Insmed Incorporated — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. The filing was signed November 6, 2015. Insmed is a clinical-stage biopharmaceutical company; it reported no revenue.
Financial results and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $19.2 million | $15.2 million | $54.6 million | $41.5 million |
| General and administrative | $11.0 million | $8.2 million | $30.3 million | $22.8 million |
| Net loss | $31.0 million | $24.0 million | $86.9 million | $61.5 million |
| Basic and diluted loss per share | $0.50 | $0.54 | $1.51 | $1.50 |
- Operating loss was $30.2 million in Q3 and $84.9 million for the first nine months. Profit margins are not meaningful because the company had no revenue.
- Operating cash outflow was $73.2 million for the first nine months, versus $51.5 million in 2014; investing outflow was $3.0 million. Financing provided $227.9 million, principally from the April equity offering.
- Cash and cash equivalents were $311.0 million at September 30, up from $159.2 million at year-end 2014. Working capital was $272.6 million. Management said funds were sufficient for at least the next 12 months.
- Debt carrying value was approximately $25.3 million, at a fixed 9.25% rate. It was classified as current and scheduled to mature January 1, 2016. The company qualified for an option to extend maturity to January 1, 2018, subject to election and a $250,000 fee.
Changes versus prior period
- Q3 net loss increased $7.0 million year over year; nine-month net loss increased $25.4 million. Higher clinical and research spending, pre-commercial and European operating costs, and stock-based compensation were key factors.
- Nine-month R&D expense rose 31.7%, driven principally by CONVERT trial activity, INS1009 research, and manufacturing. Nine-month G&A expense rose 32.7%, reflecting higher compensation, European pre-commercialization and infrastructure costs.
- The 2014 nine-month comparison included a $4.4 million tax benefit from sales of New Jersey tax attributes; there was no corresponding benefit in 2015.
- In April 2015, Insmed raised $222.9 million net through an offering of 11.5 million shares, increasing shares outstanding and strengthening cash resources.
Outlook, developments and risks
- ARIKAYCE: The lead candidate was in the global Phase 3 CONVERT study for refractory MAC-related NTM lung disease. Management expected enrollment completion about 18–24 months after trial initiation and anticipated responding to EMA questions before year-end 2015. The EMA had accepted the application for review, but approval was uncertain.
- The company withdrew the Pseudomonas indication from its European application after an EMA request for additional information concerning similarity to TobiPodhaler; it chose to focus resources on the NTM indication.
- Prior Phase 2 results were mixed: ARIKAYCE did not meet the prespecified primary endpoint (p=0.148), although the secondary culture-conversion endpoint favored ARIKAYCE (p=0.01). The filing described subsequent culture-conversion analyses as preliminary.
- INS1009: The company had submitted an IND and expected to begin a Phase 1 single-ascending-dose study in healthy subjects in Q4 2015.
- Management expected R&D and G&A expenses to increase in 2015 versus 2014, and did not expect material revenues for at least two years. Future cash needs depend notably on CONVERT enrollment and costs, regulatory outcomes, manufacturing, and launch preparations. Additional capital may be needed; availability and terms are not assured.
- Manufacturing is a key risk: Althea supplies ARIKAYCE and may terminate without cause on 24 months’ notice. Therapure was being developed as a larger-scale alternative, but successful technology transfer and regulatory approval were uncertain. The Althea agreement includes a minimum annual payment of $2.7 million through its initial term ending December 2017.
- Other commitments include $5.4 million of purchase obligations in the contractual-obligations table and a Synteract estimate of approximately $33 million for CONVERT study services. Potential PARI milestones and royalties, and contingent Cystic Fibrosis Foundation payments, were not included in that table.
- Ordinary-course legal proceedings were not expected by management to have a material adverse effect. Management reported effective disclosure controls; the company implemented a company-wide ERP system in September and said related controls were operating effectively.
Important facts for investors to verify
- CONVERT enrollment, timing, safety and efficacy outcomes, and whether results support regulatory filings.
- EMA review progress and any impact of withdrawing the Pseudomonas indication; U.S. regulatory pathway and timing.
- Whether the debt extension option was elected and how the January 2016 maturity was addressed.
- Cash burn and runway relative to trial, manufacturing, commercialization and other contractual costs; whether additional financing is required.
- Therapure manufacturing scale-up, process transfer and regulatory readiness, as well as continued ARIKAYCE supply from Althea.
- INS1009 Phase 1 initiation and results, and the dilution implications of outstanding options and future financing.