Insmed Incorporated

Good day and thank you for standing by. At this time, I would like to welcome everyone to the INSMED fourth quarter and full year 2020 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. It is now my pleasure to turn the conference over to Eleanor Barrister, Associate Director, Investor Relations. Please go ahead.

Thank you, Lee. Good morning and welcome to today's conference call to discuss our fourth quarter and full year financial results for 2020 and provide a business update. Before we start, let me remind you that today's call will include forward-looking statements based on current expectations. Our statements represent our judgment as of today and may involve risks and uncertainties that may cause actual results to differ materially from the results discussed in the forward-looking statements. Please refer to our filings with the Securities and Exchange Commission, which are available through the 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, Chair and Chief Executive Officer, Dr. Martina Flammer, Chief Medical Officer, Roger Adset, Chief Operating Officer, and Sarah Bonsking, Chief Financial Officer. Additionally, Dr. Eugene Sullivan, Chief Product Strategy Officer, will be available during the Q&A portion of today's call. Let me now turn the call over to Will Lewis for prepared remarks. Upon completion of those remarks, we will open the call up for your questions.

Thank you, Eleanor. Good morning, everyone, and thank you for joining us. We hope you and your families continue to remain safe and healthy. On behalf of Insomed, I am pleased to report on what was the most transformational year in our company's history. As Insomed enters a new phase of growth in 2021, we are carrying forward the strong momentum of a successful 2020 marked by significant accomplishments across our business. Over the past 12 months, we have matured from a single product company to a global organization advancing three substantial programs. These programs are TPIP, rensocatib, and Aracase, and each is positioned to become potentially a cornerstone of therapy in their disease areas. With that in mind, let me dive into some of the key highlights for the fourth quarter and full year 2020. I'll start with proprosenil palmitoyl inhalation powder, or TPIP. We were very excited to provide an update on this program just last week when we announced top-line data from our Phase I study in Healthy Volunteers. The results demonstrated the potential for TPIP as a once-daily treatment, which may be able to unlock the full potential of the prostanoid class of therapy for pulmonary hypertension and related diseases. The detailed review is available on our website. Our second program is Brenzocaptive, which represents a new way to harness the DPP-1 pathway for treating neutrophil-mediated diseases. In the middle of last year, we were excited to announce that the FDA had granted breakthrough therapy designation to Brenzocativ for the treatment of noncystic fibrosis bronchiectasis, or NCFBE. We were also pleased to report the EMA's decision to grant Brenzocativ prime designation for the treatment of NCFBE. This was followed shortly thereafter by the initiation of our Phase III Aspen trial, which is now well underway. Additional information about Brenzocatib's mechanism of action will soon be available from an investigator-initiated study of Brenzocatib in patients with COVID-19. We anticipate that the principal investigator will obtain and share data about our drug from this study early in the second quarter. In addition to the Aspen study, we will be advancing clinical development of rencocaptive and cystic fibrosis. We anticipate initiating our Phase II PK-PD multiple dose study to explore the appropriate rencocaptive dosing for cystic fibrosis patients by mid-2021. Beyond bronchiectasis and cystic fibrosis, we are continuing to explore other potential disease areas where rencocaptive may have a therapeutic effect. As an example, a recent paper was published in a cancer research journal, Cancer Cell. In this article, researchers who used our drug, Brenzocatib, documented how it prevented lung metastases in an animal model of breast cancer. As you may recall from our R&D day last September, we've begun our own exploration of the potential role of Brenzocatib in oncology, among other potential diseases. This paper provides one example of Brenzacatib's ability to demonstrate the potential for a positive impact across a variety of disease models. We look forward to keeping you updated on further advancements we expect to make across our Brenzacatib program. Let's now turn to EraCase, where our franchise continues to advance around the world, despite the headwinds from the impact of the ongoing pandemic. We are all looking forward to the day when the COVID-19 pandemic subsides. In the meantime, our global expansion plans have continued to progress as expected, with European approval and the subsequent launch of ARICASE in Germany and the Netherlands now underway. We also remain on track for commercial launch in Japan by mid-year if ARICASE is approved in Japan. Finally, in late 2020, we were pleased to initiate our frontline clinical trial program for EraCase, which is intended to support full approval of EraCase in the U.S. and potential expansion into the larger frontline opportunity in MAC lung disease in the U.S., Europe, and Japan. We believe this program offers the potential to establish EraCase as the standard of care for the frontline treatment of MTM. As we now turn our focus to 2021, we believe InSmed is well-resourced with an industry-leading team and a strong capital position to execute on our goals of bringing potentially life-altering treatments to patients in need. With that background, let me now turn the call over to Sarah to run through our financial results. Sarah?

Thank you, Will, and good morning, everyone. As Will mentioned, 2020 was a year of tremendous growth for InSmed. marked by significant progress across all of our programs. Earlier today, we issued our detailed fourth quarter and full year financial results in a press release. Let me highlight just a few of our full year results for you now. As reported this morning, we ended the year with $532.8 million in cash and cash equivalents, which we believe will enable us to advance our three key strategic priorities, error case, forensic passive, and CPIP. Total net revenue for Eric Case was $164.4 million for the full year 2020. Throughout the COVID-19 pandemic in 2020, Eric Case continued to have steady performance. As we look ahead to 2021, we anticipate returning to growth when the impact of the pandemic subsides. We look forward to sharing further updates later in the year. Our gross net for the full year 2020 were approximately 12%. Looking ahead, while gross to net historically have been highest in Q1 due primarily to the coverage gap as a result of the benefit reset at the beginning of the year, we anticipate our full year gross to net to be in the mid-teens for 2021. This modest increase year over year is mainly attributed to select contracting to ensure maximum patient access. Cost of product revenues for the full year 2020 was $39.9 million for 24%, which is in the range we anticipated. As a reminder, our cost of product revenues in 2019, which was 18%, benefited more from inventory expense prior to FDA approval of our case. Turning to our gap operating expenses. For the full year 2020, research and development expenses were $181.2 million compared to $131.7 million for the full year 2019. We anticipate R&D expenses to continue to grow year over year as we support our growing development pipeline. SC&A expenses were $203.6 million in 2020 compared to $210.8 million in 2019, demonstrating our focus on prudent spending. Total operating expenses for the full year 2020 were $429.6 million compared to $371.7 million in 2019. Looking ahead, in 2021, we will continue to invest in our core operating business, including the commercialization and clinical support of Aerocase globally, the ongoing and planned development of Brenzocacib, and the continued advancement of TPIP. we remain laser focused on prioritizing appropriate development investment with responsible cost control. With that, let me turn the call over to Martina for an update on our pipeline. Martina?

Thank you, Sarah, and good morning, everyone. As Will mentioned, 2020 was a year of remarkable achievement, for instance, underscored by advancements across our pipeline. Let me now address our progress and next steps for each of our programs. First, TPIP is a novel dry powder formulation of tryprosinol palmitoyl, which is a prodrug of tryprosinol. We believe TPIP represents an opportunity to harness the full potential of the prosinoid pathway. Let me start by drawing your attention to the top-line data we shared just last week from our Phase I single and multiple ascending closed-dose trial in Healthy Volunteers. TPIP was generally safe and well-tolerated and showed substantially lower CMAX and longer half-life than currently available inhaled troposomal therapy. These findings support the continued development of TPIP with once-daily dosing in patients with PAH. For an in-depth review of these results, I encourage you to visit our website for the detailed press release and conference call webcast. Regarding next steps, we remain on track to advance to the next stage of clinical development, which will follow two paths in parallel. First, we will gather information on the impact of TPIP on pulmonary vascular resistance, or PBR, and over a 24-hour period in a handful of patients with PAH or group 1 in an open-label study. As planned, we anticipate sharing top-line patient data from this study in the second half of this year. The second path will investigate the effects of TPIP on PVR and 6-minute walk distance in patients with PAH over a 16-week treatment period. We plan to initiate this trial in the fourth half of this year. In addition to those two studies in PAH, we are planning to initiate a separate study for group three, PAH-ILD patients, in addition to our work exploring a development pathway for TPIP and idiopathic pulmonary fibrosis, or IPF. We plan to use an up-saturation dosing schedule to the maximum individually tolerated dose exceeding 600 micrograms once daily. Let's now turn to Prenzocaptive, a novel oral reversible inhibitor of T-peptidylpeptidase 1, or TPP1. We view Prenzocaptive as the cornerstone of our efforts to build a program around the TPP1 pathway with enormous potential across a range of therapeutic areas. We saw several key achievements over the course of 2020, including the publication of our final results from our Phase II willow study in the New England Journal of Medicine in September. As well mentioned, we were also pleased to report that Prenzocathet was granted Breakthrough Therapy designation by the FDA, as well as Priority Medicine, or PRIME designation, by the EMA for NCFE, underscoring the strength of our Phase II willow data. We were pleased to announce late last year the initiation of our Phase III Aspen study of Brenzocaptive in patients with bronchiectasis. As you may recall, the Aspen study is designed to confirm the positive results we saw in our Phase II willow study, and as such, Aspen retains many key elements of willow. For a detailed overview of the trial design, I encourage you to review our R&D day presentation, which remains available on our website. We look forward to sharing updates with you as the trial progresses. In parallel, Stop COVID-19, an investigator-initiated study of brands for captive in approximately 400 hospitalized patients with COVID-19 is now fully enrolled. As a reminder, this study is being conducted under the direction of Professor James Traumas at the University of Dundee and across a number of hospitals in Scotland. Recall that Professor Traumas was also the principal investigator of our Phase II willow study. It is our expectation that Professor Chalmers will share data from the STOP COVID-19 study early in the second quarter of this year, and we hope it will provide further validation of the PPP-1 inhibition pathway, as well as important data regarding neutrophil functioning that could provide future clinical utility. As Aspen and STOP COVID-19 advance, we're working to expand our focus for brentocacid to additional potential indications as we continue to build our program based on the TPP1 pathway. Beyond bronchiectasis, we remain on track to initiate in mid-2021 a Phase II pharmacokinetics, pharmacodynamics, multiple dose study to explore the appropriate benzocacid dosing for cystic fibrosis patients. At the same time, we continue to advance our research efforts to support expansion to other neutrophil-mediated indications across a range of therapeutic areas. I would like to take a moment to touch upon another exciting development opportunity for brancocathids. In January, the publication Cancer Cell highlighted the role of brancocathids in inhibiting lung metastases of breast cancer in a mouse model. Cancer Cell is internationally regarded as one of the top cancer research and oncology journals and publishes articles on all aspects of cancer cell biology. The paper builds upon earlier suggestions that neutrophil extracellular traps, or NETs, may be important in cancer metastases. Nets are highly damaging web structures studded with DNA and proteases that trap microbes but are also involved in autoimmune disease and cancer. Activated neutrophils can release nets into their surroundings. Previous preclinical studies have shown that Cataxin C in nets play an important role in metastases. Forensic acid directly inhibits Cataxin C, or DPP-1, and interferes. with net production. In this cancer cell paper, the authors showed that the administration of our drug, brentocastib, was able to suppress lung metastases in a mouse model. We believe this represents an exciting potential opportunity for brentocastib in oncology, which is just one area where we think our compound can have potential clinical benefits. We are encouraged by these early results that suggest validation of the importance of the TPP-1 pathway, and we will continue to advance our research efforts for brantocathin in oncology. Let's now move on to our post-marketing frontline clinical trial program for ARICase. This program is designed to both support the full approval of ARICase in the U.S., as well as potential expansion into the larger frontline opportunity in MAC lung disease in the U.S., Europe, and Japan. These efforts support our overarching goal of shifting the treatment paradigm for patients suffering from NTM lung disease. The program involves two separate but interrelated clinical trials, ARISE and ONCORE. Earlier this year, we were excited to announce that the ARISE and ENCORE trials were initiated and began dosing patients in December of 2020. As a reminder, a more detailed look into the study schematics and designs can be found in the investor presentation available on our website. As sites open worldwide, we expect to provide an update on this program later this year. In summary, we made important advancements across our clinical programs in 2020. We remain excited and optimistic about the potential underlying our pipeline and look forward to sharing developments with you in the future. Let me now turn the call over to Roger to discuss some key operational updates. Roger?

Thanks, Martina, and good morning, everyone. I'm pleased to report a strong fourth quarter and full year from an operational perspective. Let me begin with our case in the US, where our commercial business remains steady, despite the challenges presented by COVID-19. Once the pandemic subsides, we anticipate a return to growth. This will be driven in part by our leveraging important tools, including the strong recommendation for use of our case in the international treatment guidelines for NTM lung disease, which includes the recommendation for our case as part of a multi drug regimen for certain patients. This is in addition to the FDA approval of our supplementary new drug application in October 2020, which added important efficacy data regarding durability and sustainability of culture conversion to the ARICASE label. While we have seen the impact COVID-19 has had on reducing the volume of patient visits to physicians' offices and therefore new patient diagnoses, our team remains confident in the long-term potential of ARICASE. we continue to believe that the pandemic has increased attention on the importance of respiratory health, further supporting the long-term opportunity for our case once patients are comfortable returning to visiting their physicians. I will focus the balance of my comments on our international commercial expansion that is currently underway and that we anticipate will accelerate in 2021, further supported by important learnings from our successful U.S. commercial launch. Let's start with Europe, where our case was granted marketing authorization last October for the treatment of MAC lung infection in adults with limited treatment options who do not have cystic fibrosis. We launched in Germany first, with initial sales occurring in Q4 2020, and full launch commencing in January with a list price that is in line with the U.S. list price for our case. We are launching at a time of COVID-19 lockdowns in parts of the country, which, like the U.S., has an impact on in-person access for intimate sales representatives, as well as in-person patient visits to the clinic. The German team has adapted with virtual interactions and events that have been well received. Initial feedback from physicians is very positive, both on Aricase as a product, as well as the patient support program that is available to patients initiating treatment with Aricase. We were also very pleased to secure early reimbursement in the Netherlands, also at a price that is in line with the U.S. price. Aracase was only the second drug selected to undergo a process piloted by the Dutch government that aims to speed up access to innovative new medicines for Dutch patients. Aracase was selected to participate in this program, and as a result, reimbursement for Aracase was accelerated by approximately three months compared to our expectations. This allowed INSMED to launch in the Netherlands as of February 1st. As previously communicated, we expect reimbursement decisions across Europe to continue throughout 2021 and into 2022. In the UK, we have a list price for ARIC-H that is in line with the US price, and we expect a decision on central reimbursement in England later this year, with the other countries within the UK initiating their own review processes as early as next month. As we've shared previously, the role of our European launch is supported by a solid infrastructure. Our model combines building our own commercial entities and field force in major markets while utilizing distributed models where appropriate. As we secure reimbursement in additional countries, we anticipate having approximately 40 field-based, customer-facing personnel across Europe by the end of this year. Looking further ahead, we anticipate growing to a team of 50 by 2022. We are pleased with the feedback and progress made so far and look forward to providing further updates on our European launch efforts. We are equally excited about the opportunity we have in Japan. As a reminder, Insmed decided to register and commercialize our case, if approved, in Japan by ourselves. We have assembled an extremely strong, experienced, and talented team in Japan. We submitted our applications to Japan's Ministry of Health, Labor, and Welfare in March of 2020 and remain on track for a 12-month review. If our case is approved, pricing discussions will commence, and we anticipate these discussions could take up to three months. We are therefore planning for a reimbursed launch mid-year if our case is approved. Japanese key opinion leader interest in our case remains very strong. and we are gratified from the early support they have offered to INSMED in bringing ARA-Case to Japanese patients. We've already had appropriate medical engagement with major medical associations in Japan, including the Japanese Association for Infectious Diseases, the Japanese Respiratory Society, and the Japanese Society of Tuberculosis and NTM. It's perhaps noteworthy that the Japanese Society of Tuberculosis added NTM to the society's name in January of 2020, indicating strong interest in NTM lung disease. In preparation for the launch of our case in Japan, if approved, we have deployed a team of 15 therapeutic specialists in Japan, as well as a small team of medical scientific liaisons, who have been in place since the fourth quarter of 2020. As part of a co-promotion agreement, we have been promoting a generic macrolide to Japanese physicians and educating on the appropriate MTM-MAC treatment guidelines, which includes the use of a macrolide. This has allowed us to engage with physicians and understand where the NTM-MAC patients are being treated. While COVID has limited some interactions, we are pleased with the response of targeted physicians. Based on the opportunity we see in Japan, we plan on adding an additional five therapeutic specialists this year, bringing the total to 20. We anticipate this team will call on over 550 physicians across more than 200 hospitals across Japan. We estimate this covers approximately 80% of the refractory patient population. In closing, we're extremely excited about the opportunities ahead as we expand the global footprint of ARICase and pursue the long-term potential of the franchise in the U.S., Europe, and Japan. I'd like to thank the Intamed team for their continued commitment to the NTM community as we work to achieve these milestones. And with that, let me turn the call back to Will. Thank you, Roger. I'd like to close our prepared remarks by reiterating how proud I am of the instrument team for achieving this remarkable progress in such a challenging year. By virtue of our evolution over the past 12 months, we now enjoy the opportunity to pursue three major clinical programs built on a strong foundation of research. 2020 was by far the most transformational year in our company's history, and I would draw your attention in particular to the strength and performance of our executive teams. which is an indication of the broad array of talent that makes up the global team at Insmet. Looking ahead, I truly believe we are well positioned for an even more exciting year in 2021. We are focused on delivering exciting new data as it emerges from our pipeline in support of our ambitious vision. This vision is built upon a deep and sincere commitment to help patients, and I am extremely proud of the portfolio we have developed in its pursuit. I would like to thank the entire instrument team for its commitment to deliver as we had even more ambitious goals. With that, I'd like to open the call to questions. Operator, can we take the first question, please?

Certainly. Your first question comes from the line of Marty Oster from Credit Suisse. Your line is now open.

Will or Martina, I was curious if you could kind of expand more. I thought Martina made some really interesting comments about the potential for Brentsville County going forward and just sort of the diversity of indications that might be available to you. How are you thinking about kind of realistically sort of how many phase two proof of concepts you can really kick off over the next year or two? And then kind of what's the constraint there? Is it just going to be really careful on the science before you launch programs? Is it personnel workforce? Is it capital? And then finally, Will, sorry for such a long multi-parter, if you could maybe update us on where the discussions are with AstraZeneca around their kind of potential to opt in to conduct work in COPD and or asthma and whether or not that option they have. Is there any sort of time kind of constraints around that for them to make a decision? Thanks.

Sure, so let me start really quickly with the second one first. On AZ, obviously we remain in contact with them and there's nothing really to update there. They're clearly interested in the drug and its potential and I think each day as we discover more and more about the validity of not just this particular compound but the pathway itself, it makes this area all the more attractive. So we'll see where that takes us. I think right now we feel very well positioned and capitalized and resourced to be able to pursue all of the opportunities that this drug may provide to us. And I'll use that to segue to your first question. I think the first thing I would frame out for everyone's understanding is that from the moment we We saw the willow data. We have been at work on the DBP-1 pathway. So this is not something we're turning our attention to now. It's something we're sharing more and more as we move forward with the community. There have been a number of preclinical disease models that we've looked at. We've shared some of that data, and I encourage folks to revisit our research and development day. We were very deliberate in what we called out on that day in terms of disease models where we had already seen progress. I think when we look at something like this cancer cell paper, it wasn't particularly surprising to us. We indicated at the research day last year that oncology was an area where we thought this could have applicability. This data obviously validates that to a much greater degree, and I think it's exciting that it is coming from a third party because that provides, I think, an extra layer of validation and support for the mechanism. Where do we go from here? I think what we have in hand is a very high probability of success for non-CF bronchiectasis. And that alone creates an enormous opportunity for this company that I would describe as disruptively positive. As we think about where to go from there, cystic fibrosis we have validated internally with our own reflection and examination as worthy of additional investment and clinical development. Beyond that, oncology is clearly one area we are looking at, but it is not alone. There are several others. And I guess what I would say is we do see constraints on how much can be done all at once. But having said that, I don't think that's the rate limiter right now. It's a thorough examination of the science. It's an exploration of the prudent use of capital to create high probability and impactful outcomes. And as we go through the year, it is our intention to be able to reveal other areas where we think development is warranted with this compound. I hope that's responsive.

Yeah, thank you, Will. Appreciate it.

Your next question comes from the line to Matthew Harrison from Morgan Stanley. Your line is now open.

Hi, all. Thanks for taking the question. This is Connor on for Matthew. So a couple from us. So you mentioned the work going on in the UK, but we were just wondering if you could comment more broadly on how you see the ramp going, I guess. in terms of what countries you're targeting next and then how quickly you expect uptake given the digital efforts and COVID. And Sarah may have mentioned this as well, but can you also just comment on your expectations for the growth profile in the U.S. given COVID? And do you see that being as, you know, inversely related with the vaccine rate? And then just quickly, can you just speak to 2021 expenses? Sorry, that was kind of a lot.

Yeah, and so I just want to make sure I'm responsive to that. The first question that referenced COVID in the UK, you mean in regards to the So for the launch, I'll ask Roger to address how that's going generally. And then we'll take your question on the impact on the U.S. and the vaccines. I think obviously just to put a finer point on this, because it's really a global comment, our patients are at the front line of receiving vaccinations. And we think that that's obviously going to afford a lot of opportunity for us in 2021. both with the existing efforts that are being made across the U.S. and in the countries where we're approved and reimbursed in Europe, but also those that will be added. And perhaps most interestingly, the timing of the Japanese launch, if approved, once again, should fall on the far side, just on the far side of the anticipated government guidance for when the vaccination program will be completed. So we're hopeful that all of that is positive, but perhaps for more color, I'll ask Roger to comment. Yeah, thanks, Will. So I think that as we look at the European launch, certainly, as we mentioned, the lockdown in parts of Germany have hindered some access for our sales reps and for patients actually visiting the clinic. Having said that, I think we're pleased with the progress that we've made so far. The team has been working for several years with KOLs. And we know that they've been eagerly anticipating the launch of our case. And we believe that as we get on the other side, as you mentioned, the vaccinations, that we will be able to see that launch ramp. I think in general, in Europe, you see more of a center of excellence model than you do in the U.S., where we called quite heavily on community physicians, both IVs and pulmonologists. So there's an actual rate limiter there, but we still expect that Europe will have a meaningful launch for us. Within the U.K., as we mentioned, the central reimbursement, we're anticipating that England will review that and will be the first to provide central reimbursement with the other countries within the U.K. following thereafter. And we expect reimbursement to continue throughout 2021 into 2022 with those European markets. So we're pleased with the progress we've made so far. Certainly COVID is an issue as it has been in the U.S., but we believe that the long-term opportunity within Europe is fundamentally intact, and we look forward to getting on the other side of this and seeing that growth. And just in response to your question on expenses, I'll ask Sarah to address that.

Sure. Thanks, Connor, for the question. So on expenses, while we're not providing specific guidance, what I can share is for research and development, we do expect expenses to increase year over year, and that's primarily to support our Aspen program, Arise Encore, as well as TPIP. So what I can say is we're laser focused on resourcing these programs to be successful, and we have done just that.

Understood. Thank you.

Your next question comes from the line of Stephen Wiley from Stifel. Your line is now open.

Yeah, good morning. Thanks for taking the questions. I guess with respect to some of this interest around Brent's academic oncology, have you guys contemplated, I guess, any earlier stage work to look at novel oncology DPP-1 inhibitors, maybe in an effort to try to establish some level of differential pricing, which presumably is fairly wide between something like bronchiectasis and where most oncology drugs are priced. Yeah, so I appreciate the question.

I think while we're at the early days of our exploration in the oncology arena, it certainly is something that we're going to be, the issue you raised, we'll be mindful of. I think first we want to follow the science and see where it can be most impactful. And I have to say, this is one of those compounds that, as someone recently observed, if you're really lucky, you come across them once in a lifetime. This halfway effective in bronchiectasis is that we think we have unearthed a subject of study of Professor Chalmers and many other key opinion leaders in that this DPP-1 inhibition may have an impactful clinical consequence in many different disease areas. are drawn to because there's a clear medical need. The science was theoretically pretty strong, and now we have validation. So it sort of demands our attention. And with that in mind, I think we're going to be looking at a lot of different directions we may travel, including some of the ones you suggest.

Okay. And then just a quick question on TPIP. I know you're going to be initiating the phase two later this year. I know that the functional class of patients that have been enrolled into prior prostanoid studies has been a little bit different. I think the Tybasso registrational study was functional class three. I think other prostanoids have done kind of two through four. I know there's some literature suggesting that the variability of a six-minute walk test is significant. is correlated to functional class. So is that something that you care about at all in terms of how you're going to set your eligibility criteria for the Phase 2A?

So I'll ask in regard to the development plan, Martina, to address that question and then

Yeah. So, yeah, functional classes, if you look at the – this is the class where you really judge patients based on the severity of the disease, and like class one where they don't have a lot of symptoms yet. But in class two and three is where they're most impacted, but there is also the opportunity to really improve for these patients, and that will be the class that we will be looking at next. from an eligibility criteria, but also to improve. When you go on to like class four, for example, those are patients who from a six-minute walk distance perspective would not be able to do that much anymore because most of those patients actually are probably not mobile. So this is the area of severity in class, for example, two and three that we will be looking at.

One of the most interesting things about this compound is its potential not only in PAH, but also its potential in PHILD and even possibly in idiopathic pulmonary fibrosis patients. It's quite extraordinary to be joining this group of programs pursuing these diseases this late in the game. There are a lot of approved drugs in this therapeutic area. However, It's really the dawn of the birth of the full utilization of the prostanoid class. And this compound is specifically designed over the last half a decade to extract the full value of the prostanoid class. And so I think people should understand that TPIP is purpose-designed to really make a clinical impact that is very different from what has been seen with regular-weight proprostenol and its various forms of delivery.

Great. Thanks for taking the questions and congrats on the execution in what was obviously a pretty difficult year. Thank you.

Your next question comes from the line of Craig Sazanovich from Goldman Sachs. Your line is now open.

Hi, everyone. This is Jack on for Greg. Congrats on the quarter. Maybe first off, if you could talk a little bit more about sort of the quarterly cadence of how you see, you know, both our case sales recovering in the U.S., you know, to the extent you can comment, and then maybe, you know, as countries come online in Europe, you know, what kind of a contribution that could be. Then as we think about the international opportunity kind of you know, maybe five years out or sort of, you know, at peak. Um, how do you envision kind of the breakdown and potential peak revenues between U. S Europe, Japan or U. S X. U. S just kind of, you know, for our longer term modeling considerations?

It's going to be a little disappointing. I'm not going to give you a five-year forecast right now, but I will give you some color on where I think we're going. The first is that the last year saw really steady performance in the face of incredibly challenging circumstances, and I mention that only as a way to share the learnings from that experience. And the point of insight that I think is the most profound is that when COVID subsides, we saw a very rapid return of patients into the physician's offices and consequently a return to growth. So we think that is the harbinger of what's to come in 2021. And obviously, as we mentioned before, the vaccination is hitting our patients first in all likelihood in all areas around the world. And so that should be helpful. I think when we think about the international launch in the immediate term, it's very exciting to be adding Europe and, if approved, also Japan. And to remind everyone, there's a higher diagnosed prevalence of refractory MAC patients in Japan than there is in the U.S., So these are really exciting market opportunities for us and things that we've been working on for several years up to this moment. As we think about the future beyond this first year of launch, we're also focused on the frontline approval of the drug and the full approval in the United States. And that's what Arise and Encore will enable. So that study, starting at the end of last year, really puts us in a position to not only create the momentum this year, build upon it next year in these different areas, but then add to it the possibility of label expansion. And just to remind everybody, frontline NTM Mac is about five times the size of refractory Mac. So this is a really interesting franchise in its own right. It's been very steady through an incredibly challenging circumstance, and we think we're returning to growth in 2021, both in the U.S. and with our international launches and expansions.

And if I can maybe get a quick follow up to that, you know, how do you think about, you know, the extent to which our case can kind of offset some of your cash burn in the near term as you pursue all these clinical programs? And, you know, how do you kind of look at your funding requirements on like maybe a two year forward?

Yeah, so I'll ask Sarah to address that.

Sure, thanks, Jack. So error cases has been and will continue to be a great contribution as we think about our burn and sort of the offsetting of our burn. We haven't provided specific guidance on runway and those types of things, but you can view error cases as one of the tools we have to help fund our ongoing business. And just to reiterate, we ended the year with very strong cash positions. $533 million in cash, so very strong cash position.

Okay, thank you. Your next question comes from Ritu Baral from Common. Your line is now open.

Hi, this is Lila on for Ritu. Thank you for taking the question and congrats on the update. Maybe just really quickly on the phase two trial you're planning in cystic fibrosis. Can you speak a little bit into how you're thinking about the program and where it might fit, at least initially, into that treatment landscape, and then also how you're considering potential eligible cystic fibrosis patients for that trial? Any reason to think it would be more refractory or in combination use? Thank you.

Yeah, so when we think about cystic fibrosis, one of the things that, you know, drew our attention to this category initially is the notion that if you look at sort of levels of neutrophil elastase in these patients, in terms of your average patient profile. And we think this mechanism speaks directly to that opportunity. If you think about the impact of the vertex drugs in this population, it's been a major advance. However, these patients still suffer from pulmonary exacerbations. And as you recall from the Willow study, we saw roughly a 40% reduction in pulmonary exacerbation And as a consequence, we think this drug is sort of purpose-built to cover that last mile of need in the cystic fibrosis patient population. So we are moving forward expeditiously to try to bring this drug to those patients, because effectively, once you have eradicated the baseline drug, cause of cystic fibrosis in these patients, you know, for those that have had it for a long time, the damage is really already done. And so they're going to be effectively bronchiectatic patients. So the logic is very strong there. I think, as you know, the metabolism in these patients is a little bit different. And so the PKPD study is necessary to understand, do we need to go up in dose to treat them? but it would be our expectation and hope that if this is proven out and validated, that these patients who are taking those Vertex drugs would also get our drug as a way of addressing this last unmet medical need, which is the reduction of pulmonary exacerbations.

Gotcha. That's very helpful. Thank you.

Again, to ask a question, please press R1 on your telephone keypad. If you have any questions, simply press R, then the number 1 on your telephone keypad. Your next question comes from the line of Joseph Schwartz from SBB Lurink. Your line is now open.

Yeah, hi. I'm Julie Daly. I'm for Gerald. Thanks for taking our questions. I was wondering, as far as the launch prep work goes for Japan, you mentioned that you added five additional sales reps. And I was just wondering, you know, what the motivation was that was, what the motivation was that was, what that was for. You know, are you detecting, you know, like stronger demand from patients than initially anticipated or, you know, or is there like more launch prep work than you thought? Could you type in more on that?

Sure. I appreciate the question. I'll actually ask Roger to address that. Yeah, sure. Thanks, Will. Thanks for the question. So as we mentioned, we've actually had our 15 sales reps out in the Japanese market since the fourth quarter. And that was an effort, intentional effort, as we promoted our macrolide to understand where these patients were being treated and understand their dynamic. I think the response that we've seen so far has been very strong from the KOLs. And so as we get a greater understanding of where the patients lie in the landscape, we felt that adding an additional five reps to make sure we have adequate coverage there was the prudent thing to do. So we anticipate adding those five reps in the fourth quarter, excuse me, in the first quarter of this year, and to support the launch, assuming approval.

Okay, great. Thanks. And then could you just remind us the number of patients that you plan to study and arise and what the enrollment cadence is? I know that, you know, you said to expect for an update, you know, later this year, but I was just wondering how that was going.

So for the specifics of the study, I'll ask Martina to address it in a second, but as far as PACE goes, I think for Arise, Encore, for Aspen, what we're trying to do is really focus on opening the different sites getting them able to enroll patients. That process is well underway. We'd like to see that play out. All of these studies are getting fully resourced from the company. We're investing a lot of money and human effort into making sure that we can move these studies forward expeditiously. And so once we have a better understanding of what the pace is like in the current environment, right now we don't really see any impact, but we'd like that to play out over several months before we sort of give forecasts and predictions on timing. So I just want to address the timing question first and then ask Martina to talk about the design of the study.

Yeah. And, you know, for BRASO and ARRI, we're looking at newly diagnosed MAC lung disease patients. We're looking for 100 patients in the ARRI study and 250 patients in the ENCORE study. And, yes, we started dosing this patient. And these are global studies, again, across the U.S., Europe, Asia, and Latin America. So we've started initiating sites there across the globe.

Okay, great. Thanks so much.

Your next question comes from the line of Lisa Baiko from Evercore ISI. Your line is now open.

Hi, thanks for taking the question. Could you tell us what U.S. sales were versus the rest of the world?

So, Sarah, you want to address that?

Sure. Thanks, Lisa, for the question. So we will be providing global sales. We are not going to be providing a breakdown of regional sales, and sort of some of the rationale behind that is related to we just kicked off the launch in Europe. The sales are not material amounts, and so we will not look to break out that for this year.

Okay. And then can you maybe just talk about a little bit more in detail about the kind of work you've done to understand sort of what the patient dynamics were this year? Were patients, you know, I guess, you know, you said fewer office visits. So was it mainly driven by new patient ads? Was there any change in kind of like duration of therapy or any of those other factors? Just curious on kind of the flow of patients this year and then I guess the key things are like when do you expect that to lift this year, you know, as we kind of come out of the pandemic and what are the key levers there?

Yeah, I mean, really simply, I think we look at a broad range of metrics, obviously, as we're tracking error case performance. And they have been remarkably steady on almost every front. The one thing we've been very clear about is that the new patient starts is the one metric that has been hit the hardest in those areas in particular where COVID has surged. And we've seen that consistently throughout the year as the regional variability has played out. As I mentioned earlier, though, I think the most important point from this and the learning is that, number one, the franchise is very resilient. And the steady performance along a lot of the metrics speaks to that. I think as we look at new patient starts, we have seen that return rapidly in those areas where COVID restrictions and restrictions surges have abated. So our expectation is that as that plays out, we will see that be writ large for the U.S. market and indeed Europe's launch as each country secures reimbursement. As to specific timing, it's hard to say. I do think the key drivers here are number one, the vaccinations. Once those are completed, people obviously feel a lot more comfortable going to their physician. Many of them have a strong desire to do so, and importantly, many of the physicians are very keen to reach out proactively to their patients and bring them into their practices. I think there's both a need there because of the challenges of the last year, but also an opportunity, as Roger mentioned earlier, as awareness about respiratory health has grown substantially. So, you know, we don't know exactly when it's going to take place, but I do see us returning to growth as soon as that patient returns to the office visit.

Thank you. Your next question. It comes from Anita Deschamps from Berenberg Capital, your line is now open.

Hi, good morning. Congrats on the quarter and thank you for taking my questions. Bill, I know you had sort of addressed this early on, but I just wanted to get some more clarity on it. Considering the launch in Europe and the different regions, Well, it's sort of known that, you know, Germany and UK are sort of, they come on board pretty quickly compared to some other regions, like maybe France or something, which take time to set up the reimbursements before launch. And you'd also mentioned that, you know, there was a study in Netherlands that kind of helped accelerate getting reimbursements in place by almost three months. So my question is, I mean, do you expect, like, majority of the regions in Europe to sort of come on board for the launch by end of this year? Or are there any specific regions that you think might generally take more time or, you know, sort of conduct these studies to establish the reimbursement for that? And then I have one more.

Yeah. Roger, do you want to address that? Yeah, sure. Happy to. So as we think about the European launch sequence, as you said, these countries, some countries may take longer. So actually at R&D Day, we had a presentation that we put up and we mapped out what we think might be the sequence of the launches. So we do think in our markets where we're focused on our core markets, uh we'll have um the majority we're anticipating reimbursement in 2021 as you pointed out i think france could take a little bit longer we'll see how that plays out in the meantime we do have the atu program in france which allows access to those patients in need and it's also reimbursed So we're very pleased by, as you mentioned, the Netherlands, the pilot program we participated in, and that did allow us to accelerate the reimbursement. And so we're hopeful that as we move forward, we'll have successful interactions with the markets. But as I said, most of the markets that we're targeting will come on in 2021, but France is likely to take longer. But this is all our best estimates based on precedence.

Yes, that's helpful. And thank you. And then just maybe some color on the expenses. I know Sarah talked about the R&D going up year over year based on all the development progressing with the candidates. But as far as spend on SG&A for the year, I know you said you have plans for setting up commercialization of every case in the U.S. So are we sort of supposed to expect that being increasing over the quarters or sort of maybe back ended to the year considering, you know, vaccines might be more more availability of vaccines might be there towards the second half of the year.

So I'll ask Sarah to address that.

Sure. Thanks, Anita. So while we're not providing specific guidance, what I can share on SG&A, what I can share is we've had the infrastructure in place in both Europe and Japan throughout 2020. As Roger mentioned, there will be some modest growth in some of the sales customer-facing organizations, but that infrastructure has been in place, and we have key talent on the ground in both Europe and Japan to help drive these launches.

Thank you, Sarah. That would be all for me.

Ladies and gentlemen, that concludes our call for today. I will hand it back over to Will Lewis for any closing remarks.

Thank you all for joining us today.

Ladies and gentlemen, this concludes your call for today. Thank you for your participation.