, and rifampin is approved for the treatment of MAC lung disease. Through this collaboration, we are able to deploy an Insmed sales force that will be dedicated to educating Japanese physicians on MAC lung disease and promoting the appropriate standard of care regimen, including use of a macrolide to treat patients. We intend this innovative partnership to allow our sales force, in compliance with Japanese law, to establish and build relationships with physicians who are seeing and treating MAC lung disease patients. We expect to begin hiring our sales team in the first half of the year to execute on this opportunity.

Roger Adsett: In Europe, we continue to work with the European Medicines Agency, or EMA, with respect to our Marketing Authorization Application, or MAA. The MAA has been validated by the EMA, and we expect that, if approved, we could potentially launch Arrakates by the end of the year in Germany, with the UK following shortly thereafter. We continue to believe that the undiagnosed patient population is sizable in Europe. However, we anticipate uptake in Europe will be much slower than in the U.S. because once approved, we will have to secure pricing in each country before sales can be generated.

Unknown Executive: The model in Europe is also different than in the U.S., with a heavier focus on standards of excellence for the treatment of MAC lung disease. As such, we would not expect any material sales from a European launch this year but rather would expect to see an uptick beginning in 2021. That said, we expect to continue to see compassionate use and named patient sales in 2020 from certain markets outside the U.S. We have made significant progress with the commercialization of Arakase in the U.S. We are working diligently to maintain the strength of the brand and maximize the long-term potential of Arakase in the U.S., Europe, and Japan. I'm very excited about the lives ahead. I want to congratulate the team for their continued commitment to the NTM community.

Unknown Executive: In anticipation of additional launches and product demand from new geographies and label expansion opportunities, we are on track with our third and largest manufacturing facility. We have partnered with Patreon and expect to bring this 450 liter facility online in 2021, which will more than double our manufacturing capacity. With that, I'll hand the call over to our Chief Product Strategy Officer, Dr. Eugene Sullivan, to provide an update on the clinical and development programs. Gene?

Unknown Executive: Thanks, Roger. This is a particularly exciting time for Insmed, with a number of important clinical advances taking place across all of our programs. To begin with, we were thrilled with the outcome of the Willow study of once-daily INS1007 in patients with non-CF bronchiectasis. Let's now turn to slide 11 for an overview. To remind you, INS 1007 is a novel oral reversible inhibitor of dipeptidylpeptidase 1 or DPP-1, an enzyme that catalyzes the activation of neutrophil serine proteases, or NSP. NSPs are key mediators of neutrophil-driven inflammation, tissue damage, and excessive mucous production, which are prominent features of bronchiectasis.

Unknown Executive: The Willow data highlighted a significant opportunity for Insmed, representing a promising new approach to modulating neutrophil activity. Given its novel mechanism of action, INS 1007 could have applicability in a broad range of diseases, resulting in a pipeline and a product.

Unknown Executive: We are proud to have what we believe to be the most advanced program in development, leveraging this new mechanism of action, and are pleased with this first data in non-CF-Branchi activation. Bronchiectasis stands out as one of the more significant pulmonary diseases with no approved therapy. It is marked by frequent pulmonary exacerbations requiring antibiotic therapy and or hospitalization. Prevalence Estimates for Non-CF-Bronchiectomies range from about 340,000 to 520,000 in the U.S.

Unknown Executive: There is significant overlap with patients who have NTM lung disease. Given the strength of the top-line results we observed in the Willow study, we plan to focus the Phase III program on bronchiectasis patients who have had two or more exacerbations within the prior year. According to our market research, this profile could represent approximately two-thirds of the potential U.S. patient population, for 225,000 to 350,000 patients. Slide 12 depicts the design of the Phase II Willow Study. 256 adult patients were randomized to one of three arms: 10 mg of 1007, 25 mg of 1007, or placebo for 24 weeks with a 4-week post-treatment follow-up.

Unknown Executive: Turning to slide 13, which shows the baseline characteristics across the three groups, patient demographics highlight the severity of the condition. Over 30% of patients had been hospitalized for an exacerbation in the preceding two years. It is also notable that a significant portion of the patients had co-existing COPD or asthma. Conditions where INS 1007 might also be expected to have an impact based on their underlying disease process. Turning now to slide 14.

Unknown Executive: Based on top-line data, the Willow study met its primary endpoint of time to first pulmonary exacerbation over the 24-week treatment period for both the 10-mg and 25-mg dosages of INS 1007 compared to placebo. As we have previously disclosed, the pre-specified primary analysis demonstrated statistically significant results for both treatments, with p-values of 0.027 and 0.044 for the 10mg and 25mg Today, we can share the hazard ratios for each. As you can see, for the 10 mg group, the hazard ratio was 0.58, with a p-value of 0.029. For the 25 mg group, the hazard ratio was 0.62, with a p-value of 0.046.

Unknown Executive: We believe these results are compelling. For a patient, this means that the risk of having an exacerbation over the course of six months could be reduced by up to 40% when treated with INS 1007. Let's drill down into this data and look at the hazard ratio by subgroups, as shown in the forest plots on slide 15. Here, you can see that for both the 10 milligram and 25 milligram doses, the point estimates of the hazard ratios favored INS 1007 in nearly every subgroup. We view the consistency in this data across the various subgroups as quite compelling. The only subgroup that falls to the right side of the hazard ratio of one is the small group of patients age 75 and older at the 25 milligram dose. There were only 14 patients in this subgroup, which resulted in a very large confidence interval. Let's move on to slide six.

Unknown Executive: As we disclosed in our top-line release, treatment with INS 1007 also resulted in a reduction in the frequency of pulmonary exacerbations versus placebo. This is an end point of particular interest because the FDA has indicated that frequency of pulmonary exacerbations should be the primary end point in our phase 3 program. Over the course of the six-month study, patients treated with INS1007 experienced a 36% reduction in the frequency of events in the 10-mg arm with a p-value of 0.041 and a 25% reduction in the 25-mg arm with a p-value of 0.167 versus placebo. We expect that our Phase III program will run for one year, so we may see a magnified impact or more evidence of a dose As we did for the primary endpoint, we also conducted a number of analyses to look at results for the frequency of exacerbations in various subgroups. The forest plots for both doses are shown on slide 17.

Unknown Executive: The results of these subgroup analyses were very similar to those seen with the primary and primary, with nearly all the point estimates favoring INS 1007. Let me take a moment to address some questions we received about the dose response curve. Because the effect sizes for the 10mg and the 25mg group were similar in the top-line analysis, it is reasonable to wonder whether the 10 mg dose is already at the top of the dose response curve for clinical efficacy. We think it is very important to examine the data carefully in order to understand whether the 25 mg dose might be expected to offer important additional clinical benefit over the 10 mg dose, particularly in the setting of a longer Phase III program. Therefore, we are conducting a series of additional analyses to further explore the Willow data.

Unknown Executive: For instance, we are evaluating whether factors such as randomization imbalances or outliers may have impacted the observed effect size, and whether events that occurred soon after randomization, before INS 1007 could be expected to exert its effect, may have obscured a signal of increased benefit of the 25 mg dose. In addition, examination of secondary endpoints and pharmacokinetic exposure response modeling will help us to better assess both dosing options. I know some of you have asked if we have seen evidence of an inverted dose response, but that is not the case.

Unknown Executive: As we have drilled down into the data, including the subgroup and sensitivity analyses discussed here today, we believe that we may have two viable doses to consider taking forward. The top-line results suggest that 10 mg might be nearing the top of the dose response curve, but additional analyses may suggest that 25 mg might provide additional clinical benefit in a longer Phase III program. We are very encouraged by the strength and consistency of the efficacy data across both dose groups and patient populations. Turning to safety, shown on slide 18. IAS 1007 was generally well tolerated in the study, and AEs were generally mild to moderate in nature.

Unknown Executive: The most common AEs in patients in the Willow study were cough, headache, sputum increase, dyspnea, fatigue, and upper respiratory tract infection. Interestingly, the incidence of adverse events leading to discontinuation of treatment was actually higher in the placebo group than in either of the active treatment groups, with 10.6% in the placebo group, 7.4% in the 10mg group, and 6.7% in the 25mg group. When designing the study, we considered the genetic abnormality that leads to a near total absence of DPP1, a condition called Papillon-Lefebvre syndrome. In this disease, patients experience symptoms that include periodontal disease and skin disease.

Unknown Executive: We designed the study to look more thoroughly at these areas to see if our more modest inhibition of DPP-1 would result in any such findings. For example, because of the concern around periodontal... We implemented a rigorous dental monitoring protocol for this Phase 2 trial. Patients were examined by a dentist at baseline and twice during the course of treatment, which was intended to allow us to detect any evidence of potential effects. Treatment emergent AEs were rated by severity, and reassuringly, there did not appear to be any severe gingival periodontal events.

Unknown Executive: We will certainly share this data with the regulatory authorities but do not anticipate the need for similar comprehensive dental monitoring during the Phase 3 program. We will continue to analyze the data and look forward to presenting a more complete review of the results at the ATS Conference in May in Philadelphia. We will also work with regulatory bodies to confirm the acceptability of our Phase III program. We're very pleased with the results we've seen in the Willow study.

Unknown Executive: As a reminder, this is the largest phase 2 trial ever conducted in bronchiectasis, and the robust data from this trial reinforces our confidence in the program as we move into phase 2. Beyond bronchiectasis, we believe that INS1007 has the potential to be effective in treating other neutrophil-driven diseases, including cystic fibrosis. CF patients have even greater levels of sputum neutrophil elastase than bronchiectasis patients.

Unknown Executive: And therefore, we believe 1007 may also benefit CF patients by addressing the harmful effects of neutrophil elastase in inflammation and sputum production. While our core development interest remains with bronchiectasis and cystic fibrosis, there is biological rationale to believe that INS1007 may be applicable across a broad range of indications. For instance, DPP-1 inhibition has the potential to be beneficial in areas such as asthma, COPD, alpha-1 antitrypsin deficiency, GPA, inflammatory bowel disease, lupus, and rheumatoid arthritis.

Unknown Executive: Our Phase 2 data may have unlocked a first-in-class mechanism with potential broad applicability. We believe we are just at the beginning of the journey with INS 1007 and look forward to optimizing its development in the years to come. Let me now turn to our efforts around label expansion for Eric. We are advancing EraCase in a front-line study that, if approved by FDA, would allow us to address the approximately 95,000 to 115,000 patients in the U.S. diagnosed with NTM lung disease, and that will serve as the necessary confirmatory study for EraCase as agreed in our post-approval requirement with the FDA. We anticipate that this study will also address front-line approval requirements for Europe and Japan using the primary endpoint of durable culture conversion.

Unknown Executive: We plan for a study duration of 13 months with treatment for 12 months followed by one month off therapy. The primary endpoint of this study in the U.S. will be a composite patient-reported outcome, or PRO, in order to demonstrate clinical benefit, as required by the FDA. As you can see in the latest study design captured on slide 19... The validation of the PRO and the confirmatory study will run in parallel, pending alignment with the FDA. We plan to initiate these trials in the second half of 2020. Aircase holds potential for Mycobacterium abscessus, the second most common NTM pathogen.

Unknown Executive: We plan to advance into a registrational phase 3 study in this syndication as well. Let me also provide a brief update on two additional pipeline programs. As shown in slide 20, behind 1007, we are advancing INS 1009 for the treatment of pulmonary arterial hypertension, or PAH. We believe that 1009, our dry powder inhaled prostenil prodrug formulation developed in our own labs, has the potential to address limitations of existing prostenoid therapy. Not only does INS 1009 have potential as a long-lasting vasodilator, but it also has the potential to be disease-modifying, as it has been shown to significantly affect vascular remodeling in animal models of PAH. In an animal model, INS 1009 showed a better response than Tildenafil across a number of measures, including vasodilation and right ventricular hypertrophy. Pulmonary Arterial Wall Thickness and Obliteration

Unknown Executive: We are planning for a steady cadence of data presentation around our work with INS 1009 this year, beginning with ATS in May. Designed for once-daily dosing, INS 1009 may prolong the duration of treatment effects and could offer PAH patients greater consistency in reducing pulmonary arterial pressure over time. INS 1009 also has the potential to reduce side effects associated with treatment. We intend to file an IND and initiate a Phase 1 study of INS 1009 this year. Let's now turn to slide 21.

Unknown Executive: Today I am pleased to introduce a promising preclinical new chemical entity, which we call RV94. We are evaluating RV94 for the treatment of gram-positive infections. This compound has been under development for several years in our lab. RV94 is a semi-synthetic lipoglycopeptide designed to be used once daily or less frequently by inhalation in CF patients with pulmonary MRSA infection. By inhibiting peptidoglycan synthesis and disrupting the bacterial cell membrane, RV94 is designed to help reduce sputum bacterial load and, by virtue of inhalation delivery, to reduce systemic drug exposure. From a clinical perspective, our aim with inhaled RV94 is to help improve pulmonary function and respiratory symptoms, and to reduce the frequency of exacerbations and overall antibiotic usage. In an in vitro MRSA-MIC assay, RV94 was 30-fold more potent than the existing standard of care antibiotic vancomycin.

Unknown Executive: In addition, RV94 has shown up to 60-fold greater potency than vancomycin for the treatment of gram-positive MRSA pulmonary infections in animal models. If further research continues to be supportive, and if RV94 were to be approved, this novel antibiotic would represent a major step forward in the treatment of CF patients with pulmonary mercury. Let's now turn to slide 22.

Unknown Executive: Taking a step back and looking at our product portfolio more broadly, we want to draw your attention to the commercial overlap between our programs, particularly when you look at NTM, bronchiectasis, and CF. In our case, we have an approved therapy for refractory MAC in the U.S. We know that many CF patients also have NTM lung infections. According to the CF Foundation website, 13% of CF patients in the U.S. tested positive for an NTM species in 2017. In addition, approximately 30% of bronchiectasis patients have NTM lung disease. For 1007, with the positive Willow data, we are now one step closer to bringing forward a product for bronchiectasis. And we have a new mechanism of action that we believe may help treat the inflammation in sputum production in CF. MRSA is becoming more common in CF patients and is now found in about 25% of patients. Studies show having MRSA lung infections for longer than two years can affect survival rates in CF patients.

Sara M. Bonstein: Therefore, we believe we have a unique opportunity to address an unmet need in CF with our V90. And with that, I'll pass the call to our Chief Financial Officer, Sara, for the financial update. Thanks, Gene, and good morning, everyone.

Sara M. Bonstein: As you've heard from the team, 2019 proved to be a very productive year, where we made significant progress across all of our programs while remaining keenly focused on the management of our operating expenses. As we start 2020, Insmed is well positioned to support the next wave of its growth. The cash flows from our ARK sales are an important contributor to meeting our cash needs.

Sara M. Bonstein: As Jeanne just outlined, we believe we have several promising programs in development, and we have the resources to take these programs to key value inflection points. As part of our longer-term efforts, we continue to explore business development initiatives and alternative financing options as potential sources of capital. Our quarterly and full year results are detailed in our press release issued this morning. On today's call, I want to draw your attention to a few key line items and share our outlook for the year. This morning, we reported total net revenue for the full year 2019 of $136.5 million, comprising $132.1 million in U.S. net sales of Veracase and $4.4 million in ex-U.S. net sales of Veracase.

Sara M. Bonstein: The XUS net sales reflect utilization from the compassionate use and named patient programs in both France and Germany. In terms of revenue guidance, as Roger mentioned, we anticipate 2020 will potentially see a number of significant factors play out, making forecasting more challenging than usual. Despite our challenges of accurately forecasting quarter-to-quarter last year, we delivered exceptional results, exceeding expectations. Our takeaway is that the process of forecasting in this new indication is not straightforward, and our current guidance reflects this uncertainty. As the year develops and the various potential drivers play out, we will fine-tune our preliminary efforts. With that said, for today's call, we project revenues for the full year 2020 to be in the range of $180 to $220 million, as shown on slide 24.

Sara M. Bonstein: We're extremely pleased with the commercialization of Aerocase to date in the U.S. We will continue to focus on maintaining the strength of the brand, expanding our prescriber base, and reaching more appropriate refractory mask patients who may benefit from Aerocase. Our growth to net for the full year 2019 was approximately 10%. We expect our gross net to be in the mid-teens in 2020. However, it is important to remember that, as with many companies in our space, we expect our Q1 gross net to be higher due primarily to the coverage gap as a result of the benefit reset at the beginning of the calendar year. The cost of product revenues for the full year was $24.2 million.

Sara M. Bonstein: The gross margin was approximately 82% for the year. It is important to note that our gross margin benefited in 2019 from inventory expense prior to the FDA approval in our case, and this will not continue at the same rate in 2020. Turning to expenses, for the full year 2019, research and development expenses were $131.7 million, and SG&A expenses were $210.8 million.

Sara M. Bonstein: Our operating expenses for 2019 were $347.5 million compared to $314.8 million in 2018. Our adjusted operating expenses for the year were $300.1 million versus $283.7 million in 2018. We define Adjusted Operating Expenses in our earnings press release as GAAP operating expenses excluding stock-based compensation expenses, depreciation, amortization of intangibles, and a milestone owed to the CF Foundation related to error cases.

Sara M. Bonstein: For 2020, we will continue to invest in our core operating business, which includes continued commercialization of Aerocase, global expansion activities in both Europe and Japan, and pipeline advancement. In addition, we will begin to invest in preparation for the planned Phase 3 program for INS 1007. Consequently, we expect adjusted operating expenses for 2020 to be in the range of $340 to $360 million. We ended the year with a strong cash position of $487.4 million.

Sara M. Bonstein: It is important to highlight our ending cash position is in line with our ending cash position as of December 2018. We believe this illustrates our ability to maintain a strong balance sheet where we manage appropriate development investments with responsible financing and revenue. We will continue to remain disciplined and judicious with investments in our business and conscious of preserving our capital in order to maintain a strong balance sheet. With that, I will turn the call back to Will for closing remarks. Thank you, Sara.

William Lewis: Let me close out our prepared remarks by reiterating that we are extremely proud of the continued execution by the team at Insmed. Our ongoing commercial efforts for Aircase continue to progress, and we are creating a strong franchise with the potential for additional launches in Europe and Japan. We are advancing our efforts to expand the market by moving forward studies in the frontline and M-obsessive setting. Behind EraCase, we are pursuing high-value opportunities in areas of unmet need. With 1007, we have a unique and significant opportunity with a potential first-in-class therapy for bronchiectasis if we are successful with our Phase III program. We believe we are just scratching the surface of what we can achieve with this compound, which we believe has significant potential in other disease states.

Operator: Moreover, our growing pipeline has strategic leverage with the advancement of 1009 and our newest candidate, RV94. Taken together, we believe we have one of the strongest portfolios in the pulmonary rare disease space. I want to congratulate the Insmed team on a phenomenal 2019. As we sit here at the beginning of 2020, we are very excited about what lies ahead for the company. With that, I'd like to open the call to questions. Operator, can we take the first question, please?

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing star.

Operator: If at any time your question has been addressed, or you would like to withdraw your question, please press star then. Your first question today comes from Ritu Baral of Cowan, please go ahead. Good morning, guys. Thanks for taking the time to answer the question. Will and team, can you talk a little bit more about the structure of Transcripts provided by Transcription Outsourcing, LLC, and any more detail that you can give us on... The Forward Phase III Powering Assumptions and Timeline for Cohort Data. At the end of the day, when can we feel more secure that you've got your handle around the PRO? Sure, I appreciate the question.

William Lewis: So let me just say when we talk about the PRO and its development, this is a process that began in earnest in the middle of last year with the FDA, and so we've had a lot of back and forth, and I think I feel pretty good about where we are in that process. There's a whole lot of effort and research that goes into making sure a PRO is appropriate and works as expected, and we're well underway with the first part of that assessment, which is making sure that it's appropriate, and that requires additional research. We then confirm that what we have to bring forward is something the FDA is comfortable with, and then we initiate the trial to validate that PRO.

William Lewis: The unique design of our post-approval requirement program contemplates that validation trial running in parallel to the full approval trial, as you've seen on the slide that was outlined today and was presented for the first time at J.P. Morgan. So for those reasons, we are awaiting the final sort of sign-off from FDA, but I don't anticipate that will be problematic, and my expectation is that this trial and those trials will begin in the second half of this year. As far as the PRO itself is concerned, it's made up of a modified QOLB questionnaire, which is a quality of life bronchiectasis questionnaire that was explicitly discussed with FDA, and indeed they encouraged us to consider it if we wanted to, and we thought it was appropriate using a modified existing questionnaire.

William Lewis: So I think we feel like we're on very solid ground there. What we hope to discern in the validation study is which of the specific questions and domains seem to have the greatest response rate in the patients that are being treated with our drug, and with that information, we can then confirm the statistical analysis plan that outlines how we will test the efficacy of our drug using the PRO in the post-approval requirement study. So all of that is sort of framed out in the study design, and we've talked about it previously. We estimated, and these are estimates somewhere in the neighborhood of two to three hundred patients in the post-approval requirement study. Those might move a little bit, but we don't expect them to move massively, although there's always more to be learned, and we want to caveat that our dialogue with FDA is ongoing and may influence that a little bit.

William Lewis: But overall, I would tell you we feel very good about the study design as we outlined in the comments. We expect it to run for a little over a year, 12 months on the drug and then one month off. We expect this study to also be satisfactory using the primary endpoint of durable culture conversion for both Europe and Japan.

William Lewis: So if we fast forward to the study kicks off in the second half of this year, both run, we have the outcome of that study, and that should satisfy U.S., European, and Japanese regulatory requirements, securing for us frontline approval for this drug's use in the treatment of NTM MAC, and that increases the addressable market we're talking about in each of our territories by something north of five-fold. So this is a massive opportunity, and we want to make sure we get it right, but we're also as eager as the investment community to get it started. But for how long does that validate?

William Lewis: So, going into the study, I think we already feel like we have a good handle on that. We have a number of different sources of data that we will use to inform the design of that study, including some specifically with the newly designed PRO, but we also have data from the non-CF bronchiectasis QOLB questionnaire that was administered during our Phase II program. We've looked at patients in other databases who have the refractory NTM, and I think the collective takeaway from all of that analysis is that we think this PRO is going to be appropriate. We think we understand the powering issue, and the way to think about that parallel study structure is that it will be confirmed before we read out the final result of the mainline study, and I think that is the point of greatest comfort, at least for me, when I look at the probability of success of that study.

William Lewis: We will have the PRO with a high level of confidence and data directly relevant to our belief that it's going to be effective in teasing out the impact of the error cases, but we will also be able to confirm that prior to the reveal of the Phase IV post-approval requirement study, and that will allow us the opportunity, because that study will still be blinded, to make adjustments should we need to in that statistical analysis plan. I got it.

William Lewis: And my follow-up. Transcription by Transcription Outsourcing, LLC. Sara that you mentioned today. What was the calculus?

Operator: Transcripts provided by Transcription Outsourcing, LLC. Prescribers, or is it more of the contrary? Unknown Speaker.

William Lewis: [inaudible] So I appreciate that question, Ritu, and obviously, we spent a lot of time thinking about this. I would define the year 2020 as being marked by both uncertainty and opportunity. The uncertainty that surrounds the performance of some of the key metrics as we go forward is the same kind of uncertainty that was frustratingly experienced last year where we struggled to really be able to discern where the commercial launch was going to go because no one's ever launched in this disease state and the performance and use of this drug are still yet to be fully defined. If we revisit the guideline-based treatment of patients using our drug, it would contemplate treatment to culture conversion plus So we're just at the front end of patients defining what that full duration of use is, and that's a really important and uncertain metric as we move forward. It's not the only one, but it's an important one, and I think we want to acknowledge that we still don't know how that's going to unfold.

William Lewis: We have some perspective on this, and we have every reason to be confident that we will be able to deliver in 2020 as we did in 2019, but it would be imprudent in my judgment not to acknowledge some of the uncertainty. Offsetting that, I think, are the significant opportunities that Roger outlined, the arrival of a paper that's peer-reviewed that talks about how to use error case and minimize side effects, and the arrival of treatment guidelines that will reinforce appropriate duration of use. These sorts of things and some other creative programs that I know the commercial team is working on to really continue to take advantage of what we believe to be that remaining patient and physician population that have not chosen to use error case yet. But at the heart of your question, is it uncertainty of the metrics that are driving the use of the drug, or is it the lack of confidence in access to patients and physicians? It is absolutely the former, not the latter.

William Lewis: And I don't know, Roger, if you want to add any additional clarity to that. Yeah, thanks, Will. I do want to reiterate, first of all, that we've had incredibly strong performance from the error case and from our team executing through the launch and the U.S. commercialization. And fundamentally, I think our franchise is strong. We continue to receive positive feedback from physicians and from patients who are experiencing error case, and we know that there is a very strong propensity to prescribe error case for refractory patients. I think, in addition, we talked about the number of catalysts and also the uncertainty around the variable for how long these patients are going to receive therapy. And maybe a good way to think about this. I know we shared this metric on the previous call.

William Lewis: We talked about, for those patients, that cohort of patients who started in the fourth quarter. We had reported that as of the end of the third quarter of 2019, for those patients who had made it to at least month four, so made it through those first 90 days, 80% of those patients were still on therapy at the end of the third quarter of 19. So we continue to track that cohort, and surely, over time, that cohort will become less meaningful as we have more experience with a much larger group of patients. But an update on that specific Q4 cohort, again, for the patients who make it at least a month four, we see 60% of those patients were still on therapy at the end of 2019. So those who initiated therapy in the fourth quarter of 18 60% of those patients who made it to month four are still on therapy at the end of the year. We think that that's an encouraging metric, and we'll continue to track this and look at duration of therapy. That's our key variable.

Roger Adsett: One of the reasons why we're anxiously awaiting the guidelines is the opportunity to reinforce the duration of therapy for physicians. Obviously, the KOLs understand this, the Centers of Excellence understand this; the opportunity will be to reinforce that duration and the appropriate refractory treatment for physicians in the community setting. And I would just close by saying, you know, we faced some of this uncertainty last year and I think we performed incredibly well. My confidence in the commercial team is not diminished in any way.

William Lewis: In fact, if I could give one piece of insight to all the research analysts and investors on the phone, it would be the degree of energy and enthusiasm that exists within Insmed today. We are in as strong a position as we have ever been in terms of our enthusiasm for both the error case opportunity and the potential of our pipeline, including 1007, 1009, and RV94, among other things. So we enter 2020 with a very positive sense of momentum and direction, and we'll see how that plays out, and we certainly will update you as the year goes on. Thanks for taking all the questions.

Operator: Of course. The next question. From Matthew Harrison of Morgan Stanley, please go ahead. Great. Good morning.

William Lewis: I guess, first one. Maybe on the guidance again, could you maybe just provide a little bit more clarity in terms of how you think some of the factors that you highlighted. In fact, I don't know. Yeah, so I'll just frame it out at the outset. I think, you know, we did call out the donut hole's impact as being more magnified this year. That is absolutely the case. There's nothing we can do about it.

William Lewis: It is a feature of products like ours in the Medicare population that the donut hole pinches in January every year, and certainly, we saw that this year. However, I feel that, with the rest of the year before us and in the early part of February, that that is a temporal event, a seasonal effect, if you will. And so it is, for all intents and purposes, behind us. I think our attention now turns to take advantage of the opportunities that present themselves in terms of some of the things we just mentioned in the script and during the last question response. On the specifics of gross to net and gross margin, I'll just ask Sarah to comment on what our guidance is for the year.

William Lewis: We obviously don't have any more details, but maybe to frame out those metrics. Absolutely. Thanks, Will, and thanks, Matthew, for your support and for your great questions. So on gross to net, as we stated, full year 2019 was approximately 10%. We anticipate 2020 to be in the mid-teens. 2021 will be higher, but on average for the year, we anticipate it to be in the mid-teens.

Sara M. Bonstein: That is primarily related to the change year over year, primarily related to some of the contracting and pricing, but still favorable gross to net. On COGS, we obviously had previously expensed material in 2019, which we were able to benefit from. We had a gross margin of about 82%.

Sara M. Bonstein: We will not see that same level of benefit into 2020, but we are also very cognizant of keeping our COGS at appropriate levels. So hopefully, that provides a little more color for you. Thanks. And then and then follow-up. On the guidelines, you know, maybe just your current expectations around when we're, Yeah, this is one of our favorite questions. We were told by the chair of the Guidelines Committee at ERS last year that they would be out by the end of the year. Here we sit at the beginning of the next year, awaiting their arrival.

William Lewis: Everything we hear, and of course, we're not directly involved with the committee, but everything we hear from them is that they are imminently forthcoming. I was encouraged to see an explicit session called out in the agenda for the American Thoracic Society meeting where they will be discussed and reviewed. So I think that portends their imminent arrival, and I think the sooner they come out, the sooner we can take advantage of them. I will say that I am confident that they are coming out, and that when they do come out, they will be a force that will benefit us for not just the immediate term but over the course of the next several years.

William Lewis: They will be the featured discussion at the American Thoracic Society, the European Respiratory Society, the Infectious Disease Society of America, and CHEST, and I will highlight one within that group, the European Respiratory Society, because these guidelines will not just be coming from U.S. societies but their European counterparts as well. So it's conceivable that when they're issued, the European societies will have endorsed the use of Ericase for the treatment of refractory patients prior to their approval by EMA, and I think that's a strong statement if that ends up being the case of the appropriate potential for this compound for those patients. Okay, thanks. Hi, this is Mark Gan from MARTI.

William Lewis: Thanks for the comprehensive update today. Questions. I guess first, maybe a little different with respect to guidance, but getting at the same question, I'm curious, from your interaction with doctors, what's the actual script duration, including refills that they are typically prescribing? And then my second question is, with respect to 1007 and thinking about the dose response, is there a higher rate of exacerbations relative to the rest of the trial population and those who had periodontal disease? I appreciate the questions and comments.

William Lewis: On the first question, what is the duration of use that we're seeing from hearing about from physicians? What I would say generally is that the physician community we hear from is very much a proponent of treating to guidelines. And so that would suggest that they will treat to culture conversion and that for an additional 12 months. There are a variety of physician perspectives on this. I've heard some physicians who feel that they've seen benefit with their patients on the drug and intend to keep them on the drug longer. I've also heard of physicians who have patients that treat patients for a period of time, they have some success, and the patient wants to go off the drug.

William Lewis: And what's interesting about that patient, and this is one of the big uncertainties and opportunities in 2020 and really 2021, is that we know the reinfection rates in these patients are extremely high, particularly in refractory patients. And so it would be my expectation and many physicians' expectations that these patients are going to show up and require re-treatment. And the question before us that is uncertain is how soon will that patient be identified once they are reinfected? And how quick is the physician inclined to re-treat with Ericase, given that that's a refractory patient? And when will we begin to see those patients come back into the top of the funnel, if you will? So that's my perspective.

Roger Adsett: I don't know, Roger, if you want to add anything to that duration. Sure. Thanks, Will. I'm happy to.

Roger Adsett: So I think that the question is really along what's the intent of the physician to prescribe? And I would agree with what Will is saying that, in large part, the physician's intention is to prescribe according to the guidelines. That's treatment to conversion plus another 12 months.

Roger Adsett: They also are encouraged, I think, to check-in at six months and, if patients haven't converted, to make that assessment as to whether or not to continue therapy or not. And we shared that previous metric around the fourth quarter, 18 cohort of patients. And, you know, 60% of those patients a year after initiating therapy are still on therapy as of the end of the year. So we think that that's encouraging, and to support that, we mentioned that reauthorizations have not been an issue for us to date.

Roger Adsett: And so while the insurance companies have obviously been looking for the appropriate patients to start on therapy, they really are looking for the judgment of the physician as to whether to continue those patients on therapy. And so we think that that's an encouraging metric. And the guideline opportunity will give us an opportunity to reinforce that duration of therapy with physicians and reinforce what we think is the practice largely at this point. And I guess I would also say also that we're aware of a lot of the surveys that some of the research and investment community have done. We've heard the inputs from those people.

William Lewis: These are not inconsistent with our experience and what we've heard. I think our guidance reflects what we believe to be the existence of some uncertainty, as we have always tried to transparently convey to the investment community. But it should not be interpreted as us having insecurity.

William Lewis: I think it is a match of uncertainty with opportunity and our ambition to go out and address those opportunities in a way that will benefit patients and, ultimately, therefore, our shareholders. On the second question with regard to 1007; I'll ask Gene to address that. Sure, thanks. Yeah, so this was a question about periodontal findings and maybe correlations with efficacy. And I think that's a really interesting question.

Unknown Executive: I can say at the outset that I don't have a direct answer for you at that time. This is the type of analysis we want to conduct. I think, you know, from a big picture standpoint, the events that we saw that were periodontal were mild to moderate. And some of the work that we're going to do is try to understand to what extent these were spontaneous events that were reported by patients. And to what extent, actually, they were elicited by having these dental exams. So I think, you know, it's like a Heisenberg thing. Because we were looking at it, we may have detected more than we otherwise would have had we not had those periodontal dental exams. So that's an aspect we want to look at. But certainly, understanding whether patients who seem to have some type of periodontal manifestation are those the ones that got the most efficacy will be an interesting question.

Unknown Executive: I think along those lines, we're also going to look at exposure response for both safety and efficacy. So are the patients who had the highest exposure tend to be the ones who have the most efficacy? And does that correlate with any of the safety findings? So that's the type of work we really want to delve into. I don't have any answers for you today.

William Lewis: I think it's really important that we look closely at it so that we really fully understand, you know, the effects both from the safety and efficacy sides as we make decisions about pay. And the only thing I would add to that is that, as of right now, it's not our expectation that that kind of periodontal exam using a dentist will be required in phase three, which I think speaks to the... Preliminary takeaways from the Phase 2 data assessment in that regard Again, if you have a question... The next question today comes from Adam Walsh of Stiefel. Please go ahead. Hi everybody.

Roger Adsett: Thanks for taking my questions. And congrats on all the recent success. So my first question is, I'm trying to get a little better handle on the duration and reinfection. And I don't want to beat a dead horse.

Roger Adsett: But Roger, you said previously that 60% of the patients that started on original therapy at approval were still on the drug at year end. And I guess my question is, do we have any information as to why the 40% came off, what the average duration of therapy that they were on prior to coming off, and whether or not those patients could be mischaracterized as just drug holiday patients, as we've heard a lot of docs have been using drug holidays to temporarily pause the medication and keep them on for a longer period of time? And then finally, have any of those patients that have come off come back for reinfections? In other words, what do we know about reinfections at this point in time? were assessed to have completed therapy. There are patients who have decided that they no longer want to continue with therapy.

Roger Adsett: And again, this is just feedback, anecdotally, that we're getting through, especially pharmacies, through our Eric Cares network. I would say it's probably not drug holidays, necessarily, unless you think about patients who may have, to your point, reinfection. They may have stopped prematurely, and certainly, at this point, they would not have had the additional 12 months of therapy that the guidelines recommend to ensure you've eradicated

Roger Adsett: So it's not unreasonable, in that case, to think about reinfections popping up. I'd say it's too early at this stage to comment on reinfections, but we know from all the literature, and we expect in the real-world setting, that you will see some of these patients returning with a new infection and will need to be retreated. And importantly, I think having a positive experience with Eric Case, physicians tell us and report to us that they would be very happy to initiate Eric Case for those patients, once again, if there is that reinfection. Great, and then just another one if I could, on guidelines. We talked a little bit about the potential kind of acute and longer-term benefit. Roger, you mentioned that you have 3,000 physician targets left still to kind of hit, and how quickly do you think the guidelines might have an impact on that broader pulmonary community that maybe isn't, you know, isn't as familiar with how to use the drug at this point?

Roger Adsett: So the acute aspect, how impactful do you think that could be maybe over the course of the next, you know, four to six months? I'd hate to hazard a specific guess as to what that looks like, but for us, I mean, anecdotally, and what we think we can do with this commercial team, having those guidelines, we think that that will have a positive impact. There's, you know, like you said, the 3,000 physicians that have not yet written a prescription for our case. Our impression is it's not that they don't have that positive perspective, but they're looking for reinforcement and the right refractory patient who's suitable for our case. The guidelines will give us that opportunity to reinforce that, you know, looking at all the literature, this is how you define a refractory patient, and this is what the appropriate therapy is according to the medical societies. And I think that that's a very powerful message for us to supplement the great efforts that we have from an education and promotion effort with our own commercial and benefit. Thank you, from Greg Suvannavejh of Yeah, thanks. Good morning. Thanks for taking my questions. I've got two of them.

William Lewis: My apologies if they may have been on before. Maybe my first question just has to do with the outstanding physicians who have used Aerocase. Can you give us your interpretation or your color as to what Aerocase has been on the market for some time and why they have chosen to use Aerocase? And then my second question, congratulations on the recent additions to the management team and senior leadership. In terms of your new BD hire, can you just give us a sense as you look into 2020 and beyond and having added a pipeline asset, which is great news, but what kind of deals are you looking for on a go-forward basis in terms of whether they're licensing opportunities? CD partnering, out licensing opportunities, any color would be great.

William Lewis: Sure, I appreciate that question. I'll ask Roger to address the first one. prescribed Arakase at this point.

Roger Adsett: And I would say that as we're thinking about the tail and we're thinking about those 3,000 physicians, there are a couple of factors. First of all, the propensity to prescribe remains very strong. So when we do our market research and we talk to physicians across the board, their intent to use Arakase in the appropriate patient is very strong. So that leads us to believe that it's identifying that appropriate refractory patient. And This is a rare disease.

Roger Adsett: I want to remind everybody, this is a rare disease. We've made this strategic decision to go more broadly into the community, and these physicians don't see these patients every day.

Roger Adsett: So they do come in periodically. We know that those patients are there. And so it's an opportunity for us to reinforce how to identify those refractory patients for NTM and to reinforce with them that if these patients haven't converted after that standard of care treatment, you should be considering adding Arakase to that regimen. And so it's fundamentally, in our opinion, nothing more than that. It's raising that awareness, reminding them of when those patients come in to assess their culture status and make that decision as to introduce Arakase for that appropriate refractory patient. The propensity to prescribe familiarity with Arakase is very positive.

Roger Adsett: And on the second question you asked about the BD hire, and I think there the intention was simply to bring in somebody who has a great deal of experience that can help us formalize what has been a very active business development effort in the seven and a half years that I've been here. We've looked at literally well over 100 opportunities. You've seen the 1007 results, and I think they speak to the ability of the team to discern what is a promising program and present some real arbitrage for our investors while we're out in pursuit of a therapy that may be able to benefit patients if it clears all the regulatory and clinical hurdles. I'd like to repeat that, and I'd like that to be in a very systematic fashion, but our hurdle is high.

Roger Adsett: It remains high, and we're very cognizant of the scope of the development that we are taking on in terms of these various programs. And so I think if I were to frame out what we'd be looking at, my ambition would be to look at either the commercial end of the spectrum and see how we can really build off of the tremendous success that the commercial team has already established, or indeed something that could be complementary to where we are already pursuing programs. I will say that we view ourselves as a rare disease company, and so we don't feel restricted to the pulmonary rare space. We happen to have a lot of overlapping products and programs there that I think are going to complement one another extremely well and allow us to get a lot of leverage around the world as we build out, but we don't feel exclusively restricted to that.

Roger Adsett: We think where patients are particularly challenged, where there isn't a lot of competition, and where we have the ability to go in and help on the education front, that's probably where we can have the greatest impact, and Fred's arrival heralds a real formal approach to that, but it's not inconsistent with what we've been doing to date. Thank you very much.

William Lewis: And our last question today comes from Liisa Bayko of: "Hi there, thanks for taking my question. I want to ask a little bit more about your next steps for 007 where there's a faster market strategy here, and I ask that. You know, the data. In that setting of bronchiectasis, I'm just curious if there is any faster market strategy or something where you parallel... Yeah, I appreciate the question, Liisa. I think, look, we share your enthusiasm for 1.007 and all that that represents. Our next step here is to talk to the agency about where we go from here. We have a design already prepared for Phase 3. It contemplates two trials, and it contemplates, at this moment, two doses.

William Lewis: There is more to be learned once we have that interaction with regulatory agencies around the world. And I think, in order for those interactions to be productive, we have to complete our detailed analysis of the data. And that's something that's underway at the moment. You know, who is to say what the path will be? I'm just framing out our base case expectations.

William Lewis: And if we learn more or see additional opportunities, we'll certainly share those. Okay, so you kind of gave a little prelude to my next question, which was really around how you're thinking about the child. Talked a little bit about that. Any more color?

William Lewis: What about your [inaudible] timing and in terms of that? So we were ready for the lottery ticket, as I described it, to go the right way. We have two designs prepared, and it is our corporate goal to start these studies by the end of this year. That will be subject to our interaction with regulatory authorities. We expect the studies to be each be one year in length, which has been the history of non-CF Bronc development. And so that's as much as we know at this time. When we talk about numbers of patients in the studies, et cetera, that's more work I think we want to refine before we come back. But I would believe, given the enthusiasm of the community, that these will enroll relatively quickly and that they will be studies that will satisfy approval in multiple territories around the world. And I think that is an extremely exciting opportunity.

William Lewis: DPP-1 is now a very strong set of data out there validating it as a mechanism of action. And then when, maybe we can get this a little bit more granular on time, looking at this molecule in some of the ones you mentioned, CF, Andy Alva, Andrew Cripson, those kinds of others. Yeah, some of that work has already been done. Quite frankly, we did some animal model work and a couple of these other disease states. We think there's more to be done, particularly in light of the learnings from the Phase II program. So that'll be ongoing this year, and I think it will inform where we go next and how we do that. Okay, and then just one final question from me, RV94.

William Lewis: Unknown Executive, Elias Lenard, Liisa Bayko, Vamil Divan, Ritu Baral, Jason Zemansky, Stephen Willey, Tiago Fauth, Jennifer Kim, Sara Bonstein, Graig Suvannavejh, Michael Riad, Liisa Bayko, Bryan Dunn, Martina Flammer, Brian Kaspar, Lukas Bachmann, Michael Kelly, Gao Incredibly capable group of people, and they have a lot of stuff going on, but when it gets to be ready for prime Time, then we bring it forward. RV94, we think, meets that threshold. I'll let Gene comment on how it differs from the compound you're talking about over at Savara, which is vancomycin, inhaled vancomycin, and some of the metrics that we outlined. Sure. Thanks.

Unknown Executive: Yeah, I mean, we think that, in general, the hypothesis that treating MRSA in CF patients may improve outcomes is a very reasonable hypothesis. We thought that vancomycin may not be the right drug for it, though. So, Walter Perkins and his group in our research group spent quite some time looking at a number of different compounds, novel compounds, for two characteristics. One is potency against MRSA, and the other is lung kinetics, so the retention time in the lung. And so we spent quite a, we went through quite a number of different compounds trying to optimize that, and the clearly superior agent was this RV94, which in various in vitro testing is clearly more potent, significantly more potent than vancomycin. Both in vitro, I mentioned the MIC assays; we have biofilm assays in which it outperforms vancomycin and other, even related glycopeptide drugs, and also in animal models of MRSA.

Unknown Executive: So we think it's, my thought of it is that this is a reasonable thing to attack, and we think we have a very strong candidate in RV94. It is early, and we have a lot more work to do on it, but it is very exciting. And let me just comment, maybe given the scope of what we talked about from a development point of view here, when we talk about RV-94, when we talk about 1009 and 1007, these are compounds that may find creative ways to get funded as we go through the development process. So RV-94, as an example, is one that may be able to benefit from foundation support, given that it has a potentially prominent role to play if it continues to perform as it has.

Unknown Executive: We look at 1009, and we think of that as entering a fairly competitive market, but with disease-modifying possibilities, that drug represents a potential source of development for us or for others in a partnership. And we've seen recently how disease-modifying agents in PAH have been valued. And finally, 1007, while we intend to bring it forward for bronchiectasis in various territories around the world, we also think potentially about its role in a place like China, which has a prevalence rate, as we understand it, of bronchiectasis that's about tenfold greater than what it is in the U.S. So it's quite a significant opportunity, and we are going to think very creatively about how we might be able to offset some of the development costs for these various programs in a way that allows them to progress but doesn't necessarily result in an endless cycle of need for additional equity issuance.

Unknown Executive: And I think that's an important point for people to digest. Bottom line, I was asked by a couple of portfolio managers, with the result of 1007, which we described as a lottery ticket, did we have any other lottery tickets at INCIMED, and that's why today we decided to draw attention to 1009 and RB94, both of which I think fall under that category. Okay, thanks. A lot going on in the pipeline.

Liisa Ann Bayko: I appreciate the update. Take care. This concludes our question and answer session. I would like to turn the conference back over to Will Lewis for any closing remarks. Thank you all very much for joining us today. The conference is now concluded. Thank you for attending today's presentation.