Insmed Incorporated — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial amounts below are in U.S. dollars; millions unless stated otherwise.
Business context
Insmed is a biopharmaceutical company whose first commercial product is ARIKAYCE, approved in the U.S. under the accelerated-approval pathway for certain adults with refractory MAC lung disease. Its clinical-stage pipeline includes brensocatib and treprostinil palmitil. Results are unaudited.
Financial highlights
| Metric | Q1 2020 | Q1 2019 / comparator |
|---|---|---|
| Net revenue | $36.9 | $21.9 |
| Gross profit / margin | $28.4 / 77.1% | $17.8 / 81.1% |
| Research and development expense | $36.2 | $31.2 |
| Selling, general and administrative expense | $51.3 | $54.8 |
| Operating loss | $(60.4) | $(69.5) |
| Net loss / diluted loss per share | $(66.4) / $(0.74) | $(74.2) / $(0.96) |
| Cash used in operating activities | $(57.9) | $(73.8) |
| Cash and cash equivalents, March 31 | $428.9 | $487.4 at Dec. 31, 2019 |
| Working capital, March 31 | $421.0 | $470.0 at Dec. 31, 2019 |
ARIKAYCE net product revenue comprised $35.2 million from the U.S. and $1.7 million from European early-access programs. Gross margin is calculated from reported revenue and gross profit.
At March 31, total liabilities were $469.8 million. The company had $450.0 million principal amount of 1.75% convertible senior notes due 2025; their carrying value, net of unamortized discount and issuance costs, was $340.9 million. Current assets were $492.5 million and current liabilities $71.5 million. Cash fell $58.5 million during the quarter.
Changes versus the prior comparable period
- Revenue rose $15.0 million, or 68.3%, primarily from ARIKAYCE sales growth.
- Cost of product revenue increased 103.3% to $8.4 million; as a share of revenue it rose to 22.9% from 18.9%. Management attributed the increase to higher sales and less use of inventory whose costs had been expensed before FDA approval.
- R&D expense rose $5.0 million, principally from compensation, manufacturing, and regulatory, quality-assurance and medical-affairs costs; lower clinical-development costs partly offset the increases.
- SG&A expense declined $3.5 million, reflecting lower compensation and facility/internal costs, partly offset by higher stock-based compensation.
- Net loss narrowed by $7.8 million; loss per share improved despite higher weighted-average shares outstanding (89.8 million versus 77.5 million).
- Operating cash use decreased by $15.9 million. The company reported lower cash use from working-capital movements and higher gross profit as contributing factors.
Outlook, commentary and risks
- Management said cash on hand was sufficient to meet financial needs for at least the next 12 months, while noting substantial expected cash requirements, continuing operating losses and the possibility of needing additional capital. Future financing availability and terms depend on market conditions and business progress.
- The company expected 2020 cost of product revenue as a percentage of revenue to increase compared with 2019. It expected investing cash use to decrease significantly in 2020, with fewer remaining costs for the Patheon facility and completion of headquarters construction in 2019.
- Management planned to continue U.S. ARIKAYCE commercialization and pipeline development; initiate the ARIKAYCE confirmatory study and PRO-tool validation study in the second half of 2020, subject to FDA alignment; and begin a brensocatib Phase 3 program in the second half of 2020, subject to agreement on trial design.
- ARIKAYCE had an EU marketing application under review and a Japanese application submitted in March 2020. Full U.S. approval remains contingent on verification and description of clinical benefit in a post-approval confirmatory trial.
- Brensocatib’s Phase 2 WILLOW study met its primary endpoint for both doses. The filing reports top-line results; investors should note the different statistical results for secondary endpoints and that Phase 3 efficacy and safety remain unproven. AstraZeneca exercised an option to develop brensocatib in COPD or asthma through Phase 2b.
- COVID-19 had not materially affected Q1 results or operations, and no supply-chain disruption had occurred by the filing date. However, the company warned that physician availability, patient support, supply, and clinical-trial timelines could be affected. It reported adequate ARIKAYCE supply and active pharmaceutical ingredient to meet anticipated global requirements through the end of 2022.
- Three customers represented 27%, 26% and 25% of gross product revenue, respectively, in Q1 2020. Insmed also relies on a limited number of third-party manufacturers, creating customer-concentration and supply-continuity risks.
- Ordinary-course legal proceedings were disclosed; management did not expect their resolution to have a material adverse effect. The filing reported no material off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether ARIKAYCE revenue growth and patient uptake persist, especially under pandemic-related disruptions, and how rebates and other sales allowances affect net revenue.
- Progress, timing and FDA alignment for the ARIKAYCE confirmatory trial and PRO tool, and the implications if the trial does not verify clinical benefit.
- Full WILLOW data, safety findings and Phase 3 design and timing for brensocatib; the filing’s top-line results are not confirmatory evidence.
- Cash runway under continued operating losses, planned development and commercialization spending, and any need for additional financing before the 2025 notes mature.
- ARIKAYCE manufacturing capacity and supplier concentration, including execution of the planned Patheon capacity expansion.
- Potential effects of COVID-19 on commercial activity, trials, employees, suppliers and patients beyond Q1 2020.