Insmed Incorporated — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Insmed is a clinical-stage biopharmaceutical company focused on rare diseases. Its lead candidate, ALIS, was under FDA review for treatment-refractory MAC lung disease; the company reported no revenue and had not generated material revenue from ALIS.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $35.7 million | $26.9 million | $65.8 million | $49.1 million |
| General and administrative | $37.2 million | $16.6 million | $69.8 million | $30.4 million |
| Operating loss | $72.9 million | $43.5 million | $135.6 million | $79.5 million |
| Net loss | $76.4 million | $44.7 million | $145.0 million | $82.1 million |
| Net loss per share, basic and diluted | $1.00 | $0.72 | $1.89 | $1.32 |
| Interest expense | $6.5 million | $1.5 million | $12.1 million | $3.0 million |
No revenue was reported, so gross margin is not applicable. Q2 net loss increased by $31.8 million year over year, while the six-month loss increased by $62.9 million. Higher R&D reflected ALIS manufacturing, commercial inventory preparation, and increased staffing. Higher G&A largely reflected pre-commercial launch work, including field-force hiring and consulting.
- Cash and liquidity: Cash and cash equivalents were $634.3 million at June 30, 2018, versus $381.2 million at December 31, 2017. Working capital was $599.6 million, versus $344.8 million.
- Cash flows, six months: Operating activities used $123.0 million; investing activities used $8.2 million; financing activities provided $384.3 million. Cash increased by $253.2 million.
- Debt: Insmed issued $450.0 million principal of 1.75% convertible senior notes due 2025 in January, receiving net proceeds of approximately $435.8 million. Their June 30 carrying value was $307.2 million after unamortized discount and issuance costs; disclosed fair value was $411.1 million. The notes have an effective interest rate of 7.6% for accounting purposes and are convertible under specified conditions.
- Debt repayment: The company repaid $55.0 million principal owed to Hercules in February, plus fees, interest, and prepayment penalties; it recorded a $2.2 million extinguishment loss.
- Balance sheet: Total assets were $724.2 million, total liabilities $353.6 million, and shareholders’ equity $370.6 million at June 30, 2018.
Material developments and outlook
- Insmed filed its ALIS NDA with the FDA in March 2018. The FDA accepted it for priority review under Subpart H and set a September 28, 2018 action date. An advisory committee meeting was scheduled for August 7, 2018. Approval was not assured; the filing noted the FDA’s review of final culture-conversion durability data and potential post-approval confirmatory requirements.
- In the Phase 3 CONVERT study, six-month culture conversion was 29% with ALIS plus guideline-based therapy versus 9% with guideline-based therapy alone (p<0.0001). Interim durability data reported 28 of 46 evaluable ALIS-arm converters (60.9%) maintaining conversion three months after treatment, versus none of seven evaluable control-arm converters. These durability results were interim and not fully analyzed.
- CONVERT safety data showed at least one treatment-emergent adverse event in approximately 98% of ALIS-plus-therapy patients versus 91% in the control arm; serious events occurred in approximately 20% and 18%, respectively. The filing reported no distinction between arms for hearing loss or renal impairment, but identified greater incidence of certain respiratory and other adverse events with ALIS.
- Insmed was enrolling patients in the Phase 2 WILLOW study of INS1007 for non-CF bronchiectasis. INS1009 development options were under evaluation, including a possible inhaled dry-powder formulation.
- Management expected operating expenses to increase significantly in 2018, driven particularly by ALIS clinical, manufacturing, and pre-commercialization activity. The company stated it believed available funds were sufficient for at least the next 12 months, while also noting possible need for additional capital and that future financing availability and terms were uncertain.
- Management cited risks including clinical-data consistency and interpretation, regulatory review and approval, safety and efficacy, manufacturing and supply, commercial adoption and reimbursement, competition, and the ability to raise capital. It reported no material changes to the risk factors in its 2017 Form 10-K.
Most important facts for investors to verify
- FDA advisory committee outcome, review of ALIS durability data, and the September 28, 2018 action date; these were future events as of this filing.
- Whether final CONVERT and 312-study results support durable clinical benefit, and what confirmatory studies or post-approval requirements regulators may require.
- ALIS safety and tolerability, including discontinuation rates and respiratory adverse events, as fuller analyses become available.
- Cash consumption relative to the stated 12-month runway, increasing launch and manufacturing costs, and whether additional financing will be needed.
- Convertible-note terms and potential dilution: the filing reserved approximately 11.5 million shares for conversion, subject to adjustment and conversion conditions.