Insmed Incorporated — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Financial statements are unaudited. Insmed is a clinical-stage biopharmaceutical company developing treatments for rare diseases; it had no revenue in the periods presented.
Financial results and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $26.7 million | $23.4 million | $75.8 million | $67.9 million |
| General and administrative | $17.4 million | $13.7 million | $47.8 million | $38.5 million |
| Operating loss | $44.1 million | $37.1 million | $123.6 million | $106.3 million |
| Net loss | $45.2 million | $37.8 million | $127.3 million | $107.9 million |
| Basic and diluted loss per share | $0.69 | $0.61 | $2.01 | $1.74 |
- Margins: Not meaningful because the company reported no revenue.
- Cash and liquidity: Cash and cash equivalents were $430.7 million at September 30, 2017, versus $162.6 million at December 31, 2016; working capital was $408.7 million. The cash increase primarily reflects $377.7 million of net proceeds from a September public stock offering.
- Cash flow: Nine-month operating cash use was $111.4 million, investing cash use was $1.3 million, and financing cash provided was $380.7 million. Cash at period end was $430.7 million.
- Debt: Long-term debt was $55.4 million net of unamortized issuance costs. The $55.0 million principal bears interest at 9.25%; interest-only payments extend through May 1, 2019, with maturity on October 1, 2020. The debt is secured by company assets other than intellectual property.
- Balance sheet: Total assets were $506.2 million, total liabilities $84.9 million, and accumulated deficit $892.5 million.
Changes versus the prior comparable periods
- Q3 net loss increased $7.4 million year over year; nine-month net loss increased $19.4 million. Higher R&D, pre-commercialization and general and administrative costs, and higher interest expense were primary drivers.
- Q3 R&D rose 13.8%, chiefly due to ALIS and INS1007 clinical work and ALIS regulatory activity. Nine-month R&D rose 11.7%; lower INS1009 research and ALIS manufacturing costs partly offset increases.
- Q3 G&A rose 26.9%, including higher pre-commercial planning costs and compensation. Nine-month G&A rose 24.1%, mainly reflecting pre-commercial consulting and increased headcount.
- Shares outstanding increased following the September offering of 14.1 million shares at $28.50 per share; net proceeds were $377.7 million.
Business developments, outlook and risks
- ALIS: The lead candidate is being developed for treatment-refractory NTM lung disease caused by MAC. Top-line six-month CONVERT results announced September 5 showed culture conversion in 29% of patients receiving ALIS plus guideline-based therapy versus 9% receiving guideline-based therapy alone (p<0.0001). Time to conversion was approximately 30% longer in the control arm. The company plans to seek U.S. accelerated approval under Subpart H, subject to complete data and FDA review; full approval may depend on durability and confirmatory evidence.
- CONVERT safety: At least one treatment-emergent adverse event was reported in approximately 98% of the ALIS arm and 91% of the control arm; serious events were reported in 20.2% and 17.9%, respectively. Dropout rates were 19.6% and 8.9%. These are preliminary top-line results; the filing cautions that full and later study data may differ.
- Pipeline: The company expected to start enrollment in the phase 2 WILLOW study of INS1007 in non-CF bronchiectasis in Q4 2017. INS1009 remained under evaluation, including possible dry-powder development.
- Spending and financing outlook: Management believed existing funds were sufficient for at least the next 12 months, but expected substantial ongoing losses and future capital needs. It expected operating expenses and capital expenditures to increase significantly in 2018 due to ALIS launch preparation, clinical trials and overhead. Future financing may be pursued, but availability and terms are uncertain.
- Manufacturing and commitments: ALIS supplier purchase commitments increased after CONVERT top-line results. In October 2017, Insmed entered agreements with Patheon to expand long-term commercial production capacity, with investment expected over three to four years. Reported contractual obligations totaled $81.5 million, including debt, interest, leases and purchase obligations; this excludes uncertain license milestones and royalties.
- Subsequent event: In October 2017, Insmed exercised an option to buy down future royalties payable to PARI; the payment was to be recorded in Q4 2017. The filing does not state the payment amount.
- Key risks: ALIS approval and commercialization are uncertain; FDA review may require additional data, and the eFlow nebulizer and human-factors study present regulatory dependencies. The company relies on third-party manufacturers and a sole nebulizer supplier. Other risks include reimbursement and market uptake, further financing and dilution, debt covenants, and a pending securities class action. Insmed said it intended to defend the lawsuit; the outcome and potential damages were uncertain.
Important facts for investors to verify
- Whether complete CONVERT data, including durability, secondary outcomes and safety, support the preliminary results and the planned accelerated-approval filing.
- FDA requirements and timing for the ALIS NDA, including the eFlow combination-product review and human-factors study; also monitor Japan and European regulatory plans.
- Actual cash burn, 2018 commercialization and manufacturing investment, and whether additional financing will be needed on acceptable terms.
- Progress on Patheon capacity, ALIS supply readiness and the costs and terms of the PARI royalty buy-down.
- Developments in the securities litigation and any material exposure or resolution.