01—Abstract
Summary
Summary of the 10-K filed March 16, 2007. Cited figures are marked; the original filing is the authoritative source.
Insmed Incorporated, a Virginia corporation, reported a 2006 net loss of $56.1 milliona on revenues of $991 thousand, with an accumulated deficit of $310.8 million and cash, cash equivalents and restricted cash of $24.1 million at December 31, 2006.
Ernst & Young's audit report includes a going-concern explanatory paragraph, and management states the existing cash is sufficient to fund activities into the fourth quarter of 2007. The company had been commercializing IPLEX for severe primary IGF-1 deficiency after its December 2005 FDA approval and May 2006 launch, but on March 5, 2007 it settled patent litigation with Tercica and Genentech. Under the settlement, Insmed ceased U.S. sales and marketing of IPLEX, withdrew its European marketing application, and gained a worldwide development partnership to pursue non-short-stature indications, with Tercica and Genentech holding opt-in rights and a 50/50 profit and cost share.
Following the settlement, the company restructured: its commercial operations unit is being eliminated, Boulder manufacturing is being scaled back, and the workforce was reduced by approximately 34%, to 100 employees as of March 9, 2007. Management cites annualized savings of $12 millionb in commercial costs and $10 million in manufacturing costs, a $7.1 million asset impairment recorded in 2006, and about $1.7 million in severance to be recognized in 2007. The remaining pipeline focuses on IPLEX in myotonic muscular dystrophy, HIV-associated adipose redistribution syndrome and retinopathy of prematurity, along with the oncology candidates rhIGFBP-3 and INSM-18.
For investors, the central issues are the company's funding needs and the going-concern doubt. As of the filing, the company had no committed sources of capital, and outstanding convertible notes and warrants could convert into about 13.8 million shares, with options adding about 6.6 million more. The company also disclosed a $29 millionc remaining balance on a $75 million shelf registration.
02—Key points
Key Highlights
- Net loss of $56.1 million for 2006 on total revenues of $991 thousand, versus a net loss of $40.9 million in 2005
- Accumulated deficit of $310.8 million at December 31, 2006, and net cash used in operating activities of $42.2 million in 2006
- Ernst & Young's report includes a going-concern explanatory paragraph; cash of $24.1 million is stated to be sufficient to fund activities into the fourth quarter of 2007
- March 5, 2007 settlement with Tercica and Genentech ended all litigation, halted U.S. IPLEX sales, and granted a worldwide development partnership for non-short-stature indications
- Restructuring cut the workforce by approximately 34% to 100 employees, eliminated the commercial operations unit, and scaled back Boulder manufacturing, with stated annualized savings of $12 million commercial and $10 million manufacturing
- Potential dilution from convertible notes and warrants of about 13.8 million shares (approximately 14% of outstanding common stock) and options of 6.6 million shares
- Shelf registration allows sales of up to $75 million of securities, with $29 million still available
03—Questions
Frequently Asked Questions
Why did Insmed withdraw IPLEX from the U.S. market?
Under its March 5, 2007 settlement agreement with Tercica and Genentech, Insmed agreed to cease sales and marketing of IPLEX in the United States and to withdraw its European Marketing Authorization Application for IPLEX for short-stature indications. Insmed will continue supplying IPLEX to named patients with ALS in Italy under its Expanded Access Program.
Does the company have enough cash to continue operating?
The filing states that cash of $24.1 million at December 31, 2006 is believed sufficient to fund activities into the fourth quarter of 2007. The auditor's report includes a going-concern explanatory paragraph, and the company says it has no committed sources of capital and will need substantial additional funds to expand IPLEX into other indications.
What does the settlement mean for IPLEX's future indications?
The settlement gives Insmed the right, through a worldwide development partnership with Tercica and Genentech, to market IPLEX for conditions not related to short stature, including myotonic muscular dystrophy and HIV-associated adipose redistribution syndrome. Tercica and Genentech have opt-in rights for new indications, with a 50% profit share and 50% cost reimbursement; if they do not opt in, the company has freedom to operate with a 4% royalty payable to them, according to the financial statement notes.
How much revenue did the company generate from IPLEX?
Total 2006 revenues were $991 thousand, made up of $834 thousand in sales and $157 thousand in royalties. The MD&A breaks down revenue as $0.4 million from commercial sales, $0.4 million in cost recovery from the Expanded Access Program, and $0.2 million in royalty.
What restructuring steps did the company take and what do they cost?
Following the settlement, the company eliminated its commercial operations unit and scaled back production at its Boulder, Colorado facility, reducing the workforce by approximately 34%. Management cites annualized savings of $12 million in commercial costs and $10 million in manufacturing costs, and severance costs of approximately $1.7 million that will be reflected in 2007 results.
04—Continue