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INSM > SEC Filings for INSM > Form 10-Q on 6-Aug-2013All Recent SEC Filings

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Form 10-Q for INSMED INC


6-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward looking statements. "Forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995, are statements that are not historical facts and involve a number of risks and uncertainties. Words herein such as "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "intends," "potential," "continues," and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward-looking statements.

Forward-looking statements include, but are not limited to: failure or delay of European, Canadian, U.S. Food and Drug Administration and other regulatory reviews and approvals, competitive developments affecting the Company's product candidates, delays in product development or clinical trials or other studies, patent disputes and other intellectual property developments relating to the Company's product candidates, unexpected regulatory actions, delays or requests, the failure of clinical trials or other studies or results of clinical trials or other studies that do not meet expectations, the fact that subsequent analyses of clinical trial or study data may lead to different (including less favorable) interpretations of trial or study results or may identify important implications of a trial or study that are not reflected in Company's prior disclosures, and the fact that trial or study results or subsequent analyses may be subject to differing interpretations by regulatory agencies, the inability to successfully develop the Company's product candidates or receive necessary regulatory approvals, inability to make product candidates commercially successful, changes in anticipated expenses, changes in the Company's financing requirements or ability raise additional capital; our ability to complete development of, receive regulatory approval for, and successfully commercialize ARIKACE®; our estimates of expenses and future revenues and profitability; our plans to develop and market new products and the timing of these development programs; our estimates of the size of the potential markets for our product candidates; our selection and licensing of product candidates; our ability to attract third parties with acceptable development, regulatory and commercialization expertise; the benefits to be derived from corporate license agreements and other third party efforts, including those relating to the development and commercialization of our product candidates; the degree of protection afforded to us by our intellectual portfolio; the safety and efficacy of our product candidates; sources of revenues and anticipated revenues, including contributions from license agreements and other third party efforts for the development and commercialization of products; our ability to create an effective direct sales and marketing infrastructure for products we elect to market and sell directly; the rate and degree of market acceptance of our product candidates; the timing and amount of reimbursement for our product candidates; the success of other competing therapies that may become available; and the availability of adequate supply and manufacturing capacity and quality for our product candidates.

Forward-looking statements are based upon our current expectations and beliefs, and involve known and unknown risk, uncertainties and other factors, which may cause our actual results, performance and achievements and the timing of certain events to differ materially from the results, performance, achievements or timing discussed, projected, anticipated or indicated in any forward-looking statements. Such factors include, among others, the factors discussed in Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 18, 2013. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the Securities and Exchange Commission, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and related notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2012.


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OVERVIEW

Insmed is a biopharmaceutical company focused on developing and commercializing an inhaled anti-infective to treat 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.

Recent Developments and ARIKACE Clinical Summary

In July 2013, Christine Pellizzari was appointed as our General Counsel and Corporate Secretary. In addition, our Board of Directors determined that Donald J. Hayden, our Chairman since December 2010, was independent and that the designation of Dr. Randall Whitcomb, a director since 2001, as lead independent director was no longer necessary.

In July 2013, we completed an underwritten public offering of 6,900,000 shares of our common stock, which includes the underwriter's exercise in full of its over-allotment option of 900,000 shares, at a price to the public of $10.40 per share. The net proceeds from the sale of the shares, after deducting the underwriter's discount and estimated offering expenses, is expected to be approximately $67.0 million.

In July 2013, we announced top-line results from our Phase 3 registrational clinical trial of ARIKACE in cystic fibrosis ("CF") patients who have lung infections caused by Pseudomonas aeruginosa ("Pa") that was conducted in Europe and Canada. In summary, once-daily ARIKACE achieved its primary endpoint of non-inferiority when compared to twice-daily "TOBI" ("tobramycin inhalation solution") for relative change in FEV1 from baseline to the end of the study.

We are conducting a Phase 2 clinical trial in patients who have lung infections caused by non-tuberculous mycobacteria ("NTM") in the U.S and Canada. We are also conducting a two-year, open-label safety study that is enrolling eligible patients who have completed our Phase 3 registrational clinical trial in CF patients in Europe and Canada. 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 then in the United States ("US"). If approved, ARIKACE will be the first once-a-day inhaled antibiotic treatment option available for these CF and NTM indications. Our strategy is to continue to develop ARIKACE for additional indications beyond CF patients with Pa infections and patients with NTM lung infections. The following table summarizes the current status of ARIKACE development.

Product
Candidate/Target
Indications                 Status                 Next Expected Milestone(s)
                 † †                         † †
                   ††††††††††††††††††          †          We expect to report
                   Reported top-line results   additional results from our Phase
                   from a Phase 3              3 registrational clinical trial
                   registrational clinical     during the second half of 2013. We
                   trial that was conducted    expect to submit regulatory
                   in Europe and Canada.       filings with the European
                   †          Conducting a     Medicines Agency ("EMA") and
                   two-year, open-label        Health Canada during the first
                   safety study that is        half of 2014.
ARIKACE            enrolling patients from     †††††††††††††††††† We plan to
Pa lung            the recently completed      evaluate our plans for CF in the
infections in CF   Phase 3 registrational      US after reviewing the results
patients           clinical trial in Europe    from our Phase 3 clinical trial in
                   and Canada, and is          Europe and Canada and after
                   expected to be completed    reviewing the results from our
                   in mid-2015.                Phase 2 clinical trial in NTM.
                   †          Granted orphan   †          If approved, we plan to
                   drug designation in         commercialize ARIKACE ourselves in
                   Europe and the US.          Europe and in Canada and it would
                                               be the only once-a-day treatment
                                               for Pa lung infections in CF
                 †                           † patients.
                 † †                         † †
                   ††††††††††††††††††          †          We expect to initiate a
                   Conducting a Phase 2        compassionate use study during the
                   clinical trial in the US    second half of 2013.
                   and Canada that began       †††††††††††††††††† We expect to
                   enrolling patients in       report top-line clinical results
                   June 2012.                  from our Phase 2 clinical trial
                   ††††††††††††††††††          and related regulatory pathway
                   Granted Qualified           dialogue with the FDA by the end
ARIKACE            Infectious Disease          of the first quarter of 2014.
Non-tuberculous    Product ("QIDP")            †††††††††††††††††† If approved,
mycobacteria       designation by the U.S.     ARIKACE would be the first
(NTM) lung         Food and Drug               approved inhaled antibiotic
infections         Administration ("FDA") in   treatment for NTM lung infections.
                   June 2013.                  †††††††††††††††††† If approved, we
                   ††††††††††††††††††          plan to commercialize ARIKACE
                   Granted Fast Track          ourselves initially in the U.S.
                   designation by the FDA in   and eventually in Europe and in
                   June 2013.                  Canada.
                   ††††††††††††††††††
                   Granted orphan drug
                 † designation in the US.    †


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ARIKACE           †          Phase 2          †††††††††††††††††† We expect to
Pa and other      clinical trial in the US    evaluate development and
susceptible       completed.                  commercialization strategies when
organisms         †          Granted orphan   we complete our Phase 2 clinical
causing lung      drug designation in the     trial in patients with NTM
infections in     US.                         infections.
non-CF
bronchiectasis
patients        †                           †

ARIKACE is considered a new molecular entity (NME) by the FDA primarily due to its proprietary liposomal technology. The key active ingredient, amikacin, is an FDA-approved antibiotic with proven efficacy in the treatment of a broad range of gram-negative infections, including Pa and NTM. ARIKACE is in the aminoglycoside class of antibiotics.

ARIKACE is differentiated from other inhaled antibiotics used to treat serious lung infections by our proprietary advanced liposomal technology, which is designed specifically to enhance the delivery profile, safety and efficacy of pharmaceuticals delivered to the lung via inhalation. We believe ARIKACE provides potential improvements over existing treatments for these indications. In our Phase 3 study in CF patients with Pa lung infections, ARIKACE, administered once-daily demonstrated improvements in patient lung function that were comparable to TOBI ("tobramycin inhalation solution"), administered twice-daily and that remained above baseline at the end of the study.

If approved for CF patients with Pa lung infections, we expect ARIKACE would be the first inhaled antibiotic to be approved for once-daily administration in this indication. If approved for NTM patients, we expect ARIKACE would be the first and only approved treatment for NTM lung infections. ARIKACE has been granted orphan drug designation for CF patients who have Pa lung infections in both the European Union ("EU") and the US, and for NTM patients in the US. We plan to file for orphan drug designation for NTM lung infections in Europe during the second half of 2013. On June 28, 2013, ARIKACE was granted QIDP designation and Fast Track designation by the FDA for the "treatment of Non-Tuberculous Mycobacterial lung infections."

Corporate History

We were incorporated in the Commonwealth of Virginia on November 29, 1999. On December 1, 2010, we completed a business combination with Transave, Inc. (or "Transave") 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 current operations are based on the technology and product candidates historically developed by Transave.

Lead Product Candidate - ARIKACE

Our lead product candidate, ARIKACE or liposomal amikacin for inhalation, is a once-a-day inhaled antibiotic treatment engineered to deliver a proven and potent anti-infective directly to the site of serious lung infections. There are two key components of ARIKACE: the liposomal formulation of the drug and the nebulizer device through which ARIKACE is inhaled through the mouth and into the lung. The nebulizer technology is owned by PARI Pharma GmbH ("PARI"), but through our licensing agreement with PARI, we have exclusive access to this technology, which is specifically developed for the delivery of our liposomal encapsulation of amikacin. Our proprietary liposomal technology and nebulizer are designed specifically for delivery of pharmaceuticals to the lung and provides for potential improvements to existing treatments. We believe that ARIKACE has potential usage for at least two orphan patient populations with high unmet need: CF patients who have Pa lung infections and patients who have NTM lung infections. We estimate the combined global market potential for these two orphan indications to be approximately $1 billion.

ARIKACE has the potential to be differentiated from other marketed drugs for the treatment of chronic lung infections by improving efficacy, safety and patient convenience. We believe efficacy may be improved for the treatment of certain lung infections due to the ability of ARIKACE to deliver high, sustained levels of amikacin directly to the lung and to the specific site of the underlying infection. In addition, the inhalation delivery of


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ARIKACE may reduce the potential for adverse events such as ototoxicity (hearing loss, ringing in the ears and/or loss of balance) and nephrotoxicity (toxicity to the kidneys), as compared with intravenous (IV) administration of amikacin. If approved, we expect that ARIKACE will be administered once daily for approximately 13 minutes via inhalation using the eFlow® Nebulizer System, which has been optimized specifically for ARIKACE by PARI. We believe that this nebulizer system will reduce treatment time or dosing frequency, as compared with the currently marketed inhaled antibiotics, which require dosing two to three times daily with treatment times ranging from approximately 10 to 40 minutes per day. By easing the patient's treatment burden we believe that ARIKACE can potentially improve patient compliance, which we believe may in turn lead to a reduction in the development of antibiotic resistance and, ultimately, lead to clinical benefit.

We believe that ARIKACE may provide: (1) improved efficacy resulting from sustained deposition of drug in the lung and improved ability to reach the site of infection (for CF Pa infections, this means penetration of biofilm and facilitated drug release by factors that are secreted by the bacteria, and for NTM, this means enhanced uptake into macrophages, where NTM often grows);
(2) decreased adverse events and improved tolerability as compared with amikacin delivered intravenously; and (3) reduced dosing frequency or treatment time as compared to existing products.

ARIKACE for CF Patients with Pseudomonas aeruginosa ("Pa") Lung Infections

Disease

CF is an inherited chronic disease that affects the lungs and digestive system and is often diagnosed before the age of two. CF occurs primarily in individuals of central and western European origin. CF affects roughly 70,000 children and adults worldwide, including 30,000 children and adults in the US (Cystic Fibrosis Foundation Patient Registry, 2011) and 35,000 patients in Europe (Hoiby, BMC Medicine, 2011, 9:32). There is no cure for CF.

Despite extensive treatment with multiple antibiotics, improved nutrition, and other treatments, the life expectancy of a CF patient is only about 37 years (Cystic Fibrosis Foundation Patient Registry, 2011). Median predicted age of survival is calculated using life table analysis (as calculated by actuaries) given the ages of the patients in the registry and the distribution of deaths. Using this calculation, half of the people in the patient registry are expected to live beyond the median predicted survival age, and half are expected to live less than the median predicted survival age.

Among other issues, in CF patients a defective gene and its protein product cause the body to produce unusually thick, sticky mucus that clogs the lungs. This creates an ideal environment for various pathogens, such as Pa, to colonize and lead to chronic infection of the lung, inflammation and progressive loss of lung function. In fact, chronic bronchial infections with Pa are a major cause of morbidity and mortality among patients with CF. Once a CF patient acquires a Pa infection, it is difficult to eradicate. The current, best available treatment is chronic administration of antibiotics to suppress the bacteria, reduce inflammation and preserve lung function for as long as possible. The rate of infection with Pa in CF patients increases with age. It is estimated that 70% of adult CF patients have chronic infection due to Pa (CFF Patient Registry, 2011). A study reported in the Journal of Cystic Fibrosis (Liou, 2010) found that deterioration in lung function of CF patients is the main cause of death and that, despite best efforts, lung function declines by 1% to 3% annually.

Current Clinical Program

We recently completed a registrational Phase 3 clinical trial of ARIKACE for CF patients with Pa lung infections in Europe and Canada. The Phase 3 trial was a randomized, open label, multi-center study designed to access the comparative safety and efficacy of once-daily ARIKACE for approximately 13 minutes via the eFlow Nebulizer System and twice-daily TOBI (tobramycin inhalation solution) for approximately 15 minutes per treatment via the PARI LC Plus Nebulizer System for a daily total of approximately 30 minutes per day in CF patients with Pa. A total of 302 adult and pediatric CF patients with chronic Pa were randomized to receive 28-days of ARIKACE treatment or TOBI delivered twice-daily via the PARI LC Plus® Nebulizer System over a 24-week treatment period. The primary endpoint of the study was relative change in forced expiratory volume in one second ("FEV1") measured after three treatment cycles, with each cycle consisting of 28 days "on" treatment and 28 days "off" treatment. The study was designed to demonstrate non-inferiority to TOBI at a 5% non-inferiority margin


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with 80% power agreed upon by us and the European Medicines Agency (EMA). Secondary endpoints measured were relative changes in FEV1 at other time points, time to and number of pulmonary exacerbations, time to antibiotic rescue treatment, change in density of Pa in sputum, respiratory hospitalizations and changes in Patient Reported Outcomes assessing Quality of Life. Top-line results from this study indicated:

† ARIKACE achieved its primary endpoint of non-inferiority to TOBI for relative change in FEV1 from baseline to the end of the study;

† Overall, secondary endpoints, as summarized above, showed comparability of once-daily ARIKACE compared with twice-daily TOBI; and

† The safety profile of ARIKACE was comparable to TOBI during all three treatment cycles, with adverse events consistent with those seen in similar studies and expected in a population of CF patients receiving inhaled antibiotics. There was no difference between arms in the reporting of serious adverse events and there were no unexpected adverse events.

We are conducting a two-year, open label safety study that is enrolling eligible patients that completed our registrational Phase 3 clinical study of ARIKACE for CF patients with Pa lung infections in Europe and Canada. Approximately 75% of the eligible patients from the registrational Phase 3 clinical study have consented to participate in the safety study. The patients in this study will receive ARIKACE for up to a two year period, using the same cycles of a 28 day on-treatment period and a 28 day off-treatment period. We expect to use interim data from this study as part of our regulatory filings with the EMA and Health Canada, which we expect to submit during the first half of 2014, and we expect to complete this study in mid-2015.

ARIKACE has been granted orphan drug status in the US and Europe for the treatment of Pa lung infections.

Strategy for Commercialization

We currently plan to retain marketing rights for ARIKACE in certain countries in Europe, and in Canada and the US. We believe ARIKACE will require a limited commercial infrastructure in these regions because of the small focused nature of the potential physician prescribing population for CF patients. We may license ARIKACE for certain indications in certain countries in Europe, as well as outside of Europe, and in Canada and the US. In 2013, we commenced preparations for the potential commercialization of ARIKACE in Europe and Canada, including hiring Matt Pauls, our chief commercial officer. We plan to fill several other new positions to support our sales and marketing efforts.

ARIKACE for Patients with NTM Lung Infections

Disease

Non-tuberculous mycobacteria, or NTM, are organisms common in soil and water that have been associated with lung disease in select patient groups. NTM have characteristics that are similar to tuberculosis, or TB, but NTM are not contagious. Many people have NTM in their bodies, but NTM do not normally lead to an infection, perhaps because the body's immune system successfully overcomes the threat of infection. It is not completely understood why certain individuals are susceptible to NTM infections. However, the patients who become infected with NTM often are immune-compromised or have structural damage in their lungs at the time of the infection.

NTM are organisms that invade and multiply chiefly within macrophages. They are characteristically resistant to most antibiotics. NTM lung infections are chronic, debilitating and progressive and often require lengthy, repeat hospitalizations. Signs and symptoms of NTM pulmonary disease are variable and nonspecific. They include chronic cough, sputum production and fatigue. Less commonly, malaise, dyspnea, fever, hemoptysis, and weight loss also can occur, usually with advanced NTM pulmonary disease. Evaluation is often complicated by the symptoms caused by co-existing lung diseases. According to a study published in the American Journal of Respiratory and Critical Care Medicine, these conditions include chronic obstructive airway disease


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associated with smoking, bronchiectasis, previous mycobacterial diseases, CF and pneumoconiosis (Olivier et al. 2003).

Current Clinical Program

We are currently conducting a Phase 2 clinical trial in the US and Canada for ARIKACE in adult patients with NTM lung infections. We began enrolling patients in June 2012. The Phase 2 clinical trial is a randomized, placebo-controlled study of approximately 100 adult patients with recalcitrant NTM lung infections. Of the targeted enrollment of 100 patients, 81 patients have been enrolled in this study as of June 30, 2013. There are two parts to the study: a randomized portion and an open-label portion.

In the randomized portion of the study, patients are screened initially to include in the study those who have NTM lung infections with persistent sputum culture for MAC or M. abscessus while on American Thoracic Society and Infectious Disease Society of America (ATS/IDSA)-guidelines-based treatment regimen for at least six months prior to screening. Patients who are NTM culture positive and meet the eligibility criteria to enroll in the study will receive, in addition to their ongoing antibiotic treatment regimen, either ARIKACE or a placebo both delivered once daily for approximately 13 minutes via an optimized, investigational eFlow Nebulizer System. The primary efficacy endpoint for this study is the change in mycobacterial density from baseline to the end of 84 days of treatment. At a public workshop discussion in September 2012, the FDA agreed that the microbiological end-point is an appropriate primary end-point for NTM lung disease. The study will also measure secondary endpoints, including the proportion of patients with culture conversion to negative, the time to "rescue" anti-mycobacterial drugs, the change from baseline in six-minute walk distance and oxygen saturation, the change from baseline in patient reported outcomes, and evaluation of safety and tolerability.

At the conclusion of the randomized portion of the study, eligible patients will receive ARIKACE once daily for an additional 84 days during the open-label portion of the study, primarily to measure longer-term safety and efficacy. We previously agreed with the FDA on this clinical trial design.

On June 28, 2013, the FDA designated ARIKACE as a Qualified Infectious Disease Product ("QIDP") for the treatment of NTM. The QIDP designation for ARIKACE will enable us to benefit from certain incentives for the development of new antibiotics, including potentially more frequent and ongoing dialogue with FDA, priority review, and if ARIKACE is ultimately approved by the FDA, a five-year exclusivity extension under the "The Drug Price Competition and Patent Term Restoration Act, also known as the "Hatch-Waxman" Act. These incentives are provided under the "Generating Antibiotic Incentives Now" Act (the "GAIN" Act), which was signed into law in July 2012.

Additionally, on June 28, 2013, the FDA granted Fast Track designation to ARIKACE for the treatment of NTM. The Fast Track designation is intended to . . .

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