INSMED INCORPORATED — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Insmed is a biopharmaceutical company whose first commercial product, ARIKAYCE, received accelerated U.S. FDA approval in September 2018 for a limited population of adults with refractory MAC lung disease. Its clinical pipeline includes INS1007 and INS1009.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $21.9 million | No revenue |
| Cost of product revenue, excluding intangible amortization | $4.2 million | No product sales |
| R&D expense | $31.2 million | $30.1 million |
| SG&A expense | $54.8 million | $32.7 million |
| Operating loss | $69.5 million | $62.8 million |
| Net loss / diluted loss per share | $74.2 million / $0.96 | $68.5 million / $0.89 |
| Net cash used in operations | $73.8 million | $67.4 million |
- Revenue comprised $21.0 million of U.S. net product revenue and $0.9 million from European early-access programs. Calculated product gross profit before intangible amortization was approximately $17.8 million, or 81% of revenue.
- Cash and cash equivalents were $420.2 million at March 31, down $74.8 million from year-end 2018; working capital was $360.4 million. Management said available funds were sufficient for at least the next 12 months, while noting possible future capital needs.
- Investing cash outflow was $4.0 million; financing provided $3.0 million, mainly from stock option exercises and employee stock purchases. Q1 2018 financing included $435.8 million of net convertible-note proceeds.
- Outstanding convertible notes have $450.0 million principal, a 1.75% coupon and 2025 maturity. Their balance-sheet carrying value, net of discount and issuance costs, was $321.3 million; reported quarterly interest expense was $6.7 million.
- Total assets were $595.9 million and total liabilities were $451.8 million. Lease adoption added $47.4 million of right-of-use assets; lease liabilities were $45.1 million at quarter-end.
Material changes versus the prior comparable period
- ARIKAYCE sales began in October 2018, making Q1 2019 the first comparable quarter with product revenue.
- SG&A rose $22.2 million, primarily from commercial launch activity, field-force hiring and other increased personnel costs. R&D increased $1.1 million: higher INS1007 trial and personnel costs were largely offset by lower external manufacturing expense.
- Operating loss widened by $6.8 million and net loss by $5.6 million. Interest expense increased $1.1 million, while Q1 2018 included a $2.2 million debt-extinguishment loss.
- Operating cash use increased $6.4 million. Cash declined during Q1 2019, unlike Q1 2018, when financing proceeds drove a substantial cash increase.
- Insmed adopted the new lease accounting standard on January 1, 2019, recognizing right-of-use assets and lease liabilities. Management reported disclosure controls effective; adoption-related processes materially changed internal controls, with operating effectiveness to be evaluated in the annual assessment.
Outlook, commentary and risks
- Management planned to continue the U.S. ARIKAYCE launch, finalize the FDA-required confirmatory-trial protocol in the first half of 2019, submit European filings in mid-2019 and pursue Japanese filings in the first half of 2020. These are stated plans, not assured outcomes.
- The confirmatory trial is required to verify and describe clinical benefit; continued ARIKAYCE approval is contingent on its results. The filing anticipated reporting results by 2024.
- Management expected to complete enrollment in the INS1007 Phase 2 WILLOW study in mid-2019. INS1009 development options, including a dry-powder formulation, were under evaluation.
- The company expected ongoing operating losses and substantial cash requirements from commercialization, clinical development and international regulatory work. It may seek additional capital; failure to obtain funding could require delaying or reducing programs or commercialization.
- Key risks include ARIKAYCE adoption, reimbursement and pricing; confirmatory-trial success and regulatory approvals; manufacturing and supplier capacity; and clinical, safety and development outcomes. Three customers represented 33%, 31% and 16% of gross product revenue, respectively. The company also relies on a limited number of third-party manufacturers.
- Ordinary-course legal matters were not expected by management to have a material adverse effect. The filing reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether ARIKAYCE sales, payer coverage, patient uptake and customer concentration develop as expected; gross revenue is subject to rebates, discounts, chargebacks and returns.
- Progress and timing of the FDA-required confirmatory trial, including protocol finalization and the risk to continued accelerated approval.
- INS1007 WILLOW enrollment and results, and any decision to advance INS1009.
- Cash consumption, commercial and facility investment requirements, and whether additional financing will be needed beyond management’s stated 12-month funding estimate.
- Supply capacity and execution of manufacturing-facility and headquarters build-outs, as well as dilution from equity awards and potential conversion of the notes.