Insmed Incorporated — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Dollar amounts below are in millions unless stated otherwise. Comparisons are with Q1 2022, or December 31, 2022 for balance-sheet figures.
Business context
Insmed is a biopharmaceutical company whose only marketed product is ARIKAYCE, approved in the U.S., Europe and Japan for specified patients with MAC lung disease. Its pipeline includes brensocatib, TPIP and early-stage research programs, including gene therapy. The company expects continued operating losses while it funds development and commercialization.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / prior period |
|---|---|---|
| Net product revenue | $65.2 | $53.1; up 22.8% |
| Cost of product revenue, excluding amortization | $13.8; 21.2% of revenue | $12.2; 23.0% of revenue |
| Research and development expense | $127.9 | $84.4 |
| Selling, general and administrative expense | $79.9 | $56.7 |
| Operating loss | $(148.2) | $(89.8) |
| Net loss | $(159.8); $(1.17) per share | $(94.6); $(0.80) per share |
| Cash used in operating activities | $(146.3) | $(105.2) |
| Cash and cash equivalents | $968.9 | $1,074.0 at Dec. 31, 2022 |
| Marketable securities | $29.8 | $74.2 at Dec. 31, 2022 |
| Long-term debt, carrying value | $1,132.2 | $1,125.3 at Dec. 31, 2022 |
| Royalty financing liability | $150.2 | $148.0 at Dec. 31, 2022 |
| Working capital | $941.1 | $1,083.1 at Dec. 31, 2022 |
ARIKAYCE revenue grew in each reported geography: U.S. revenue was $49.1 million, Japan $13.2 million, and Europe and rest of world $3.0 million. The three largest customers represented 36%, 36% and 17% of gross product revenue, respectively. The company reported a shareholders’ deficit of $44.7 million, versus equity of $88.0 million at year-end 2022.
Material changes and unusual items
- Revenue increased $12.1 million, while R&D rose $43.5 million and SG&A rose $23.2 million. Management attributed the R&D increase chiefly to clinical and research activity, higher personnel costs, and a $10.3 million non-cash Vertuis acquisition expense. Higher SG&A reflected commercial-readiness work for brensocatib and increased personnel and external costs.
- Interest expense increased to $20.0 million from $3.3 million, primarily following the 2022 term loan and royalty financing. The company also recorded a $1.5 million expense from the change in fair value of its interest-rate swap.
- A $9.5 million gain from changes in the fair value of deferred and contingent consideration partially offset operating expenses. This is a non-cash valuation item and can vary with assumptions and the company’s share price.
- In January 2023, Insmed acquired preclinical-stage Vertuis as an asset acquisition. It issued 500,000 shares at closing and expensed $10.3 million for acquired research and development; additional contingent cash and share payments may become due.
- Cash, cash equivalents and marketable securities totaled approximately $998.7 million at quarter-end. Management said available funds were sufficient for at least the next 12 months, but noted that additional capital may be raised and that future financing depends on market conditions and business progress.
Outlook, risks and contingencies
- Management expected R&D and SG&A expenses to increase in 2023, reflecting clinical-trial spending and brensocatib commercial-readiness activities. It cited the ASPEN trial, ARIKAYCE confirmatory studies, TPIP studies and early-stage research as key cash requirements.
- Near-term milestones stated in the filing: topline ARIKAYCE ARISE data expected in Q3 2023; ENCORE enrollment expected to finish by year-end 2023; brensocatib ASPEN topline data expected in Q2 2024; TPIP interim blinded safety and tolerability data expected in H2 2023 and PH-ILD topline results in H1 2024; and a first gene-therapy clinical trial expected to begin in H2 2023. These are forward-looking expectations, not guarantees.
- ARIKAYCE has U.S. accelerated approval and requires confirmatory evidence for full approval. The filing identifies regulatory, safety, efficacy, patient enrollment, reimbursement, commercialization and third-party manufacturing risks. Germany pricing discussions remained unresolved; France reimbursement terms were agreed in January 2023, while national reimbursement pricing in Italy had not been agreed.
- The $350 million secured term loan bears interest at SOFR, subject to a 2.5% floor, plus 7.75%; interest may be paid partly in kind during the initial 24 months. Principal repayments are scheduled to start in 2026, potentially later subject to specified conditions. The OrbiMed royalty financing receives 4% of ARIKAYCE global net sales before September 2025, rising to 4.5% thereafter, and 0.75% of brensocatib global net sales if approved; payments are capped at 1.8x, or up to 1.9x under certain conditions.
- The company relies on a limited number of third-party manufacturers and a concentrated customer base. Management did not expect ordinary-course legal proceedings to have a material adverse effect. Disclosure controls were assessed as effective; no material change in internal control was reported.
Key facts for investors to verify
- ARIKAYCE sales growth, customer concentration and the sustainability of growth across the U.S., Japan and Europe.
- Cash burn relative to the approximately $998.7 million of cash and marketable securities, and whether management’s at-least-12-month liquidity assessment remains valid as trial and launch-readiness spending rises.
- Debt and royalty-financing costs, term-loan covenant compliance and the impact of royalty payments on future ARIKAYCE and potential brensocatib revenue.
- Progress and results of ARISE, ENCORE, ASPEN and TPIP studies, including whether expected timing and regulatory requirements are met.
- Commercialization, reimbursement and supply risks, including ARIKAYCE’s U.S. confirmatory requirements and European pricing access.
- Potential dilution from outstanding options, convertible notes and acquisition-related share issuances, as well as possible contingent payments tied to acquisitions.