Insmed Incorporated — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual filing, not a standalone fourth-quarter report; ARIKAYCE sales began in October, so all 2018 revenue was reported in the fourth quarter.
Business context
Insmed is a biopharmaceutical company focused on rare diseases. ARIKAYCE, its first commercial product, received U.S. accelerated approval on September 28, 2018 for a limited population of adults with refractory MAC lung disease and limited or no alternative treatment options. Its pipeline includes INS1007, in a Phase 2 study for non-CF bronchiectasis, and earlier-stage INS1009 for rare pulmonary disorders including PAH.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $9.8 million | None |
| Operating loss | $307.3 million | $188.9 million |
| Net loss | $324.3 million | $192.6 million |
| Net loss per share, basic and diluted | $4.22 | $2.89 |
| Net cash used in operating activities | $258.0 million | $159.6 million |
| Cash and cash equivalents at year-end | $495.1 million | $381.2 million |
| Working capital at year-end | $439.2 million | $344.8 million |
2018 revenue comprised $9.265 million of U.S. product revenue and $0.570 million from France’s temporary authorization program. Product cost, excluding intangible amortization, was $2.4 million; the filing does not provide a meaningful full-year commercial margin because sales began late in the year. Total costs and expenses were $317.2 million.
R&D expense increased 32% to $145.3 million, primarily reflecting manufacturing investment and higher staffing, partly offset by lower clinical-trial costs. SG&A rose 113% to $168.2 million as Insmed built its commercial organization and prepared for launch. Interest expense increased to $25.5 million, principally due to the 2018 convertible notes and their accounting discount.
Operating cash use increased by $98.4 million year over year. Investing cash use was $14.8 million, mainly for manufacturing-capacity expansion; financing provided $386.7 million. Year-end current assets were $518.9 million and current liabilities $79.7 million. Accumulated deficit was $1.282 billion.
Debt and commitments
Insmed issued $450 million of 1.75% convertible senior notes due 2025, receiving approximately $435.8 million in net proceeds, and used proceeds in part to repay $55 million of Hercules debt. The notes’ year-end carrying amount was $316.6 million after unamortized discount and issuance costs; contractual principal due is $450 million. The initial conversion price was approximately $39.16 per share. Total contractual obligations disclosed were $626.3 million, including debt, interest, leases and purchase obligations. The filing estimates approximately $60 million for the ARIKAYCE capacity build-out with Patheon.
Changes, outlook and material risks
- ARIKAYCE commercialization began in the U.S. in October 2018, producing the company’s first product revenue. The FDA approval is accelerated and contingent on a confirmatory trial; Insmed expected to finalize its protocol in the first half of 2019 and report results by 2024. Continued approval depends on verifying clinical benefit.
- Management expected to complete WILLOW Phase 2 enrollment for INS1007 in mid-2019. It planned European ARIKAYCE filings in mid-2019 and Japanese filings in the first half of 2020, subject to supporting data and regulatory approval. These are stated plans, not guaranteed outcomes.
- Management said year-end cash was expected to fund operations for at least 12 months. It also expected continued operating losses and substantial spending on commercialization, clinical development, international filings and manufacturing; additional financing may be needed.
- Key risks include limited commercial acceptance and reimbursement, pricing pressure, failure or delay of the confirmatory study, safety findings, regulatory approval and expansion risks, and dependence on a small number of third-party manufacturers. PARI is the sole Lamira nebulizer supplier; Patheon’s supply depends on completion of technology transfer and facility work.
- Other notable items: a $2.2 million loss on extinguishment of Hercules debt; $1.2 million of intangible amortization; and a new headquarters lease with estimated minimum payments of $32.3 million. Management reported no legal matter expected to materially affect financial position, results or cash flows. The auditor gave unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- ARIKAYCE launch uptake, net sales, payer coverage, reimbursement and product returns or rebate estimates.
- Confirmatory-trial design, enrollment, timing and whether results establish clinical benefit sufficient to maintain full approval.
- Cash burn and runway relative to commercialization and clinical-development plans, and whether further capital raises are required.
- Convertible-note terms, potential dilution or cash settlement, and the company’s capacity to meet the $450 million principal obligation at maturity.
- Manufacturing scale-up, inventory shelf life and supply continuity, including Patheon readiness and reliance on PARI for Lamira.
- Progress and results for INS1007 and regulatory progress for ARIKAYCE in Europe and Japan.