Insmed Incorporated — Q2 2021 Form 10-Q
Business context and reporting period. This filing covers the quarter and six months ended June 30, 2021. Insmed is a biopharmaceutical company whose only marketed product is ARIKAYCE, approved for certain patients with MAC lung disease in the U.S., Europe, and Japan. Its clinical-stage pipeline includes brensocatib and TPIP. Financial amounts below are in millions of dollars unless otherwise stated.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Product revenue | $45.4 | $42.5 | $85.6 | $79.4 |
| Cost of product revenue, excluding intangible amortization | $10.8 | $10.0 | $20.7 | $18.4 |
| Gross margin, excluding intangible amortization | 76.1% | 76.6% | 75.8% | 76.8% |
| Research and development | $64.7 | $35.7 | $126.0 | $71.9 |
| Selling, general and administrative | $57.2 | $49.7 | $108.7 | $101.0 |
| Operating loss | $(88.6) | $(54.1) | $(172.4) | $(114.5) |
| Net loss | $(117.3) | $(61.9) | $(209.0) | $(128.2) |
| Basic and diluted loss per share | $(1.07) | $(0.64) | $(1.97) | $(1.38) |
- Q2 revenue grew 6.8%; first-half revenue grew 7.8%, primarily from higher ARIKAYCE sales. Cost of product revenue rose faster than revenue, and gross margin declined year over year.
- R&D growth reflected increased clinical development spending, including ARIKAYCE’s confirmatory frontline program and the Phase 3 ASPEN trial for brensocatib. Management expected R&D expense to continue increasing in 2021, including for TPIP trials.
- Q2 interest expense was $10.3 million, versus $7.5 million a year earlier; first-half interest expense was $17.9 million, versus $14.9 million. First-half results also included a $17.7 million loss on extinguishment of debt.
- Cash and cash equivalents were $928.3 million at June 30, 2021, up from $532.8 million at year-end 2020. Working capital was $938.5 million. First-half operating cash use was $203.7 million, investing cash use was $4.7 million, and financing cash provided was $604.3 million.
- Debt had a $548.7 million carrying value and $800.0 million face value at June 30. The notes comprise $225 million of 1.75% convertible notes due 2025 and $575 million of 0.75% convertible notes due 2028.
Material changes versus the prior comparable period
- First-half R&D expense increased $54.1 million, or 75.2%, and SG&A increased $7.7 million, or 7.6%. The resulting operating and net losses widened substantially year over year.
- In May 2021, Insmed issued $575 million principal amount of 2028 convertible notes, receiving approximately $559 million net proceeds, and repurchased $225 million principal amount of 2025 notes. The repurchase generated the $17.7 million extinguishment loss.
- Insmed also issued 11.5 million common shares at $25 per share, receiving approximately $270 million net proceeds. Shares outstanding increased from 102.8 million at December 31, 2020 to 115.2 million at June 30, 2021. A separate at-the-market program of up to $250 million had not been used by quarter-end.
- ARIKAYCE received Japanese approval in March 2021 and launched there in July 2021. European commercial launches were underway in Germany and the Netherlands, with further launches dependent on local reimbursement.
Outlook, risks, and unusual items
- Management expected continuing operating losses and substantial cash needs to support ARIKAYCE commercialization and trials, brensocatib development, TPIP development, and other programs. It believed available funds were sufficient for at least the next 12 months, while noting that additional capital may be needed and could depend on market conditions.
- ARIKAYCE’s U.S. approval is accelerated and remains subject to post-marketing requirements. The ARISE and ENCORE trials are intended to support full approval; enrollment, trial results, regulatory review, and commercial acceptance remain important uncertainties.
- Brensocatib’s Phase 3 ASPEN trial was enrolling. Earlier Phase 2 results were positive, but efficacy and safety remain unconfirmed in the pivotal trial. TPIP was progressing from Phase 1 into planned patient studies; management anticipated preliminary proof-of-mechanism data in the second half of 2021 and planned a further PAH trial in Q4 2021.
- COVID-19 had not materially affected reported first-half results, but the company reported variable access to prescribers and uncertainty about future effects. Other risks include dependence on a limited number of manufacturers and suppliers, reimbursement and market uptake, clinical and regulatory outcomes, and financing needs.
- The three largest customers represented 78% of first-half gross product revenue. Ordinary-course legal matters were not expected by management to have a material adverse effect.
- As a subsequent event, Insmed acquired preclinical-stage Motus Biosciences and AlgaeneX in August 2021. Consideration includes $1.5 million cash for AlgaeneX, issued and potential future shares, and contingent payments or licensing-related amounts; the filing does not provide a fixed total acquisition cost.
Important facts for investors to verify
- ARIKAYCE sales growth, gross-margin trend, reimbursement, patient uptake, and customer concentration.
- Enrollment, timing, and outcomes of the ARISE, ENCORE, and ASPEN trials, and implications for regulatory approval and development spending.
- Cash burn relative to the stated 12-month liquidity assessment, and any future financing or dilution, including convertible-note conversion terms.
- Execution of commercial launches and reimbursement in Japan and additional European markets, alongside supply capacity and third-party manufacturer reliability.
- Clinical progress and safety findings for TPIP and brensocatib, and the eventual contingent consideration and dilution associated with the Motus and AlgaeneX acquisitions.