Insmed Incorporated — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Insmed is a biopharmaceutical company focused on rare diseases. ARIKAYCE received U.S. accelerated approval on September 28, 2018; commercial shipments began in October, after quarter-end.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | 9M 2018 | 9M 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $39.5M | $26.7M | $105.4M | $75.8M |
| General and administrative expense | $44.4M | $17.4M | $114.3M | $47.8M |
| Operating loss | $84.0M | $44.1M | $219.6M | $123.6M |
| Net loss | $87.7M | $45.2M | $232.7M | $127.3M |
| Basic and diluted loss per share | $1.14 | $0.69 | $3.03 | $2.01 |
Margins are not meaningful because the company reported no revenue. Q3 expense growth reflected ARIKAYCE manufacturing and launch preparation, hiring, and related costs; higher interest expense also contributed to the greater net loss.
- Cash and cash equivalents: $567.6M at September 30, 2018, up from $381.2M at December 31, 2017. Working capital was $520.1M.
- Cash flows, 9M 2018: $188.4M used in operations; $10.1M used in investing; $384.9M provided by financing. The financing inflow primarily reflects the convertible-note offering.
- Debt: $450.0M principal of 1.75% convertible senior notes due 2025; carrying value, net of discount and issuance costs, was $311.9M. Notes are convertible under specified circumstances. Insmed repaid $55.0M of Hercules debt in February.
- Other balance-sheet items: Total assets were $661.5M, total liabilities $370.1M, and shareholders’ equity $291.4M. Accumulated deficit was $1.19B.
Changes versus prior period
For the first nine months, net loss increased $105.4M year over year. R&D expense rose $29.6M, chiefly from ARIKAYCE manufacturing and higher headcount. G&A increased $66.5M, including launch-related compensation and consulting expenses. Interest expense increased $14.3M, primarily due to the 2025 notes. Operating cash use increased from $111.4M to $188.4M.
Outlook, risks and unusual items
- Management expected no material ARIKAYCE revenue in 2018 and said it believed available funds were sufficient for at least the next 12 months. It anticipated continuing operating losses and substantial cash needs and may seek additional capital.
- The FDA approval is limited to adults with MAC lung disease who have limited or no alternative treatment options and is subject to accelerated-approval requirements. The confirmatory study protocol was scheduled to be finalized in 2019, with results due by 2024; continued approval depends on verification and description of clinical benefit.
- Management planned to advance the U.S. launch, pursue regulatory submissions outside the U.S. when supported by data, continue the INS1007 phase 2 WILLOW study, and assess options for INS1009 development.
- Key risks include launch and payer acceptance, reimbursement and pricing, safety and efficacy findings, completion of the confirmatory trial, manufacturing and nebulizer supply, clinical-trial execution, and access to future financing. The filing also identifies possible dilution and cash-settlement exposure from convertible notes.
- Insmed recorded a $2.2M loss on extinguishment of Hercules debt in Q1 2018. It also entered a future-headquarters lease with expected minimum payments of approximately $32.3M over the initial term; total disclosed future lease payments were $37.0M.
- ARIKAYCE inventory costs began to be capitalized after FDA approval; no inventory was included on the September 30 balance sheet. ARIKAYCE-related intangible assets are to be amortized beginning October 1 over the 12-year exclusivity period.
Management reported effective disclosure controls and no material change in internal control over financial reporting. Ordinary-course legal matters were not expected by management to have a material adverse effect.
Investor verification priorities
- Track ARIKAYCE launch uptake, net sales, payer coverage, pricing, and patient access after commercial shipments began.
- Monitor confirmatory-trial design, enrollment, timing, outcomes, and any FDA action affecting accelerated approval or post-marketing commitments.
- Assess cash burn and runway against launch, manufacturing, clinical, and international-expansion spending; note management’s at-least-12-month liquidity statement was an estimate at the filing date.
- Review manufacturing capacity and supply continuity for ARIKAYCE and the Lamira nebulizer, including third-party readiness.
- Evaluate the $450M note’s conversion terms, potential dilution or cash settlement, and the company’s ability to meet future obligations.
- Follow WILLOW enrollment and other pipeline milestones, as well as the financial impact of the new lease and future inventory costs.