Insmed Incorporated — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Unaudited consolidated results. Insmed is a development-stage biopharmaceutical company focused on rare diseases; its lead candidate is ARIKAYCE for NTM lung disease. The company reported no material revenue.
Financial performance and position
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $23.9m | $18.2m | $44.4m | $35.4m |
| General and administrative | $12.3m | $9.7m | $24.8m | $19.2m |
| Operating loss | $36.1m | $28.0m | $69.2m | $54.7m |
| Net loss | $36.6m | $28.6m | $70.1m | $56.0m |
| Basic and diluted loss per share | $0.59 | $0.47 | $1.13 | $1.01 |
At June 30, cash and cash equivalents were $223.1m, down from $282.9m at year-end 2015. Six-month operating cash use was $57.8m, versus $49.1m in the prior-year period; investing cash use was $2.1m. Working capital was $197.0m. No material margin measure is meaningful given the absence of revenue.
Debt principal was $25.0m, with a 9.25% stated rate/floor and maturity on January 1, 2018. The balance sheet reported $8.7m current and $16.1m long-term debt, net of unamortized lender fees. Principal repayments were scheduled to begin in October 2016. Total contractual obligations were $35.5m, including debt, interest, leases and purchase obligations.
Material changes and business developments
- Q2 net loss increased $8.0m year over year; six-month net loss increased $14.1m. Higher clinical-development spending, particularly for the CONVERT trial, increased headcount and pre-commercial activity were the main drivers. Six-month manufacturing expense declined following completion of a facility build-out.
- In June 2016, Insmed withdrew its European ARIKAYCE marketing application after the EMA’s CHMP concluded that the submitted evidence was insufficient to support approval. The company intends to resubmit when CONVERT clinical data are available.
- The global Phase 3 CONVERT study was ongoing at more than 145 sites. Management expected to meet its enrollment objective in 2016. The company said the study could support a U.S. NDA if its primary endpoint is met; approval and timing remain uncertain.
- Insmed completed a Phase 1 study of INS1009, an inhaled treprostinil prodrug, and said results had been accepted for presentation at a September 2016 respiratory congress.
Outlook, risks and contingencies
Management expected R&D expense to increase in 2016, primarily due to CONVERT, and G&A costs to rise to support development and potential commercialization. It believed available funds were sufficient for at least the next 12 months, while noting that additional capital might be needed and could not be assured on favorable terms. The company did not provide specific revenue or earnings guidance and did not expect significant revenue before regulatory approval, reimbursement and commercialization.
ARIKAYCE development and regulatory outcomes are central risks. The earlier Phase 2 study did not meet its prespecified primary endpoint for statistical significance (reported p=0.072), although a key secondary culture-conversion endpoint favored ARIKAYCE (p=0.003). The filing also identifies clinical-trial, manufacturing and supply, commercialization, reimbursement, financing, international-operation and foreign-exchange risks.
A purported securities class action was filed on July 15, 2016 against the company and certain officers, alleging misleading statements concerning the European ARIKAYCE application; it seeks unspecified damages. Insmed disputed the allegations and planned to defend the case, but stated the outcome could not be assured. In July, the company also signed a lease for additional laboratory space with $2.1m of future minimum payments, not included in the lease obligations table. Certain potential license milestones, royalties and Cystic Fibrosis Foundation payments are also excluded from reported contractual obligations because their timing or likelihood is uncertain.
Key facts for investors to verify
- CONVERT enrollment, primary-endpoint results and the resulting U.S. and European regulatory timelines.
- Cash burn, remaining cash runway, and whether additional financing is required as trial and pre-commercial spending increases.
- ARIKAYCE manufacturing capacity, supply readiness and costs, together with potential milestone and royalty obligations.
- Developments and potential financial impact of the securities lawsuit, including insurance coverage.