Insmed Incorporated — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. Insmed is a clinical-stage biopharmaceutical company focused on rare diseases. Its lead candidate, ARIKAYCE (ALIS), was in Phase 3 development for treatment-refractory NTM lung disease caused by MAC. The company reported no revenue.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| R&D expense | $26.9m | $23.9m | $49.1m | $44.4m |
| G&A expense | $16.6m | $12.3m | $30.4m | $24.8m |
| Net loss | $44.7m | $36.6m | $82.1m | $70.1m |
| Loss per share, diluted | $0.72 | $0.59 | $1.32 | $1.13 |
| Operating cash used | — | — | $73.2m | $57.8m |
- At June 30, 2017, cash and cash equivalents were $91.1m, down from $162.6m at December 31, 2016. Working capital was $70.3m, versus $140.4m.
- Six-month investing cash use was $0.9m, mainly for facility build-out; financing provided $2.4m from stock-option exercises. Cash decreased $71.5m during the period.
- Long-term debt was $55.2m carrying value, representing $55.0m principal; the debt bears interest at 9.25%. Current liabilities were $26.3m. The loan matures October 2020 and includes a $25m minimum-cash covenant, subject to stated termination conditions.
- Operating margins are not meaningful because the company had no revenue and incurred operating losses. No material revenue from ALIS was expected before marketing approval.
Changes versus prior year
- Q2 net loss increased $8.1m; six-month net loss increased $12.0m. Higher R&D reflected INS1007 trial start-up costs and increased headcount, partly offset by lower ALIS manufacturing costs.
- G&A rose $4.4m in Q2 and $5.6m for six months, driven mainly by pre-commercial planning and higher personnel costs.
- Interest expense increased $0.9m in Q2 and $1.7m for six months, primarily reflecting increased Hercules borrowings in 2016.
- Operating cash use increased $15.4m year over year for the first six months.
Outlook, risks and unusual items
- Management expected top-line CONVERT Phase 3 results in September 2017, plus or minus one month; all remaining patients had progressed beyond Month 6 by July 2017. If the study met its primary endpoint, Insmed intended to seek accelerated U.S. approval.
- Insmed expected to begin WILLOW Phase 2 enrollment for INS1007 in the second half of 2017, pending the IND becoming effective. It was evaluating options for advancing INS1009.
- Management said funds could meet needs for at least 12 months only if significant spending reductions were made. The company expected to seek additional capital within 12 months; financing availability and terms were uncertain. Failure to raise funds could force delays or cuts to development and pre-commercial activities.
- Key risks include clinical-trial results and timing, regulatory approval, manufacturing and supply, commercialization and reimbursement, financing needs, debt repayment, and intellectual-property protection.
- A securities class action remained pending, alleging misrepresentations concerning ALIS and the company’s 2015 offering. The company denied the allegations and stated it would defend the case; outcome and damages were uncertain.
- The company reported no material changes to its previously disclosed risk factors, no material off-balance-sheet arrangements other than operating leases, and effective disclosure controls.
Important facts for investors to verify
- CONVERT results, their implications for an NDA, and subsequent regulatory decisions.
- Cash burn, financing plans, and compliance with the Hercules minimum-liquidity covenant.
- Progress toward the INS1007 IND and WILLOW enrollment timetable.
- Potential litigation developments and any resulting financial exposure.
- Commercial-launch costs and the timing of any revenue, which depended on regulatory approval.