Insmed Incorporated — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. Insmed is a development-stage biopharmaceutical company focused on inhaled treatments for serious lung infections, principally ARIKACE for cystic fibrosis (CF) and non-tuberculous mycobacterial (NTM) lung disease. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Financial results and liquidity
- Revenue: None in Q2 or the first half of 2012, versus $1.0 million and $2.6 million, respectively, in 2011. The former revenue streams ended after IPLEX inventory was depleted; first-half 2011 also included CISPLATIN license fees.
- Losses: Q2 net loss was $9.7 million ($0.39 per share), compared with $10.0 million ($0.40 per share) a year earlier. First-half net loss was $16.5 million ($0.67 per share), versus $16.9 million net loss in 2011; 2011 loss attributable to common stockholders was $26.1 million ($1.19 per share), including a $9.2 million non-cash preferred-stock beneficial-conversion charge.
- Operating costs: Q2 operating expenses were $10.0 million, down 13% from $11.5 million; first-half expenses were $17.2 million, down 16% from $20.5 million. R&D was $7.5 million in Q2 and $12.0 million for six months. Lower clinical-development and regulatory spending was partly offset by higher clinical manufacturing and toxicity-study costs. G&A was $2.5 million in Q2 and $5.2 million for six months.
- Margins: Not meaningful to assess with no current-period revenue.
- Cash flow: First-half operating cash use was $12.9 million, compared with $16.1 million in 2011. Investing activities provided $17.0 million, primarily from sales of short-term investments. Financing activities provided $9.7 million net from new borrowing. Cash and cash equivalents ended at $28.6 million.
- Liquidity: Cash, cash equivalents, short-term investments and certificate of deposit totaled $75.2 million at June 30, 2012, down from $78.4 million at year-end 2011. Current assets were $73.9 million and current liabilities $6.5 million.
- Debt: Insmed borrowed $10 million in June under a loan agreement with Hercules Technology Growth Capital (HTGC), receiving $9.7 million after costs. The balance-sheet carrying amount was $9.0 million after unamortized costs and warrant discount. The agreement allows a further $10 million draw through December 31, 2012. Debt bears interest at a stated minimum of 9.25%, has 12 months of initial interest-only payments, and is repayable in installments over 42 months. HTGC received a five-year warrant for 329,932 shares at $2.94 per share. The lender has a first lien on company assets except intellectual property.
Material changes and developments
- FDA clinical holds on ARIKACE were lifted in January 2012 for NTM and in May 2012 for CF patients with Pseudomonas infections. The holds had followed FDA review of a long-term rat inhalation carcinogenicity study.
- Insmed began a U.S. Phase 2 NTM study, TARGET-NTM, with the first patient dosed in June. It also began a European Phase 3 CF study, CLEAR-108, with Canadian participation. A nine-month dog inhalation toxicity study began in April.
- The FDA agreed to a revised U.S. CF trial population. Insmed deferred starting a U.S. Phase 3 CF study until it could review top-line CLEAR-108 results.
- In May, Insmed agreed to grant Premacure an exclusive worldwide license to develop, manufacture and commercialize IGF-1 with IGFBP-3 for complications of preterm birth, subject to specified third-party waivers. The agreement provides for diligence milestones and royalties.
- Insmed retained 1.76 million shares otherwise due to former Transave stockholders as security for potential indemnification related to an appraisal action.
Outlook, risks and contingencies
- Management stated that available funds were expected to cover financial needs for at least the next 12 months. The company expected continuing losses and no material revenues for at least several years; it provided no specific financial guidance.
- Management identified potential need for additional financing. If funds are unavailable or obtained on unfavorable terms, Insmed may need to delay, restrict or eliminate development programs, dispose of assets or technology, or cease operations.
- Clinical development faces regulatory, safety, efficacy, enrollment, manufacturing, timing and cost uncertainties. Product candidates may not receive approval or become commercial products.
- Two disclosed matters remain unresolved: the Cacchillo litigation, with trial scheduled for January 2013, and the Pilkiewicz appraisal action involving former Transave stockholders. Insmed said it could not estimate potential losses in either case and intends to defend them.
- Insmed reported recurring operating losses and an accumulated deficit of approximately $311 million. Management reported no material changes to the risk factors in its 2011 Form 10-K. Disclosure controls were assessed as effective at the reasonable-assurance level.
Investor verification points
- Track enrollment, safety and efficacy results for TARGET-NTM and CLEAR-108, and confirm the timing and implications of top-line CLEAR-108 results for the deferred U.S. CF Phase 3 plan.
- Review remaining FDA requirements and the outcomes of the ARIKACE toxicity work, including whether any new regulatory restrictions arise.
- Monitor cash burn, available liquidity, any draw of the remaining HTGC facility, and the effect of debt interest, repayment terms and asset lien on financing flexibility.
- Verify the Premacure license’s required waivers and subsequent development or royalty milestones.
- Follow the Cacchillo and Pilkiewicz proceedings, including potential financial exposure and the status of the 1.76 million-share holdback.