Insmed Incorporated — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Insmed is a clinical-stage biopharmaceutical company focused on rare diseases. It reported no revenue and has not generated material revenue from its lead candidate, ALIS.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 / prior period |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $30.1 million | $22.3 million |
| General and administrative expense | $32.7 million | $13.7 million |
| Operating loss | $62.8 million | $36.0 million |
| Net loss | $68.5 million; $0.89 per share | $37.4 million; $0.60 per share |
| Operating cash used | $68.0 million | $36.9 million |
| Investing cash used | $5.4 million | $0.4 million |
| Cash and cash equivalents | $686.6 million | $381.2 million at December 31, 2017 |
| Working capital | $661.6 million | $344.8 million at December 31, 2017 |
The operating loss increased as costs rose ahead of potential ALIS commercialization; margins are not meaningful given the absence of revenue. R&D expense rose 35%, principally from ALIS manufacturing, commercial inventory preparation and increased headcount. G&A expense rose 138%, driven by pre-commercial planning, field-force hiring and related costs.
Net financing cash provided was $378.8 million, including approximately $435.9 million net proceeds from $450 million of 1.75% convertible senior notes due 2025, partly offset by repayment of $55 million principal on Hercules debt. The Hercules payoff also involved fees, interest and prepayment penalties and resulted in a $2.2 million extinguishment loss. At quarter-end, notes had a $302.7 million net carrying value and $450 million principal due in 2025. Total liabilities were $338.3 million. Contractual obligations totaled $513.2 million, including debt principal, interest, leases and purchase obligations.
Business developments, outlook and risks
- ALIS: Insmed submitted an FDA new drug application in late March 2018, seeking accelerated approval based on the CONVERT study’s six-month culture-conversion results. The study’s primary endpoint was met: 29% conversion with ALIS plus guideline-based therapy versus 9% with guideline-based therapy alone (p<0.0001). The company expected FDA to determine within 60 days whether the application was accepted for filing and expected a six-month priority review; these were expectations, not reported outcomes.
- Full approval could depend on FDA review of durability data and post-approval studies to verify clinical benefit. Interim durability results were limited: 28 of 46 evaluable ALIS-arm converters (60.9%) maintained conversion three months after treatment; none of seven evaluable control-arm converters did. The company cautioned that interim data had not been further analyzed.
- CONVERT safety data showed treatment-emergent adverse events in approximately 98% of ALIS-arm patients versus 91% of controls; serious events occurred in 20.2% versus 17.9%. The ALIS arm had a higher dropout rate. The filing identifies regulatory, safety, efficacy, manufacturing and commercialization execution as material risks.
- Other pipeline: INS1007 was enrolling in the phase 2 WILLOW study for non-CF bronchiectasis, with enrollment expected to continue during 2018. INS1009 remained earlier-stage; the company was evaluating development options, including a dry-powder formulation.
- Management outlook: Insmed expected operating expenses to increase significantly in 2018, with cash needs driven mainly by ALIS clinical, manufacturing and pre-commercial activities. It believed existing funds were sufficient for at least 12 months from the filing, while noting that additional capital might be needed. No revenue or earnings guidance was provided.
- The company reported the securities class action was dismissed with prejudice and the appeal deadline had passed; it considered the matter closed. Management reported no material change to previously disclosed risk factors and no material adverse effect expected from other ordinary-course legal matters.
Most important facts for investors to verify
- FDA filing acceptance, review timing, approval decision and any requested analyses or additional studies for ALIS.
- Final CONVERT durability and safety results, 312 extension-study results, and implications for accelerated or full approval.
- ALIS manufacturing readiness, commercial launch costs and whether actual spending tracks management’s expectation of significantly higher 2018 expenses.
- Cash runway relative to operating cash burn, and the effects of convertible-note interest, potential conversion and future financing needs.
- WILLOW enrollment and subsequent INS1007 results, alongside development decisions for INS1009.