Insmed Incorporated — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The company is a biopharmaceutical business focused on rare diseases; ARIKAYCE, launched in the U.S. in October 2018, was its only approved product. Financial statements were audited with an unqualified opinion, and the auditor also reported effective internal control over financial reporting.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $136.5 million | $9.8 million |
| Gross profit, before intangible amortization | $112.3 million | $7.4 million |
| Research and development | $131.7 million | $145.3 million |
| Selling, general and administrative | $210.8 million | $168.2 million |
| Operating loss | $235.2 million | $307.3 million |
| Net loss | $254.3 million | $324.3 million |
| Net loss per share, basic and diluted | $3.01 | $4.22 |
| Cash and cash equivalents at year-end | $487.4 million | $495.1 million |
| Net cash used in operating activities | $250.6 million | $258.0 million |
Revenue was principally U.S. ARIKAYCE sales: $132.1 million, plus $4.4 million from European early access programs. Gross profit was about 82% of revenue before intangible amortization. Including $5.0 million of amortization, operating expenses totaled $347.5 million. The company remained unprofitable and reported an accumulated deficit of $1.5 billion.
Working capital was $470.0 million at year-end. Investing activities used $42.3 million, mainly for Patheon manufacturing capacity and the new headquarters; financing activities provided $285.3 million, including $261.1 million net proceeds from a common-stock offering. Total liabilities were $480.6 million, including $335.9 million carrying value of long-term convertible debt. The notes have $450.0 million principal, a 1.75% coupon, and mature in 2025; their effective interest rate was 7.6%. Management said existing cash was expected to fund operations for at least 12 months.
Fourth-quarter 2019 revenue was $45.7 million, gross profit before intangible amortization was $37.0 million, operating loss was $47.1 million, and net loss was $53.0 million.
Changes and developments
- Revenue grew substantially from the partial 2018 launch year to a full year of ARIKAYCE sales in 2019.
- Net loss narrowed by $70.0 million year over year. R&D expense fell $13.6 million, primarily because certain ARIKAYCE manufacturing and capacity-related costs were capitalized or recorded outside R&D; SG&A rose $42.6 million, reflecting commercialization activity and a Cystic Fibrosis Foundation milestone.
- Cash decreased $7.6 million despite the equity offering. Shares outstanding increased to 89.7 million at year-end from 77.3 million a year earlier.
- Adoption of lease accounting added $47.4 million of right-of-use assets; the company reported finance and operating lease liabilities of $20.8 million and $40.3 million, respectively.
Outlook, risks and notable items
- Management expected continuing operating losses and substantial spending on ARIKAYCE commercialization, clinical programs, international expansion, and manufacturing scale-up. It said additional capital may be needed and could be raised through equity, debt, or strategic transactions.
- ARIKAYCE has U.S. accelerated approval for refractory MAC lung disease in a limited population. Full approval depends on a post-approval confirmatory trial; results were to be reported by 2024. The company was working with the FDA on trial design and a patient-reported-outcome tool and planned to begin a front-line MAC study in the second half of 2020.
- The European marketing application was filed in July 2019 and validated. The company planned a Japanese filing in the first quarter of 2020. These were prospective plans, not approvals.
- In February 2020, after year-end, Insmed reported positive top-line Phase 2 WILLOW results for INS1007: both doses met the primary time-to-first-exacerbation endpoint. Exacerbation-frequency reductions were 36% for 10 mg (p=0.041) and 25% for 25 mg (p=0.167); full results remained subject to further evaluation. The company planned a Phase 3 program.
- Key risks include dependence on ARIKAYCE’s adoption, reimbursement and safety profile; possible failure of the confirmatory study or loss of accelerated approval; reliance on a limited number of manufacturers and PARI as sole nebulizer supplier; clinical-development uncertainty; pricing and regulatory changes; and need for future financing. Three customers represented 79% of gross product revenue in 2019.
- Contractual obligations totaled $624.5 million, including $450.0 million debt principal, $82.0 million purchase obligations, $13.4 million CFFT milestones, and lease obligations. Additional contingent license milestones and royalties were not fully included in that total. Management said ordinary-course legal proceedings were not expected to have a material adverse effect.
Important facts for investors to verify
- ARIKAYCE sales growth, payer coverage, patient uptake, and the effect of rebates and other variable-revenue estimates.
- FDA agreement on the confirmatory trial and patient-reported-outcome tool, enrollment progress, and the timetable for full approval.
- Actual outcomes of the EU and Japan regulatory reviews and associated pricing and reimbursement decisions.
- Complete WILLOW data and the design, cost, and execution of the planned INS1007 Phase 3 program.
- Manufacturing capacity and supply continuity, including completion and qualification of Patheon’s facility and continued availability of Lamira devices.
- Cash burn, financing needs, dilution, and the company’s ability to meet debt, lease, purchase, and milestone commitments.