Insmed Incorporated — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Amounts are in U.S. dollars; financial figures below are in millions unless noted. Insmed is a clinical-stage biopharmaceutical company focused on ARIKAYCE for rare lung diseases and INS1009 for pulmonary arterial hypertension. It reported no revenue.
Financial performance and position
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $18.2 | $14.9 | $35.4 | $26.3 |
| General and administrative expense | $9.7 | $7.9 | $19.2 | $14.6 |
| Operating loss | $(28.0) | $(22.8) | $(54.7) | $(40.9) |
| Net loss | $(28.6) | $(23.2) | $(56.0) | $(37.5) |
| Net loss per share | $(0.47) | $(0.59) | $(1.01) | $(0.96) |
With no revenue, gross margin and profitability margins are not meaningful. R&D increases primarily reflected ARIKAYCE Phase 3 CONVERT trial activity and manufacturing, plus INS1009 research. G&A rose with headcount, stock-based compensation, European pre-commercial operations and global infrastructure.
- Cash and liquidity: Cash and cash equivalents were $335.0 million at June 30, 2015, versus $159.2 million at year-end 2014. Working capital was $299.0 million. Management said available funds should cover financial needs for at least the next 12 months.
- Cash flow, six months: Operating cash use was $49.1 million (prior year: $30.6 million); investing cash use was $2.2 million (prior year: $0.9 million); financing provided $227.1 million (prior year: $0.3 million). The operating cash use primarily supported ARIKAYCE clinical, regulatory and pre-commercial work.
- Financing and dilution: An April public offering of 11.5 million shares generated $222.9 million net proceeds. Shares outstanding rose from 49.8 million at December 31, 2014 to 61.7 million at June 30, 2015.
- Debt: $25.0 million outstanding at a fixed 9.25% interest rate; the full principal was classified as current and scheduled for repayment January 1, 2016. The loan allows a maturity extension to January 1, 2018, subject to qualifying financing proceeds and payment of a $250,000 fee. The filing does not state that Insmed elected the extension.
Material changes and operating developments
- Six-month net loss increased by $18.5 million year over year. Higher operating expenses and the absence of the prior-year $4.4 million state tax benefit contributed to the increase. The 2014 tax benefit arose from selling New Jersey tax-loss certificates.
- R&D expense increased 34.7% for the first half, including increased clinical development and manufacturing costs. Management expected R&D and G&A expenses to increase in 2015 versus 2014.
- European subsidiaries and pre-commercial infrastructure were being established in preparation for a potential ARIKAYCE launch; commercialization remained contingent on regulatory approval.
Outlook, risks and unusual items
- ARIKAYCE—NTM: The global Phase 3 CONVERT study was underway; management expected enrollment to complete approximately 12 months after trial initiation. The EU marketing application was under review, and Insmed expected to respond to EMA questions before year-end 2015. Approval and study outcomes were uncertain.
- ARIKAYCE—cystic fibrosis: The EU application also covered CF, but the EMA requested additional information comparing ARIKAYCE with TOBI Podhaler. Insmed said it might prioritize the NTM indication and defer the CF indication. A prior Phase 3 CF study met its non-inferiority endpoint versus inhaled tobramycin; the open-label safety study had concluded, with final results expected in the second half of 2015.
- Clinical caveat: In the Phase 2 NTM study, ARIKAYCE did not meet the prespecified primary endpoint (p=0.148), although the secondary culture-conversion endpoint favored ARIKAYCE (p=0.01). These were preliminary findings; adverse events leading to treatment discontinuation were more frequent in the ARIKAYCE group during the blinded phase.
- INS1009: The company expected to file an IND and begin a Phase 1 trial in Q4 2015; the proposed 505(b)(2) pathway remained subject to review of preclinical data.
- Funding and execution risks: Insmed expected continued losses and no material revenue for at least two years. It could seek additional capital; availability and terms were not assured. Clinical enrollment, regulatory review, manufacturing scale-up, product supply, approval, commercialization, reimbursement and competition were material uncertainties.
- Other items: The IRS selected the 2013 federal tax return for audit in July 2015. No significant subsequent event requiring adjustment or disclosure was identified. Ordinary-course legal matters were not expected by management to have a material adverse effect. Disclosure controls were deemed effective, and no material change in internal control was reported.
Important facts for investors to verify
- CONVERT enrollment progress, timing and eventual efficacy and safety results, particularly given the Phase 2 primary-endpoint miss.
- EMA responses, the scope and timing of any ARIKAYCE approval, and whether the CF indication is pursued or deferred.
- Actual cash burn versus management’s stated 12-month funding horizon, and any new financing or strategic transactions.
- Whether Insmed exercises the Hercules debt-maturity extension and how the debt is ultimately repaid.
- Manufacturing scale-up, supply readiness, commercialization costs and the timing of INS1009’s IND and Phase 1 plans.