Good day, ladies and gentlemen, and welcome to the Insmed's conference call to discuss the company's fourth quarter and full year financial results. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Blaine Davis, Head of Investor Relations. You may begin..

Thanks, Keith. Good morning, everyone, and welcome to today's conference call to discuss our fourth quarter and full-year financial results for 2018. 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 from the results discussed in the forward-looking statements.

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. The information on today's call is not intended for promotional purposes and not sufficient for prescribing decisions.

Joining me on today's call are members of the Insmed executive management team, including Will Lewis, Insmed's President and Chief Executive Officer; Paolo Tombesi, Chief Financial Officer; and Roger Adsett, Chief Commercial Officer. Once we complete our prepared remarks, we'll open the call to take your questions.

With that, let me turn the call over to Will..

Thank you, Blaine. Good morning, everyone, and thank you for joining us. 2018 was a pivotal year for Insmed, culminating in the approval and launch of ARIKAYCE. ARIKAYCE is a therapy that finally offers hope to patients with refractory MAC lung disease who previously had limited or no alternative treatment options.

Prior to the approval of ARIKAYCE, patients suffering from the debilitating effects of this disease had no approved treatments specifically indicated for their condition. We are very pleased with the strong momentum we have seen in the first few months of US launch, including the breadth of prescribers and total patients initiating therapy.

But it remains early in our launch and there are still some key variables we need to understand. We have much more work to do in 2019 and beyond to sustain the momentum. However, we are confident enough in our current understanding of the market to provide 2019 full-year revenue guidance for ARIKAYCE of $80 million to $90 million.

For those of you who may be new to our story, let me just spend a moment on our commercial product and the disease we're treating. MAC lung disease is a rare progressive and chronic pulmonary infection associated with irreversible lung damage and declining lung function.

The disease typically affects an older population, is associated with an increased mortality rate and is often further complicated by multiple comorbidities.

Based on our 2018 estimates, we believe that as many as 30% or 10,000 to 15,000 MAC lung disease patients in the US do not respond to the off-label antibiotic regimen that is the current standard of care.

ARIKAYCE is a combination of the potent aminoglycoside antibiotic, amikacin, encapsulated in a specialized liposomal technology we now brand as PULMOVANCE. This technology has shown an increased uptake into the lung macrophage and effective penetration of biofilm. I want to draw your attention to my last sentence.

We view the ability to penetrate biofilm, formed as a preserved defense mechanism by bacteria over millennia, as a significant capability and one we have been further exploring through our early research to identify other areas where this may be useful.

We have seen the efficacy and safety results of these technologies in ARIKAYCE, culminating in its approval last year. ARIKAYCE is the first and only therapy specifically approved by the FDA to treat patients with MAC lung disease and we are very excited the patients now have a treatment specifically approved for this disease.

I would now like to spend a moment discussing our key priorities for 2019 in detail. I will then ask Roger to provide an update on our commercial launch and then Paolo will cover our financials. The first and most important priority is to remain laser focused on our continued efforts to execute a successful US launch of ARIKAYCE.

We achieved strong early success as demonstrated by our sales results of $9.2 million in the US in the fourth quarter. However, as I mentioned earlier, we believe this is just the beginning. We're pleased with these results, but it remains very early in the launch and much more work lies ahead.

Our efforts to further refine our understanding of the market and the performance of the product remain ongoing. And as the year progresses, we expect to have more information to share. For now, we are very encouraged by the early results and remain cautiously optimistic. Roger will cover more detailed aspects of our commercial launch in just a moment.

Our next priority is to complete the design and protocol of the confirmatory clinical study, which will be conducted in a frontline setting of patients with MAC lung disease. This trial is a requirement by the FDA for the full approval of ARIKAYCE, as well as an important part of our lifecycle management plan.

Our development teams have been hard at work and we expect to complete this process in the first half of 2019. We are also evaluating additional clinical trials to explore the efficacy of ARIKAYCE in patients with NTM lung disease caused by M Abscessus, a particularly virulent pathogen.

Interim data from an investigator-initiated study of ARIKAYCE in M Abscessus patients were presented at the American Thoracic Society Meeting in May 2018 and showed roughly 30% culture conversion with ARIKAYCE in these patients, an unprecedented result.

We are also exploring ARIKAYCE for use in a more chronic setting of maintenance therapy, which would seek to treat patients prophylactically to prevent the high rate of recurrent infection, seen with this disease. Currently, about 50% of patients with NTM who eradicate the bacteria are reinfected within three years.

We believe a maintenance indication would represent a meaningful advance in treating NTM. Collectively, these lifecycle management opportunities comprise what we refer to as the ARIKAYCE franchise.

Assuming clinical trial outcomes satisfy the regulatory authorities, we believe these represent substantial label expansion opportunities to serve many patients with unmet medical needs in the coming years.

Our third priority is to continue our global expansion efforts to support potential regulatory filings for ARIKAYCE in Europe in mid-2019 and in Japan in the first half of 2020. These regions represent an important opportunity to help patients suffering from MAC lung disease worldwide.

Our lifecycle planning efforts for ARIKAYCE and the compounds in our pipeline also take into account our growing global reach. Our fourth priority is to continue our efforts to advance our pipeline, which is intended to bring additional therapies to market for patients with serious and rare diseases.

This includes completing enrollment by mid-2019 in the WILLOW Study, our six-month global Phase II trial of INS1007 in patients with non-cystic fibrosis bronchiectasis. This program is a very exciting part of our pipeline.

INS1007 utilizes a novel mechanism of action to potentially help patients with non-CF bronchiectasis who currently have no therapy approved for this specific indication. We expect results from the Phase II study in early 2020. And if the results are positive, we would expect to advance INS1007 development to registrational trial.

In addition, this year, we will also be advancing INS1007 in two small Phase II studies that will explore its potential impact in treating granulomatosis with polyangiitis, or GPA, a rare neutrophil-driven autoimmune disease that is fatal if untreated.

We're also advancing our INS1009 program for the development of an inhaled formulation of treprostinil that we believe will offer a differentiated product profile for patients suffering from pulmonary arterial hypertension, or PAH, including some potential localized benefit seen in recent animal model work that could add an exciting extra dimension to this drug's potential in PAH patients.

As I mentioned earlier, beyond our frequently discussed development programs, we have several ongoing research programs that leverage some of the unique skills and capabilities of our research teams to potentially treat a variety of serious diseases.

These areas of expertise include biofilm penetration as well as the unique properties that liposomes and nanoparticles imbue to molecules. Through a concerted effort, our research team is continuing to explore the ways in which this platform of technologies may be applicable to serious diseases. I'd like to highlight two of these programs.

The first is an early-stage research program focused on gram-positive lung infections, such as MRSA and cystic fibrosis patients.

For this program, we are developing a novel antibiotic that in in vitro testing is showing significantly superior potency to vancomycin, an antibiotic that is the mainstay of treatment for many gram-positive serious diseases.

A second program is focused on targeting treatment of refractory biofilm infections, such as those that are found in postsurgical settings and can require subsequent surgeries to fix like heart valve or joint replacement surgeries.

While both programs are early, we are very encouraged by their potential to address rare, serious conditions facing patients and we expect to have more to say about them later this year. 2019 promises to be another very exciting year for Insmed and we are off to a great start.

Let me now turn the call over to Roger who can provide some additional insights into our commercial activities.

Roger?.

Thanks, Will. Good morning, everyone. We remain encouraged by the early ARIKAYCE US launch trends and I'd like to take a moment today to recap what we saw during the fourth quarter. Let me remind you that our focus of launch is on the estimated 10,000 to 15,000 MAC lung disease patients in the US who have limited or no treatment options.

This population is reflective of both the language in our FDA-approved label and the patients in our pivotal Phase III study.

We are very pleased that, in the fourth quarter of 2018, which was the first quarter of our launch, we reported net sales of $9.8 million, of which $9.2 million is attributable to the US launch and $600,000 is attributable to our temporary authorization for use program in France.

In early January, we announced that, as of the end of 2018, approximately 600 physicians have prescribed ARIKAYCE and more than 500 patients had initiated therapy in the US.

We continue to start new patients at a steady rate, which, among other things, supports our 2019 ARIKAYCE revenue guidance of $80 million to $90 million that Will mentioned earlier. To date, we feel that the patients are clearly there and the physicians have an intent to treat.

We view these early results as very encouraging for any product launch, and particularly so for first-in-class therapy. Notably, we've also seen a roughly equal distribution of prescribing between infectious disease doctors and pulmonologists. We look forward to updating you with additional launch metrics on our first quarter call in May.

Our sales team continues to deliver very strong results as they launch ARIKAYCE. We have approximately 5,000 key physician targets, broken down to tier 1 and tier 2. Our team has been actively calling on and engaging with these physicians and, as of year-end, had detailed about 80% of our tier 1 targets and about two-thirds of our tier 2 targets.

Also, as of year-end, approximately 50% of scripts were generated by tier 1 physicians, with the remainder coming from tier 2 perspective targets and select non-target physician. I want to turn now to market access where we've had some important early wins.

Market access uptake for ARIKAYCE has progressed well, with formulary editions now in place for multiple Medicare and commercial plans, as well as access to Medicaid and federal programs, including VA, and commercial plans as well as access to Medicaid and federal programs including VA, DoD and TRICARE.

Our efforts currently are focused on negotiating with key payers as they hold meetings of their committees. Our key account directors remain hard at hard at work in support of continued efficient reimbursement.

Although there is no guarantee the positive reimbursement trends we've seen will continue, to date, the product is generally being reimbursed through physician attestation for the appropriate refractory MAC lung disease patients, and we are working to ensure that that process continues.

Additionally, we expect to have select contracts executed during the first quarter, offering modest discounts to ensure a smooth and medically appropriate prior authorization process, remove payer blocks and provide an incentive for plans to make a formulary decision during the plan year.

Approximately 60% to 70% of our patients are eligible for Medicare. So, as we enter a new calendar year, we are also closely watching the impact of the reset of the donor hole in Medicare and deductibles in the commercial plans and how this affects patients' intentions to initiate therapy.

While we are not providing gross to net guidance, the contracts we execute, plus the impact of the donor hole, will result in an increase in our gross to nets in 2019 when compared to the fourth quarter. We'll provide an update on these trends during our call in May.

We also remain encouraged by the time-to-fill metrics, which we are currently trending better than our original assumption of 30 to 45 days. As we progress to the launch, P&C committee reviews and their aftermath, we will be able to provide an update on how to think about this metric.

A key success factor for rare disease launches is patient support in many forms. We have an extensive network of in-house and field-based personnel supporting the patient experience, and thus the positive launch momentum. I can't say enough about our ARIKAYCE team and the impact that they are having on our patients with refractory MAC lung disease.

Support for our ARIKAYCE program is strong among both physicians and patients. We must continue to execute to maintain that momentum throughout 2019 and I believe we have the right strategy and exceptional team and the resources to do so.

I would also like to reiterate that while our focus today is on the US launch, our global expansion efforts are continuing.

With US approval and launch progressing well, we are even more energized about the potential opportunity to serve patients with MAC lung disease in other regions, like Europe and Japan, following the necessary regulatory approvals.

We're all very excited about the launch of ARIKAYCE at this early stage and we look forward to sharing our progress with you throughout the year. And with that, I'll hand the call over to Paolo..

Thanks, Roger. Good morning, everyone. I will spend just a few minutes reviewing our fourth-quarter and full-year financial results of 2018 and then we'll cover our financial guidance for the first half of 2019.

This morning, we reported total revenue of $9.8 million the other revenue of $9.8 million, comprising $9.2 million of US net sales of ARIKAYCE and $600,000 of ex-US net sales. The ex-US net sales reflects authorization from the Temporary Authorization for Use, or ATU, program in France.

As you will see on our income statement, for the fourth quarter of 2018, we reported a net loss of $91.6 million or $1.19 per share compared with a net loss of $65.4 million or $0.85 per share for the fourth quarter of 2017. Cost of goods sold for the fourth quarter was $2.4 million.

Please note that prior to approval of ARIKAYCE, the company spent certain manufacturing and material cost as a research and development expense. Since this is the first time we're reporting gross margin, I'd like to add some additional comments that may help with modeling for 2019.

We expect to see improvement in the gross margin in 2019 for the following reasons. The gross margin for the first quarter of launch was particularly negatively impacted by the upfront cost of the control unit portion of the nebulizer used to inhale ARIKAYCE that hits gross margin upon the initiation of therapy for new patients.

Only the cost associated with vials of ARIKAYCE will continue through the duration of therapy. In addition, we have fully allocated the tech ops overhead expenses associated with the production of ARIKAYCE.

Since the allocation of costs of the tech ops overhead is essentially fixed cost, as the sales grow, we expect to see an improvement in the gross margin. Moving on, research and development expenses were $39.9 million for the quarter compared to $33.9 million in the fourth quarter of 2017.

For the full year of 2018, R&D expenses were $145.3 million compared versus $109.7 million for the full-year 2017. The increase was primarily due to an increase in external manufacturing expenses for ARIKAYCE, production-related activities associated with the Patheon project and higher compensation and related expenses due to an increasing headcount.

Fourth quarter SG&A expenses were $54 million versus $31.4 million in the fourth quarter of 2017. For the full year 2018, SG&A expenses were $168.2 million versus $79.2 million for the full year 2017.

The increase is mainly due to higher compensation and related expenses due to an increase in headcount and increase in expenses related to the launch of ARIKAYCE. We ended the year with $495 million in cash and cash equivalent. Let me spend a moment reviewing our financial guidance for the first half of 2019.

The company is investing in the following key activities in 2019. First, the continued support of the US launch and commercialization of ARIKAYCE.

Second, our post-marketing confirmatory study of ARIKAYCE, which will be conducted in a frontline setting as required for the full approval by the FDA, as well as clinical trials to support the lifecycle management of ARIKAYCE, as well as the WILLOW Study, our Phase II development program for INS1007, along with advancements of other pipeline program.

Third, our global expansion in Europe and Japan to support regulatory and precommercial activities in this region. And fourth, the buildout of an additional third-party manufacturing facility for increased long-term production capacity of ARIKAYCE at the new corporate headquarter facility.

As a result of these activities, Insmed expects cash-based operating expenses to be in the range of $150 million to $170 million for the first half of 2019.

As a reminder, we define cash-based operating expenses in our earnings press release and exclude cost of products sold, stock-based compensation expense, depreciation and amortization of intangibles.

In addition, the company expects capital expenditures in support of the large-scale manufacturing facility operation in the new headquarters to be in the range of $25 million to $35 million for the first half of 2019. All of our cash expenditure remain stage-gated and are predicated on continued success of the US launch.

In this way, our expenses should be seen as an investment to support continued and, ultimately, significantly expanded revenue growth both here and around the world. As already mentioned by Will, in terms of revenue, 2019 full-year guidance for ARIKAYCE is $80 million to $90 million. With that, I will turn it back to Will..

Thanks, Paolo. Let me close out our prepared remarks by reiterating that 2019 promises to be a very exciting year for Insmed. The opportunities before us have never looked better. We have multiple strategic priorities that we believe will support patients with rare and serious diseases, while generating significant value for shareholders.

As we continue our efforts to execute the successful launch of ARIKAYCE in the US, we believe we are positioned well to be the global leader in the treatment of NTM lung disease.

While our commercial efforts are initially focused on refractory MAC patients, in line with our label, our investments are laying the groundwork for expansion both in the US and around the world.

Our capital expenditures are designed to support the production capacity necessary to bring that opportunity to fruition and our new headquarters will house the people we need in the US to support this vision for the next decade. Importantly, we also have intellectual property protections in key markets around the world, extending to 2035.

We believe we are in the early days of significantly changing the landscape of NTM lung disease, much in the way that other companies broke ground in pulmonary arterial hypertension and idiopathic pulmonary fibrosis.

Beyond the ARIKAYCE franchise and NTM, we're investing to bring potential additional therapies forward to treat serious rare diseases, which we believe will become a topic of increasing investor focus in the coming years.

Collectively, we expect these efforts will enable Insmed to grow into a global biopharmaceutical company on a mission to transform the lives of patients with serious and rare diseases. This is within our reach. As always, I'd like to thank the Insmed team for their hard work and dedication.

We have an exceptional team whose talents are clearly demonstrated by our recent success. And, finally, I want to thank the patients and physicians we serve for their continued involvement in our clinical program.

We are here to make a difference in the lives of patients and their families and, every day, we work hard to achieve this very important goal. With that, I'd like to open the call to questions.

Operator, can we take the first question please?.

Yes, thank you. [Operator Instructions]. And the first question comes from Martin Auster with Credit Suisse. .

Hi. This is Mark on for Marty. Thanks for taking my questions.

Maybe my first one, I'm curious just to get a little more details around the COGS rate, and more specifically, how you see that rate in the next, say, one to three years and what you see that turning into longer-term? And my second question is, in terms of the SG&A spend, I guess, can you outline what current SG&A run rate includes and expectations for how this could evolve back half of the year and into 2020? Thank you..

I'll ask Paolo to take that question..

Hi. Good morning. Thanks for the questions. So, the cost of goods for the first quarter of launch was 25%. But this was clearly impacted at the beginning due to the fact of the high ratio of new patients, practically all were new patients, and so we have a first hit due to the inhaler, our nebulizer.

And, second, of course, we have started to allocate all the tech ops overheads when we moved from expense to inventory for our of production. Both, in 2019, of course, will decrease the incidence because, of course, we will start to have patients on therapy compared to new patients and the volumes will help to alleviate the incidence of the overhead.

So, we are expecting, during 2019, a progressive decrease in the cost of goods percentage. At the moment, we are not giving specific guidance on the long term. But, for 2019, you can expect a lower ratio of the cost of goods sold. In terms of SG&A, of course, we have a lot of support for the commercial launch.

We are still in the first phase of the launch in the US. So, we will see a lot of investments still needed to support all the launch in terms – both on promotional activities, but also increasing our investment in the Arikares that we saw our patient support is very critical to help the patients.

And so, these are the key areas in which we will have the increase in SG&A. We're also starting to also support the global expansion. So, there are also some additional investment related to increase the presence in Europe and to support Japan..

Perfect, thank you..

Thank you. And the next question comes from Matthew Harrison with Morgan Stanley..

Hi. This is Ishmael on for Matthew. Thank you for taking our question and congratulations on the progress to date. I know you mentioned you're starting new patients at a steady rate.

Can you give more detail on how this and potential other key factors are influencing the 2019 revenue guidance? And also, quickly, what kind of persistence are you assuming for new and existing patients? Thank you..

So, the one thing I'll say is that the provision of revenue guidance may come as a surprise to some people because I had originally thought we were going to do that later in the year. But I just have to say, we have a lot of confidence in how the launch is progressing.

And so, consequently, we feel comfortable putting out the guidance that we've said today, which is a revenue in the range of $80 million to $90 million. We haven't provided any other additional detail on this call. As we go forward, we may add some additional detail, so that you can get into the weeds.

But I think, at this stage, six weeks into the launch, into the second quarter of launch, we thought we would cut to the chase and just put the revenue guidance out there. So, hopefully, that helps you understand where we think things are going. I don't know.

Roger, do you want to add anything else to that?.

No. I think that the characterization of the launch and what we're seeing, I think, is – I'm really very pleased with. I think we see the positive momentum continues, and that's characterized by the guidance that I had given out earlier.

Around the discontinuation rate, I think it's probably a little too early to comment on that, although it's contemplated in our guidance. And just as a reminder, from a clinical trial, we see that about 30% of patients will discontinue. And most of that happens within the first 30 days.

So, that's something that we're – as I mentioned, with our Arikares team – working on making sure that we're educating physicians and reaching out to patients and working with them about the importance of the therapy, what to expect from the therapy and how to manage through that and hopefully stick to the Arikares regimen..

Okay, thank you..

Thank you. And the next question comes from Adam Walsh with Stifel..

Hi, guys. Thanks for taking my questions and congrats on the progress. I guess my question is, first, a follow-up on the guidance question that was just asked. I've been doing some math. If you had 500 patients on at December 31 and those patients stayed on the drug at the current list price for the entire year, that would get you to $66 million.

And that's most of the weight of the low end of the guidance.

So, the implication – or the takeaway, at least, in my end is the guidance is either conservative, they're seeing something else in the market that suggests either a slower pace of new patient adds in 2019 versus the fourth quarter or there could be other things, like dropouts or contract negotiations on pricing and the extent to which there may be conservatism built in or some of these other factors could be impacting your guidance.

Any other color there would be helpful. And then, I just have one follow-up after that. Thanks..

Sure. I appreciate the question. I wouldn't read beyond the guidance into too much what may be going on behind the scenes. We have expressed a lot of confidence in the launch and the way it's progressing. I think that has not been widely variable. So, I think we continue to have a lot of confidence in it. It's very early in the year.

So, it's difficult to project where this could go or how it will unfold. I think the confidence we have caused us to put the revenue guidance out there, so that people can begin to think about where this could go. But as we learn more, we certainly will share that.

At this stage, though, there is nothing new to be learned by going into some of the other details. For example, new patient adds or number of prescribing physicians that we provided at the beginning of January. And we'll return to some of those metrics in the future. I don't know, Roger, if you want to add anything to that.

I would just caution you, Adam, not to read anything negative into what we have indicated..

Yeah, I would agree with that. I think the – and the gross to net guidance is contemplated in that revenue guidance. The discontinuation, the adherence, all of those factors are contemplated within that number.

And there are things that we're still trying to honestly monitor and get our heads around as to what the full-year run rate is going to look like. So, I would say that the number expresses our confidence in the launch and how that's progressing, and we'll look forward to updating you on the more metrics as we go forward..

As we learn more..

Yeah..

Yeah, that's certainly helpful. And I do appreciate the actual dollar guidance. That's certainly helpful and it's nice that you put that out there. And then, my second question is on the design and protocol for the confirmatory study.

Well, if you could just kind of expand on where you are in that process and maybe give us some details about what you're thinking about in terms of the FDA's requirement for some kind of clinical outcome measure, how are you thinking about approaching that in the confirmatory study based on what you know? Thank you..

Yeah. So, that process has been underway. I think our team has been hard at work at coming up with a bunch of different approaches. Maybe just a comment on what we've been doing.

We have really – including using some outside vendors – cross-examined the heck out of our Phase III data set to understand what are the impacts of the drug on this patient population and how that might inform trial design for the post-approval requirement.

Again, the trial will address, we hope, a frontline setting, which would increase the addressable market if we were to get the indication about fivefold. So, it's a pretty big expansion in terms of lifecycle management. I would characterize the dialog with FDA as very productive.

They, clearly, are interested in seeing some symptomatic benefit measure and we have tried to come up with a design that we think will be able to provide that. I think we feel very good about the designs that we have. We have more than one.

And we're in dialog with them to assure that we land on something that we feel good about and that will satisfy their needs.

Some of the measures that you've seen us look at and talk about in the past are things like six-minute walk and PRO, and those two for patients who have achieved culture conversion because, for those patients who've achieved culture conversion, we have good indication that the result is benefit in those patients over time.

And we just need to capture that in a way that is prospectively designed to reflect that outcome. That's the only limitation of our Phase III study, in my mind, as it applied to answering those questions for FDA at ad com, was that the study was not prospectively designed to look at only converters.

So, our intent is to go down the path of first securing patients as converters and then examining the impact..

That's helpful. Thanks..

Thank you. And the next question comes from Dana Flanders with Goldman Sachs..

Hi. Thank you for the questions. My first one here, what are your assumptions, I guess, at this point on whether or not patients will be able to stay on drug if they do not culture-convert after six months? Is that something you need to drive more on the physician side or more so present kind of the case to payers? And then, I have one follow-up..

Sure. I'll ask Roger to comment in a minute, but I'll just make the observation that the current practice is to keep patients on therapy. The comment that sort of is the mantra out there is, once patients come into the NTM treatment clinic as a refractory patient, they never leave.

So, I think the drug represents a real potential advance for these patients in giving them a path to culture conversion. We know from the 212 and 312 study that patients who remain on drug after six months do continue to convert. And I think that's an extremely important point. We'll continue to examine that as those data read out.

I don't know, Roger, if you want to comment about the market access side of the question..

Yeah. I think that our position on this is informed by the ATS guidelines. And I think that that's something where we can point to, and have pointed to, was success to payers as we engage with them and talk to them about what do the medically appropriate prior authorization process looks like.

So, if you start and you put a patient on therapy for six months and if they have not culture converted, then you provide another six months of therapy according to the guidelines. And that's something that we can point to.

And, certainly, as Will mentioned, the fact that we see patients continue to convert with that additional therapy is very helpful. And so, that's something that we continue to educate the payers on. I think the physicians are there.

I think that seeing and continuing patients on therapy, particularly if they think that they see a benefit for these patients, a clinical benefit of these patients, is something that they are absolutely willing to do. And now, it's working with payers to ensure that their PAs reflect the guidelines and best medical practice..

Okay, thanks. And just my quick follow-up. Kind of what are the plans to provide kind of the full durability data. And I think there was also kind of the full data from INS-312. I realize, no longer, we need it for full approval, but just curious if we should be looking out for that anytime soon. Thanks..

Yeah, you bet. So, we're looking to put that out in a peer-reviewed setting. So, with any luck, we'll be able to get it included at ATS. But that's sort of up to the ATS group. Submissions have been made and our hope is to present it there..

Okay, thank you. And the next question comes from Ritu Baral with Cowen..

Good morning, everyone. Thanks for taking the questions. Some additional questions on the launch detailing for you guys. You mentioned that 80% of tier 1s have been detailed, 66% of the tier 2s.

When do you expect – first of all, when do you expect all of the tier 1s and tier 2s to have been detailed by? Second, are you seeing patterns on number of details to most prescription written? And do you guys have a metric on average prescriptions per writing doctor at this point?.

I'll ask Roger to address this..

Yeah, Thanks, Ritu. So, the numbers that we shared were as of the year-end. So, that reflects the fourth quarter effort. So, we haven't provided an update on the first quarter effort. We continue to expect that that will expand as our sales team continues to make calls. I don't know if we'll ever get to a 100%.

Some doctors are no-see doctors, as you know. And so, that's maybe an elusive task. But we certainly think that, over time, we'll be able to reach the vast majority of these physicians. We are actually getting – and I think it's is very encouraging, we're actually getting outreach from physicians who we're not calling on asking to see our rep.

And we're able to send them in, and that's through our digital efforts. So, we're not entirely relying on just feet on the ground, knocking on doors of offices. We're supplementing that with, what I would say is, a very extensive digital program. And we don't have any metrics that we're sharing right now as far as number of patients per prescriber.

I would say the breadth that we had shared earlier shows that there is a lot of people who are right now in the trial period. And we have seen roughly equal from tier 1 and tier 2 and non-target physicians.

I would say it's more likely the tier 1 had multiple patients and the tier 2, depending on where they are in that tier 2, may have just a handful down to a couple of patients depending on where on the scale they are.

So, it's hard to give an average number, but that 10,000 to 15,000 distributed across 5,000 physicians sort of gives you a rule of thumb to work with..

Got it.

And is it fair to say that you expect to hit as many of these tier 1 and tier 2s as possible by mid-year? Is that a fair assumption?.

Yeah. I think that's a fair assumption. We've put a fairly sizable – as you know, 72 therapeutic specialists out there sized to reach these physicians. And they're out there on a daily basis, doing their calls and working with physicians who have these NTM patients.

So, I think it's fair that we'll continue to see progress throughout the year to get to the majority of those we haven't yet reached..

And I'll just add, Ritu. The 80% and 66% in three months is a pretty impressive accomplishment. And I just want to echo Roger's comments, they're doing a fantastic job..

Got it. And then, I have a follow-up on gating item for the European application and especially the Japanese application.

What's left to do, especially given that 2020 timeline for Japan?.

Well, so the European application, we indicated, will be filed by the middle of this year. Japan, as you know, is an application that, even once you have it written, whether it's the US or the European version, needs to be translated and put into their form. So, we have the resources now in place to accomplish that task.

And once that is done, we will file. We'll also be talking to the PMDA prior to that to make sure that we're aligned on what it is we will be filing and it will be sufficient for their review and, hopefully, approval..

When are you going to meet with the PMDA? And are you confirming that, as far as you know right this second, there is no clinical data to be generated for the Japanese filings?.

That's right. As of right now, we have no reason to believe that the indication that they previously gave us would be any different, but it's always a prudent measure to talk to them one final time before you go in with a submission, as you fully appreciate.

I'm not actually sure when the next meeting is taking place, but I think it's the first half of the year. So, I don't anticipate any bumps in the road..

Got it. And, I guess, last question, Will. Having known you for some time, you're a reasonably conservative guy. You've got a reasonably conservative team. I think a lot of us were quite surprised by the number this morning to the upside. Certainly, on guidance that you gave.

Maybe you and maybe Roger separately, can you identify those metrics that you're seeing that give you such confidence in this well-above-current-consensus number for 2019? What are the most important trends that you're seeing?.

Yeah. No, I appreciate that question, Ritu. I feel really good about, as I said, the way the launch is progressing. It starts with the team. And I think the commercial team at this company is exceptional.

And I think the interactions that I've had with them, including at the therapeutic specialist level, gives me a great deal of confidence that when they give me their perspective on what can be accomplished, I can lean on that. And that's the heart of what gives me that comfort.

As I look at the metrics and the raw data, as we said at the beginning of January, I think 500 patients initiating therapy from a breadth of physicians, in excess of 600 after three months, is a testament to the fact that I think this drug is viewed as a good drug – period. And I think drugs have different profiles when they first come on the scene.

This is really exciting data. This is really a desperate need. And I think that combination is, if you will, selling itself. And so, I think that sets us up for favorable tailwinds. As I look out at the year, I think there are a number of drivers that will potentially be of help to us as well. And I think ATS is come up around the corner.

We intend to have a big presence there. The 212, 312 data is going to be hopefully presented at ATS as well. There's just a lot of attention around this.

And the fact that this is – I think many people see it as the dawning of the world of NTM treatments, much like, as I said in my comments, one saw at the beginning of PAH and IPF when it was first getting started. I'll leave it to Roger to comment..

Yeah. Thanks, Will. I would just say that I think, as I said in my comments, two things are critical. The patients are there; there is an unmet need. And the physicians are willing to write. And I would say that, just building on Will's comment, the commercial team is executing across the board.

So, we continue to see the patient adds, our sales team is executing, they've got terrific relationships with the offices and are working hard to identify these patients and really having a very genuine passion for making sure that ARIKAYCE gets to the patients who absolutely need the product.

Our key account directors, I think, the metrics we set out as far as time to fill, as I indicated, we are beating those metrics. And so our key account directors are having great success working with these plans, educating them on the prior authorization. We're seeing success in getting the product paid for, and we expect that to continue.

There's no guarantee, but we absolutely expect that those smooth reimbursement processes we've seen early on, we're working hard to make sure that that continues. And I think that that's an important element, as you know, for any successful launch.

And then, I think the patient experience, our Arikares coordinators as well as the Arikares field trainers and the work that they're doing with the patients directly, one on one, we get stories all the time about the impact that these people are having on patients and the care.

So, I just feel that the confidence from just the execution of what I think has been a tremendous team that we've assembled so far – and I see that continuing, and that's what personally gives me the confidence that we'll be able to continue to execute and deliver on the guidance that we've provided today..

And I think the only thing I would add as a closing thought, Ritu, is there are variables we still don't know. Duration of therapy and what that's going to be like in the real world. We won't know that until, frankly, late this year. But I think what we are seeing so far, we can speak with some confidence on 2019..

Got it. Thanks for taking all the questions..

Sure..

Thank you. And the next question comes from Josh Schimmer with Evercore ISI..

Hi. Thanks for taking the question. Just wondering what do you see as the implications of not getting orphan drug status granted in Japan, either for your commercial strategy or price point in that territory? Thanks..

Roger, do you want to take that?.

Yeah. Thank you. Hi, Josh. So, I'm not overly concerned about not getting the orphan status in Japan. I think that we've looked at the pricing implications there and we feel it's relatively minor. The most important thing for us is to launch with a good price in Europe.

Japan, with the pricing scheme that they have, does a cost of goods plus model for what we think for ARIKAYCE. And then, they take a look at where the product is commercialized outside of Japan and primarily look to Europe. And our strategy is to launch first in the free priced markets as usual, in the UK and in Germany.

And then Japan, we'll look to those markets to make an adjustment. So, we think that the pricing situation in Japan is healthy for us and will support our launch..

And I would just add that the reason for the lack of orphan status is because, first of all, their orphan threshold is lower, but also they are looking at NTM and our product in particular as ultimately being used across that disease spectrum.

So, I think, while we don't get the orphan status, impact, as Roger said, is minor and it really speaks to the appetite that the country has for seeing this therapy, I think, hopefully, utilized across the NTM spectrum once we've generated that data.

To a person, the KOLs over there are looking to use this in the front line and the refractory markets..

Got it. Thanks very much..

Thank you. [Operator Instructions]. And the next question comes from Joseph Schwartz with CyberLink (sic) [Leerink]..

Hi, Joseph Schwartz from SVB Leerink. So, how are physicians monitoring patients respond to the therapy in the real world.

And how does their patient management compare to what you saw in clinical trials, which had very rigorous criteria defining what a responder looks like?.

Yeah.

Roger, do you want to take that?.

Yeah. Thanks, Joe. So, it's maybe a little early to tell.

I will say that, outside of these centers of excellence, I would say the community physicians are less inclined to take sputums and to test for culture conversion, although I think that you're going to see some encouragement from payers to do that at the six-month mark and at the 12-month mark, if they continue on therapy.

But for now, I would say that physicians, for the most part, again, outside of those centers, are more focused on, can the patient tolerate the therapy and are they starting to feel better, and do they see some improvement in the patient. And again, we're still early weeks into the launch to make those kinds of assessments..

Right. Okay.

And then, what are some of the options that you foresee for the confirmatory study design and how much information is available for you to guide your power and considerations there?.

Yeah. So, because we're in negotiation and discussion with FDA, I think I'll hold off on giving too many specifics. I mentioned earlier the focus on – and their interest in seeing some kind of benefit to the patient. Their usual metric is feels, functions or survives. One of those three needs to be captured in whatever it is you're measuring.

So, the PRO or the six-minute walk are manifestations of how a patient may feel or function. And in that regard, those serve as obvious potential places to go. The data we have, we've gone through exhaustively.

And I think, as I mentioned quickly, I'll just perhaps dwell on it a little bit more, we've done a lot of looking at this data using some outside, really cutting-edge machine learning tools, some AI. We have cross examined the heck out of the database, and that is what is informing what we will do.

It is interesting, in that it complements where we were originally planning on going in terms of the design of this study and focusing on those two elements I mentioned for converted patients. And I think that's where the key to the study design will lie. We're looking to convert patients and then examine how they feel, function or survive after that.

So, that's kind of the principle guiding our design. And once it's completed in detail, we'll share it all with the community..

Great, that's helpful. Thank you..

Thank you. And this concludes our question-and-answer session. I would now like to turn the floor back over to management for any closing comments..

Thanks, everyone, for joining us today. Have a great day. Operator Thank you. The conference is now concluded. Thank you for attending today's presentation. You may all disconnect your lines..