CFO Interview:
twst.com
MICHAEL BAER - INSMED INCORPORATED (INSM)
CEO Interview - published 10/01/2001
DOCUMENT # NAC602
MICHAEL D. BAER has served as Chief Financial Officer of Insmed
Incorporated and its predecessor company since May 1999. He has more
than 25 years of experience in financial management, most recently from
1995 to 1998 as Controller, Vice President and Chief Financial Officer
of InSite Vision Incorporated, a biopharmaceutical company in the San
Francisco Bay area. He served as Chief Financial Officer for the US
operations of Simsmetal Limited, a publicly held Australian recycling
company, from 1993 to 1994, as the regional Financial and Administrative
Officer for the public accounting firm, Deloitte & Touche from 1990 to
1993, and as the Partner in charge of the Sacramento office of Deloitte,
Haskins & Sells from 1984 to 1990. He is a Certified Public Accountant
and holds an MBA in Finance from the University of California, Berkeley.
Sector: BIOTECHNOLOGY
TWST: Could we begin with a brief overview of the history and evolution
of Insmed Incorporated?
Mr. Baer: Insmed is a biopharmaceutical company developing products for
diabetes and other conditions associated with insulin resistance. We
were originally founded based on technology developed at the University
of Virginia, and last year acquired additional technology by buying a
company called Celtrix Pharmaceuticals. We're currently developing two
products for three different indications. INS-1, the product that was
licensed from the University of Virginia, is a small molecule that is
being developed as first line oral therapy for Type 2 diabetes and
Polycystic Ovary Syndrome. SomatoKine', the product we acquired from
Celtrix Pharmaceuticals, is a complex of two proteins that is being
developed for later-stage management of both Type 1 and Type 2 diabetes.
TWST: Could you describe how they work ' and may be some differences
they provide ' from some of the other treatments out there?
Mr. Baer: Insulin regulates blood glucose. When it is released from the
pancreas, insulin circulates in the bloodstream and binds to receptors
on the outer surface of various cells. When it binds to a normal cell,
an 'insulin mediator' is produced that regulates and coordinates the
effects of insulin inside the cell. There are two major kinds of
diabetes. Between 90% and 95% of patients suffer from Type 2 diabetes,
and 5% to 10% suffer from Type 1. In Type 2 diabetes, the body produces
insulin but the cells are unable to use it effectively ' they are
insulin-resistant. The body responds by producing more insulin to
overcome the resistance. Eventually it's unable to produce enough and
therapy is required. We believe that by treating patients with this
insulin mediator, we can bypass the defect that causes insulin
resistance. INS-1 is a naturally occurring, orally active component of
the mediator. Insulin resistance is also an underlying cause of
Polycystic Ovary Syndrome. As the body compensates and produces more
insulin to overcome the resistance, between 5% and 10% of women respond
by producing too much testosterone. And the excess testosterone causes a
number of problems: these women don't ovulate and menstruate regularly,
they develop acne and grow facial hair, they develop male-pattern weight
gain, and they are at very high risk of developing Type 2 diabetes,
heart disease and endometrial cancer as they get past menopause. By
lowering insulin resistance, INS-1 reduces the need for the body to
produce excess insulin and the side effects caused by too much insulin.
For example, in our initial trial for this indication, 86% of the women
treated with INS-1 ovulated, compared to 27% of the women treated with
placebo. Type 1 diabetes, on the other hand, is an autoimmune disease in
which the body does not produce any insulin. People with Type 1 diabetes
must take daily insulin injections to stay alive and account for between
5% and 10% of the diabetic population. Our second product, SomatoKine,
is a recombinant protein being developed as an injectable insulin
sensitizer. It is targeted to treat patients with Type 1 or Type 2
diabetes who are not adequately managed with insulin therapy.
SomatoKine is a therapeutic composition of insulin-like growth factor-I
and its primary binding protein, BP3. IGF-I is a naturally occurring
protein in the human body that normally circulates attached to BP3.
Other companies have tested free IGF-I, without BP3, in diabetes and
other indications. In diabetes, free IGF-I triggered dramatic
improvements in insulin sensitivity, but caused too much edema, jaw pain
and muscle ache. By combining IGF-I with BP3, SomatoKine mimics the way
that IGF-I naturally occurs. The trials we have done to date indicate
that it improves insulin sensitivity, with far fewer side effects, than
when IGF-I is used alone.
TWST: What direction do you think the management wants to take the
company in the next few years?
Mr. Baer: We're focused on getting both drugs approved. Diabetes is a
very significant pharmaceutical market. There are about 15 million
people suffering from the disease in the US, it costs the healthcare
system about $100 billion a year, and there are only three drugs on the
market to treat insulin resistance. As a result, all three of our
indications represent very substantial market opportunities. Last year,
Glucophage', which is produced by Bristol-Myers, had sales of about $1.7
billion; a GlaxoSmithKline product called Avandia' had sales of about
$700 million; and Actos', which is marketed by a joint venture between
Eli Lilly and Takeda, sold $500-$600 million. The bottom line is that
there are not enough products on the market. Doctors need additional
drugs to treat their patients, and we think our products are the most
advanced new class of insulin sensitizers in development. INS-1 and
SomatoKine each have a different mechanism of action than anything else
on the market and we believe their effects will be synergistic with
current products. INS-1 is a small molecule with a very good safety
profile. Because of its safety profile, we believe it could be approved
as first line therapy for Type 2 diabetes, and the only approved therapy
for Polycystic Ovary Syndrome. SomatoKine is a large molecule, a complex
of two proteins that is a very potent insulin sensitizer. We've tested
SomatoKine in both Type 1 and Type 2 diabetic patients who are unable to
control glucose with just insulin and, in both trials, SomatoKine
substantially reduced the amount of glucose in patients' blood without
significant side effects.
TWST: What is the timeline right now for these products?
Mr. Baer: The products are currently in Phase II trials. We expect to
finish Phase II trials and start Phase III late next year. The Phase III
trials will take about two years and we expect to be selling product in
2005.
TWST: How are you dealing with licensing and what do you want to nurture
at this point that will set you up for the next base?
Mr. Baer: In the US, family practitioners and internists generally treat
the diabetic patients who will receive INS-1. In order to detail the
drug to them, we will need to collaborate with a pharmaceutical company
with a large sales force. Our strategy is to develop the product as much
as possible before entering in to that partnership in order to maximize
the value to our stockholders. Last year we licensed Asian rights for
INS-1 to Taisho Pharmaceutical Co., Ltd. Taisho made an up-front payment
and an equity investment, and shares the costs we incur to develop the
drug in the US. We retain the rest of the rights to both INS-1 and
SomatoKine. We're constantly in discussions with other companies, and
licensing opportunities present themselves regularly. We're focused on
developing the information we need to get INS-1 and SomatoKine approved
as quickly and effectively as possible, but we're always interested in
drugs that fit our area of expertise. If the right opportunity presents
itself, we will pursue it in order to build our pipeline.
TWST: As far as funding goes, where is that predominantly coming from
right now?
Mr. Baer: We became a public company on June 1 last year. Just before we
went public we completed a private placement and raised $34 million.
Then last fall we raised another $65 million. We closed the second
quarter of this year with $67 million in the bank and are spending about
$3 million a month to develop these drugs. Accordingly, we are well
funded.
TWST: Looking down the road, say the testing goes well, the product is
in the market, what can be expected as far as your profits in the first
couple of years, and when would you be able to generate some positive
cash flow?
Mr. Baer: We expect positive cash flow from operations the first full
year that the drugs are on the market. Every product that's come into
this market since 1995, Glucophage', Avandia' and Actos', as well as
another product that was subsequently withdrawn called Rezulin',
achieved $500 million in sales the first full year on the market. That's
enough to make this company profitable and cash flow positive. From an
investor's perspective, there are two important milestones before that.
The first is when we begin our Phase III trials; the second is when we
file an NDA. There should be a significant increase in the valuation of
the company in anticipation of each event.
TWST: What are the risks that you see? Are there any competitive
achievements that are out there that might give you some trouble?
Mr. Baer: There's really nothing in our space. A lot of drugs are being
developed for diabetes, but we are not aware of any novel insulin
sensitizers that are as advanced as our products. In addition, drugs are
increasingly being used in combination to treat diabetes. Because INS-1
and SomatoKine have a different mechanism of action than other products,
they complement rather than compete with them. When investors ask me
about competitors, they are generally thinking about inhaled insulin.
But inhaled insulin competes with insulin injections. Both INS-1 and
SomatoKine are intended to help the body use insulin more effectively.
TWST: Is the management team in place to take the company from this
current phase to the next level?
Mr. Baer: Our Chief Executive Officer, Geoff Allan, has over 20 years'
experience in drug development. Geoff earned his PhD at Cornell
University Medical School and began his career at Wellcome Research
Laboratories, where he was Head of the Cardiovascular Section. He was
the initial Scientific Officer of Insmed, and has been its President and
a director since January 1994. I'm the CFO. I joined Insmed in 1999 and
moved to Richmond, Virginia because I liked INS-1. Previously, I was CFO
of another biopharmaceutical company in the San Francisco Bay area and a
partner at Deloitte & Touche. Rob Falconer, who handles our technical
operations, has 25 years' experience in pharmaceutical development.
Before joining Insmed, Rob was Vice President, Technical Operations for
a division of Shire Pharmaceuticals Group. Ron Gunn, who handles
business development, has 17 years' experience in the industry and
previously worked for A.H. Robbins. We've got the core group we need to
take us forward.
TWST: Is your stock valuation at this point fair, do you think, compared
to some of the other players?
Mr. Baer: I think the valuation is too low. Even though we have five
trials currently under way, we are currently trading at the low end of
our price range with a market cap of about $150 million. When I look at
our products and the markets we're pursuing, I think we're undervalued
by a factor of 3.
TWST: Is there something perhaps that investors misunderstand about the
company, or don't quite know that you would want to improve their
knowledge on?
Mr. Baer: We are a small company and it takes time for investors to
learn about us. People just don't know much about us or what we're
doing. Our objective is to get our name out, have people understand what
we've got, and what the potential value is. We've got an active investor
outreach program going on to make sure it happens.
TWST: What other two or three reasons would you give for an investor to
buy in today?
Mr. Baer: I think the valuation is very attractive. All of our
indications have the potential to generate blockbuster sales. We also
have a significant amount of data that indicates our drugs are safe and
effective. There are never any guarantees in drug development, but I
like the risk/reward ratio of our stock. Companies with important drugs
in Phase III trials are typically valued at about $1 billion. We've got
three shots on goal to join that club in the next 18 months. It's a
wonderful opportunity!
TWST: Thank you. (AAM)
MICHAEL D. BAER
CFO
Insmed Incorporated
4851 Lake Brook Drive
Glen Allen, VA 23060
(804) 565-3000
(804) 565-3510 - FAX
www.insmed.com
e-mail: investors@insmed.com
Each Executive who is the featured subject of a TWST Interview is
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Interview with Michael D. Baer, CFO of Insmed Incorporated, is
accompanied by an Investors Brief containing corporate information.
Copyright 2001 The Wall Street Transcript Corporation
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