Insmed Incorporated — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Insmed is a biopharmaceutical company whose commercial product is ARIKAYCE; its clinical-stage pipeline includes brensocatib and TPIP. Financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Product revenue, net | $67.7 million | $46.8 million | $186.1 million | $132.3 million |
| Operating loss | $127.7 million | $103.6 million | $305.8 million | $276.0 million |
| Net loss | $131.1 million | $112.7 million | $321.4 million | $321.7 million |
| Basic and diluted loss per share | $1.09 | $0.96 | $2.68 | $2.93 |
| Operating cash used | Not stated for quarter | Not stated for quarter | $297.3 million | $279.2 million |
ARIKAYCE cost of product revenue, excluding intangible amortization, was 19.9% of revenue in Q3 and 22.6% for the first nine months, compared with 21.8% and 23.3%, respectively, in 2021. These figures imply product gross margins before intangible amortization of 80.1% and 77.4% for 2022. R&D expense was $99.9 million in Q3 and $272.8 million year to date; SG&A was $75.6 million and $192.3 million, respectively.
At September 30, 2022, cash and cash equivalents were $414.6 million and marketable securities were $98.7 million. Working capital was $494.5 million. Long-term debt carried at $784.8 million represented $800 million face value of convertible notes: $225 million due in 2025 and $575 million due in 2028. Total liabilities exceeded assets, leaving a shareholders’ deficit of $30.0 million. Cash and cash equivalents declined $302.1 million from year-end 2021.
Material changes versus comparable periods
- Revenue grew 44.9% in Q3 and 40.6% for the first nine months. Q3 U.S. revenue rose 28.6%; Japan revenue rose from $5.0 million to $14.5 million. Year-to-date Japan revenue was $41.0 million, while Europe and rest-of-world revenue declined 23.3% to $7.5 million.
- Q3 net loss widened by $18.4 million year over year, mainly as R&D and SG&A spending increased. Nine-month net loss was nearly unchanged: higher operating expenses were substantially offset by lower interest expense and a $19.0 million year-to-date gain from changes in deferred and contingent consideration fair value.
- R&D increased 42.0% in Q3 and 38.9% year to date, reflecting clinical-trial, manufacturing, and personnel costs. SG&A increased 25.4% in Q3 and 13.8% year to date, including ERP implementation and commercial-related expenses.
- Interest expense fell to $3.4 million in Q3 and $10.0 million year to date, versus $11.2 million and $29.1 million in 2021, primarily because adoption of ASU 2020-06 ended accretion of the convertible-debt discount.
- Operating cash use increased $18.1 million year over year for the first nine months. Financing cash inflow was $49.9 million, compared with $606.8 million in 2021, when the company issued convertible notes and common stock.
Outlook, commentary and risks
Management expected operating losses and substantial cash requirements to continue as the company funds ARIKAYCE commercialization and confirmatory trials, brensocatib development, TPIP trials, and other pipeline programs. It stated that available funds were sufficient for at least the next 12 months, while noting that future capital might be needed and that constrained financing could require delays or reductions to development or commercialization efforts.
- Clinical milestones: Management anticipated completing ARISE enrollment by year-end 2022 and sharing data during 2023; ENCORE enrollment was expected to finish by year-end 2023. ASPEN Phase 3 enrollment for brensocatib was expected to finish in Q1 2023. Results from the completed-enrollment brensocatib CF Phase 2 study were anticipated by year-end 2022.
- Post-quarter financing: On October 19, 2022, Insmed entered into a $350 million secured term loan, a $150 million royalty financing, and an underwritten offering of 13.75 million shares at $20 per share. The offering generated approximately $259 million net proceeds; the three transactions totaled $775 million gross proceeds. The loan matures in October 2027 and bears interest at SOFR, subject to a 2.5% floor, plus 7.75%. OrbiMed’s royalty applies to ARIKAYCE sales and, if approved, brensocatib sales, subject to stated caps.
- Commercial and regulatory risks: ARIKAYCE has U.S. accelerated approval and requires confirmatory evidence for full approval. Access and reimbursement varied by market: Germany supply shifted to import while pricing discussions continued; Italy lacked national reimbursement, though local sales remained possible. The filing reported England reimbursement approval in October 2022.
- Other risks: The company cited clinical efficacy and safety, trial enrollment and timing, regulatory approval, product uptake and reimbursement, dependence on a limited number of manufacturers, customer concentration, competition, and ongoing losses and financing needs. Its three largest customers represented 35%, 33%, and 19% of gross product revenue for the nine months, respectively. COVID-19 had not materially affected results through September 30, 2022, but future effects were uncertain.
- Unusual items and controls: The nine-month fair-value change in deferred and contingent consideration was a $19.0 million gain; Q3 included a $5.2 million expense. The company adopted ASU 2020-06 on January 1, 2022, materially changing the accounting presentation of convertible debt and equity. A new global ERP system went live in Q3; management reported disclosure controls were effective and identified material changes to internal control over financial reporting in connection with implementation.
Important facts for investors to verify
- ARIKAYCE sales growth, regional contribution, reimbursement access, and customer concentration.
- Enrollment, timing, and outcomes of ARISE, ENCORE, ASPEN, and TPIP trials, and the implications for regulatory approval.
- Cash use and runway against the company’s spending plans, including the proceeds, obligations, royalties, and covenants of the October 2022 financings.
- Convertible-note repayment or conversion exposure, dilution from equity issuance and potential share awards, and any further capital needs.