Insmed Incorporated — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Financial statements are unaudited. Insmed is a clinical-stage biopharmaceutical company; its lead candidate, ARIKAYCE, was in Phase 3 development for treatment-refractory NTM lung disease. The company reported no revenue in the periods presented.
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $23.4 million | $19.2 million | $67.9 million | $54.6 million |
| General and administrative | $13.7 million | $11.0 million | $38.5 million | $30.3 million |
| Net loss | $37.8 million | $31.0 million | $107.9 million | $86.9 million |
| Net loss per share, diluted | $0.61 | $0.50 | $1.74 | $1.51 |
| Cash used in operating activities | Not separately stated | Not separately stated | $88.7 million | $73.2 million |
For the nine months, R&D increased 24% and G&A increased 27% year over year. Higher clinical-trial spending, particularly for CONVERT, increased R&D; higher headcount and pre-commercial spending increased both expense categories. Lower manufacturing costs partly offset R&D growth. No operating margin is meaningful given the absence of revenue.
At September 30, cash and cash equivalents were $200.5 million, down from $282.9 million at December 31, 2015. Working capital was $182.8 million. Total assets were $276.6 million and shareholders’ equity was $217.8 million. Debt had $35.0 million principal outstanding and a $34.7 million carrying value; the facility’s stated minimum rate was 9.25%, with a backend fee. Management said available funds were sufficient for at least the next 12 months, while noting that additional capital may be needed.
Material changes, outlook and key developments
- Net loss widened by $6.8 million in Q3 and $20.9 million for the nine-month period versus 2015, mainly reflecting increased R&D and G&A.
- CONVERT enrollment objectives had been achieved; Insmed expected top-line results for the Month 6 primary endpoint in 2017. If successful, the company intended to pursue accelerated U.S. approval. The company said R&D expense was expected to increase in 2016, primarily due to CONVERT, and expected further clinical and commercialization-preparation spending.
- The EMA concluded the existing ARIKAYCE application did not provide enough evidence to support approval; Insmed withdrew the European application in June 2016 and planned to resubmit when CONVERT data were available.
- In October 2016, Insmed licensed global exclusive rights to INS1007 from AstraZeneca. It paid a $30 million upfront fee in November, expected to be recorded as Q4 R&D expense, and borrowed an additional $20 million under its Hercules facility in October. The agreement includes up to $85 million in development and regulatory milestones, tiered royalties on sales, and a possible $35 million payment upon reaching $1 billion in annual sales.
- The amended Hercules facility provided up to $55 million in total commitments. At September 30, $35 million had been borrowed; the additional $20 million was drawn in October. Interest-only payments extend through May 2018, subject to possible extension, and maturity is October 2020. The loan is secured by a first lien on company assets other than intellectual property, includes a $25 million minimum cash-liquidity covenant, and imposes prepayment penalties.
- A purported securities class action alleges misstatements about prospects for EMA approval and European commercialization of ARIKAYCE. Damages sought are unspecified; the company disputes the allegations and intends to defend the case. Outcome is uncertain.
Risks and contingencies
- Insmed remains pre-revenue and depends on financing while funding trials, regulatory work, and possible commercial launch preparations. It cautioned that capital may not be available on acceptable terms or at all.
- ARIKAYCE’s regulatory prospects depend on clinical results and regulatory review; accelerated approval, if granted, could require confirmatory studies. The company’s prior European application was withdrawn after the EMA’s negative assessment.
- The company relies on third parties for drug manufacturing and supply, and on PARI as the sole supplier of the eFlow nebulizer. Supply, quality, scale-up, or regulatory-compliance issues could delay trials or commercialization.
- Clinical enrollment, product safety and efficacy, intellectual-property disputes, and the AstraZeneca license’s development obligations are additional risks. The securities lawsuit may entail costs and uncertainty.
- Contractual obligations disclosed at September 30 totaled $54.8 million, including debt principal and interest, leases, and purchase obligations; this excludes contingent license milestones and royalties.
Important facts for investors to verify
- Whether CONVERT delivered the anticipated Month 6 results in 2017 and supported an NDA or accelerated-approval filing.
- Cash runway after the October $20 million borrowing and November $30 million INS1007 upfront payment, including expected trial and launch-preparation spending.
- Progress and costs for INS1007, including the planned Phase 2 study, milestone obligations, and potential future royalties.
- Manufacturing readiness and supply capacity for ARIKAYCE and the eFlow nebulizer, alongside regulatory requirements.
- Developments in the securities class action and the outcome of any renewed European regulatory application.