Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
INSM > SEC Filings for INSM > Form 10-K on 18-Mar-2013All Recent SEC Filings

Show all filings for INSMED INC | Request a Trial to NEW EDGAR Online Pro

Form 10-K for INSMED INC


18-Mar-2013

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion also should be read in conjunction with our consolidated financial statements and the notes thereto.

OVERVIEW

Insmed is a biopharmaceutical company focused on developing and commercializing inhaled therapies for patients battling serious lung diseases that are often life-threatening. Our lead product candidate, ARIKACE or liposomal amikacin for inhalation, is an inhaled antibiotic treatment that delivers a proven and potent anti-infective directly to the site of serious lung infections to improve the efficacy, safety and convenience of this therapeutic approach for patients.

Currently, we are conducting clinical trials for two initial indications for this product in orphan patient populations: a phase 3 clinical trial in CF patients who have lung infections caused by Pseudomonas aeruginosa (Pseudomonas) and a phase 2 clinical trial in patients who have lung infections caused by non-tuberculous mycobacteria (NTM). Our strategy is to continue to develop ARIKACE for additional indications beyond Pseudomonas in CF and NTM. Our primary development focus is to obtain regulatory approval for ARIKACE for these two initial indications and to prepare for commercialization initially in Europe and Canada and eventually in the US. If approved, ARIKACE will be the first once-a-day inhaled antibiotic treatment option available for these CF and NTM indications.

We were incorporated in the Commonwealth of Virginia on November 29, 1999. On December 1, 2010, we completed a business combination with Transave, Inc. a privately held, New Jersey-based pharmaceutical company focused on the development of differentiated and innovative inhaled pharmaceuticals for the site-specific treatment of serious lung infections. Our continuing operations are based on the technology and products historically developed by Transave. Our principal executive offices are located at 9 Deer Park Drive, Suite C, Monmouth Junction, New Jersey 08852 and our phone number is (732) 997-4600. Our Internet address is www.insmed.com. On March 2, 2011, we completed a one-for-ten reverse stock split of our common stock. Unless otherwise noted, the per share amounts in this Annual Report on Form 10-K give retroactive effect to the reverse stock split for all periods presented.

KEY COMPONENTS OF OUR STATEMENT OF OPERATIONS

Revenues

We did not recognize any revenue in 2012, and currently do not recognize any revenue from product sales or other sources. Our revenues in 2011 and 2010 consisted of cost recovery revenues from the use of IPLEX® in an Expanded Access Program (EAP) we established in Italy to provide IPLEX® to physicians for use in their patients with Amyotrophic Lateral Sclerosis (ALS) (this program was discontinued in December 2011), and an upfront license payment received from Eleison Pharmaceuticals, Inc. (Eleison) for the licensing of our lipid-complexed cisplatin and/or liposomal cisplatin products and technology to Eleison.

Research and Development Expenses

Research and development expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our research and development functions, and other internal operating expenses, the cost of manufacturing our drug candidate for clinical study, the cost of conducting clinical studies, and the cost of conducting preclinical and research activities. Our expenses related to manufacturing our drug candidate for clinical study are primarily related to activities at contract manufacturing organizations that manufacture ARIKACE for our use. Our expenses related to clinical trials are primarily related to activities at contract research organizations that conduct and manage clinical trials on our behalf. These contracts set forth the scope of work to be completed at a fixed fee or amount per patient enrolled. Payments under these contracts primarily depend mainly on performance criteria such as the successful enrollment of patients or the completion of clinical trial milestones as well as time-based fees. Expenses are accrued based on contracted amounts applied to the level of patient enrollment and to activity according to the clinical trial protocol. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are then recognized as an expense as the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided.


Index

Prior to 2011, we devoted substantially all of our resources to the research and development of a number of product candidates in our follow-on-biologics (FOB) platform and advancing our proprietary protein platform into niche markets with unmet needs. Since 2011, we have focused our development activities principally on our proprietary, advanced liposomal technology designed specifically for inhalation lung delivery. We are conducting three clinical trials: (1) a phase 3 trial in Europe and Canada in which we are evaluating ARIKACE in CF patients with Pseudomonas lung infections, (2) an open label extension study in which patients that complete the phase 3 trial have the option to receive ARIKACE for a period of two years and (3) a phase 2 trial in the US in which we are evaluating ARIKACE for NTM infections. Since our business combination with Transave, our research and development expenses for our ARIKACE program were approximately $44.0 million. We expect that our development efforts in 2013 and 2014 will principally relate to the use of ARIKACE in the CF and NTM indications.

Our clinical trials with ARIKACE are subject to numerous risks and uncertainties that are outside of our control, including the possibility that necessary regulatory approvals may not be obtained. In addition, the duration and the cost of clinical trials may vary significantly from trial to trial over the life of a project as a result of differences in the study protocol for each trial as well as differences arising during the clinical trial, including, among others, the following:

· the number of patients that ultimately participate in the trial;

· the duration of patient follow-up that is determined to be appropriate in view of results;

· the number of clinical sites included in the trials;

· the length of time required to enroll suitable patient subjects; and

· the efficacy and safety profile of the product candidate.

Our clinical trials may be subject to delays, particularly if we are unable to produce clinical trial material in sufficient quantities and of sufficient quality to meet the schedule for our clinical trials. Moreover, all of our product candidates must overcome significant regulatory, technological, manufacturing and marketing challenges before they can be successfully commercialized. Any significant delays that occur or additional expenses that we incur may have a material adverse effect on our financial position and may require us to raise additional capital sooner or in larger amounts than is presently expected. In addition, as a result of the risks and uncertainties related to the development and approval of our product candidates and the additional uncertainties related to our ability to market and sell these products once approved for commercial sale, we are unable to provide a meaningful prediction regarding when, if at all, we will generate positive cash inflow from these projects.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel serving in our executive, finance and accounting, legal, market research, and human resource functions. General and administrative expenses also include professional fees for legal, including patent-related expenses, consulting, insurance, board of director fees, tax and accounting services. We expect that our general and administrative expenses will increase in order to support increased levels of development activities and commencement of commercialization activities for our product candidates.

Impairment Loss

Impairment loss consists of the write-down of the carrying amounts of in-process research and development (IPR&D) and Goodwill intangible assets. We use the multi-period excess earnings method ("MPEEM") for calculating impairment loss, which is a form of the income approach to derive the fair value of IPR&D intangible and goodwill assets. This approach calculates fair value by estimating future cash flows attributable to the assets and then discounting these cash flows to a present value using a risk-adjusted discount rate. We decided that a market based valuation approach was not appropriate for our financial reporting because we do not have operating revenues or net income. The income approach requires significant management judgment with respect to future volume, revenue and expense growth rates, changes in our working capital, appropriate discount rates and other assumptions and estimates. We believe the estimates and assumptions used in assessing impairment loss are consistent with our business plans. The use of different estimates and assumptions would increase or decrease the estimated fair value of our IPR&D, and might result in different effects on our results of operations. Our actual results of operations may differ from management's estimates used in assessing impairment loss.


Index

Debt Issuance Costs

Debt issuance costs are amortized to interest expense using the effective interest rate method over the term of the debt. Our balance sheet reflects debt net of debt issuance costs paid to the lender and reflects debt issuance costs paid to other third parties as other assets.

Investment Income and Interest Expense

Investment income consists of interest and dividend income earned on our cash, cash equivalents and short-term investments, along with realized gains (losses) on the sale of investments. Interest expense consists primarily of interest costs related to our debt and capital lease obligations.

RESULTS OF OPERATIONS

Comparison of Years Ended December 31, 2012 and 2011

Net loss attributable to common stockholders for the year ended December 31, 2012 was $41.4 million (or $1.56 per common share - basic and diluted) compared with a net loss of $68.8 million (or $2.95 per common share - basic and diluted) for the year ended December 31, 2011. The net loss attributable to stockholders in 2012 includes approximately $2.9 million in severance costs related to the termination of certain executives and employees. The net loss attributable to common stockholders in 2011 includes a $26.0 million non-cash impairment loss for the write-down of the carrying amounts our IPR&D and Goodwill intangible assets, a $9.2 million non-cash charge for the beneficial conversion feature of our previously outstanding Series B Preferred Stock issued in the Transave merger and approximately $1.2 million in expenses relating to our decision to discontinue use of our Richmond, Virginia facility.

Revenue

We did not recognize any revenue for the year-ended December 31, 2012. Our revenues in 2011 consisted of $3.4 million of cost recovery revenues from the use of IPLEX® in an Expanded Access Program (EAP) we established in Italy to provide IPLEX® to physicians for use in their patients with amyotrophic lateral sclerosis and a $1.0 million non-refundable upfront license payment received from Eleison Pharmaceuticals, Inc. for the licensing of our liposomal cisplatin products and technology. We recorded this revenue during 2011 as we had the contractual right to receive it and we have no continuing involvement under this licensing agreement.

Research and Development Expenses

 Research and development expenses for the years ended December 31, 2012 and
2011, comprised the following:

                                            Year Ended
                                           December 31,            Increase (Decrease)
                                         2012         2011            $               %
                                                         (in thousands)
    Clinical development               $ 14,081     $ 16,835     $     (2,754 )       -16 %
    Clinical manufacturing                7,254        4,790            2,464          51 %
    Regulatory and quality assurance         34          106              (72 )       -68 %
    Compensation and related              8,412        6,892            1,520          22 %
                                       $ 29,781     $ 28,623     $      1,158           4 %

Research and development expenses increased to $29.8 million in 2012 from $28.6 million in 2011. Despite an increase in clinical trial activity in 2012, our overall clinical development expenses decreased by $2.8 million. This decrease was primarily attributable to study start-up expenses incurred in 2011 related to the ARIKACE phase 3 clinical trial in a US CF patient population and the costs incurred to establish and initiate our phase 3 CF clinical trial in Europe and Canada. The 2012 clinical development costs include clinical trial expenses and enrollment milestones for our phase 3 CF clinical study in Europe and Canada, the open label CF extension study, as well as our phase 2 NTM clinical study in the US. Clinical manufacturing expenses increased by $2.5 million from 2011 to 2012 as we produced a greater number of ARIKACE lots for use in our studies. The decrease in regulatory and quality assurance expenses of $0.1 million in the year ended 2012 compared with 2011 was attributable to the regulatory planning associated with the clinical studies noted above. The $1.5 million increase in compensation and related expenses is attributable to increases in employee separation costs, including severance and related benefits, and facilities costs.


Index

General and Administrative Expenses

General and administrative expenses increased to $12.7 million in 2012 from $11.5 million in 2011. The 2012 results included approximately $2.2 million in severance expenses related to the departure of several executives and employees. The 2011 results included $1.2 million in charges related to our decision to discontinue use of our Richmond, Virginia facility. In addition, total professional fees decreased by $0.7 million from 2011 to 2012 as a result of lower legal fees.

Impairment Loss

We recorded a $26.0 million non-cash impairment loss in 2011 due to the decline in the fair value of our in-process research and development, or IPR&D intangible and goodwill assets. This decline in fair value resulted from the impact of the clinical hold placed on our phase 3 studies of ARIKACE by the FDA in August 2011. In January 2012, the FDA lifted the clinical hold on ARIKACE in patients with NTM lung infections, and in May 2012, the FDA lifted the clinical hold on ARIKACE in the US for the treatment of CF patients with Pseudomonas lung infections.

Investment Income

Investment income decreased to $1.8 million in 2012 from $2.1 million in 2011. The $0.3 million decrease is a result of diminishing rates of return on our short-term investments during 2012 compared to 2011.

Interest Expense

Interest expense increased to $0.8 million during 2012 compared to $0.0 million in 2011. The $0.8 million increase was due to $20.0 million of borrowings ($10.0 million in June 2012 and $10.0 million in December 2012) under our Loan and Security Agreement we entered into in June 2012.

Accretion of Beneficial Conversion Feature

During March 2011, our stockholders approved a proposal to convert all of our outstanding Series B Preferred Stock into common stock. In connection with this approval, we recorded a $9.2 million non-cash charge in 2011 for the beneficial conversion feature of our previously outstanding Series B Preferred Stock. The charge resulted from the difference between the conversion price of the Series B Preferred Stock of $7.10 per share and its carrying value of $6.10 per share. The carrying value of the Series B Preferred Stock was based on its fair value at issuance, which was estimated using the common stock price reduced for a lack of marketability between the issuance date and the anticipated date of conversion.

Comparison of Years Ended December 31, 2011 and 2010

Net loss attributable to common stockholders for the year ended December 31, 2011 was $68.8 million (or $2.95 per common share - basic and diluted) compared with a net loss of $6.4 million (or $0.49 per common share - basic and diluted) for the year ended December 31, 2010. The net loss attributable to common stockholders in 2011 included a $26.0 million non-cash charge related to the impairment of our in process research and development and a $9.2 million non-cash charge for the beneficial conversion feature of our previously outstanding Series B Preferred Stock.

Revenue

For the year-ended December 31, 2011, revenues totaled $4.4 million, as compared with $6.9 million for the year-ended December 31, 2010. The $2.5 million reduction was primarily due to a year-over-year decrease of $3.5 million in cost recovery revenue from our IPLEX EAP in Europe, offset by $1.0 million in license fees from the licensing of patent technology related to our CISPLATIN Lipid Complex. Our IPLEX EAP was discontinued in 2011.


Index

Research and Development Expenses

Research and development expenses increased to $28.6 million in 2011 from $4.7 million in 2010. The increase of $23.9 million in 2011 is primarily attributable to the development of ARIKACE and the manufacturing of product to support clinical studies. Clinical development expenses increased by $15.6 million in 2011 as compared with 2010 as a result of study initiation and start-up fees for ARIKACE plus the expenses for a preclinical toxicology study associated with the ARIKACE development program. In addition, a $4.5 million increase in clinical manufacturing expenses from 2011 to 2010 was attributable to the manufacturing of ARIKACE for use in our studies.

We also incurred greater compensation and related expenses of $4.4 million as a result of increased headcount associated with the development of ARIKACE. In fact, overall research and development headcount increased from approximately 11 as of December 31, 2010 to 28 as of December 31, 2011.

General and Administrative Expenses

General and administrative expenses increased to $11.5 million in 2011 from $10.3 million in 2010. The $1.2 million increase was due primarily to a $1.2 million charge in the fourth quarter of 2011 resulting from the closure of our Richmond, Virginia facility.

Impairment Loss

In 2011 we recorded a $26.0 million non-cash impairment loss resulting from the decline in the fair value of our IPR&D intangible and goodwill assets, due to the material impact of the temporary clinical hold on our ARIKACE development program. In January 2012, the FDA lifted the clinical hold on ARIKACE in patients with NTM lung infections. In May 2012, the FDA lifted the clinical hold on ARIKACE in the US for the treatment of CF patients with Pseudomonas lung infections.

Investment Income and Interest Expense

Investment income, net of interest expense, increased to $2.1 million in 2011 from $1.7 million in 2010. The $0.3 million increase is a result of improved returns on our short-term investments despite a decrease in overall short-term investment balances year over year. The reduction in interest expense in 2011 compared with 2010 was entirely due to the elimination of convertible notes, which were fully repaid in March 2010.

Accretion of Beneficial Conversion Feature

In 2011, we recorded a $9.2 million non-cash charge for the beneficial conversion feature of our then outstanding Series B Preferred Stock. The charge resulted from the difference between the conversion price of the Series B Preferred Stock of $7.10 per share and its carrying value of $6.10 per share. The carrying value of the Series B Preferred Stock was based on its fair value at issuance, which was estimated using the common stock price reduced for a lack of marketability between the issuance date and the anticipated date of conversion.

LIQUIDITY AND CAPITAL RESOURCES

Overview

There is considerable time and cost associated with developing a potential drug or pharmaceutical product to the point of regulatory approval and commercialization. Historically, we have funded our operations through public and private placements of equity securities, through debt financing, from the proceeds from the sale of our follow-on biologics ("FOB") platform to Merck in 2009 and from revenues related to sales of product and our IPLEX EAP, which was discontinued in 2011. We expect to continue to incur losses because we plan to fund research and development activities and commercial launch activities, and we do not expect material revenues for at least the next few years.


Index

As of December 31, 2012, we had total cash, cash equivalents, and a certificate of deposit on hand of $92.9 million, consisting of $90.7 million in cash and cash equivalents and $2.2 million in a certificate of deposit, as compared with $78.4 million of cash, cash equivalents, short term investments and a certificate of deposit on hand as of December 31, 2011, an increase of $14.5 million. The $14.5 million (net) increase was due to our financing activities during 2012, which included $20.0 million of proceeds from our debt financing and $25.7 million of proceeds from the issuance of common stock, which were partially offset by the use of $31.0 million in operations. Our working capital was $75.7 million as of December 31, 2012, which excludes our certificate of deposit of $2.2 million that matures in July 2013.

We believe we currently have sufficient funds to meet our financial needs for 2013. However, our business strategy may require us to, or we may otherwise determine to, raise additional capital at any time through equity or debt financing(s), strategic transactions or otherwise. Such additional funding may be necessary to continue to develop our potential product candidates, to pursue the license or purchase of complementary technologies, to commercialize our product candidates or to purchase other products. In addition, we may determine to raise capital opportunistically. We cannot assure you that adequate capital will be available on favorable terms, or at all, when needed. If we are unable to obtain sufficient additional funds when required, we may be forced to delay, restrict or eliminate all or a portion of our research or development programs, dispose of assets or technology or cease operations.

Cash Flows

Net cash used in operating activities was $31.0 million, $30.2 million and $7.7 million for the years ended December 31, 2012, 2011 and 2010, respectively. The net cash used in operating activities during 2012 and 2011 was primarily for the clinical development of our lead product candidate, ARIKACE, which included the advancement of ARIKACE in three clinical trials. The $22.5 million increase in net cash used in operating activities in 2011 as compared to 2010 related primarily to the initiation of two clinical trials for the study of ARIKACE.

Net cash provided by investing activities was $61.5 million, $34.4 million and $6.0 million for the years ended December 31, 2012, 2011 and 2010, respectively. The net cash provided by investing activities in 2012 was primarily a result of the net sales of short-term investments of $61.8 million. The net cash provided by investing activities in 2011 resulted from $35.3 million of net sales of short-term investments that were partially offset by fixed asset purchases of $1.0 million that were primarily for leasehold improvements. The net cash provided by investing activities in 2010 was primarily a result of $12.7 million of net sales of short-term investments that were partially offset by $6.7 million of cash consideration paid to stockholders as a result of our merger with Transave.

Net cash provided by (used in) financing activities was $45.4 million, ($0.1) million and ($0.2) million for the years ended December 31, 2012, 2011 and 2010, respectively. Net cash provided by financing activities in 2012 included $20.0 million of proceeds from the issuance of debt and $25.7 million of proceeds from the issuance of common stock registered in a direct public offering. Net cash used in financing activities in 2011 was primarily a result of payments on capital lease obligations. Net cash used in financing activities in 2010 was due to the final repayment of the 2005 convertible notes.

On June 29, 2012, we and our domestic subsidiaries, as co-borrowers, entered into a Loan and Security Agreement that allowed us to borrow up $20.0 million in $10.0 million increments ("Loan Agreement"). We borrowed the first and second $10.0 million increments by signing two Secured Promissory Notes ("Notes A and B") on June 29, 2012 and December 27, 2012, respectively. Notes A and B bear interest at 9.25%. Note A is to be repaid over a 42-month period with the first twelve monthly payments representing interest only followed by thirty monthly equal payments of principal and interest. Note B is to be repaid over a 36-month period with the first six monthly payments representing interest only followed by thirty monthly equal payments of principal and interest. The interest only period is extendable to December 31, 2013, contingent upon completion of certain ARIKACE-related development milestones. The principal monthly repayments for Notes A and B are scheduled to begin on August 1, 2013 and end on January 1, 2016. In connection with the Loan Agreement, we granted the lender a first position lien on all of our assets, excluding intellectual property. Prepayment of the loans made pursuant to the Loan Agreement is subject to penalty and we are required to pay an "end of term" charge of $390,000.

Contractual Obligations

We have two operating leases for office and laboratory space located in Monmouth Junction, NJ that terminate on December 31, 2014. Future minimum rental payments under these two leases total approximately $1.4 million. We continue to lease office space in Richmond, VA where our corporate headquarters were previously located. Future minimum rental payments under this lease total approximately $1.9 million. During 2011, we recorded a net present value charge of $1.2 million in general and administrative expenses associated with vacating the Richmond, VA facility.


Index

We executed two secured promissory notes totaling $20.0 million; $10.0 million in June 2012 and $10.0 million in December 2012. We also entered into three capital leases for lab equipment and leasehold improvements with monthly payments through December 2014. As of December 31, 2012, future payments under the two promissory notes, the capital leases and minimum future payments under non-cancellable operating leases are as follows:

                                                                As of December 31, 2012

                                                                 Payments Due By Period
. . .
  Add INSM to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for INSM - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.