Insmed Incorporated — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Insmed is a biopharmaceutical company whose first commercial product, ARIKAYCE, received U.S. accelerated approval in September 2018 and began shipping in October 2018. Figures below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $30.0 | $0 | $51.9 | $0 |
| Cost of product revenue, excluding amortization | $4.9 | $0 | $9.1 | $0 |
| Research and development | $33.5 | $35.7 | $64.7 | $65.8 |
| Selling, general and administrative | $52.4 | $37.2 | $107.2 | $69.8 |
| Operating loss | $(62.2) | $(72.9) | $(131.7) | $(135.6) |
| Net loss | $(66.5) | $(76.4) | $(140.7) | $(145.0) |
| Basic and diluted loss per share | $(0.81) | $(1.00) | $(1.77) | $(1.89) |
- Q2 revenue comprised $29.0 million of U.S. product revenue and $1.0 million from European early access programs (EAPs). Six-month amounts were $49.9 million and $1.9 million, respectively.
- Q2 product revenue less product costs was approximately $25.1 million, or 83.6% of revenue, before separately reported $1.2 million amortization of intangibles. This is not a full operating margin.
- Q2 SG&A rose $15.3 million year over year, primarily from ARIKAYCE commercial activity and increased headcount. Six-month SG&A rose $37.4 million. R&D declined modestly in both periods, largely because certain manufacturing costs were capitalized in inventory or classified as other assets rather than expensed.
- Cash and cash equivalents were $601.3 million at June 30, 2019, up from $495.1 million at year-end 2018; working capital was $562.9 million. Six-month operating cash use was $153.9 million, investing cash use $14.6 million, and financing cash provided $274.7 million. The prior-year comparable figures were $122.3 million, $8.2 million, and $383.7 million, respectively.
- Debt comprised $450.0 million principal of 1.75% convertible senior notes due 2025, carried at $326.1 million net of discount and issuance costs. The company reported $13.5 million of six-month interest expense. Lease liabilities were $42.7 million.
Material changes and business developments
- ARIKAYCE generated its first meaningful commercial revenue; there was no product revenue in the comparable 2018 periods, before U.S. approval and launch.
- In Q2, the company issued 10.7 million shares in an underwritten offering at $26 per share and received $261.2 million net proceeds. The offering included 400,000 shares sold by the CEO, for which the company received no proceeds.
- Operating expenses reflect continued U.S. launch investment. Management attributed lower R&D expense mainly to manufacturing costs moving into inventory, offset partly by higher personnel and INS1007 trial spending.
- The company adopted lease accounting effective January 1, 2019, recording approximately $47.4 million of right-of-use assets and related lease liabilities at adoption. A new headquarters finance lease was expected to commence in the second half of 2019, with an estimated balance-sheet impact of $20–$25 million.
Outlook, risks and other matters
- Management said existing funds were sufficient for at least the next 12 months, while noting substantial expected cash needs and possible future financing. Planned spending includes the U.S. ARIKAYCE launch, ARIKAYCE trials, INS1007 development, and pre-commercial and regulatory work in Europe and Japan.
- The company expected 2019 investing cash use to increase, mainly for headquarters construction and manufacturing equipment and capacity expansion at Patheon.
- ARIKAYCE’s U.S. approval is accelerated and contingent on a confirmatory trial for full approval. The company was working with the FDA on trial design and a patient-reported outcome tool. It filed an EU marketing authorization application in July 2019, subsequently validated by the EMA, and intended to file in Japan in the first half of 2020.
- WILLOW, a Phase 2 INS1007 study in non-CF bronchiectasis, completed enrollment in May 2019; top-line data were expected in Q1 2020. INS1009 development options remained under evaluation, including a dry-powder formulation.
- Key risks include commercial uptake and reimbursement, maintaining or obtaining regulatory approvals, completing the ARIKAYCE confirmatory study, clinical and safety outcomes, manufacturing and supply dependence, and the need for future capital. Three customers represented 31%, 30%, and 19% of six-month gross product revenue, respectively.
- Management did not expect ordinary-course legal proceedings to have a material adverse effect. The filing reported no material changes to previously disclosed risk factors and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether ARIKAYCE sales, customer concentration, reimbursement, and net revenue adjustments develop as expected.
- Progress and timing of the FDA-required confirmatory trial and the status of U.S., European, and Japanese regulatory plans.
- WILLOW top-line results and subsequent development decisions for INS1007 and INS1009.
- Cash consumption relative to management’s at-least-12-month funding statement, and any need for additional financing or dilution.
- Manufacturing capacity expansion, supply reliability, and the timing and costs of the Patheon and headquarters build-outs.