In this Form 10-K, we use the words the “Company,” “Insmed,” “Insmed Incorporated,” “we,” “us” and “our” to refer to Insmed Incorporated, a Virginia corporation. [Insmed], ARIKACE and IPLEX are registered trademarks of Insmed Incorporated. This Form 10-K also contains trademarks of third parties. Each trademark of another Company appearing in this Form 10-K is the property of its owner.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements contained herein, including without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contain certain projections, estimates and other forward-looking statements. “Forward-looking statements,” as that term is defined in the Private Securities Litigation Reform Act of 1995, 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) are intended to identify forward-looking statements.
Forward-looking statements include, but are not limited to: our ability to develop 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; status and the results of preclinical studies and clinical trials and preclinical and clinical data described herein; the timing of responses to information and data requests from the U.S. Food and Drug Administration (the “FDA”); our clinical development of product candidates; our ability to obtain and maintain regulatory approval for our product candidates; our expectation as to the timing of regulatory review and approval; our estimates regarding our capital requirements and our needs for additional financing; our estimates of the size of the potential markets for our product candidates; our selection and licensing of product candidates; our ability to attract collaborators with acceptable development, regulatory and commercialization expertise; the benefits to be derived from corporate collaborations, license agreements and other collaborative efforts, including those relating to the development and commercialization of our product candidates; sources of revenues and anticipated revenues, including contributions from corporate collaborations, license agreements and other collaborative 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 manufacturing capacity for our product candidates.
Forward-looking statements are based upon our current expectations and beliefs. Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated or indicated in any forward-looking statements. Any forward-looking statement should be considered in light of factors discussed in Item 1A “Risk Factors” as well as those discussed in Item 7 under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this Annual Report on Form 10-K and in any other documents incorporated by reference. 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.
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ITEM 1.
BUSINESS OVERVIEW
Insmed Incorporated is a development-stage biopharmaceutical company with expertise in proprietary, advanced liposomal technology designed specifically for inhalation lung delivery. We develop innovative inhaled treatments for serious lung infections. Our proprietary liposomal technology is designed specifically for delivery of pharmaceuticals to the lung, and we believe it provides for potential improvements to the conventional inhalation methods of delivering drug to the pulmonary system. These potential advantages include improvements in efficacy, safety and patient convenience. Our primary focus is on orphan markets with high unmet medical needs, which we believe presents a significant opportunity, as their challenge and complexity best fit our knowledge, know-how and expertise.
Our strategy is to utilize our patented advanced liposomal technology to develop safe and effective medicines that improve upon standards of care for those orphan respiratory diseases in which patient needs are currently unmet. Our initial primary target indications are Pseudomonas aeruginosa, which we refer to as Pseudomonas, lung infections in cystic fibrosis (CF) patients and patients with non-tuberculous mycobacteria (NTM) lung infections.
We completed a business combination with Transave, Inc., or Transave, on December 1, 2010, which we refer to as the “Merger,” a privately-held, NJ-based pharmaceutical company focused on the development of differentiated and innovative inhaled pharmaceuticals for the site-specific treatment of serious lung infections. Our integration with Transave was completed in 2011 including the relocation of corporate headquarters to Monmouth Junction, New Jersey, and cessation of operations at the Richmond, Virginia, location as of December 31, 2011. 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 10-K give retroactive effect to the reverse stock split for all periods presented.
Immediately after giving effect to the Merger, former Transave stockholders owned approximately a 46.7% equity interest in the combined company (on an as-converted, fully diluted basis), and legacy Insmed shareholders had a 53.3% equity interest. The shares retained by us pursuant to the merger agreement with Transave (approximately 1.76 million shares of common stock after giving effect to the conversion of the Series B Conditional Convertible Preferred Stock, or Series B Preferred Stock, and the one-for-ten reverse stock split of our common stock) will be delivered on June 12, 2012 to certain former Transave stockholders, subject to reduction for any claims and indemnification payments that are pending.
Development Program
Our lead product candidate, ARIKACE® (liposomal amikacin for inhalation), is a differentiated, inhaled antibiotic supported by positive Phase 2 results for treating serious lung infections due to susceptible bacteria. ARIKACE is considered a New Chemical Entity (NCE) by the United States (U.S.) Food and Drug Administration, or FDA, primarily due to its patented liposomal technology. However, the key active ingredient, amikacin, is already an FDA-approved antibiotic with proven efficacy in the treatment of gram-negative infections including Pseudomonas. ARIKACE is in the aminoglycoside class of antibiotics.
We believe that ARIKACE has potential usage in at least two orphan indications with high unmet need: CF patients who have Pseudomonas lung infections and patients who have NTM lung infections. We estimate the global market potential for these two orphan indications combined to be up to $1 billion.
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For CF patients, we believe ARIKACE has the potential to be differentiated from other marketed drugs for the treatment of chronic Pseudomonas lung infections due to its ability to deliver high, sustained levels of amikacin directly to the lung, potentially providing sustained improvement in lung function and improvement in patient symptoms with only a once-a-day dosing regimen. In Phase 2 clinical studies, ARIKACE was shown to improve lung function both during and between treatment periods in patients with CF. If approved for CF, ARIKACE could potentially be the first inhaled antibiotic to be approved for once-daily administration. For NTM patients, we believe that ARIKACE has the potential to fulfill a growing, significant unmet medical need.
We have been granted orphan drug designation for CF patients who have Pseudomonas lung infections in both the United States (U.S.) and the EU. We applied for orphan drug designation for NTM infections in the U.S. in 2011. In response to this application, the FDA has requested either in vivo or clinical data in support of our application for orphan drug designation. We plan to file for orphan drug designation for NTM lung infections in the EU after obtaining additional pre-clinical data, which is expected by the end of 2012.
In August 2011, we announced that the FDA had placed a clinical hold on our Phase 3 clinical trials for ARIKACE in CF patients with Pseudomonas lung infections and for patients with NTM lung infections. Since the clinical programs were being conducted under separate INDs, we received separate notifications for CF and NTM. A clinical hold is a notification issued by the FDA to the sponsor to delay a proposed clinical trial or suspend an ongoing clinical trial. The FDA informed us that this decision was based on an initial review of the results of a long-term rat inhalation carcinogenicity study with ARIKACE. As part of the study, rats were given ARIKACE daily by inhalation for almost two years. Two of the 120 rats receiving the highest dose had a single lung tumor. These rats received ARIKACE doses that are much greater than the doses to be administered to humans. The relevance of the observed rat tumors to the use of ARIKACE in humans is unknown. ARIKACE was not associated with changes that may lead to tumors in shorter-term studies that we conducted in other animals. Additionally, in a standard series of tests that we performed, ARIKACE was not shown to be genotoxic. The FDA requested additional information on ARIKACE and data from the rat study. As a result of the clinical hold, we suspended initiation of the ARIKACE Phase 3 clinical trial programs, including the recruitment and enrollment of patients.
We provided the requested information to the FDA in August and was informed by the FDA that, based on its review of the information provided to date, including the rat inhalation carcinogenicity study results, the FDA had insufficient information to assess the risks for ARIKACE in CF patients. In October 2011, the FDA notified us that the FDA was continuing the clinical hold previously placed on our Phase 3 clinical trial for ARIKACE in CF patients with Pseudomonas lung infections and in patients with NTM lung infections. Regarding the clinical hold for CF patients with Pseudomonas lung infections, the FDA requested additional information from us, including that we conduct a nine-month dog inhalation toxicity study of ARIKACE to determine if the findings of the rat inhalation carcinogenicity study are also observed in a non-rodent model and to propose a CF patient population/disease state in which the risk-benefit profile of ARIKACE may be more favorable. We were informed during further dialogue with the FDA that if we chose to proceed, the required nine-month dog inhalation toxicity study of ARIKACE could be conducted in parallel with the CF Phase 3 clinical trials in human subjects. Regarding the clinical hold for patients with NTM lung infections, the FDA requested we conduct a Phase 2 clinical trial in adult (age 18 and older) NTM patients to provide proof-of-concept efficacy and safety data for ARIKACE in NTM patients.