INSMED Inc - Annual Report: 2008 (Form 10-K)

 

 

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

INSMED INCORPORATED
(Exact name of registrant as specified in its charter)
Virginia		54-1972729
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification no.)
8720 Stony Point Parkway
Richmond, Virginia 23235		(804) 565-3000
(Address of principal executive offices)		(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class		Name of each exchange on which registered
Common Stock, par value $0.01/share		Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act:  None

 

 

 

 

 

 

 

 

 

 

 

 

 

REPORT:	FORM 10-K		Page
PART I
	ITEM 1.	BUSINESS	4
	ITEM 1A	RISK FACTORS	4
	ITEM 2	PROPERTIES	16
	ITEM 3	LEGAL PROCEEDINGS	29
	ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	30
PART II			30
	ITEM 5	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITY	30
	ITEM 6	SELECTED FINANCIAL DATA	30
	ITEM 7	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30
	ITEM 8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	32
	ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	33
PART III			41
PART IV			41
	ITEM 15	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	41
SIGNATURES			42
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			43
CONSOLIDATED FINANCIAL STATEMENTS			45
EXHIBIT INDEX			63

 

 

 

 

 

 

ITEM 1.

BUSINESS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	In November 2008 we gained Royalty-Free Worldwide Rights for IPLEX™ from Tercica (now Ipsen) and Genentech in connection with potential expanded access ALS programs.

 

·	In March 2007, we were granted a license or sublicense as applicable to patents held by Tercica and Genentech to develop IPLEX™ in certain medical indications in the United States and foreign territories, as discussed earlier in this section;

 

·	In April 2005, we were granted a non-exclusive license to certain proprietary manufacturing technology from Avecia Limited;

 

·	In January 2004, we were granted a non-exclusive license to patent rights pertaining to the use of IGF-1 therapy for the treatment of extreme or severe insulin resistant diabetes from Fujisawa Pharmaceutical Co., Ltd.; and

 

·	In November 1998, we were granted a non-exclusive license to certain proprietary manufacturing technology from Brookhaven Science Associates, LLC.

 

 

 

 

 

 

·	pay damages, including up to treble damages and the other party’s attorneys’ fees, which may be substantial;

 

·	cease the development, manufacture, marketing and sale of products that infringe the proprietary rights of others;

 

·	expend significant resources to redesign our product so that it does not infringe the proprietary rights of others;

 

·	develop or acquire non-infringing proprietary rights, which may not be possible and would require additional clinical trials and regulatory approvals;

 

·	redesign our product to avoid infringing on third party proprietary rights, which may result in significant regulatory delays associated with conducting additional clinical trials or other steps to obtain regulatory approval; and

 

·	obtain one or more licenses from third parties for the infringed proprietary rights, which may not be available to us on acceptable terms or at all.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	identify potential drug product candidates;

 

·	design and conduct appropriate laboratory, preclinical and other research;

 

·	submit for and receive regulatory approval to perform clinical studies;

 

·	design and conduct appropriate preclinical and clinical studies according to good laboratory and good clinical practices;

 

·	select and recruit clinical investigators;

 

·	select and recruit subjects for our studies;

 

·	collect, analyze and correctly interpret the data from our studies;

 

·	submit for and receive regulatory approvals for marketing; and

 

·	manufacture the drug product candidates according to cGMP.

 

 

 

·	raise sufficient money and pay for the development of the products

 

·	attract and retain appropriate personnel; and

 

·	develop relationships with other companies to perform various development activities that we are unable to perform.

 

 

·	the regulatory approvals of our products are delayed or we are required to conduct further research and development of our products prior to receiving regulatory approval;

 

·	we are unable to build a sales and marketing group to successfully launch and sell our products;

 

·	we are unable to raise the additional funds needed to successfully develop and commercialize our products or acquire additional products for growth;

 

·	we are required to allocate available funds to litigation matters;

 

·	we are unable to manufacture the quantity of product needed in accordance with current good manufacturing practices to meet market demand, or at all;

 

·	our product is determined to be ineffective or unsafe following approval and is removed from the market or we are required to perform additional research and development to further prove the safety and effectiveness of the product before re-entry into the market;

 

·	competition from other products or technologies prevents or reduces market acceptance of our products;

 

·	we do not have and cannot obtain the intellectual property rights needed to manufacture or market our products without infringing on another company’s patents;

 

·	we are unsuccessful in defending against patent infringement claims being brought against us our products or technologies; or

 

·	we are unable to obtain reimbursement for our product or such reimbursement may be less than is necessary to produce a reasonable profit.

 

 

 

 

 

 

 

 

 

 

·	investigator identification and recruitment;

 

·	regulatory approvals to initiate study sites;

 

·	patient population size;

 

·	the nature of the protocol to be used in the trial;

 

·	patient proximity to clinical sites;

 

·	eligibility criteria for the study; and

 

·	competition from other companies’ clinical studies for the same patient population.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	the establishment and demonstration in the medical community of the clinical efficacy and safety of our products;

 

·	our products’ potential advantages over existing and future treatment methods;

 

·	the price of our products; and

 

·	reimbursement policies of government and third-party payers, including hospitals and insurance companies.

 

 

 

 

 

 

 

 

·	we may not be able to effectively control whether our corporate partners will devote sufficient resources to our programs or products;

 

·	disputes may arise in the future with respect to the ownership of rights to technology developed with, licensed to or licensed from corporate partners;

 

·	disagreements with corporate partners could result in loss of intellectual property rights, delay or terminate the research, development or commercialization of product candidates or result in litigation or arbitration;

 

·	contracts with our corporate partners may fail to provide sufficient protection of our intellectual property;

 

·	we may have difficulty enforcing the contracts if one of these partners fails to perform;

 

·	corporate partners have considerable discretion in electing whether to pursue the development of any additional products and may pursue technologies or products either on their own or in collaboration with our competitors; and

 

·	corporate partners with marketing rights may choose to devote fewer resources to the marketing of our products than they do to products of their own development.

 

 

 

·	research and development, including, among other items, preclinical testing and clinical studies,

 

·	process development;

 

·	obtaining marketing, sales and distribution capabilities;

 

·	obtaining regulatory approvals;

 

·	retaining employees and consultants;

 

·	filing and prosecuting patent applications and enforcing patent claims;

 

·	establishing strategic alliances;

 

·	manufacturing; and

 

·	potential future litigation.

 

 

 

 

 

 

 

·	pay damages, including up to treble damages, and the other party’s attorneys’ fees, which may be substantial;

 

·	cease the development, manufacture, marketing and sale of products or use of processes that infringe the proprietary rights of others;

 

·	expend significant resources to redesign our products or our processes so that they do not infringe the proprietary rights of others, which may not be possible;

 

·	redesign our products or processes to avoid third party proprietary rights, we may suffer significant regulatory delays associated with conducting additional clinical trials or other steps to obtain regulatory approval; and

 

·	obtain one or more licenses arising out of a settlement of litigation or otherwise from third parties for the infringed proprietary rights, which may not be available to us on acceptable terms or at all.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	our listing status on the Nasdaq Capital Market;

 

·	results of our clinical studies and preclinical studies, or those of our corporate partners or our competitors;

 

·	our operating results;

 

·	developments in our relationships with corporate partners;

 

·	developments affecting our corporate partners;

 

·	negative regulatory action or regulatory approval with respect to our announcement or our competitors’ announcements of new products,

 

·	government regulation, reimbursement changes and governmental investigation or audits related to us or to our products,

 

·	developments related to our patents or other proprietary rights or those of our competitors;

 

·	changes in the position of securities analysts with respect to our stock; and

 

·	operating results below the expectations of public market analysts and investors.

 

 

 

 

 

 

 

·

a provision allowing us to issue preferred stock with rights senior to those of the common stock without any further vote or action by the holders of the common stock. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of common stock or could adversely affect the rights and powers, including voting rights, of the holders of the common stock. In certain circumstances, such issuance could have the effect of decreasing the market price of the common stock;

 

·	the existence of a staggered board of directors in which there are three classes of directors serving staggered three-year terms, thus expanding the time required to change the composition of a majority of directors and perhaps discouraging someone from making an acquisition proposal for us;

 

·	the amended and restated bylaws’ requirement that shareholders provide advance notice when nominating our directors;

 

·	the inability of shareholders to convene a shareholders’ meeting without the chairman of the board, the president or a majority of the board of directors first calling the meeting; and

 

·	the application of Virginia law prohibiting us from entering into a business combination with the beneficial owner of 10% or more of our outstanding voting stock for a period of three years after the 10% or greater owner first reached that level of stock ownership, unless we meet certain criteria.

 

 

ITEM 2.

PROPERTIES

 

 

 

 

ITEM 3.

LEGAL PROCEEDINGS

 

 

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

 

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES

 

 

 

Fiscal Year 2008		High				Low
Fourth Quarter		$	0.78			$	0.32
Third Quarter			0.97				0.39
Second Quarter			0.77				0.39
First Quarter			0.92				0.57
Fiscal Year 2007		High				Low
Fourth Quarter		$	1.07			$	0.66
Third Quarter			0.82				0.56
Second Quarter			1.22				0.68
First Quarter			1.65				0.68

 

 

 

 

 

ITEM 6.

SELECTED FINANCIAL DATA

 

 

 

 

		Year Ended December 31,
		2004				2005				2006				2007				2008
Historical Statement of   Operations Data:
Revenues		$	137			$	131			$	1,025			$	7,581			$	11,699
Operating expenses:
Cost of goods sold			-				-				1,490				576				-
Asset Impairment			-				-				7,103				-				-
Research and development			23,260				21,835				21,123				19,198				21,047
General and administrative			4,242				5,730				25,682				8,246				5,063
Total operating expenses			27,502				27,565				55,398				28,020				26,110
Operating loss			(27,365	)			(27,434	)			(54,373	)			(20,439	)			(14,411	)
Loss on investments			-				-				-				-				(500	)
Interest income			222				752				1,937				1,159				500
Interest expense			(60	)			(14,247	)			(3,703	)			(682	)			(1,256	)
Loss before income taxes			(27,203	)			(40,929	)			(56,139	)			(19,962	)			(15,667	)
Income tax expense			-				-				-				-				-
Net loss			(27,203	)			(40,929	)			(56,139	)			(19,962	)			(15,667	)
Basic and diluted net loss per   share			(0.69	)			(0.84	)			(0.59	)			(0.17	)			(0.13	)
Weighted average shares			39,160				48,742				95,321				114,682				122,132
Historical Balance Sheet   Data:
Cash, cash equivalents and short-term investments		$	9,222			$	18,835			$	24,112			$	16,479			$	2,397
Total assets			13,011				22,870				28,348				19,500				4,758
Long-term debt, net			-				6,437				3,161				2,113				487
Stockholders' equity (deficit)			7,235				10,529				13,880				11,488				(2,823	)

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

·	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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual Obligations
(in thousands)
		Payments Due by Years
						Less than					1 - 2				3 - 5			More than
		Total				1 year				Years				Years				5 years
Long term debt (1)		$	2,864			$	2,307			$	557			$	-			$	-
Operating lease obligations			8,077				1,025				1,837				4,341				874
		$	10,941			$	3,332			$	2,394			$	4,341			$	874

 

 

 

 

 

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

 

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.	FINANCIAL STATEMENTS.  The following consolidated financial statements of the Company are set forth herein, beginning on page F-1:

 

(i)	Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

 

(ii)	Report of Ernst & Young, LLP, Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

 

(iii)

Consolidated Balance Sheets

 

(iv)	Consolidated Statements of Operations

 

(v)	Consolidated Statements of Stockholders’ Equity (Deficit)

 

(vi)	Consolidated Statements of Cash Flows

 

(vii)

Notes to Consolidated Financial Statements

 

2.	FINANCIAL STATEMENT SCHEDULES.

 

 

3.

EXHIBITS.

 

 

 

 

 

 

Signature		Title
/s/  GEOFFREY ALLAN   Geoffrey Allan, Ph.D.		Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)
/s/  Kevin P. Tully   Kevin P. Tully		Chief Financial Officer (Principal Financial Officer) and Executive Vice President
/s/  KENNETH G. CONDON   Kenneth G. Condon		Director
/s/  GRAHAM K. CROOKE   Graham K. Crooke, MB.BS		Director
/s/  STEINAR J. ENGELSEN   Steinar J. Engelsen, M.D.		Director
/s/  DENNIS LANFEAR   Dennis Lanfear		Director
/s/  MELVIN SHAROKY   Melvin Sharoky, M.D.		Director
/s/  RANDALL W. WHITCOMB   Randall W. Whitcomb, M.D.		Director

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		December 31,				December 31,
		2008				2007
Assets
Current assets:
Cash, cash equivalents and short-term investments		$	2,397			$	16,479
Accounts receivable, net			122				250
Prepaid expenses			74				244
Total current assets			2,593				16,973
Long-term assets:
Restricted cash  - long term			2,095				2,095
Investments			-				258
Deferred financing costs, net			70				170
Property and equipment, net			-				4
Total long-term assets			2,165				2,527
Total assets		$	4,758			$	19,500
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable		$	1,277			$	904
Accrued project costs & other			936				503
Payroll liabilities			453				631
Restricted stock unit liability			113				-
Interest payable			13				23
Deferred rent			168				115
Deferred income			302				245
Convertible debt			2,211				2,211
Debt discount			(596	)			(950	)
Net convertible debt			1,615				1,261
Total current liabilities			4,877				3,682
Long-term liabilities:
Convertible debt			553				2,764
Debt discount			(66	)			(651	)
Net long-term convertible debt			487				2,113
Asset retirement obligation			2,217				2,217
Total liabilities			7,581				8,012
Stockholders' equity (deficit):
Common stock; $.01 par value; authorized shares    500,000,000; issued and outstanding shares, 122,494,010 in 2008 and 121,904,312 in 2007			1,225				1,219
Additional paid-in capital			342,378				341,270
Accumulated deficit			(346,426	)			(330,759	)
Accumulated other comprehensive loss:
Unrealized loss on investment			-				(242	)
Net stockholders' equity (deficit)			(2,823	)			11,488
Total liabilities and stockholders' equity (deficit)		$	4,758			$	19,500

 

 

		Twelve Months Ended
		December 31,
		2008				2007				2006
Sales, net		$	-			$	423			$	263
Royalties			144				121				157
License income			-				1,607				-
Grant revenue			1,044				-				-
Other expanded access program income, net			10,511				5,430				605
Total revenues			11,699				7,581				1,025
Operating expenses:
Cost of goods sold			-				576				1,490
Asset impairment			-				-				7,103
Research and development			21,047				19,198				21,123
Selling, general and administrative			5,063				8,246				25,682
Total expenses			26,110				28,020				55,398
Operating loss			(14,411	)			(20,439	)			(54,373	)
Interest income			500				1,159				1,937
Interest expense			(1,256	)			(682	)			(3,703	)
Loss on investments			(500	)			-				-
Net loss		$	(15,667	)		$	(19,962	)		$	(56,139	)
Basic and diluted net loss per share		$	(0.13	)		$	(0.17	)		$	(0.59	)
Shares used in computing basic and diluted net loss per share			122,132				114,682				95,321

 

 

 

														Accumulated
														Other
		Common				Additional				Accumulated				Comprehensive
		Stock				Capital				Deficit				Income (Loss)				Total
Balance at December 31, 2005		$	665			$	264,522			$	(254,658	)		$	-			$	10,529
Net loss			-				-				(56,139	)			-				(56,139	)
Issuance of  36,500 shares of common
stock upon exercise of stock options			-				19				-				-				19
Issuance of 280,234 shares of common
stock from Employee Stock Purchase Plan			3				254				-				-				257
Issuance of 4,912,971 shares of common
stock upon conversion of notes			49				6,313												6,362
Issuance of 6,572,621 shares of common
stock upon exercise of warrants			66				9,003				-				-				9,069
Issuance of 23,000,000 shares of common
stock for cash, net of offering costs
of $421,000			230				42,589				-				-				42,819
Recognition of stock compensation
expense for consultants			-				79				-				-				79
Recognition of stock option expense
in accordance with FAS 123R			-				885				-				-				885
Balance at December 31, 2006			1,013				323,664				(310,797	)			-				13,880
Comprehensive earnings:
Net loss			-				-				(19,962	)			-				(19,962	)
Unrealized loss on investment			-				-								(242	)			(242	)
Comprehensive loss																			(20,204	)
Issuance of  18,000 shares of common
stock upon exercise of stock options			-				9				-				-				9
Issuance of 186,870 shares of common
stock from Employee Stock Purchase Plan			2				127				-				-				129
Issuance of 116,573 shares of common
stock upon conversion of notes			1				150				-				-				151
Issuance of 20,255,367 shares of common
stock for cash, net of offering costs
of $1,266,135			203				16,761				-				-				16,964
Recognition of stock compensation
expense for consultants			-				38				-				-				38
Recognition of stock option expense
in accordance with FAS 123R			-				521				-				-				521
Balance at December 31, 2007			1,219				341,270				(330,759	)			(242	)			11,488
Comprehensive earnings:
Net loss			-				-				(15,667	)			-				(15,667	)
Realized gain on investment			-				-				-				242				242
Comprehensive loss																			(15,425	)
Issuance of 349,698 shares of common
stock from Employee Stock Purchase Plan			4				117				-				-				121
Issuance of 240,000 shares of common
stock for consulting services			2				141				-				-				143
Recognition of stock option expense
in accordance with FAS 123R			-				850				-				-				850
Balance at December 31, 2008		$	1,225			$	342,378			$	(346,426	)		$	-			$	(2,823	)