Business context and reporting period
Insmed Incorporated is a global biopharmaceutical company. This unaudited Form 10-Q reports the quarter and nine months ended September 30, 2021. ARIKAYCE, its only commercial product, is approved for certain MAC lung disease patients in the U.S., Europe and Japan. Its clinical pipeline includes brensocatib and TPIP.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net product revenue | $46.8m | $43.6m | $132.3m | $123.0m |
| Operating loss | $103.6m | $56.2m | $276.0m | $170.7m |
| Net loss | $112.7m | $63.7m | $321.7m | $191.9m |
| Net loss per share, diluted | $0.96 | $0.63 | $2.93 | $2.00 |
| Operating cash used | — | — | $279.2m | $152.6m |
ARIKAYCE revenue increased 7.1% in Q3 and 7.6% for the nine-month period. Cost of product revenue, excluding intangible amortization, was 21.8% of revenue in Q3 and 23.3% year to date, implying product gross margins of approximately 78.2% and 76.7%, respectively.
At September 30, 2021, cash and cash equivalents were $846.6m, up from $532.8m at year-end 2020; working capital was $846.5m. Total assets were $1.312bn and shareholders’ equity was $504.8m. Convertible notes had $800m face value and $557.6m net carrying value: $225m of 1.75% notes due 2025 and $575m of 0.75% notes due 2028. Cash increased $313.8m over the nine months, mainly reflecting debt and equity offerings.
Changes versus the prior comparable periods
- Revenue growth was modest relative to rising costs: Q3 R&D increased 69.9% to $70.3m and SG&A increased 29.4% to $60.3m. Nine-month R&D rose 73.3% to $196.4m and SG&A rose 14.5% to $169.0m.
- Cash used in operations increased to $279.2m from $152.6m, principally due to clinical-development spending and working-capital changes.
- In May, the company issued $575m of 2028 convertible notes and raised approximately $270m net from a common-stock offering. It used proceeds in part to repurchase $225m of 2025 notes.
- Shares outstanding increased to 118.4m from 102.8m at December 31, 2020, including the May equity offering and shares issued for the acquisition.
Outlook, commentary, risks and unusual items
- Management said available funds should meet financial needs for at least the next 12 months, while noting substantial expected cash requirements, continuing operating losses and potential need for additional capital. No formal revenue or earnings guidance was provided; R&D expenses were expected to continue increasing in 2021.
- ARIKAYCE launches included Japan in July 2021 and Wales in September; further European launches depend on local reimbursement. The ARISE and ENCORE trials are underway to support frontline use and address the FDA post-marketing requirement for full approval.
- Brensocatib’s Phase 3 ASPEN trial was enrolling; management also expected to share results from a Phase 2 CF study in 2022. TPIP patient studies were planned, with preliminary PAH data anticipated by year-end 2021 and a PH-ILD Phase 2 study planned for early 2022.
- The August acquisition of Motus Biosciences and AlgaeneX had approximately $165.5m of estimated consideration, including $136.1m of goodwill and $29.6m of acquired in-process R&D. Contingent and deferred consideration valuations are subject to estimation and future changes; the filing records an $8.3m fair-value expense in 2021.
- The nine-month results include a $17.7m loss on extinguishment of debt. Interest expense rose to $29.1m from $22.1m, largely due to accretion of debt discounts.
- Risks include dependence on ARIKAYCE and its acceptance, reimbursement and supply; the need to complete confirmatory and pipeline trials; clinical and regulatory uncertainty; reliance on third-party manufacturers; and potential financing needs. COVID-19 had not materially affected results through Q3, but future effects remained uncertain. Three customers represented 77% of gross product revenue for the nine months.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The Chief Compliance Officer announced a resignation, effective October 28, 2021, citing disagreement with the U.S. employee COVID-19 vaccine requirement; the filing said there was no other compliance or quality disagreement.
Important facts for investors to verify
- Whether ARIKAYCE sales growth, international launches and reimbursement access can accelerate enough to offset rising operating costs.
- Enrollment, timelines and outcomes for ARISE, ENCORE, ASPEN and TPIP studies, and the implications for regulatory approval and commercialization.
- Cash runway under continued operating cash use, and whether additional financing or equity issuance will be required.
- Potential dilution and cash obligations from convertible notes and Motus/AlgaeneX milestone consideration; also monitor the acquisition’s preliminary purchase-price allocation.
- Customer concentration, manufacturing capacity and supplier performance, alongside COVID-19 and other operational risks.