Insmed Incorporated — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Insmed is a biopharmaceutical company commercializing ARIKAYCE for refractory MAC lung disease and developing brensocatib and treprostinil palmitil. Amounts below are in millions of dollars except per-share data.
Financial performance and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net revenue | $42.5 | $30.0 | $79.4 | $51.9 |
| Gross profit | $32.5 | $25.1 | $61.0 | $42.8 |
| Gross margin | 76.6% | 83.6% | 76.8% | 82.5% |
| Operating expenses | $86.7 | $87.2 | $175.4 | $174.5 |
| Operating loss | $(54.1) | $(62.2) | $(114.5) | $(131.7) |
| Net loss | $(61.9) | $(66.5) | $(128.2) | $(140.7) |
| Basic and diluted loss per share | $(0.64) | $(0.81) | $(1.38) | $(1.77) |
- Q2 U.S. ARIKAYCE revenue was $41.0 million, up 41.4%; early access program revenue was $1.5 million. Six-month revenue growth was 53.0% overall.
- Cost of product revenue rose faster than sales: it was 23.4% of revenue in Q2 versus 16.4% a year earlier, and 23.2% for the first half versus 17.5%. Management expects this ratio to be higher in 2020 than in 2019, partly reflecting less use of inventory costs expensed before FDA approval.
- For the first six months, operating cash used was $93.9 million, compared with $153.9 million in 2019. Investing cash used was $4.6 million; financing provided $252.9 million. Cash increased $154.5 million to $641.9 million.
- At June 30, current assets were $707.3 million and current liabilities $78.8 million; working capital was $628.6 million. Total liabilities were $480.0 million.
- Convertible notes have $450.0 million principal outstanding, bear a 1.75% coupon, and mature in 2025. Their balance-sheet carrying value was $346.0 million, net of unamortized discount and issuance costs. Six-month interest expense was $14.9 million.
- In Q2, Insmed issued 11.155 million shares at $23.25 per share, receiving $245.9 million net proceeds. Shares outstanding were 101.4 million at June 30 and 101.5 million on August 3.
Material changes versus prior year
- Revenue grew substantially on ARIKAYCE sales, while gross margin declined as product costs increased and the mix of inventory sold shifted.
- Six-month operating loss narrowed by $17.2 million and net loss by $12.4 million. Revenue and gross profit growth contributed; R&D expense increased $7.2 million, while SG&A declined $6.2 million.
- R&D growth reflected higher compensation, manufacturing, and regulatory/medical affairs costs, partly offset by lower clinical development and research costs. Lower SG&A primarily reflected reduced professional and external expenses, including postponed commercial activities and a prior-year milestone.
- Cash and equity increased following the public offering; common shares outstanding rose from 89.7 million at year-end 2019 to 101.4 million at June 30, 2020.
Outlook, developments, and risks
- Management said available funds were sufficient for at least the next 12 months, while noting continued operating losses, substantial expected cash needs, and possible future financing requirements. Spending priorities include ARIKAYCE commercialization and trials, brensocatib development, and pre-commercial and regulatory work in Europe and Japan.
- ARIKAYCE had U.S. accelerated approval; full approval remains contingent on a confirmatory study. Insmed planned to begin that study and a patient-reported-outcome tool validation study by year-end 2020, subject to FDA alignment. Japan’s application was under review. In July 2020, after quarter-end, the EMA committee issued a positive recommendation; a European Commission decision was anticipated in the second half of 2020.
- Brensocatib’s Phase 2 WILLOW study met its primary endpoint at both doses. The 10 mg dose reduced exacerbation rate by 36% (p=0.041); the 25 mg dose reduction was 25% (p=0.167). Skin events were more frequent in the 25 mg group than placebo. FDA granted breakthrough therapy designation, and Insmed expected to initiate a Phase 3 program by year-end 2020, subject to FDA discussions.
- The company was funding and supplying brensocatib for an investigator-sponsored UK COVID-19 trial of up to 300 hospitalized patients. A Phase 1 study of dry-powder treprostinil palmitil was planned by year-end 2020.
- COVID-19 had not materially affected reported first-half results, and no supply disruption had occurred. However, prescriber access remained limited and regionally variable; future effects on commercialization, clinical trials, and manufacturing were uncertain. Insmed reported sufficient ARIKAYCE active ingredient through the end of 2022 for anticipated global needs.
- Additional risks include dependence on a limited number of contract manufacturers, concentration among three customers representing 78% of first-half gross product revenue, ARIKAYCE’s accelerated-approval obligations and market acceptance, trial and regulatory uncertainty, and potential need for additional capital. Ordinary-course legal proceedings were not expected by management to have a material adverse effect.
Important facts for investors to verify
- Whether ARIKAYCE sales growth and patient uptake persist, particularly amid COVID-19-related limits on prescriber access.
- Progress and timing of the FDA confirmatory study and PRO validation, and the status of European and Japanese regulatory decisions.
- Phase 3 design, timing, and confirmatory results for brensocatib, including the clinical significance and safety profile of WILLOW findings.
- Cash burn against the stated minimum 12-month funding outlook, and whether additional financing is needed; consider dilution from equity issuance and potential conversion of the notes.
- ARIKAYCE manufacturing capacity, third-party supplier resilience, customer concentration, and the expected trajectory of product costs and gross margin.