Operator: Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 and Full Year Insmed Incorporated Earnings Conference Call. My name is Lacie, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Brian Ritchie of FIT Consulting (sic) [FTI Consulting]. Please proceed.

Brian Ritchie: Thank you, Lacie. Good morning, everyone. This is Brian Ritchie from FTI Consulting, and welcome to Insmed's Fourth Quarter and Year-End 2011 Conference Call. Insmed issued a press release this morning containing fourth quarter and year-end 2011 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 fourth quarter and year-end 2011 conference call. The fourth quarter and beginning of 2012 have been very busy for Insmed, as we have made significant progress in moving forward with the development of our ARIKACE program. In January of this year, the U.S. Food and Drug Administration, or FDA, lifted the clinical hold previously placed on ARIKACE in patients with nontuberculous mycobacteria, or NTM lung disease.

We also announced that the company was proceeding with 4 important studies. Number one, a Phase II clinical trial of ARIKACE in NTM. Number two, a pivotal Phase III study of ARIKACE in Europe in cystic fibrosis patients who have Pseudomonas lung infections. Number three, a follow-on multicycle, open-label study to measure mainly safety and tolerability for patients who complete the Phase III CF study. And lastly, a 9-month inhalation dog toxicity study.

For non-TB mycobacteria, we plan to initiate the Phase II clinical trial for ARIKACE in mid-2012 and anticipate top line data being available in the second half of 2013. This Phase II clinical trial will consist of a randomized, placebo-controlled study of approximately 100 adult patients with recalcitrant NTM lung disease.

The trial consists of 2 parts: a randomized portion, which lasts 84 days; and open label portion, which lasts an additional 84 days. In the randomized piece of the study, patients will receive either ARIKACE 560 milligrams once daily or placebo once daily for 84 days with both delivered by an optimized investigational eFlow Nebulizer System.

All patients will continue their underlying standard antibiotic regimen that they were on when they entered the trial. The primary efficacy endpoint will be changed in mycobacterial density from baseline to the end of treatment with the timeframe of 84 days. Secondary endpoints will also be measured, including safety, clinical benefit and patient-reported outcomes.

At the conclusion of the randomized portion of the study, eligible patients will receive ARIKACE 560 milligrams once daily for an additional 84 days in an open-label design, primarily to measure longer-term safety and efficacy. Open label simply means the patients will know that they are receiving ARIKACE.

The clinical trial design was previously agreed upon by Insmed and FDA in connection with the Phase III trial prior to the clinical hold. The only difference in the current Phase II study from the previously agreed-upon Phase III study is that the Phase II trial will now include only adult patients. Given the mean age of NTM patients is about 66 years old, pediatric patients represent a relatively small percentage of the patient population.

Shifting focus to CF. As announced last month, we are proceeding with the previously planned European pivotal Phase III clinical study of ARIKACE in this indication. The company plans to initiate the study in the second quarter of this year and anticipate top line data being available in the second half of 2013.

The European study in CF patients with Pseudomonas lung infections will be a randomized Phase III trial comparing ARIKACE 560 milligrams delivered once daily by an optimized investigational eFlow Nebulizer System to Novartis's Tobi, which is an inhaled tobramycin solution. That is a marketed inhaled antibiotic delivered twice daily.

Insmed anticipates that the study will be conducted in approximately 300 patients. The primary endpoint will be change in pulmonary function, or FEV1, measured after 3 28-day on-treatment and 3 28-day off-treatment cycles for about 6 months. A key secondary endpoint will be time to pulmonary exacerbation. The studies on -- was previously agreed-upon by Insmed and the European Medicines Agency.

Patients who complete the pivotal or primary efficacy study will be eligible to enroll in a long-term, open-label extension study 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. For additional information on the NTM and European CF trial designs and endpoints that I just described, you may refer to www.clinicaltrials.gov. That's www.clinicaltrials.gov.

Turning to CF in the U.S. Insmed submitted in February our complete response to FDA's request with regard to the CF clinical hold. If you will recall that FDA previously requested Insmed propose a CF patient population or disease state where the risk-benefit profile of ARIKACE may be more favorable. If FDA agrees that we have provided a complete response to their request, the agency is then expected to respond to Insmed within a 30-day period.

Finally, Insmed also announced that it will move ahead with the 9-month dog inhalation toxicity study of ARIKACE as requested by FDA, to determine if the findings of the rat inhalation and carcinogenicity study are observed in a non-rodent model. We plan to initiate the study in the second quarter and dosing will be completed 9 months after initiation followed by a recovery period.

Now that FDA has removed the clinical hold on ARIKACE in non-TB mycobacteria and we have submitted our final response to the agency with regard to the CF clinical hold, I would like to provide you with a very brief summary of the rat inhalation carcinogenicity study data that led to the clinical holds being initially placed on ARIKACE and NTM and CF by FDA as we announced in August of last year.

As part of the study, rats were given ARIKACE daily by inhalation for about 2 years. Two of the 120 rats receiving the highest dose developed a single lung tumor. These rats received ARIKACE at doses that are much greater than the doses to be administered to humans. In shorter-term studies with other animals, ARIKACE was not associated with changes that could lead to tumors. In addition, following a standard series of earlier tests, ARIKACE was not shown to be genotoxic.

With that said, the relevance of the observed rat tumors to the release of ARIKACE in humans is unknown. As you know, we will be initiating in the second quarter the 9-month dog inhalation toxicity study of ARIKACE requested by FDA to determine if the findings of the rat inhalation carcinogenicity study are observed in a non-rodent model.

Before I turn the call over to Kevin, let me conclude by saying that we continue to believe that ARIKACE has the potential to be an important treatment option for patients who have non-TB mycobacteria lung infections and cystic fibrosis patients who have Pseudomonas lung infections. Ultimately, we are proceeding with the ARIKACE development program, as I described earlier, because we believe the successful development of ARIKACE has the potential to create significant long-term value for our shareholders.

That concludes my prepared remarks. And 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. Revenues for the fourth quarter of 2011 were $1.4 million as compared to $1.3 million for the corresponding period in 2010. The $0.1 million increase in revenue was primarily attributable to the receipt of $0.8 million from a licensing of patent technology related to Insmed's CISPLATIN Lipid Complex, which is partially offset by year-over-year decrease in $0.7 million in cost recovery from Insmed's IPLEX Expanded Access Program in Europe, which ended in early December 2011. I'd like to note here that given the EAP has now ended, Insmed will no longer receive IPLEX-related cost recovery revenue going forward.

Revenues for the year ended December 31, 2011, totaled $4.4 million as compared to $6.9 million for the year ended December 31, 2010. The $2.5 million decrease was also primarily due to a year-over-year decrease of $3.5 million in cost recovery from the IPLEX EAP in Europe, partially offset by $1 million in license fees received in 2011 for the out-licensing of patent technology related to Insmed's CISPLATIN Lipid Complex.

Net loss for the quarter was $8.2 million or $0.33 per share as compared to a net loss of $5.8 million or $0.42 per share in the fourth quarter of 2010. The $2.4 million variance arose from a $2.7 million increase in total expenses and includes a $1.2 million noncash charge related to the write-down of the Richmond office lease, following the closure of the office in December 2011 when the IPLEX EAP activity ceased. This was partially offset by the $0.1 million increase in revenues. The higher expenses related primarily to the increased clinical and manufacturing costs associated with our ARIKACE development program, while the $1.2 million noncash charge resulted from the write-down of the lease on the Richmond, Virginia office.

Net loss attributable to common stockholders for the year ended December 31, 2011, was $68.8 million or $2.95 per basic and diluted common share compared to a net loss of $6.4 million or $0.49 per basic and diluted common share for the year ended December 31, 2010. The net loss attributable to common stockholders in 2011 includes a $1.2 million noncash charge discussed earlier. It also includes a noncash $9.2 million accounting charge from earlier in the year regarding the beneficial conversion feature of the Series B conditional convertible preferred stock, as well as a $26 million noncash charge for impairment of goodwill, and in process, R&D from Q3 2011 due to the material impact of the clinical hold on our ARIKACE development program.

The accounting charge for the beneficial conversion feature, or BCF, of the Series B preferred stock is detailed in the press release and is being explained fully in our prior earnings calls. The impairment charge was taken in Q3 2011 and reflects the analysis undertaken at the time to measure the impact to the clinical hold on the carrying value of our goodwill and IP R&D. These 2 items are purely accounting adjustments and, as a reminder, have no impact on cash.

R&D expenses increased to $6.5 million in the 2011 fourth quarter from $2.5 million in the year-ago period. The increase of $4 million is attributable to the activities on our ARIKACE program, including the preparation for the initiation of our ARIKACE clinical studies and the manufacturing of supply to support the studies. Specifically, clinical development and regulatory expenses increased $3.4 million for the 3 months ending December 31, 2011, in support of the planning efforts for ARIKACE, and clinical manufacturing expenses increased $0.7 million when compared to the same period in 2010.

Research and development expenses increased to $27.9 million in the year ended December 31, 2011, from $4.8 million in the year ended December 31, 2010. The increase of $23.1 million in 2011 is also attributable to the clinical research and development of the ARIKACE program and the manufacturing of supply to support the studies in 2011.

Of note, within the R&D expenses, clinical development and regulatory expenses increased $15.4 million in 2011 compared to 2010, as a result of the planning efforts for the ARIKACE studies prior to the FDA clinical hold placed on our U.S. CF and NTM studies and pending the potential FDA lifting of the clinical hold. As you are aware, the clinical hold in CF remains in place. There was also a $4.5 million increase in clinical manufacturing expenses in 2011 attributable to the manufacturing of ARIKACE for use in these studies. While compensation expenses rose $3.2 million due to an increased headcount of 17 year-on-year to 28.

Turning to general and administrative. Those expenses were $3.8 million in the fourth quarter of 2011, down from $5.2 million in the year-ago period. The $1.4 million increase was largely due to the nonrecurring, external finance, legal and consulting expenses related to do business combination with Transave in the fourth quarter of 2010, which were partially offset by the Richmond office closure costs and increased headcount expenses in the current quarter in support of the ARIKACE development program.

For the year ended December 31, 2011, G&A expenses increased to $12.2 million from $10.3 million for the year ended December 31, 2010. The $1.9 million increase was due largely to the charge related to the Richmond office closure, headcount increases and nonrecurring business combination costs as discussed earlier.

Moving to investment income. This increased $0.2 million to $0.6 million for the fourth quarter when compared to the same period last year. For the year ended December 31, 2011, investment income increased by $0.3 million to $2 million as compared to the prior year period. The increase is a result of improved returns on our short-term investments. The reduction in interest expense for the 12-month period ended December 31, 2011, as compared to the same period in 2010 was entirely due to the elimination of convertible notes, which were fully repaid in March 2010.

As of December 31, 2011, Insmed had total cash, cash equivalents, short-term investments and certificate of deposits on hand of $78.4 million, consisting of $76.3 million in cash and short-term investments and $2.1 million in a certificate of deposits as compared to $110.2 million of cash on hand as of December 31, 2010. The $31.8 million decrease in total cash was primarily due to the net cash used in operating activities, which totaled $30.2 million during the 2001 fiscal year -- 2011 fiscal year, sorry. The $78.4 million in cash on hand is above our previous guidance of $72 million to $75 million as we continued with our commitment in the quarter of maintaining financial discipline.

Looking ahead, we will continue to be prudent with our cash spend as we look to focus on maintaining our cost discipline and preservation of capital while advancing our clinical programs. Based on the 3 key ARIKACE clinical studies and the 9-month inhalation dog toxicity study that Tim discussed earlier, we expect to end fiscal 2012 year with a cash position of $40 million to $44 million. We believe this forecasted cash position will take us through the availability of top line data for the NTM Phase II clinical trial and the European Phase III CF study and is based on the information we currently have to date.

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

Operator: [Operator Instructions] And our first question will come from the line of Chris Marai with Wedbush.

Christopher Marai: Couple of questions. I was wondering if you could elaborate perhaps on your response to the FDA and maybe the patient population of that sort of changed the trial. Is that going to look much different?

Timothy Whitten: So sure, Chris. So we filed, as I said, in February what we believe our complete response to the FDA. And included in there, we've had several discussions with FDA. It included there a patient population that we have been in discussions with the FDA about. And right now, I don't want to speculate on that until we hear back something definitive from the FDA. And when we hear something back definitive from the FDA, we will provide that information to you, to the Street straightaway.

Christopher Marai: Okay, great. And if I could just follow up something on the NTM Phase II trial. You noted that the patients will be on antibiotics. So we were just wondering -- beyond ARIKACE, and so we were wondering what will the underlying antibiotics be used on by this patient population. Will it be relatively heterogeneous, and will you stratify patients by the underlying antibiotic use?

Timothy Whitten: Good question, Chris. So the way the trial works is that patients are on a pretty much standard multidrug antibiotic regimen. So they're going to be on 2 of -- likely 2 of 3 drugs that they normally use to treat non-TB mycobacteria and they're not getting a good response. In other words, their counts for NTM are just stable or they're increasing. So those drugs will be clarithromycin, ethambutol or rifampin. So they're like -- they're going to be on either 2 or 3 of those drugs. It's got to be multidrug before they can enter the trial. So I think that the drugs will be fairly homogenous since there's only those 2 or 3 drugs that they can be on, and then ARIKACE or placebo will be added on top of that standard antibiotic regimen. And those drugs are right out of the ATS/IDSA guidelines.

Operator: And our next question will come from the line of Stuart Harrison [ph], private investor.

Unknown Shareholder: I guess my first question is around the recently submitted changes to the bylaws, the amendment. I guess my question specifically is, what drove that change or changes to the bylaws?

Kevin Tully: Yes. I'll take that one, Tim, if that's okay.

Timothy Whitten: Okay.

Kevin Tully: Stuart [ph], bylaws have been in place since the company was formed in 2000. We regularly review them, and we take legal guidance as to whether they need to be updated to make sure they're always current. And as we have not changed them for quite a while, they were getting a bit dated. And we just basically took legal advice to update them to bring them up to -- up to spec in terms of what bylaws as they should relate to public companies today. So it really was just an update based on legal guidance, nothing really specific.

Unknown Shareholder: Okay. So you're saying it's fairly standard across for public companies then?

Kevin Tully: Correct.

Unknown Shareholder: Okay. And I may have missed this. Regarding the cash burn and in 2012, Kevin, did you say the range would be about $44 million to $48 million in 2012?

Kevin Tully: Yes. $40 million, 4-0, to $44 million is our current projection.

Unknown Shareholder: $40 million to $44 million. And one last question quickly, regarding the Phase II NTM trial. This was originally agreed to by the FDA as a Phase III. And I guess, what specifically drove the change to the Phase II? Was it the findings of the rat study?

Timothy Whitten: Stuart [ph], this is Tim. This is -- to the best of our knowledge, that was -- that's what drove the change, because that's the first time that they asked us to make a change from Phase III to a Phase II. So it was the findings from the rat study. Everything else about that trial is identical though in terms of the number of patients, the trial design. The only difference is -- the primary endpoints are saying, the only difference is that now we're treating patients 18 and above instead of patients 12 and above. So patients 12 to 17 are no longer eligible. But that accounts for a very, very small percent of the total patient population, probably less than 5%.

Unknown Shareholder: Right, right. Okay. Can I ask one more quick question, or am I out of questions?

Timothy Whitten: One more, Stuart [ph].

Unknown Shareholder: One more. Regarding the -- you stated the -- it's written that you've submitted the complete response to the FDA in February. And then the FDA has 30 days to respond to the state if in fact they are, I guess, satisfied with the response. Is that correct?

Timothy Whitten: That's right. Technically, they have 30 days. But they're pretty busy people at the FDA, so sometimes they take longer than 30 days.

Unknown Shareholder: Sure. So the anticipated response cannot be anticipated till probably, what, sometime in April?

Timothy Whitten: Stu, I don't know. I can't speculate on that because we filed our complete response as I said in February, and normally, they would usually respond within 30 days. So you think it will be March, but they could take longer. I just don't know the answer to that. It's up to them.

Operator: [Operator Instructions] And at this time, we have no further questions in queue. I would like to turn the call back over to President and CEO of Insmed, Timothy Whitten, for closing remarks.

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. Thank you.

Operator: Thank you for your participation in today's conference. This concludes your presentation. You may all disconnect. Good day, everyone.