Operator: Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Insmed Incorporated Earnings Conference Call. My name is Stephanie, and I'll be your coordinator today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Brian Ritchie with FTI Consulting. Please proceed.

Brian Ritchie: Thank you, Stephanie. Good morning, everyone. This is Brian Ritchie from FTI Consulting, and welcome to Insmed's First Quarter 2012 Conference Call. Insmed issued a press release this morning containing first quarter 2012 financial results, which is posted on the company's website.

Today, we are joined by Mr. Tim Whitten, President and CEO; and Mr. Kevin Tully, Executive Vice President and CFO. Tim will provide a business update, followed by Kevin's review of the financials. Following the prepared remarks, Tim and Kevin will be available for a question-and-answer session. [Operator Instructions]

Before we proceed with the call, I would like to remind everyone that the Safe Harbor language contained in today's press release also pertains to this conference call and webcast.

Please go ahead, Tim.

Timothy Whitten: Thank you, Brian. Hello, everyone, and thank you for joining us on today's first quarter 2012 conference call. I'm pleased to report, as you all likely saw yesterday, that FDA has lifted the clinical hold previously placed on ARIKACE in cystic fibrosis patients who have Pseudomonas lung infections. We're certainly pleased by the complete lifting of the clinical hold, and it is really a milestone event for the company, which I'll come back to in a minute.

It's also very important to discuss the significant progress we've made moving our current ARIKACE development program forward in the 2 months since our last quarterly call. We have started dosing for our clinical evaluation of ARIKACE Phase III study with CLEAR-108, which is being conducted in Europe and Canada in CF patients who have Pseudomonas lung infections.

And as you may know, we've previously announced our intention to proceed with the Phase II clinical trial of ARIKACE in patients with nontuberculous mycobacteria or NTM lung disease. We expect to begin dosing patients in that trial in the middle of the year and are currently taking a number of important steps towards meeting that objective. Finally, we initiated the 9-month dog inhalation toxicity study towards the end of April, which is in line with our previous projection of starting the study in the second quarter.

With that as a brief overview, let me first provide further detail on CLEAR-108. Our goal is to conduct this trial in about 18 countries. In most countries, you need both the individual country's competent [ph] or regulatory authority to approve the trial, as well as the relevant ethics committee approval. We've made significant progress in obtaining these approvals. And to date, we've received regulatory and ethics committee approvals from 14 countries, including what I referred to as the Big 5 in Europe, that is Germany, France, Italy, Spain and the United Kingdom. And importantly, we've also received the appropriate regulatory and ethics committee approvals in Canada.

I'm quite pleased with the progress we've made in such a short period of time in getting this trial up and running. And I'd like to thank my fellow Insmed employees for their hard work in making this happen. Based on our current progress, we are projecting that top line efficacy and safety data will be available in mid-2013. Once CLEAR-108 is fully enrolled, we will provide a further update to the market.

Before I move on to NTM, as a reminder, here are some of the details related to CLEAR-108's design. It's a randomized Phase III trial comparing ARIKACE to Novartis's Tobi, which is a commercially available inhaled antibiotic containing tobramycin. ARIKACE 560 milligrams will be delivered once daily over about 20 -- excuse me, about 12 to 13 minutes via an investigational eFlow Nebulizer System as manufactured by PARI Pharma. 300 milligrams of Tobi will be delivered over about 30 to 40 minutes per day in 2 divided doses, utilizing the Pari LC Plus Nebulizer. CLEAR-108 is expected to enroll approximately 300 patients.

The primary endpoint is change in pulmonary function or FEV-1 measured after three 28-day on treatment and three 28-day off treatment cycles or about 6 months. A key secondary endpoint is time to pulmonary exacerbation. In general, pulmonary exacerbation can be defined as clinical need for additional treatment as indicated by a recent change in clinical parameters or sometimes it's simply defined as a temporary worsening of lung function due to an infection or inflammation and can be characterized by things such as increased cough, fever, shortness of breath, change in sputum, fatigue, et cetera.

The study design and the endpoints were previously agreed upon by Insmed and the European Medicines Agency. Patients who complete CLEAR-108 will be eligible to enroll in a long-term, open-label extension study called CLEAR-110, in which patients will receive ARIKACE 560 milligrams once daily for 28 days, followed by a 28-day off treatment period in a cyclic manner for up to 2 years. Open label means that both the patient and physician know they are receiving ARIKACE.

Moving on to NTM. As I said earlier, we are progressing nicely toward reaching our goal of initiating the Phase II clinical trial for ARIKACE and its indication in mid-2012. The Insmed team is working expeditiously in an effort to get this trial started at the earliest opportunity. As a reminder, this Phase II clinical trial will be a randomized placebo-controlled study of ARIKACE in approximately 100 adult patients who have recalcitrant non-TB mycobacteria lung disease. To be eligible for inclusion in the trial, a patient is considered recalcitrant or resistant if they have been on a multidrug regimen for at least 6 months with persistently positive mycobacterial cultures.

Patients who are NTM culture positive while receiving treatment will continue with their multidrug antibiotic regimen and receive additionally either ARIKACE 560 milligrams or placebo once daily, delivered via an optimized investigational eFlow Nebulizer System. The primary efficacy endpoint will be change in mycobacterial counts from baseline to the end of 84 days of treatment. At the conclusion of the randomized portion of this study, eligible patients will receive ARIKACE 560 milligrams once daily for an additional 84 days in an open-label design, which is primarily to measure longer-term safety and efficacy.

The clinical trial design was previously agreed upon by Insmed and the FDA, and we are currently projecting that top line results from the randomized portion of the study will be available in the fourth quarter of 2013. As I mentioned above, we have started the 9-month dog inhalation toxicity study of the ARIKACE, previously planned to be initiated in the second quarter. We currently expect to have top line data available from the study in the second quarter of 2013.

Finally and importantly, we announced yesterday that FDA lifted the clinical hold previously placed on ARIKACE in CF patients. Insmed has reached agreement with FDA on a revised CF clinical trial population, consisting of adult patients who have chronic Pseudomonas lung infections and FEV-1 % predicted from 25% to 75%. The company is continuing discussions with the agency in an effort to finalize additional details of the Phase III study protocol for the potential clinical trial.

At the same time, the company is evaluating possible next steps for the ARIKACE U.S. CF clinical program, given the current progress and anticipated resource requirements of CLEAR-108 and the NTM clinical programs. We currently expect to provide the market with an update on our strategy and priorities before the end of the second quarter.

Before I turn the call over to Kevin, let me conclude by saying that I'm excited and I really am excited about our current activities with ARIKACE, having recently initiated a key clinical trial with CLEAR-108 and nearing the start of another non-TB mycobacteria. In addition, the removal of the clinical hold for CF in the U.S. was an important step for the company, and we're really pleased to have that completed. We continue to believe that ARIKACE provides a late-stage, potentially highly differentiated opportunity, with significant global potential in cystic fibrosis and non-TB mycobacteria, both of which are key orphan indications that have high unmet medical needs.

That concludes my prepared remarks. With that, I will now pass the call over to Kevin to discuss the financials. Kevin?

Kevin Tully: Thank you, Tim, and good morning, everyone. For the first quarter of 2012, no revenues were recorded as compared to $1.6 million recorded for the corresponding period in 2011. The reduction in revenue was due to a combination of the elimination of the IPLEX Expanded Access Program cost recovery following the depletion of IPLEX inventory in December 2011 and the receipt of $250,000 in license fees for our CISPLATIN lipid complex in Q1 2011 as compared to 0 in this year's first quarter.

Net loss attributable to common shareholders for the quarter was $6.8 million or $0.28 per share compared to a net loss of $16.1 million or $0.85 per share in the first quarter of 2011. The $9.3 million reduction in the net loss was primarily due to the $9.2 million noncash charge for the beneficial conversion feature of the Series B Conditional Convertible Preferred Stock incurred in the first quarter of 2011, which increased the net loss attributable to holders of our common shares and, in turn, reduced our loss per common share by $0.48 per share for that period.

As a reminder, the charge represents the $1 difference between the conversion price of the Series B preferred stock of $7.10 per share and its carrying value of $6.10 per share. The carrying value of the preferred stock was based on its fair value at issuance, which is estimated using the common stock price reduced for a lack of marketability between the issuance date and the anticipated date of the conversion.

R&D expenses decreased to $4.5 million from $5.8 million in the year ago period. The decrease of $1.3 million in 2012 is attributable primarily to the lower development and manufacturing costs associated with initiating 2 ARIKACE-related clinical trials at present as compared to the same period in 2011 when 3 trials were being planned. As Tim mentioned earlier, the company is conducting the CLEAR-108 trial in Europe and Canada and is currently working towards the initiation of a U.S. Phase II NTM trial.

Specifically, clinical development expenses decreased 14% to approximately $2.5 million during the quarter, and clinical manufacturing expenses decreased 71% to $313,000. Also included within Insmed's $4.5 million R&D spend was $93,000 in regulatory and quality assurance expenses as compared to $178,000 in Q1 2011 and roughly $1.5 million of compensation-related expenses, which was 1% lower than the first quarter of 2011.

G&A expenses decreased to $2.8 million from $3.3 million in the year ago period. The $0.5 million decrease was due largely to the absence of finance, legal and consulting fees related to the Transave post-merger matters under reverse stock split transaction in March 2011.

Moving to investment income. This decreased by $0.1 million to $0.4 million for the recently completed first quarter due to the lower overall cash balance. As of March 31, 2012, Insmed had total cash on hand of $72.9 million, consisting of $70.8 million in cash and short-term investments and $2.1 million in a certificate of deposits as compared to $78.4 million of cash on hand as of December 31, 2011. The $5.5 million decrease in total cash was due primarily to the funding of operations, consisting mainly of research and development activities.

Based on our current ARIKACE-related development commitments, which include CLEAR-108 as well as a follow-up multicycle open-label study to measure mainly safety and tolerability of patients who complete CLEAR-108, the Phase II U.S. clinical trial in NTM and the 9-month inhalation dog toxicity study, we continue to expect that we will end the fiscal 2012 year with a cash position of between $40 million and $44 million. We continue to believe that this forecasted cash position will take us to a number of key value inflection points, such as the availability of top line data for CLEAR-108, the randomized portion of the U.S. Phase II clinical trial for ARIKACE in NTM and the dog toxicity study.

In closing, we remain highly focused on moving our ARIKACE development program forward expeditiously while maintaining our strict control over expenses.

With that, I would now like to pass the call back to the operator for any questions.

Operator: [Operator Instructions] Your first question comes from the line of Greg Wade with WedBush Securities.

Gregory Wade: Tim, I wonder if you just might go through the various touch points in the decision-making process around whether to pursue a Phase III study in the U.S. for CF.

Timothy Whitten: Okay. Sure. Greg, I appreciate the question, and I think it's an important question. So let me kind of set the stage by saying that we're still working through just an off-hold detail in terms of the protocol with the FDA. So we just got off hold we're still in discussions with them about these final details of the protocol. We're going to -- and we're in the process of assessing our ARIKACE strategy for CF in the U.S. And we'll do that in light of the significant progress we're making with CLEAR-108, which I'm very pleased with. And in fact, I don't know if you've picked it up but we changed -- moved our guidance there to the earlier part of our broader guidance that we've shown before. So we're making significant progress with that trial. There were some significant advantages in doing that trial, including for example, getting our data earlier than with any other trial, allowing us to compare ourselves to Tobi, the market leader, which if we actually can achieve superiority there could have an important commercial implications for us down the road. So we'll do in light of our commitments to CLEAR-108, our priority in initiating the non-TB mycobacteria trial. We'll see where we are with that, and then we will come out by the end of this quarter is the plan to announce our plans for what we're doing with ARIKACE CF in the U.S., as well as our other priorities.

Gregory Wade: All right. Now if I just may follow up, do you see any barrier to filing the CLEAR-108 data with the U.S. regulators if that study is positive?

Timothy Whitten: I don't think there's a barrier to filing. We don't have agreement with the U.S. FDA that we can use that as the only pivotal trial. But if we do have those results, the FDA actually does want to see that data or at least, that's what they told us in the past.

Gregory Wade: Okay. And just remind me, did they indicate they wanted to randomize Phase III studies with FDA?

Timothy Whitten: FDA, well before we were put on hold, we had agreement that we could do the one CLEAR-109 study, which was the ARIKACE versus placebo study. And that if we had the data from the European trial -- European and Canadian trial , then they obviously wanted to see that data as well.

Operator: Your next question comes from the line of Aaron Masterson [ph] with Corcap [ph] Inc.

Unknown Analyst: Mr. Whitten, my question is simple but there's 3 phases. What is your plan for IPLEX? And are you going to prevent PCUT to have a license, and when will you make those decisions?

Timothy Whitten: Okay. So the plan for IPLEX. Well, the first point there Aaron [ph] is that ARIKACE remains almost the complete focus of the company, and that's our priority. At the same time, I've said that we think that IPLEX can potentially -- is potentially a valuable asset for the company. We announced I think towards the beginning of the year that we are looking to potentially out-license the compound, and we are pursuing that. In terms of individual discussions with individual companies such as PCUT, I really can't comment upon those. And they are often -- and in fact, PCUT is no difference. Those discussions are handled under confidential disclosure agreements. So I'm not really at liberty to talk about individual companies such as PCUT, but we are in discussions around licensing.

Operator: Your next question comes from the line of Craig Lap [ph].

Unknown Analyst: My question is really a follow-up to the IPLEX. I've been in the stock for over 8 years, bought it for IPLEX. I want to know what is our plan for any future trials with IPLEX? Is there something that has been discussed as far as Phase II for ALS? And when are the deadlines for the patent infringements that we lost for full use of IPLEX, 2018 or is it -- is there anything that's lifted before then that we can pursue with IPLEX?

Timothy Whitten: So to answer your last question first, to the best of our knowledge, that's 2018. You're right about that. In terms of our plans to conduct additional trials, Insmed has no plans right now to conduct additional trials with IPLEX. Our plan is to license the product as we announced in -- or seek licensing opportunities as we announced in January.

Unknown Analyst: Okay. Is it possible for us to -- obviously if PCUT is going to be making the drug for their use and that's something that we determine at later point, can we get our own stockpile of IPLEX for usage ourselves, which there could be a limitless usage with licensing and so forth to have the drug ourselves?

Timothy Whitten: So those would be discussions that we would have with any potential company that we might license IPLEX to. Those things haven't been worked through yet.

Unknown Analyst: Have they even -- do they even have a plan for making IPLEX as far as the facility or anything?

Timothy Whitten: When you say they, Insmed does not have a plan to make a facility.

Unknown Analyst: PCUT.

Timothy Whitten: And PCUT, I can't really comment on the discussions that we've had with PCUT. Those are under confidential discussion agreement.

Operator: [Operator Instructions] Your next question comes from the line of Hamid Traek [ph] with Sherpak [ph].

Unknown Analyst: I had a question regarding the nature of the clinical hold that you previously did not disclose. Do you have any intentions of selling the market? What was the nature of the clinical hold?

Timothy Whitten: So we did actually announce that, and I think it was in our annual 10-K. And the reason for the clinical hold was the rat findings from a 2-year rat carcinogenesis study. And we also announced that, that was because 2 rats had a single lung tumor from that 2-year study in which they were dosed daily for 2 years, and that was the reason for the hold.

Unknown Analyst: Great. So I missed that, sorry. And regarding the challenge of the NTM trial, especially regarding recruiting the patients since the disease is quite rare and it's so hard to identify this patient, maybe a few words about how you're going to address this challenge.

Timothy Whitten: Sure, Hamid [ph]. So let me correct, I guess, at least one misperception that might be out there because people, a lot of them haven't heard about non-TB mycobacteria because nobody is focused there. However, the NTM patient population is at least as big, we believe, as the cystic fibrosis population. And there's extraordinarily high unmet medical need. And to our knowledge, there are no other competitive programs out there to treat non-TB mycobacteria. Current therapies are inadequate. So while you never want to take for granted that you're going to be able to recruit patients, we do believe because of the high unmet medical need, there's a reasonable number of patients out there, even though it is an orphan drug, that are looking for new therapies. This is a high priority for the NIH. This is a high priority for the FDA, that we believe that we'll be able to accrue and enroll patients into the trial, such that as we indicated before, we will have the top line results from the randomized portion of the trial in the fourth quarter of next year.

Operator: Ladies and gentlemen, that concludes the question-and-answer session. I would now like to turn the call over to Mr. Tim Whitten, President and CEO of Insmed. Please proceed.

Timothy Whitten: Thank you, operator, and thanks to everyone for joining us today. We appreciate your interest. We appreciate your support of Insmed and look forward to providing you with future updates. Enjoy the rest of your day.

Operator: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Great day.