SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-30739
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INSMED INCORPORATED
(Exact name of registrant as specified in its charter)
Virginia 54-1972729
(State or other Jurisdiction of (I.R.S. employer
Incorporation or Organization) identification no.)
800 East Leigh Street (804) 828-6893
Richmond, Virginia 23219 (Registrant's telephone number
(Address of principal executive offices) including area code)
Indicate by check X whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes: X No
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As of July 31, 2001, the latest practicable date, there were 32,883,102 shares
of Insmed Incorporated common stock outstanding.
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INSMED INCORPORATED
INDEX
REPORT: FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1 Financial Statements.............................................. 3
ITEM 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 7
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk........ 9
PART II. OTHER INFORMATION
ITEM 1 Legal Proceedings................................................ 9
ITEM 2 Changes in Securities and Use of Proceeds........................ 9
ITEM 3 Defaults Upon Senior Securities.................................. 9
ITEM 4 Submission of Matters to a Vote of Security Holders.............. 9
ITEM 5 Other Information................................................ 10
ITEM 6 Exhibits and Reports on Form 8-K................................. 10
SIGNATURE.................................................................. 11
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INSMED INCORPORATED
Condensed Consolidated Balance Sheets
(in thousands)
June 30, December 31,
2001 2000
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(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 66,860 $ 71,628
Marketable securities -- 11,455
Due from Taisho Pharmaceutical Co., Ltd. 1,264 1,228
Other current assets 775 309
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Total current assets 68,899 84,620
Property and equipment, net 1,415 1,628
Goodwill, net 15,802 16,220
Other assets 250 250
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Total assets $ 86,366 $ 102,718
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Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 5,836 $ 3,391
Payroll liabilities 757 604
Deferred revenue - current portion 143 143
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Total current liabilities 6,736 4,138
Deferred revenue 1,726 1,798
Stockholders' equity:
Common stock 329 328
Additional capital 199,103 198,930
Accumulated deficit (121,528) (102,642)
Accumulated other comprehensive income -- 166
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Net stockholders' equity 77,904 96,782
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Total liabilities and stockholders'
equity $ 86,366 $ 102,718
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See accompanying notes.
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INSMED INCORPORATED
Condensed Consolidated Statements of Operations
(in thousands, except per share data - unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
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2001 2000 2001 2000
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Revenues $ 69 $ -- $ 169 $ 90
Operating expenses:
Research and development 8,171 4,248 18,530 6,689
General and administrative 1,432 1,745 2,518 2,425
Purchased research and
development -- 54,433 -- 54,433
Non-cash stock compensation 95 (4,825) 95 3,564
------- -------- -------- --------
Total operating expenses 9,698 55,601 21,143 67,111
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Operating loss (9,629) (55,601) (20,974) (67,021)
Interest income 836 87 2,088 206
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Net loss $(8,793) $(55,514) $(18,886) $(66,815)
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Basic and diluted net loss
per share $ (0.27) $ (4.77) $ (0.58) $ (8.85)
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Shares used in computing basic
and diluted net loss per share 32,849 11,629 32,835 7,550
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See accompanying notes.
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INSMED INCORPORATED
Consolidated Statements of Cash Flows
(in thousands - unaudited)
Six Months Ended
June 30,
2001 2000
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Operating activities
Net loss $(18,886) $(66,815)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 299 62
Amortization of goodwill 418 53
(Gain) loss on sale of marketable securities (211) 7
Issuance of stock for services -- 541
Interest accrued on notes receivable from
stock sales -- (2)
Non-cash stock compensation 95 3,564
Purchased research and development -- 54,433
Changes in operating assets and liabilities:
Due from Taisho Pharmaceutical Co., Ltd. (36) --
Other assets (466) (520)
Accounts payable 2,445 1,342
Other liabilities 81 232
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Net cash used in operating activities (16,261) (7,103)
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Investing activities
Purchases of marketable securities -- (496)
Proceeds from marketable securities matured and sold 11,500 2,373
Purchases of property and equipment (86) (107)
Acquisition of Celtrix Pharmaceuticals, Inc. -- 3,613
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Net cash provided by investing activities 11,414 5,383
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Financing activities
Proceeds from issuance of common stock 79 36,476
Repayment of notes receivable from stock sales -- 66
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Net cash provided by financing activities 79 36,542
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(Decrease) increase in cash and cash equivalents (4,768) 34,822
Cash and cash equivalents at beginning of period 71,628 317
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Cash and cash equivalents at end of period $ 66,860 $ 35,139
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See accompanying notes.
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Insmed Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
applicable Securities and Exchange Commission regulations for interim financial
information. These financial statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. It is presumed that users of this interim financial
information have read or have access to the audited financial statements
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for fair presentation have
been included. Operating results for the interim periods presented are not
necessarily indicative of the results that may be expected for the full year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Certain prior period amounts
have been reclassified to conform to the June 30, 2001 presentation.
Stockholder Rights Plan
On May 16, 2001, the Company's Board of Directors approved a stockholder rights
agreement. Under the agreement each share of common stock has one right
attached. The rights trade with the common stock unless they are separated upon
the occurrence of certain future events. The rights are exercisable only if a
person or group buys 15% or more of the Company's common stock, or announces a
tender offer for 15% or more of the outstanding common stock. Each right will
entitle a holder, other than the 15% acquirer, to buy one one-thousandth of a
share of the Company's Series A Junior Participating Preferred Stock at an
exercise price of $35, subject to adjustment.
If a person or group acquires 15% or more of the common stock of the Company,
each right would permit its holder to buy common stock of the Company having a
market value equal to two times the exercise price of the right. In addition, if
at any time after the rights become exercisable, the Company is acquired in a
merger, or if there is a sale or transfer of 50% or more of its assets or
earning power, each right would permit its holder to buy common stock of the
acquiring company having a market value equal to two times the exercise price of
the right.
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The rights expire on May 16, 2011. The Board of Directors may redeem the rights
before expiration, under certain circumstances, for $0.01 per right. Until the
rights become exercisable, they have no effect on earnings per share.
Recent Accounting Pronouncements
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," an amendment of SFAS No.
133, which is effective for fiscal years beginning after June 15, 2000. The
adoption of SFAS No. 133, as amended, did not have a significant effect on the
Company's consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto included in Part I - Item 1
of this Quarterly Report and the financial statements and notes thereto in the
Company's Annual Report on Form 10-K for the year ended December 31, 2000.
Overview
We discover and develop pharmaceutical products for the treatment of type 2
diabetes and other metabolic and endocrine disorders associated with insulin
resistance. Insmed has two lead drug candidates -- INS-1 and SomatoKine(R). We
are actively developing these drugs to treat type 1 and type 2 diabetes and
polycystic ovary syndrome (commonly known as PCOS).
We have not been profitable and have accumulated a deficit of approximately
$121.5 million through June 30, 2001. We expect to incur significant additional
losses for at least the next several years and until such time as we generate
sufficient revenue to offset expenses. Research and development costs relating
to product candidates will continue to increase. Manufacturing, sales and
marketing costs will increase as we prepare for the commercialization of our
products.
Results of Operations
For the three and six month periods ended June 30, 2001, we recorded a net loss
of $8.8 million and $18.9 million, respectively. A net loss of $55.5 million
was reported for the three months ended June 30, 2000, and a net loss of $66.8
million was reported for the six months ended June 30, 2000. The largest
component of the net loss for the period ended June 30, 2000 relates to a one-
time, non-cash charge of $54.4 million to write-off purchased research and
development resulting from the acquisition of Celtrix Pharmaceuticals, Inc.
Research and development expenses increased to $8.2 million from $4.2 million
for the three months ended June 30, 2000, and to $18.5 million from $6.7 million
for the six months ended
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June 30, 2000. Both increases were caused by increased disbursements for INS-1
and SomatoKine development programs. During the six months ended June 30, 2001,
we expended an aggregate of $11.1 million for external, clinical trial and
manufacturing costs related to INS-1, and $5.5 million for SomatoKine.
General and administrative expenses declined to $1.5 million for the three-month
period ended June 30, 2001 from $1.7 million for the three-month period ended
June 30, 2000, and increased to $2.6 million for the six-month period ended June
30, 2001 from $2.4 million for the six-month period ended June 30, 2000. The
decline in expenses in the second quarter was caused primarily by a reduction in
consulting and legal costs. The increase in expenses for the six-month period
was caused by higher investor relations, legal and insurance costs in the first
quarter.
In the first quarter of 2000, we recognized an $8.4 million non-cash charge for
stock compensation. Approximately $4.8 million of this charge was reversed in
the second quarter of 2000. The major component of this non-cash charge relates
to stock options exercised with a non-recourse note. Generally accepted
accounting principles require that compensation be recognized in the financial
statements based on the difference between the current market price of the
underlying stock and the market price utilized in the previous reporting period.
The non-recourse note to which the majority of the charge relates was repaid on
June 30, 2000.
At June 30, 2001, cash, cash equivalents and marketable securities were $16.2
million less than at December 31, 2000, as funds were expended for operations.
Liquidity and Capital Resources
At June 30, 2001, our cash and cash equivalents were approximately $66.9 million
and were invested in money market instruments and investment grade corporate
debt. Our business strategy contemplates selling additional equity and entering
into agreements with corporate partners to fund research and development, and
provide milestone payments, license fees and equity investments to fund
operations. We will need to raise substantial additional funds to continue
development and commercialization of our products. There can be no assurance
that adequate funds will be available when we need them, or on favorable terms.
If at any time we are unable to obtain sufficient additional funds, we will be
required to delay, restrict or eliminate some or all of our research or
development programs, dispose of assets or technology or cease operations.
Forward Looking Statements
Statements included within this Management's Discussion and Analysis of
Financial Condition and Results of Operations, which are not historical in
nature, may constitute forward-looking statements for purposes of the safe
harbor provided by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include all statements regarding expected financial
position, results of operations, cash flows, dividends, financing plans,
business strategies, operating efficiencies or synergies, budgets, capital and
other expenditures, competitive positions, growth opportunities for existing or
proposed products or services, plans and
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objectives of management, demand for new pharmaceutical products, market trends
in the pharmaceutical business, inflation and various economic and business
trends. Such forward-looking statements are subject to numerous risks and
uncertainties, including risks that product candidates may fail in the clinic or
may not be successfully marketed, the Company may lack financial resources to
complete development of product candidates, competing products may be more
successful, demand for new pharmaceutical products may decrease, the
biopharmaceutical industry may experience negative market trends and other risks
detailed from time to time in the Company's filings with the Securities and
Exchange Commission. As a result of these and other risks and uncertainties,
actual results may differ materially from those described in the discussion
above.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We invest excess cash in investment grade, interest-bearing securities and, at
June 30, 2001, had $63.7 million invested in money market instruments and
investment grade corporate debt. Such investments are subject to interest rate
and credit risk. Our policy of investing in highly rated securities whose
maturities at June 30, 2001, are all less than one year minimizes such risks.
In addition, while a hypothetical decrease in market interest rates of 10% from
June 30, 2001 levels would reduce interest income, it would not result in a loss
of the principal and the decline in interest income would not be material.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information set forth in this Item 4 relates to matters submitted to a vote
at the Annual Meeting of Shareholders of Insmed Incorporated on May 16, 2001. Of
the 32,832,076 shares outstanding as of the record date, March 15, 2001, there
were 25,740,593 shares or 78.4% of the
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total shares eligible to vote represented in person or by proxy. The following
proposals were adopted by the margins indicated:
1. To elect Kenneth G. Condon and Steiner J. Engelsen, M.D., as directors to
serve until the 2003 Annual Meeting of Shareholders and until their
successors are elected.
Nominee For Against Abstain % Voted For
Kenneth G. Condon 23,422,664 - 2,317,929 71.34%
Steinar J. Engelsen, M.D. 25,442,784 - 297,809 77.49%
The other directors whose terms of office as a director continued after the
meeting are Graham K. Crooke, MB.BS, Edgar G. Engelman, M.D., and Geoffrey
Allan, Ph.D.
2. To ratify the selection of Ernst & Young LLP as auditors for the fiscal year
ending December 31, 2001.
For Against Abstain % Voted For
25,718,143 8,038 14,412 78.33%
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
A report on Form 8-K, dated May 17, 2001, was filed to announce that Insmed's
Board of Directors approved the adoption of a Stockholder Rights Plan intended
to protect against coercive takeover tactics and improve Registrant's ability to
negotiate with potential acquirers.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSMED INCORPORATED
(Registrant)
Date: August 8, 2001 By: /s/ Michael D. Baer
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Michael D. Baer
Chief Financial Officer
(Principal Accounting and Financial
Officer and Duly Authorized Officer)
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