UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended: December 31,
2008
OR
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from __________ to __________
Commission
File Number 0-30739
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INSMED
INCORPORATED
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(Exact
name of registrant as specified in its charter)
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Virginia
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54-1972729
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
employer identification no.)
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8720
Stony Point Parkway
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Richmond,
Virginia 23235
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(804)
565-3000
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(Address
of principal executive offices)
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(Registrant’s
telephone number including area code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which
registered
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Common
Stock, par value $0.01/share
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Nasdaq
Capital Market
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Securities
registered pursuant to Section 12(g) of the
Act: None
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes [ ] No []
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
[ ] No []
Indicate
by check mark 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 [] No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. []
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company (See
the definitions of “large accelerated filer,” “accelerated filer,” and “small
reporting company” in Rule 12b-2 of the Exchange Act). Large
accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Small Reporting Company
[ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No []
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant on June 30, 2008 was $48,922,254 (based on the
closing price for shares of the registrant’s Common Stock as reported on the
Nasdaq Capital Market on that date). In determining this figure, the
registrant has assumed that all of its directors, officers and persons owning
10% or more of the outstanding Common Stock are affiliates. This
assumption shall not be deemed conclusive for any other purpose.
On
February 28, 2009, there were 122,494,010 shares of the
registrant’s common stock, $.01 par value, outstanding.
____________________
Portions of the registrant’s definitive
Proxy Statement to be filed with the Securities and Exchange Commission no later
than 120 days, or April 30, 2009, after the registrant’s fiscal year ended
December 31, 2008, and to be delivered to shareholders in connection with the
2009 Annual Meeting of Shareholders, are herein incorporated by reference in
Part III and a small section of Part II.
INSMED
INCORPORATED
INDEX
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REPORT:
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FORM
10-K
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Page
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PART
I
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ITEM
1.
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BUSINESS
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4
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ITEM
1A
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RISK
FACTORS
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4
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ITEM
2
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PROPERTIES
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16
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ITEM
3
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LEGAL
PROCEEDINGS
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29
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ITEM
4
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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30
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PART
II
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30
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ITEM
5
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MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
REPURCHASES OF EQUITY SECURITY
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30
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ITEM
6
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SELECTED
FINANCIAL DATA
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30
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ITEM
7
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MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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30
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ITEM
8
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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32
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ITEM
9
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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33
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PART
III
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41
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PART
IV
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41
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ITEM
15
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EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
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41
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SIGNATURES
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42
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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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43
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CONSOLIDATED
FINANCIAL STATEMENTS
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45
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EXHIBIT
INDEX
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63
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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. 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.
PART
I
We
may from time to time make written or oral “forward-looking statements”,
including statements contained in our filings with the Securities and Exchange
Commission (including this Annual Report on Form 10-K and the Exhibits hereto
and thereto), in our reports to stockholders and in other
communications. Such statements give our current expectations or
forecasts of future events; they do not relate strictly to historical or current
facts. One can identify these forward-looking statements by use of words such
as “may,” “could,” “should,” “would,” “believe,” “anticipate,”
“estimate,” “expect,” “intend,” “plan,” “projects,” “outlook” or similar
expressions. In particular, these include statements relating to our
beliefs, plans, objectives, goals, future actions, prospective products or
product approvals, future performance or results of current and anticipated
products, the outcome of contingencies, such as legal proceedings and financial
results. These statements are based upon the current beliefs and expectations of
management and are subject to significant risks and
uncertainties. Our actual results may differ materially from those
set forth in the forward-looking statements. Forward-looking
statements involve certain risks and uncertainties that are subject to change
based on various factors (many of which are beyond our
control). Factors that could cause or contribute to differences in
our actual results include those discussed in Item 1A under the section entitled
“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 undertake no obligation
to publicly update forward-looking statements, whether as a result of new
information, future events or otherwise. You are advised, however, to consult
any further disclosures we make on related subjects in our 10-Q and 8-K reports
to the Securities and Exchange Commission.
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ITEM
1.
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BUSINESS
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BUSINESS
OVERVIEW
We are a
development stage company with expertise in recombinant protein drug
development. Our corporate office is located in Richmond,
Virginia.
On
February 12, 2009 we announced that we had entered into a definitive agreement
with Merck & Co., Inc. (“Merck”) whereby Merck, through an affiliate, would
purchase all assets related to our follow-on biologics platform. On
March 31, 2009, we completed the sale of these assets for an aggregate
purchase price of $130 million. After fees, taxes and other costs
related to the transaction, we expect net proceeds of approximately $123 million
as a result of this transaction.
As part
of this transaction, Merck assumed the lease of our Boulder, Colorado-based
manufacturing facility and acquired ownership of all the equipment in the
building. In addition, upon closing of the transaction, Merck offered
positions to employees of the Boulder facility. We retain our
Richmond, VA corporate office, which houses our Clinical, Regulatory, Finance,
and Administrative functions, in support of the continuing IPLEX™ program. The
transfer of the Boulder facility to Merck takes away our internal IPLEX™
production capability. We believe, however, that we have sufficient inventory of
IPLEX™ to support our ongoing Amyotrophic Lateral Sclerosis Expanded Access
Program (“ALS EAP”) in Italy through 2010 together with the IPLEX™ requirement
for the clinical trial currently being planned with the FDA for ALS patients in
the US. Any requirements for IPLEX™ beyond 2010 or any significant increase in
demand beyond our current commitments either in the Myotonic Muscular Dystrophy
(“MMD”) or ALS fields will require that we identify a Contract Manufacturing
Organization (“CMO”) to produce the necessary IPLEX™ to meet the demand. We
estimate that the tech transfer of our IPLEX™ production process could take 12
to 18 months once a CMO has been identified.
Until the
sale of our follow-on biologics platform, we pursued a dual path strategy
involving entry into the follow-on biologics arena (also known as biosimilars,
biogenerics and biologics) and advancing our proprietary protein platform into
niche markets with unmet needs. Following the sale of our follow-on
biologics assets, we plan to continue to support our proprietary protein
platform and our product, the FDA-approved IPLEX™, which is in various stages of
development for a number of serious medical conditions including MMD,ALS, also
known as Lou Gehrig’s disease, and Retinopathy of Prematurity
(“ROP”).
We
have also engaged the services of RBC to act as financial advisor in evaluating
other options for use of these proceeds which could include acquisitions of
complimentary businesses or technologies, product licensing, mergers, share
repurchase and the distribution of a portion of the proceeds to
shareholders.
PRODUCT
PLATFORMS
PROPRIETARY
PROTEIN PLATFORM
IPLEX™
Our
proprietary protein product, IPLEX™ (mecasermin rinfabate, recombinant DNA
origin, injection), which is a complex of recombinant human IGF-1 and its
binding protein IGFBP-3 (rhIGF-1/rhIGFBP-3), is being studied as a treatment for
several serious medical conditions.
IPLEX™ is
typically administered as a once-daily subcutaneous injection, which can restore
and maintain IGF-1 at physiologically relevant levels. The binding protein,
rhIGFBP-3, extends the residence time of IGF-1 in the blood. In the
bound state, we believe IGF-1 is inactive and remains so until delivered to
target tissues in the body where it is released and becomes biologically
active.
Following
an external review of the markets for the various indications which could be
served by IPLEX™ we have prioritized our targets and have selected MMD as our
initial primary indication for IPLEX™ and results from our Phase II clinical
trial in this indication are expected during the second quarter of 2009. We are
also evaluating IPLEX™ as a treatment for ALS in Italy and Europe as part of our
Expanded Access Program (EAP) and are in the process of working with the FDA to
design and initiate a Phase II clinical trial for ALS patients in the US. In the
Retinopathy of Prematurity (“ROP”) indication we are working with
Premacure AB in Sweden and are supplying IPLEX™ to Premacure who
intend to initiate a Phase II multicenter trial for IPLEX™ in the ROP indication
during the second quarter of 2009.
Development
of IPLEX™ in Myotonic Muscular Dystrophy
MMD is
the most common type of adult muscular dystrophy and affects approximately 1 in
8,000 individuals. MMD causes progressive muscle wasting and weakness
in the hands, forearms, legs, neck and face. It often involves many other
systemic effects, including endocrine abnormalities, neurological changes,
cataracts, gastrointestinal problems, and cardiac rhythm
abnormalities. In extreme cases, these patients can eventually become
totally disabled, dying usually from respiratory or cardiac
failure. At present, there is no treatment to reverse most of these
symptoms. Previous preclinical and clinical studies have demonstrated
that IGF-1 therapy may be an effective treatment for MMD.
Based on
information published by the Muscular Dystrophy Association (the “MDA”), we
believe that there are approximately 30,000 patients that suffer from MMD in the
United States. At present, there is no approved treatment
for this disease.
Ongoing
Clinical Study
An
advanced Phase II clinical trial investigating IPLEX™ as a treatment for MMD has
been completed and the results from the trial are expected during the second
quarter of 2009. This Phase III enabling trial was initiated, with the help of a
$2.1 million grant from the MDA and was a 24 week, 69 patients, and 13 site
placebo controlled trial in the US using a dose of 1.0 mg/kg/day of
IPLEX™. This study is evaluating the effects of IPLEX™ on endurance,
using the FDA approved six-minute walk test, as well as cognitive function, GI
function, muscle function, lean body mass and insulin sensitivity.
Expanded
Access Program for Patients in Italy with ALS
ALS is a
progressive neurodegenerative disease that affects nerve cells in the brain and
the spinal cord. Motor neurons reach from the brain to the spinal
cord and from the spinal cord to the muscles throughout the body. The
progressive degeneration of the motor neurons in ALS eventually leads to their
death. When the motor neurons die, the ability of the brain to
initiate and control muscle movement is lost. With voluntary muscle
action progressively affected, patients in the later stages of the disease may
become totally paralyzed. IGF-1 has been shown to be highly neurotrophic and
normally circulates in the body bound with its natural chaperone, BP3. It is
believed that IPLEX™ which is a complex of IGF-1 and BP3 increases the half life
of IGF-1 in the bloodstream, allowing it to circulate in the body longer and
affording a greater opportunity for IGF-1 to cross the blood-brain barrier and
utilize its neurotrophic qualities in the area where it could prove most
effective.
At the
request of the Italian Ministry of Health, we established an Expanded Access
Program in Italy to provide IPLEX™ to physicians for use in their patients with
ALS. The request came as a result of several Italian Court rulings
ordering the Italian National Health System to provide IPLEX™ to specific ALS
patients who have petitioned the Court. Through an agreement with
Cephalon, which holds patent rights in the European Union to IGF-1 as it relates
to the treatment of ALS, we are able to provide IPLEX™ to physicians in Italy
and receive payment for the drug, on a cost recovery basis, from the Italian
Health Authorities. In November 2008, through an agreement with Genentech Inc.
and Ipsen Inc., we were allowed to develop IPLEX™ on a royalty free basis for
the rest of the world. We have since entered into an agreement with IDIS to
manage our IPLEX™ EAP for all countries outside of Italy and the US. IDIS is the
world leader in the development and implementation of Named
Patient Programs, also known as EAP’s. We will continue to manage the
IPLEX™ EAP in Italy internally and we are presently in discussions with the FDA
to design and initiate a Phase II clinical trial for ALS patients in the
US.
In the past, we were focused on
development and commercialization of IPLEX™ for the treatment of growth failure
in children with severe primary IGF-1 deficiency. IPLEX™ was approved
by the FDA for treatment of severe primary IGF-1 deficiency in December 2005 and
was commercially launched in the second quarter of 2006. As a result
of our settlement agreement with Tercica, Inc. and Genentech, Inc., discussed
below, we have withdrawn IPLEX™ from this market.
In
December 2004, Tercica (now Ipsen) and Genentech filed patent infringement suits
against us in the U.S. District Court for the Northern District of California
and in the United Kingdom at the High Court of Justice, Chancery Division,
Patents Court. In these cases, Tercica and Genentech alleged that
production and use of IPLEX™ infringed claims in certain U.S. and
European patents, owned by Genentech and licensed to Tercica, directed to
methods of using rhIGF-1/rhIGFBP-3 and methods of producing rhIGF-1 and
IGFBP-3. In June 2006, Tercica also filed an unfair competition suit
against us in the U.S. District Court of the Eastern District of Virginia,
claiming that we disseminated misleading statements to the market in connection
with our marketing of IPLEX™.
On
December 6, 2006, a jury in the U.S. District Court for the Northern District of
California found that we infringed patents held by Tercica and Genentech and
awarded damages of $7.5 million as an upfront payment and a royalty of 15% on
past sales of IPLEX™ below $100 million and 20% for past sales of IPLEX™ above
$100 million.
On March
5, 2007, we reached a settlement agreement ending all litigation with Tercica
and Genentech. Pursuant to the agreement, we agreed to cease sales
and marketing of IPLEX™ in the United States and agreed to withdraw our European
Marketing Authorization Application for IPLEX™. We continue to
provide IPLEX™ to named patients with ALS in Italy and the rest of Europe under
our Expanded Access Program. The agreement also gives us the right,
through a worldwide development partnership with Tercica and Genentech, to
market IPLEX™ for conditions not related to short-stature. These
indications include severe insulin resistance, MMD and ROP, among
others. The development partnership includes provisions that give us
a 50% share of profits and reimbursement for 50% of development costs if either
Tercica or Genentech exercises opt-in rights for marketing of IPLEX™ in any of
these new indications that we develop. In addition, as part of the
settlement agreement, Tercica and Genentech waived the damages awarded by the
jury in the patent infringement suit from the U.S. District Court for the
Northern District of California.
Oncology Programs - INSM-18 and
rhIGFBP-3
INSM-18
and rhIGFBP-3 are in early clinical development and are primarily being
investigated for the treatment of cancer. We believe both INSM-18 and
rhIGFBP-3 are promising potential novel treatments for a variety of cancer
types. Preclinical models demonstrate that both treatments interact
with the IGF system to reduce tumor growth.
INSM-18
INSM-18
is an orally available small molecule tyrosine kinase inhibitor that has
demonstrated selective inhibition of IGF-1 and human epidermal growth factor
receptor (Her2/Neu). It has demonstrated anti-tumor activity in
preclinical studies of breast, lung, pancreatic and prostate
tumors. Two single dose Phase I clinical studies in healthy
volunteers have been previously completed with INSM-18. In both
studies, INSM-18 was safe and well tolerated.
The
American Cancer Society estimated that 232,000 new cases of prostate cancer
occurred in the United States in 2005. It also estimated that 30,000
deaths occurred as a result of prostate cancer, making it the second leading
cause of cancer death in men.
Completed
Clinical Study
The
University of California, San Francisco, has completed a dose-escalating Phase
I/II clinical study designed to define the maximum tolerated dose of INSM-18 in
patients with relapsed prostate cancer. The study consisted of a
28-day treatment period at each dose level to investigate the effect of INSM-18
on prostate-specific antigen levels. An analysis of the data
collected from the study is currently being conducted. The results
from this study will be used to design a potential Phase II clinical study which
we plan to progress in collaboration with a suitable partner.
rhIGFBP-3
Although
IGF-1 is critical for normal growth and metabolism, aberrant signaling through
this pathway is closely linked to the abnormal and unregulated growth of a
variety of tumors. Blocking tumor-associated IGF signaling has
prevented tumor growth in a variety of preclinical models. rhIGFBP-3
has demonstrated preclinical efficacy in numerous cancer indications, including
breast, prostate, liver, ovarian and colon. Additionally, several
lines of recent evidence, from various cell systems, have suggested that
rhIGFBP-3 may play a more active, IGF-1-independent role in growth regulation of
cancer cells, binding specifically with high affinity to the surface of various
cell types and directly inhibiting monolayer growth of these cells in an
IGF-1-independent manner. Recent independent studies have
demonstrated that when IGFBP-3 is used in combination with other cancer
therapies it can accentuate and even synergize the efficacy of standard cancer
therapies. Paclitaxel-induced apoptosis is accentuated by rhIGFBP-3,
which has been shown to sensitize cells to apoptotic signals such as irradiation
and ceramides. Due to the high cost of trials in the oncology area we plan to
identify a partner to co-develop rhIGFBP-3.
FOLLOW-ON
BIOLOGICS
We
completed the sale of our follow-on biologics assets on to Merck on
March 31, 2009. Following this sale we do not have a presence in
the FOB arena.
Follow-on
biologics (FOB), also known as “biogenerics” or “biosimilars,” are versions of
drugs produced through biological processes. The biologics on which they are
based differ from traditional “small molecule” drugs such as Aspirin®, and
Lipitor®, and all other medicines typically taken in pill form – in several
important ways. First, biologics are made up of complex molecules, such as
proteins, that must be administered via direct injection because if they were
administered orally, they would be broken down in the digestive tract and never
reach their intended targets. Second, these drugs are produced not by merely
combining chemicals but by the natural processes of living cells. In the
manufacture of biologics, the DNA of cells is engineered such that the cells
themselves produce the desired proteins. Third, the production of biologics is
much more exacting than that of small-molecule drugs. Growing one type of
genetically-engineered cell while excluding all other organisms from the mix is
inherently more difficult than simply achieving sterile conditions (no living
organisms at all) under which traditional drugs are manufactured.
In
November 2007 we announced completion of development of two key follow-on
biologics at the facilities in Boulder, Colorado, INS-19 (Granulocyte Colony
Stimulating Factor or G-CSF) and INS-20 (Peg G-CSF). In July 2008 we announced
that we demonstrated the bioequivalence of INS-19 compared to Neupogen® and in
October 2008 we announced that we had received approval from the United
Kingdom's Medicines and Healthcare products Regulatory Agency (MHRA) to initiate
a Phase I clinical study for our second follow-on biologic product candidate,
INS-20.
RESEARCH
AND DEVELOPMENT
Since we
began operations in late 1999, we have devoted substantially all of our
resources to the research and development of a number of product candidates for
metabolic and endocrine diseases. Until the sale of our FOB assets on
March 31, 2009, our research and development efforts were principally
focused on pursuing a dual path strategy involving entry into the follow-on
biologics arena (also known as biosimilars, biogenerics and biologics) and
advancing our proprietary protein platform into niche markets with unmet
needs. Our research and development efforts will now focus on our
proprietary protein platform. Our lead proprietary protein product, the
FDA-approved IPLEX™, is being studied as a treatment for several serious medical
conditions with our primary focus being on MMD and ALS. We conduct
very little of our own preclinical laboratory research. We have
outsourced several Phase II clinical studies with IPLEX™ and our other
anti-cancer product candidates, INSM-18 and rhIGFBP-3, and plan on conducting
additional clinical studies in the future.
Research
and development expenses primarily include expenses incurred in preparing and
obtaining necessary approvals from regulatory bodies, certain expenses involving
the development of manufacturing processes and clinical studies. Our
research and development expenses were approximately $21.1 million for the
fiscal year ended December 31, 2006, $19.2 million for the fiscal year
ended December 31, 2007 (“fiscal 2007”) and $21.0 million for the year ended
December 31, 2008 (“fiscal 2008”).
MANUFACTURING
We have
previously manufactured our own supply of IPLEX™ and rhIGFBP-3 at the Boulder,
Colorado, FDA-approved manufacturing facility. The manufacturing process
requires compliance with current good manufacturing practices, or cGMP, and
other similar regulations. IPLEX™, a complex of two proteins, rhIGF-1
and its binding protein rhIGFBP-3, are manufactured using recombinant DNA
technology. This manufacturing process is complicated and involves
expression of the proteins by bacterial fermentation followed by purification
and combination. We currently outsource to third-party contract
manufacturers some of the analytical testing and the final fill, finish and
labeling of IPLEX™. The transfer of the Boulder facility to Merck will take away
our internal IPLEX™ production capability. We believe, however, that we will
have sufficient inventory of IPLEX™ at the time of the sale to support our
ongoing ALS EAP in Italy through 2010 together with the IPLEX™ requirement for
the clinical trial currently being planned with the FDA for ALS patients in the
US. Any requirements for IPLEX™ beyond 2010 or any significant increase in
demand beyond our current commitments either in the MMD or ALS fields will
require that we identify a Contract Manufacturing Organization (“CMO”) to
produce the necessary IPLEX™ to meet the demand. It is estimated that the tech
transfer of our IPLEX™ production process could take 12 to 18 months once a CMO
has been identified
PATENTS
AND PROPRIETARY RIGHTS
Patent
Portfolio
Proprietary
protection is important to our business, and our policy is to protect our
technology by filing patent applications for technology that we consider
important. We directly hold several U.S. patents relating to the
composition, production, antibodies and methods of use for IPLEX™ and
rhIGFBP-3. In addition, foreign counterparts to the above-referenced
U.S. patents have issued or are pending issue in the major pharmaceutical
markets, such as the European Union, Canada and Japan. The various issued patents
relate to IPLEX™ and rhIGFBP-3 compositions, methods of production and methods
of treatment, and expire at various times during the years 2010 through
2019.
As part
of the ongoing development of IPLEX™, INSM-18 and rhIGFBP-3 we have filed or
intend to file patent applications related to new production methods, improved
formulations, new medical uses and new dosing regimens in the United States and
in many of the major international pharmaceutical markets. As with
any pending patent application, there can be no assurance that any of these
applications will issue in the United States, European Union, Canada, and Japan
or in any other country where we decide to file for protection. There
also can be no assurance that a subsequent U.S. or foreign patent will later be
held valid and enforceable.
As part
of our business strategy, we plan to license intellectual property that we feel
may be important to the development and commercialization of our
products. The agreements that we have entered into are subject to
termination upon material breach by us. Our ability to maintain
licensure under these agreements is dependent on our ability to meet the
obligations defined in these agreements and although we take steps to ensure
compliance with the provisions of these agreements, we cannot assure that the
licensors will not take dispute with our actions and will seek to terminate the
agreements. We currently have the following licensing arrangements
for IPLEX™ and rhIGFBP-3 development in place:
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·
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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.
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·
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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;
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·
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In
April 2005, we were granted a non-exclusive license to certain proprietary
manufacturing technology from Avecia
Limited;
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·
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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
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|
·
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In
November 1998, we were granted a non-exclusive license to certain
proprietary manufacturing technology from Brookhaven Science Associates,
LLC.
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Reflecting our commitment to
safeguarding proprietary information, we require our employees and consultants
to sign confidentiality agreements. Furthermore, we enter into
research agreements in which we exchange proprietary materials and information
with collaborators including material transfer agreements, research agreements,
development agreements and clinical trial agreements. These
agreements prohibit unauthorized disclosure of our proprietary
information. Despite our efforts to protect our proprietary
information, unauthorized parties may attempt to obtain and use our proprietary
information. Policing unauthorized use of our proprietary information
is difficult and the steps we have taken might not prevent misappropriation,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as do the laws of the United States.
We note
that there has been increasing litigation in the biopharmaceutical industry with
respect to the manufacture and sale of new therapeutic compounds. The
validity and breadth of claims in biotechnology patents may involve complex
factual and legal issues, for which no consistent policy exists. In
particular, the patent protection available for protein-based drugs, such as
IPLEX™ and rhIGFBP-3, is highly uncertain and involves issues relating to the
scope of protection of claims to gene sequences and the production of their
corresponding proteins.
In some
cases, litigation or other proceedings may be necessary to enforce our patents
or protect our know-how or other intellectual property rights. Any
additional potential litigation is likely to result in a substantial cost to us
and a diversion of our resources. We cannot be sure that any of our
patents will ultimately be held valid. An adverse outcome in any
litigation or proceeding could subject us to significant liability.
Third
Party Patents
Third
parties hold U.S. and foreign patents possibly directed to the composition,
production and use of rhIGF-1, rhIGFBP-3, IPLEX™ and recombinant proteins
generally. We are not aware of any patents that would prevent us from
pursuing our plans to commercialize IPLEX™ and rhIGFBP-3. We can
provide no assurance, however, that a third party will not assert a contrary
position in the future, for instance in the context of an infringement
action. Likewise, we cannot predict with certainty the outcome of
such a proceeding. In the event of a successful claim against us for
infringement or misappropriation of a third party’s proprietary rights, we may
be required to:
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pay
damages, including up to treble damages and the other party’s attorneys’
fees, which may be substantial;
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cease
the development, manufacture, marketing and sale of products that infringe
the proprietary rights of others;
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expend
significant resources to redesign our product so that it does not infringe
the proprietary rights of others;
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develop
or acquire non-infringing proprietary rights, which may not be possible
and would require additional clinical trials and regulatory
approvals;
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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
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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.
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Furthermore,
litigation with any third party, even if the allegations are without merit,
would likely be expensive and time-consuming and divert management’s
attention.
Any
conclusions regarding non-infringement and invalidity are based in part on a
review of publicly available databases and other information. There
may be information not available to us or otherwise not reviewed by us that
might change our conclusions. Moreover, the scope and validity of
patent claims are determined based on many facts and circumstances, and in a
litigation, a court may reach a different conclusion on any given patent claim
than the conclusions that we have reached.
In 2007
we settled patent infringement litigation brought against us by Tercica and
Genentech. As part of the settlement agreement, we entered into a
Consent Judgment and Permanent Injunction in the United States District Court
for the Northern District of California. If our settlement agreement
with Tercica and Genentech is terminated, the Consent Judgment and Permanent
Injunction against us will survive termination, which would have a material
adverse effect on our business, financial condition and results of operations.
We are
engaged in an industry that is intensely competitive and characterized by rapid
technological progress. For our product candidates, we face
significant competition from biotechnology, large pharmaceutical and other
companies, universities and research institutions. Most of these
companies and institutions have substantially greater capital resources,
research and development staffs, facilities and experience in conducting
clinical studies and obtaining regulatory approvals. In addition,
many of these companies have greater experience and expertise than we do in
manufacturing and marketing pharmaceutical products.
We cannot
predict the relative competitive position of our product candidates if they are
approved for use. However, we expect that the following factors will
determine our ability to compete effectively: safety, efficacy, product price,
ease of administration and marketing and sales capability.
In the
proprietary protein area, we are aware of several pharmaceutical companies that
are developing drugs in various forms of muscular dystrophy including PTC
Therapeutics, Asklepios Biopharmaceutical Inc., Wyeth and Schering-Plough/Key
Pharmaceutical, AVI Biopharma, Cephalon and Transgene, however, we believe that
IPLEX™ is the only drug that is in development for the treatment of
MMD. We are also aware that rhIGF-1 has been shown in a small
clinical study to have positive effects in patients with MMD and that
Nifendipine, Coenzyme Q10, DHEA-S and low dose Metformin have all been
investigated for the treatment of MMD, however we are unaware of any formal
development programs to pursue this indication for these drugs.
Many
companies are pursuing the development of products for the treatment of
cancer. Our competitors include multinational pharmaceutical
companies, specialized biotechnology firms, universities and other research
institutions. Although we are unaware of any companies developing
rhIGFBP-3 for cancer, we are aware of companies who are developing products that
are intended to target the same IGF-1 pathway targeted by INSM-18 and
rhIGFBP-3. These companies include ImClone, Amgen, OSI
Pharmaceuticals, Bristol Meyers Squibb and Genentech.
It is
possible that there are other companies with products currently in development
or that exist on the market that may compete directly with IPLEX™, INSM-18 and
rhIGFBP-3.
GOVERNMENT
REGULATION
Government
authorities in the United States and other countries extensively regulate the
research, development, testing, manufacture, promotion, marketing and
distribution of drug products. Drugs are subject to rigorous
regulation by the FDA and similar regulatory bodies in other
countries. If we do not comply with applicable requirements, we may
be fined, the government may refuse to approve our marketing applications or
allow us to manufacture or market our products, and we may be criminally
prosecuted.
We and
our manufacturers may also be subject to regulations under other federal, state,
and local laws, including the Occupational Safety and Health Act, the
Environmental Protection Act, the Clean Air Act and import, export and customs
regulations.
PROPRIETARY
PROTEIN PLATFORM
FDA
Approval Process
The steps
ordinarily required before a new drug may be marketed in the United States are
similar to steps required in many other countries. The process
required by the FDA before a new drug may be marketed in the United States
generally involves the following: completion of preclinical laboratory testing,
submission of an Investigational New Drug Application, or IND, which must become
effective before human clinical studies may begin, performance of adequate and
well-controlled human clinical studies to establish the safety and efficacy of
the proposed drug for its intended use and submission and approval of a New Drug
Application, or NDA, by the FDA.
Preclinical
tests include laboratory evaluation of product chemistry and stability, as well
as animal studies to evaluate toxicity before a drug is administered to human
subjects. The results of preclinical testing are submitted to the FDA
as part of an IND. The FDA requires a 30-day waiting period after the
submission of each IND before beginning clinical tests in humans. At
any time during this 30-day period or at any time thereafter, the FDA may order
the partial, temporary or permanent discontinuation of a clinical trial or
impose other sanctions if the FDA believes that the clinical trial is not being
conducted in accordance with FDA requirements or presents an unacceptable risk
to the clinical trial patients. Clinical studies must be conducted in
accordance with the FDA’s good clinical practices requirements. The
IND process may become extremely costly and substantially delay development of
our products. Moreover, positive results of preclinical tests are not
necessarily indicative of similar results in clinical trials.
Clinical
studies to support NDA approval are typically conducted in three sequential
phases, but the phases may overlap. In Phase I clinical studies,
the product is tested in a small number of patients or healthy volunteers,
primarily for safety at one or more doses and to assess
pharmacokinetics. In Phase II clinical studies, in addition to
safety, the sponsor evaluates the efficacy of the product on targeted
indications, identifies possible adverse effects and safety risks in a patient
population, and assesses dose tolerance and optimal dose range. If a
compound is found to be potentially effective and to have an acceptable safety
profile in Phase II studies, Phase III studies, also referred to as “pivotal
studies,” are undertaken. Phase III clinical studies typically
involve testing for safety and clinical efficacy in an expanded patient
population at geographically-dispersed study sites.
After
completion of the required clinical testing, an NDA is submitted. An
NDA contains the results of the preclinical and clinical studies, together with,
among other things, detailed information on the manufacture and composition of
the product and proposed labeling, including payment of a user
fee. The FDA may request additional information before accepting an
NDA for filing, in which case the application must be resubmitted with the
additional information. During its review of an NDA, the FDA may
refer the application to an appropriate advisory committee for review,
evaluation and recommendation as to whether the application should be
approved. The FDA is not bound by the recommendation of an advisory
committee.
Under the
policies agreed to by the FDA under the Prescription Drug User Fee Act, or the
PDUFA, the FDA has ten months in which to complete its initial review of a
standard NDA and respond to the applicant, and six months to initially review
and respond to a priority NDA. Standard NDA status or priority NDA
status are based on several factors identified by the FDA including for example,
whether the drug product, if approved, would be a significant improvement
compared to marketed products in the treatment, diagnosis, or prevention of a
disease. The review process and the PDUFA goal date may be extended
by three months if the FDA requests, or the NDA sponsor otherwise submits, a
major amendment containing additional information or clarification regarding
information already provided in the submission within the last three months of
the PDUFA goal date.
If the
FDA’s evaluations of the NDA and the clinical and manufacturing procedures and
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter, which contains the conditions that must be met in order to
secure final approval of the NDA. If and when those conditions have
been met to the FDA’s satisfaction, the FDA will issue an approval letter,
authorizing commercial marketing of the drug for certain approved
indications. In addition, an approval letter may contain various
post-marketing commitments or agreements, which are often referred to as Phase
IV studies. If the FDA’s evaluation of the NDA submission and the
clinical and manufacturing procedures and facilities is not favorable, the FDA
may refuse to approve the NDA and issue a not approvable letter.
The
manufacturers of approved products and their manufacturing facilities are
subject to continual review and periodic inspections. Because we
intend to contract with third parties for manufacturing of these products, our
control of compliance with FDA requirements may be incomplete. In
addition, identification of certain side effects or the occurrence of
manufacturing problems after any of our drugs are on the market could cause
subsequent product recall, discontinuance, or withdrawal of approval,
reformulation of the drug, additional preclinical testing or clinical studies
and labeling changes.
The FDA’s
policies may change, and additional government regulations may be enacted that
could prevent or delay regulatory approval for our products. We
cannot predict the likelihood, nature or extent of adverse governmental
regulation that might arise from future legislative or administrative action,
either in the United States or abroad.
The
Hatch-Waxman Act
The Drug
Price Competition and Patent Term Restoration Act of 1984, or Hatch-Waxman Act,
amended the Federal Food, Drug, and Cosmetic Act (the “FDCA”). Under
the Hatch-Waxman Act, newly-approved drugs and indications may benefit from a
statutory period of non-patent marketing exclusivity. The
Hatch-Waxman Act provides five year marketing exclusivity to the first applicant
to gain approval of an NDA for a new chemical entity, meaning that the FDA has
not previously approved any other new drug containing the same active
moiety. However, in the case of a combination drug containing a new
chemical entity and a non-new chemical entity, five year exclusivity does not
attach to the new chemical entity. The Hatch-Waxman Act prohibits the
submission of an Abbreviated NDA, or ANDA, for a generic drug, or a
Section 505(b)(2) NDA for another version of such drug during the five year
exclusive period. However, the submission of an ANDA or
Section 505(b)(2) NDA containing a paragraph IV certification claiming
that a patent listed in the FDA’s Approved Drug Products with Therapeutic
Equivalence Evaluations, or Orange Book, for the drug is invalid or will not be
infringed by the manufacture, use or sale of the new product is permitted after
four years. The submission of a paragraph IV certification may
trigger a 30-month stay of approval of the ANDA or Section 505(b)(2)
NDA. Protection under Hatch-Waxman will not prevent the submission or
approval of another full NDA; however, the applicant would be required to
conduct its own preclinical and adequate and well-controlled clinical studies to
demonstrate safety and effectiveness. The Hatch-Waxman Act also
provides three years of marketing exclusivity for the approval of new and
supplemental NDAs, for, among other things, new indications, dosage forms, or
strengths of an existing drug, if new clinical investigations that were
conducted or sponsored by the applicant are essential to the approval of the
application.
IPLEX™ is
currently protected by a seven year period of orphan drug exclusivity for the
treatment of severe primary IGF-1 deficiency, which prevents the FDA from
approving another marketing application for the same drug for the same
indication, except in the limited circumstances described below. In
addition, the FDA’s Orange Book publication lists two patents covering IPLEX™ to
which a generic applicant must certify.
Orphan
Drug Designation and Exclusivity
Some
jurisdictions, including the European Union and the United States, may designate
drugs for relatively small patient populations as orphan drugs. The
FDA grants orphan drug designation to drugs intended to treat a rare disease or
condition that affects fewer than 200,000 individuals in the United States or
more than 200,000 individuals in the United States and for which there is no
reasonable expectation that the cost of developing and making available in the
United States a drug for this type of disease or condition will be recovered
from sales in the United States for that drug. In the United States,
orphan drug designation must be requested before submitting an application for
marketing approval. Orphan drug designation does not convey any
advantage in, or shorten the duration of, the regulatory review and approval
process. If a product that has orphan drug designation subsequently
receives the first FDA approval for the indication for which it has such
designation, the product is entitled to orphan drug exclusivity, which means the
FDA may not approve any other application to market the same drug for the same
indication for a period of seven years, except in limited circumstances, such as
a showing of clinical superiority (superior efficacy, safety, or a major
contribution to patient care) to the product with orphan drug
exclusivity. Also, competitors may receive approval of different
drugs or biologics for the indications for which the orphan drug has
exclusivity.
We have
received orphan designation for IPLEX™ for the treatment of MMD. We
also intend to file for orphan drug designation IPLEX™ for other indications
that meet the criteria for orphan drug designation and for which IPLEX™ appears
to be a promising treatment. If the FDA designates the drug and
approves our marketing application, or approves marketing applications under
current designations, we will be granted seven years of orphan drug
exclusivity for the drug for the designated indication. Obtaining FDA
approval to market a product with orphan drug exclusivity may not provide us
with a material commercial advantage.
Under
European Union medicine laws, the criteria for designation as an “orphan
medicine” are similar but somewhat different from those in the United
States. A drug is designated as an orphan drug if the sponsor can
establish that the drug is intended for a life-threatening or chronically
debilitating condition affecting no more than five in 10,000 persons in the
European Union or that is unlikely to be profitable, and if there is no approved
satisfactory treatment or if the drug would be a significant benefit to those
persons with the condition. Orphan medicines are entitled to ten
years of market exclusivity, except under certain limited circumstances
comparable to United States law. During this period of market
exclusivity, no “similar” product, whether or not supported by full safety and
efficacy data, will be approved unless a second applicant can establish that its
product is safer, more effective or otherwise clinically
superior. This period may be reduced to six years if the conditions
that originally justified orphan drug designation change or the sponsor makes
excessive profits. We have obtained orphan medicine designation in
the European Union for IPLEX™ for the treatment of extreme insulin
resistance.
Other
Regulatory Requirements
We may
also be subject to a number of post-approval regulatory
requirements. If we seek to make certain changes to an approved
product, such as promoting or labeling a product for a new indication, making
certain manufacturing changes or product enhancements or adding labeling claims,
we will need FDA review and approval before the change can be
implemented. While physicians may use products for indications that
have not been approved by the FDA, we may not label or promote the product for
an indication that has not been approved. Securing FDA approval for new
indications or product enhancements and, in some cases, for manufacturing and
labeling claims, is generally a time-consuming and expensive process that may
require us to conduct clinical studies under the FDA’s IND
regulations. Even if such studies are conducted, the FDA may not
approve any change in a timely fashion, or at all. In addition,
adverse experiences associated with use of the products must be reported to the
FDA, and FDA rules govern how we can label, advertise or otherwise commercialize
our products.
Outside
the United States, our ability to market our products will also depend on
receiving marketing authorizations from the appropriate regulatory
authorities. The requirements governing the conduct of clinical
studies and marketing authorization vary widely from country to
country. The foreign regulatory approval process includes risks
similar to those associated with FDA approval described above.
EMPLOYEES
At
December 31, 2008, we had 97 employees, including 19 in research and
development, 31 in regulatory, clinical and quality assurance, 29 in
manufacturing, and 18 in finance and administration. After giving
effect to the sale of our FOB assets on March 31, 2009, we had 18 employees
as of that date, including 3 executives, 10 in regulatory and clinical and 5 in
finance and administration.
Our
continued success will depend in large measure on our ability to attract and
retain highly skilled employees who are in great demand. None of our
employees are represented by a labor union and we believe that our relations
with our employees are generally good.
Available
Information
We file
electronically with the U.S. Securities and Exchange Commission, or SEC, our
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We make
available on our website at http://www.insmed.com, free of charge, copies of
these reports as soon as reasonably practicable after filing these reports with,
or furnishing them to, the SEC.
ITEM
1A. RISK FACTORS
Our
operating results and financial condition have varied in the past and may in the
future vary significantly depending on a number of factors. Except
for the historical information in this report, the matters contained in this
report include forward-looking statements that involve risks and
uncertainties. The following factors, among others, could cause
actual results to differ materially from those contained in forward-looking
statements made in this report and presented elsewhere by management from time
to time. Such factors, among others, may have a material adverse
effect upon our business, results of operations and financial
condition.
You
should consider carefully the following risk factors, together with all of the
other information included in this annual report on Form 10–K. Each
of these risk factors could adversely affect our business, operating results and
financial condition, as well as adversely affect the value of an investment in
our common stock.
We
have a history of operating losses and an expectation that we will generate
operating losses for the foreseeable future, we may not achieve profitability
for some time, if at all.
We are a
development stage company with expertise in protein recombinant drug
development. We have incurred losses each year of operation and we
expect to continue incurring operating losses for the foreseeable
future. The process of developing and commercializing our products
requires significant pre-clinical testing and clinical trials as well as
regulatory approvals for commercialization and marketing before we are allowed
to begin product sales. In addition, commercialization of our drug
candidates requires us to establish a sales and marketing organization and
contractual relationships to enable product manufacturing and other related
activities. We expect that these activities, together with our
general and administrative expenses, will result in substantial operating losses
for the foreseeable future. As of December 31, 2008, our accumulated
deficit was $346 million and for the year ended December 31, 2008 our
consolidated net loss was $15.7 million.
The
Italian Health Authority may refuse to pay for IPLEX™ used by patients in Italy
under our Expanded Access Program, which could have a material adverse effect on
our business, financial condition and results of operations.
At
present the Italian Health Authority approves all drug payments for IPLEX™ used
by Italian patients with ALS in Italy as part of our Expanded Access Program.
Should the Italian Health Authority decide to stop approving IPLEX™ for ALS it
would significantly affect our cash position and could require us to raise funds
sooner than anticipated, which may only be available to us on less than
favorable terms.
We
have not completed the research and development stage of any of our product
candidates. If we are unable to successfully commercialize our
products, it will materially adversely affect our business, financial condition
and results of operations.
Our
long-term viability and growth depend on the successful commercialization of
products which lead to revenue and profits. Pharmaceutical product
development is an expensive, high risk, lengthy, complicated, resource intensive
process. In order to succeed, among other things, we must be able
to:
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identify
potential drug product candidates;
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design
and conduct appropriate laboratory, preclinical and other
research;
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submit
for and receive regulatory approval to perform clinical
studies;
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design
and conduct appropriate preclinical and clinical studies according to good
laboratory and good clinical
practices;
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select
and recruit clinical investigators;
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select
and recruit subjects for our
studies;
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collect,
analyze and correctly interpret the data from our
studies;
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submit
for and receive regulatory approvals for marketing;
and
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manufacture
the drug product candidates according to
cGMP.
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The
development program with respect to any given product will take many years and
thus delay our ability to generate profits. In addition, potential
products that appear promising at early stages of development may fail for a
number of reasons, including the possibility that the products may require
significant additional testing or turn out to be unsafe, ineffective, too
difficult or expensive to develop or manufacture, too difficult to administer,
or unstable.
In order
to conduct the development programs for our products we must, among other
things, be able to successfully:
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raise
sufficient money and pay for the development of the
products
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attract
and retain appropriate personnel;
and
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develop
relationships with other companies to perform various development
activities that we are unable to
perform.
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Even if
we are successful in developing and obtaining approval for our product
candidates, there are numerous circumstances that could prevent the successful
commercialization of the products such as:
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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;
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we
are unable to build a sales and marketing group to successfully launch and
sell our products;
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we
are unable to raise the additional funds needed to successfully develop
and commercialize our products or acquire additional products for
growth;
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we
are required to allocate available funds to litigation
matters;
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we
are unable to manufacture the quantity of product needed in accordance
with current good manufacturing practices to meet market demand, or at
all;
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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;
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competition
from other products or technologies prevents or reduces market acceptance
of our products;
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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;
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we
are unsuccessful in defending against patent infringement claims being
brought against us our products or technologies;
or
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we
are unable to obtain reimbursement for our product or such reimbursement
may be less than is necessary to produce a reasonable
profit.
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Our
growth strategy includes the commercialization of more than one
product. We may not be able to identify and acquire complementary
products, businesses or technologies and if acquired or licensed, they might not
improve our business, financial condition or results of
operations. The failure to successfully acquire, develop and
commercialize products will adversely affect our business, financial condition
and results of operations.
Our
common stock may be delisted from the NASDAQ Capital Market which may cause the
value of an investment in our common stock to substantially
decrease.
We may be
unable to meet the continued listing requirements of the NASDAQ Capital Market
in the future. To maintain the listing of our common stock on the
NASDAQ Capital Market, we are required, among other things, to maintain a daily
closing bid price per share of $1.00 (the “Minimum Bid Price Requirement”). By
letter dated June 18, 2007, we were notified by the NASDAQ Listing Qualification
Staff (the “Staff”) that the bid price for our common stock had closed below
$1.00 per share for the previous 30 consecutive business days and that in
accordance with NASDAQ marketplace rules, we had been granted a 180-calendar day
period, or through December 17, 2007, to regain compliance with the Minimum Bid
Price Requirement. By letter dated December 20, 2007, the Staff
notified us that we had failed to regain compliance with the Minimum Bid Price
Requirement and that our common stock would be delisted from the NASDAQ Stock
Market on December 31, 2007, if we did not transfer the listing to the NASDAQ
Capital Market or appeal the Staff decision to a NASDAQ Hearings Panel (a
“Panel”). By letter dated, December 26, 2007, we requested a hearing
before a Panel and on January 24, 2008, we attended a Panel hearing in
connection with our failure to meet the Minimum Bid Price
Requirement. By decision dated February 27, 2008, the Panel
transferred our common stock to the NASDAQ Capital Market and granted us the
balance of the second 180-calendar day period, or until June 12, 2008, in
accordance with NASDAQ marketplace rules, to regain compliance with the Minimum
Bid Price Requirement. We did not regain compliance with the Minimum
Bid Price Requirement and accordingly, on June 17, 2008, were notified by the
Staff that our common stock would be delisted from the NASDAQ Capital Market if
we did not request a hearing before a Panel. By letter dated June 24,
2008, we requested a hearing before a Panel with respect to the continued
listing of our common stock on the NASDAQ Capital Market. On July 31,
2008, we had a hearing in front of the Panel. On August 29, 2008, we
received a letter from the Panel stating that the Panel had granted our request
to remain listed on the NASDAQ Capital Market, provided that, we evidence
compliance with the Minimum Bid Price Rule on or before December 15,
2008. Subsequent to the Panel decision, due to market conditions, on
October 16, 2008, NASDAQ announced that it was suspending compliance with the
Minimum Bid Price Requirement for all listed companies until January 16,
2009. In connection with the suspension of the Minimum Bid Price
Requirement, we were notified that the period by which we must be in compliance
with the Minimum Bid Price Requirement had been extended until July 17,
2009. If we fail to regain compliance with the Minimum Bid Price
Requirement on or before July 17, 2009, the Staff will provide us with written
notification that our Common Stock will be delisted from the NASDAQ Capital
Market. If a delisting from the NASDAQ Capital Market were to occur,
our Common Stock would be eligible, upon the application of a market maker, to
trade on the OTC Bulletin Board or in the “pink sheets.” These alternative
markets are generally considered to be less efficient than, and not as broad as,
the NASDAQ Capital Market or the NASDAQ Global Market. Therefore,
delisting of our common stock from the NASDAQ Capital Market could adversely
affect the trading price of our common stock and could limit the liquidity of
our common stock and therefore could cause the value of an investment in our
common stock to decrease.
In
order to regain compliance with the Minimum Bid Price Requirement of the NASDAQ
Stock Market we may be required to implement a reverse stock split, which could
have a material adverse affect on our stock price.
We may be
required to implement a reverse stock split in order for our shares of common
stock to remain listed on the NASDAQ Capital Market. While such
reverse stock split could bring us back into compliance, there can be no
assurance that any increase in the market price for our common stock resulting
from a reverse stock split, if approved and implemented, would be sustainable
since there are numerous factors and contingencies that would effect such price,
including the market conditions for our common stock at the time, our reported
results of operations in future periods and general economic, geopolitical,
stock market and industry conditions. Accordingly, the total market
capitalization of our common stock after a reverse stock split may be lower than
the total market capitalization before such reverse stock split and, in the
future, the market price of our common stock may not exceed or remain higher
than the market price prior to such reverse stock split. While a higher share
price may help generate investor interest in our common stock, there can be no
assurance that a reverse stock split would result in a per share market price
that attracts institutional investors or investment funds, or that such price
would satisfy the investing guidelines of institutional investors or investment
funds.
As a
result, the trading liquidity of our common stock may not improve as a result of
a reverse stock split. Furthermore, the liquidity of our common stock could be
adversely affected by the reduced number of shares of our common stock that
would be outstanding after the reverse stock split.
If
our products fail in pre-clinical or clinical trials or if we cannot enroll
enough patients to complete our clinical trials, such failure may adversely
affect our business, financial condition and results of operations.
In order
to sell our products, we must receive regulatory approval. Before
obtaining regulatory approvals for the commercial sale of any of our products
under development, we must demonstrate through pre-clinical studies and clinical
trials that the product is safe and effective for use in each target
indication. In addition, the results from pre-clinical testing and
early clinical trials may not be predictive of results obtained in later
clinical trials. There can be no assurance that our clinical trials
will demonstrate sufficient safety and effectiveness to obtain regulatory
approvals for our products still in development. A number of
companies in the biotechnology and pharmaceutical industries have suffered
significant setbacks in late stage clinical trials even after promising results
in early stage development. If our developmental products fail in
pre-clinical or clinical trials, it will have an adverse effect on our business,
financial condition and results of operations.
The
completion rate of clinical studies of our products is dependent on, among other
factors, the patient enrollment rate. Patient enrollment is a
function of many factors, including:
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investigator
identification and recruitment;
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regulatory
approvals to initiate study sites;
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patient
population size;
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the
nature of the protocol to be used in the
trial;
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patient
proximity to clinical sites;
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eligibility
criteria for the study; and
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competition
from other companies’ clinical studies for the same patient
population.
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We
believe our planned procedures for enrolling patients are appropriate; however,
delays in patient enrollment would increase costs and delay ultimate
commercialization and sales, if any, of our products. Such delays
could materially adversely affect our business, financial condition and results
of operations.
We
may be required to conduct broad, long-term clinical trials to address concerns
that the long-term use of one of our leading products, IPLEX™, in broader
chronic indications might increase the risk of diabetic
retinopathy. This may materially adversely affect our business,
financial condition and results of operations.
In
previously published clinical trials of rhIGF-1, concerns were raised that
long-term use of rhIGF-1 might lead to an increased incidence and/or severity of
retinopathy, a disease of new blood vessel growth in the eye which results in
loss of vision. Because IPLEX™ contains
rhIGF-I, the FDA may require us to conduct broad, long-term clinical trials to
address these concerns prior to receiving FDA approval for broad chronic
indications such as diabetes. These clinical trials would be
expensive and could delay our commercialization of IPLEX™ for these broader
chronic indications. Adverse results in these trials could prevent
our commercialization of IPLEX™ for
broad chronic indications or could jeopardize existing development in other
indications.
We are
required to obtain various regulatory approvals prior to studying our products
in humans and then again before we market and distribute our
products. The regulatory review and approval process required to
perform a clinical study in both the United States and European Union includes
evaluation of preclinical studies and clinical studies, as well as the
evaluation of our manufacturing process. This process is complex,
lengthy, expensive, resource intensive and uncertain. Securing
regulatory approval to market our products also requires the submission of
extensive preclinical and clinical data, manufacturing information regarding the
process and facility, scientific data characterizing our product and other
supporting data to the regulatory authorities in order to establish its safety
and effectiveness. This process is also complex, lengthy, expensive,
resource intensive and uncertain. We have limited experience in
filing and pursuing applications necessary to gain these regulatory
approvals.
Data
submitted to the regulators is subject to varying interpretations that could
delay, limit or prevent regulatory agency approval. We may also
encounter delays or rejections based on changes in regulatory agency policies
during the period in which we develop a product and the period required for
review of any application for regulatory agency approval of a particular
product. Delays in obtaining regulatory agency approvals could
adversely affect the development and marketing of any drugs that we or our
collaborative partners develop. Such delays could impose costly
procedures on our collaborative partners’ or our activities, diminish any
competitive advantages that our collaborative partners or we may attain and
adversely affect our ability to receive royalties, any of which could materially
adversely affect our business, financial condition and results of
operations.
In order
to market our products outside of the United States and European Union, our
corporate partners and we must comply with numerous and varying regulatory
requirements of other countries. The approval procedures vary among
countries and can involve additional product testing and administrative review
periods. The time required to obtain approval in these other
territories might differ from that required to obtain FDA or European Agency for
the Evaluation of Medicinal Products, or EMEA, approval. The
regulatory approval process in these other territories includes at least all of
the risks associated with obtaining FDA and EMEA approval detailed above.
Approval by the FDA or the EMEA does not ensure approval by the regulatory
authorities of other countries. The failure to obtain such approvals
may materially adversely affect our business, financial condition and results of
operations.
We may not have
or be able to obtain sufficient quantities of our products to meet our supply
and clinical studies obligations and our business, financial condition and
results of operation may be adversely affected.
The transfer of the Boulder facility to
Merck takes away our internal IPLEX™ production capability. We
believe, however, that we have sufficient inventory of IPLEX™ to support our
ongoing ALS EAP in Europe through 2010 together with the IPLEX™ requirement for
the clinical trial currently being planned with the FDA for ALS patients in the
US. Any requirements for IPLEX™ beyond 2010 or any significant
increase in demand beyond our current commitments either in the MMD or ALS
fields will require that we identify a Contract Manufacturing Organization or
CMO to produce the necessary IPLEX™ to meet the demand. We estimate
that the tech transfer of our IPLEX™ production process could take 12 to 18
months once a CMO has been identified.
We also
intend to manufacture rhIGFBP-3 clinical drug substance and INSM-18 with
contract manufacturers. In addition, we intend to utilize contract
manufacturers for sterile filtering, filling, finishing, labeling
and analytical testing.
The
number of contract manufacturers with the expertise and facilities to
manufacture our products is limited and it would take a significant amount of
time and resources to arrange for alternative manufacturers. Even if
we were to find alternative manufacturers, the prices they charge may not be
commercially reasonable or may only be able to provide our products in a
quantity that is less than our needs. Furthermore, if we need to
change to other contract manufacturers, we would also need to transfer to these
new manufacturers and validate the processes and analytical methods necessary
for the production and testing of our products. Any of these factors
could lead to (1) the delay or suspension of our clinical studies, regulatory
submissions and regulatory approvals, or (2) higher costs of production, or (3)
our failure to effectively commercialize our products.
The
facilities of contract manufacturers must undergo inspections by the FDA and the
EMEA for compliance with cGMP regulations. In the event these
facilities do not continue to receive satisfactory cGMP inspections for the
manufacture and testing of our products, we may need to fund additional
modifications to our manufacturing or testing processes, conduct additional
validation studies, or find alternative manufacturing and testing facilities,
any of which would result in significant cost to us as well as a significant
delay of up to several years in the development of our products. In
addition, the facilities of any contract manufacturer we may utilize, will be
subject to ongoing periodic inspection by the FDA, the EMEA and other foreign
agencies for compliance with cGMP regulations and similar foreign
standards. We have limited control over contract manufacturers'
compliance with these regulations and standards which could limit our production
of final drug product.
If
our products fail to achieve market acceptance for any reason, such failure may
materially adversely affect our business, financial condition and results of
operations.
There can
be no assurance that any of our product candidates if approved for marketing,
will achieve market acceptance. If our product candidates, once
approved, do not receive market acceptance for any reason, it will adversely
affect our business, financial condition and results of
operations. The degree of market acceptance of any drugs we develop
will depend on a number of factors, including:
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the
establishment and demonstration in the medical community of the clinical
efficacy and safety of our
products;
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our
products’ potential advantages over existing and future treatment
methods;
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the
price of our products; and
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reimbursement
policies of government and third-party payers, including hospitals and
insurance companies.
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For
example, even after we obtain regulatory approval to sell our products,
physicians and healthcare payers could conclude that our products are not safe
and effective and physicians could choose not to use them to treat
patients. Our competitors may also develop new technologies or
products which are more effective or less costly, or that seem more
cost-effective than our products.
In
addition, legislation and regulations affecting the pricing of pharmaceuticals
may change in ways adverse to us. While we cannot predict the
likelihood of any legislative or regulatory proposals, if the government or an
agency adopts such proposals, they could materially adversely affect our
business, financial condition and results of operations.
We depend
highly on the principal members of our scientific and management staff, the loss
of whose services might significantly delay or prevent the achievement of
research, development or business objectives and would materially adversely
affect our business, financial condition and results of
operations. Our success depends, in large part, on our ability to
attract and retain qualified management, scientific and medical personnel, and
on our ability to develop and maintain important relationships with commercial
partners, leading research institutions and key distributors. We face
intense competition for such personnel and relationships. We cannot
assure that we will attract and retain such persons or maintain such
relationships.
We expect
that our potential expansion into areas and activities requiring additional
expertise, such as further clinical trials, governmental approvals,
manufacturing, sales, marketing and distribution will place additional
requirements on our management, operational and financial
resources. We expect these demands will require an increase in
management and scientific personnel and the development of additional expertise
by existing management personnel. The failure to attract and retain
such personnel or to develop such expertise could materially adversely affect
our business, financial condition and results of operations.
We
rely on collaborative relationships for our success. If we are unable
to form these relationships it could materially adversely impact our business,
financial condition and results of operations.
We
currently rely and may in the future rely on a number of significant
collaborative relationships for intellectual property rights, research funding,
manufacturing, analytical services, preclinical development, clinical
development and sales and marketing. For example, almost all of our clinical
trial work is done in collaboration with academic institutions and we have
licensed intellectual property to permit the development, manufacture and
commercialization of our products. Reliance on collaborative
relationships poses a number of risks, including the following:
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we
may not be able to effectively control whether our corporate partners will
devote sufficient resources to our programs or
products;
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disputes
may arise in the future with respect to the ownership of rights to
technology developed with, licensed to or licensed from corporate
partners;
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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;
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contracts
with our corporate partners may fail to provide sufficient protection of
our intellectual property;
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we
may have difficulty enforcing the contracts if one of these partners fails
to perform;
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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
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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.
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Given
these risks, a great deal of uncertainty exists regarding the success of our
current and future collaborative efforts. Failure of these efforts
could delay, impair or prevent the development and commercialization of our
products and adversely affect our business, financial condition and results of
operations.
Our
growth strategy includes acquiring complementary businesses or technologies that
may not be available or, if available and purchased or licensed, might not
improve our business, financial condition or results of operations.
As part
of our business strategy, we expect to pursue acquisitions and in-license new
products and technologies. Nonetheless, we cannot assure you that we
will identify suitable acquisitions or products or that we can make such
acquisitions or enter into such license agreements on acceptable
terms. If we acquire businesses, those businesses may require
substantial capital, and we cannot provide assurance that such capital will be
available in sufficient amounts or that financing will be available in amounts
and on terms that we deem acceptable. Furthermore, the integration of
acquired businesses may result in unforeseen difficulties that require a
disproportionate amount of management’s attention and our other
resources. Finally, we cannot provide assurance that we will achieve
productive synergies and efficiencies from these acquisitions.
We intend
to conduct proprietary development programs with collaborators, and any
conflicts with them could harm our business, financial condition and results of
operations. We intend to enter into collaborative relationships which
will involve our collaborators conducting proprietary development
programs. Any conflict with our collaborators could reduce our
ability to obtain future collaboration agreements and negatively influence our
relationship with existing collaborators, which could reduce our revenues and
have an adverse effect on our business, financial condition and results of
operations. Moreover, disagreements with our collaborators could
develop over rights to our intellectual property.
Certain
of our collaborators could also be or become competitors. Our
collaborators could harm our product development efforts by:
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developing
competing products;
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precluding
us from entering into collaborations with their
competitors;
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failing
to obtain regulatory approvals;
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terminating
their agreements with us prematurely;
or
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We may need additional funds in the future to
continue our operations, but we face uncertainties with respect to our access to
capital that could materially adversely impact our business, financial condition
and results of operations.
We may
require additional future capital in order to acquire complementary businesses
or technology or continue our research and development activities. As
of December 31, 2008, we had $2.4 million of cash and investments on
hand. On March 31, 2009, we completed the sale of our FOB assets
for an aggregate purchase price of $130 million. After fees, taxes
and other costs related to the transaction, we expect net proceeds of
approximately $123 million as a result of this transaction. However,
our future capital requirements will depend on many factors, including factors
associated with:
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research
and development, including, among other items, preclinical testing and
clinical studies,
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process
development;
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obtaining
marketing, sales and distribution
capabilities;
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obtaining
regulatory approvals;
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retaining
employees and consultants;
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filing
and prosecuting patent applications and enforcing patent
claims;
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establishing
strategic alliances;
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manufacturing;
and
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potential
future litigation.
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We may
also need to spend more money than currently expected because we may further
change or alter drug development plans, acquire additional drugs or drug
candidates or we may misjudge our costs. We have no committed sources
of capital and do not know whether additional financing will be available when
needed, or, if available, that the terms will be favorable. There can
be no assurance that our cash reserves together with any subsequent funding will
satisfy our capital requirements. The failure to satisfy our capital
requirements will adversely affect our business, financial condition and results
of operations.
We may
seek additional funding through strategic alliances, private or public sales of
our securities or licensing all or a portion of our technology. Such
funding may significantly dilute existing shareholders or may limit our rights
to our currently developing technology. There can be no assurance,
however, that we can obtain additional funding on reasonable terms, or at
all. If we cannot obtain adequate funds, we may need to significantly
curtail our product development programs and relinquish rights to our
technologies or drug candidates. This may adversely affect our
business, financial condition and results of operations.
We
may not accurately predict the protection afforded by our patents and
proprietary technology and if our predictions are wrong, this may materially
adversely affect our business, financial condition and results of
operations.
Our
success will depend in part on our ability to obtain patent protection for our
products, prevent third parties from infringing on our patents, and refrain from
infringing on the patents of others, both domestically and
internationally.
Our
patent positions are highly uncertain, and any future patents we receive for our
potential products will be subject to this uncertainty, which may adversely
affect our business, financial condition and results of
operations. We intend to actively pursue patent protection for
products resulting from our research and development activities that have
significant potential commercial value. Nevertheless, it is possible
that, in the patent application process, certain claims may be rejected or
achieve such limited allowance that the value of the patents would be
diminished. Further, there can be no assurance that any patents
obtained will afford us adequate protection. In addition, any patents
we procure may require cooperation with companies holding related
patents. We may have difficulty forming a successful relationship
with these other companies.
Third
parties may claim that we are infringing upon or have misappropriated their
proprietary rights. Various third parties have obtained, and are
attempting to obtain, patent protection relating to the production and use of
our approved product and product candidates. We can give no
assurances as to whether any issued patents, or patents that may later issue to
third parties, would affect our contemplated commercialization of IPLEX™ or any
other product. We can give no assurances that such patents can be
avoided, invalidated or licensed. With respect to any infringement
claim asserted by a third party, we can give no assurances that we will be
successful in the litigation or that such litigation would not have a material
adverse effect on our business, financial condition and results of
operation. In the event of a successful claim against us for
infringement or misappropriation of a third party’s proprietary rights, we may
be required to:
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pay
damages, including up to treble damages, and the other party’s attorneys’
fees, which may be substantial;
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cease
the development, manufacture, marketing and sale of products or use of
processes that infringe the proprietary rights of
others;
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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;
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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
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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.
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Furthermore,
litigation with any third party, even if the allegations are without merit,
would likely be expensive and time-consuming and divert management’s
attention.
Any
conclusions we may have reached regarding non-infringement and invalidity are
based in part on a review of publicly available databases and other
information. There may be information not available to us or
otherwise not reviewed by us that might change our
conclusions. Moreover, as described above, the scope and validity of
patent claims are determined based on many facts and circumstances, and in a
litigation, a court may reach a different conclusion on any given patent claim
than the conclusions that we have reached.
In
addition, we may have to undertake costly litigation to enforce any patents
issued or licensed to us or to determine the scope and validity of another
party’s proprietary rights. We can give no assurances that a court of
competent jurisdiction would validate our issued or licensed
patents. An adverse outcome in litigation or an interference or other
proceeding in a court or patent office could materially adversely affect our
business, financial condition and results of operations.
We
operate in a highly competitive environment and if we are unable to adapt to our
environment, we may be unable to compete successfully, which will materially
adversely affect our business, financial condition and results of
operations.
Biotechnology
and related pharmaceutical technology have undergone and should continue to
experience rapid and significant change. We expect that the
technologies associated with biotechnology research and development will
continue to develop rapidly. Our future success will depend in large
part on our ability to maintain a competitive position with respect to these
technologies. Any compounds, products or processes that we develop
may become obsolete before we recover any expenses incurred in connection with
their development. Rapid technological change could make our products
obsolete, which could materially adversely affect our business, financial
condition and results of operations.
We expect
that successful competition will depend, among other things, on product
efficacy, safety, reliability, availability, timing and scope of regulatory
approval and price. Specifically, we expect crucial factors will
include the relative speed with which we can develop products, complete the
clinical testing and regulatory approval processes and supply commercial
quantities of the product to the market. We expect competition to
increase as technological advances are made and commercial applications
broaden. In each of our potential product areas, we face substantial
competition from large pharmaceutical, biotechnology and other companies,
universities and research institutions. Relative to us, most of these
entities have substantially greater capital resources, research and development
staffs, facilities and experience in conducting clinical studies and obtaining
regulatory approvals, as well as in manufacturing and marketing pharmaceutical
products. Many of our competitors may achieve product
commercialization or patent protection earlier than us. Furthermore,
we believe that our competitors have used, and may continue to use, litigation
to gain a competitive advantage. Finally, our competitors may use
different technologies or approaches to the development of products similar to
the products we are seeking to develop.
Competitors
could develop and gain FDA approval of products containing rhIGF-1, which could
adversely affect our competitive position in all indications where we are
currently developing IPLEX™.
rhIGF-1
manufactured by other parties may be approved for use in other indications in
the United States in the future, including MMD and HARS. In the event
there are other rhIGF-1 products approved by the FDA to treat indications other
than those covered by IPLEX™, physicians may elect to prescribe a competitor’s
product containing rhIGF-1 to treat the indications for which IPLEX™ has
received and may receive approval. This is commonly referred to as
off-label use. While under FDA regulations a competitor is not
allowed to promote off-label use of its product, the FDA does not regulate the
practice of medicine and as a result cannot direct physicians as to what product
containing rhIGF-1 to prescribe to their patients. As a result, we
would have limited ability to prevent off-label use of a competitor’s product
containing rhIGF-1 to treat any diseases for which we have received FDA
approval, even if it violates our patents and we have orphan drug exclusivity
for the use of rhIGF-1 to treat such diseases.
If
another party obtains orphan drug exclusivity for a product that is essentially
the same as a product we are developing in a particular indication, we may be
precluded or delayed from commercializing the product in that indication. This
may materially adversely affect our business, financial condition and results of
operations.
Under the
Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to
treat a rare disease or condition, which is generally a disease or condition
that affects fewer than 200,000 individuals in the United States. The
company that obtains the first marketing approval from the FDA for a designated
orphan drug for a rare disease receives marketing exclusivity for use of that
drug for the designated condition for a period of seven
years. Similar laws exist in EU. If a competitor obtains
approval of the same drug for the same indication or disease before us, we would
be blocked from obtaining approval for our product for seven or more years,
unless our product can be shown to be clinically superior. In
addition, more than one drug may be approved by the FDA for the same orphan
indication or disease as long as the drugs are different drugs. As a
result, even if our product is approved and receives orphan drug exclusivity, as
in the case of our drug IPLEX™, the FDA can still approve different drugs for
use in treating the same indication or disease covered by our product, which
could create a more competitive market for us.
Confidentiality
agreements with employees and others may not adequately prevent disclosure of
trade secrets and other proprietary information. Disclosure of this
information may materially adversely affect our business, financial condition
and results of operations.
In order
to protect our proprietary technology and processes, we rely in part on
confidentiality agreements with our corporate partners, employees, consultants,
outside scientific collaborators and sponsored researchers and other advisors.
These agreements may not effectively prevent disclosure of confidential
information and may not provide an adequate remedy in the event of unauthorized
disclosure of confidential information. In addition, others may independently
discover trade secrets and proprietary information. Costly and time-consuming
litigation could be necessary to enforce and determine the scope of our
proprietary rights, and failure to obtain or maintain trade secret protection
could adversely affect our competitive business, financial condition and results
of operations.
Our
research, development and manufacturing activities at our former Boulder
Facility involved the use of hazardous materials, which could expose us to
damages that could materially adversely affect our results of operations and
financial condition.
Our
research, development and manufacturing activities at our former Boulder
Facility involved the controlled use of hazardous materials, including hazardous
chemicals and radioactive materials. Under the terms and conditions
of our agreement with Merck for the sale of our FOB assets, we retained our
obligations and liabilities under any environmental law relating to activities
conducted before March 31, 2009 but which arise at any time during the
two-year period beginning on March 31, 2009. If any such
obligation or liability arises, we could be subject to an obligation to
indemnify Merck for any losses incurred by Merck which could materially
adversely affect our results of operations and financial condition.
We
may be subject to product liability claims if our products harm people, and we
have only limited product liability insurance.
The
manufacture and sale of human therapeutic products involve an inherent risk of
product liability claims and associated adverse publicity. We
currently have only limited product liability insurance for our
products. We do not know if we will be able to maintain existing or
obtain additional product liability insurance on acceptable terms or with
adequate coverage against potential liabilities. This type of
insurance is expensive and may not be available on acceptable terms. If we are
unable to obtain or maintain sufficient insurance coverage on reasonable terms
or to otherwise protect against potential product liability claims, we may be
unable to commercialize our products. A successful product liability
claim brought against us in excess of our insurance coverage, if any, may
require us to pay substantial amounts. This could have a material
adverse effect our business, financial condition and results of
operations.
If
our settlement agreement with Tercica and Genentech was terminated, the Consent
order from the court would be reinstated, which would have a material adverse
effect on our business, financial condition and results of
operations.
As part of our settlement agreement
with Genentech and Tercica, we entered into a Consent Judgment and Permanent
Injunction in the United States District Court for the Northern District of
California. If our settlement agreement with Tercica and Genentech is
terminated, the Consent Judgment and Permanent Injunction against us will
survive termination, which would have a material adverse effect on our business,
financial condition and results of operations as we would no longer have a
license to manufacture IPLEX™ using the present process without incurring
significant penalties and royalties.
Conversion
of our outstanding notes and exercise of warrants and options issued by us will
significantly dilute the ownership interest of existing
shareholders.
As of
February 28, 2009, the convertible notes issued by us in March 2005 and the
warrants issued by us in May 2007, March 2005, November 2004 and July 2003 were
convertible into and exercisable for up to approximately 13 million shares
of our common stock, representing approximately 11% of our then outstanding
common stock.
As of
February 28, 2009, our outstanding restricted stock, restricted stock units and
stock options to our employees, officers, directors and consultants were
exercisable for up to 9 million shares of our common stock, representing
approximately an additional eight percent of our then outstanding common
stock.
The
conversion or exercise of some or all of our convertible notes, warrants,
restricted stock, restricted stock units and options will significantly dilute
the ownership interests of existing shareholders. Any sales in the public market
of the common stock issuable upon such conversion or exercise could adversely
affect prevailing market prices of our common stock.
The
market price of our stock has been and may continue to be highly volatile and
historically, we have never paid dividends on our common stock.
Our
common stock is listed on the Nasdaq Capital Market under the ticker symbol
“INSM.” The market price of our stock has been and may continue to be
highly volatile, and announcements by us or by third parties may have a
significant impact on our stock price. These announcements may
include:
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our
listing status on the Nasdaq Capital
Market;
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results
of our clinical studies and preclinical studies, or those of our corporate
partners or our competitors;
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our
operating results;
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developments
in our relationships with corporate
partners;
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developments
affecting our corporate partners;
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negative
regulatory action or regulatory approval with respect to our announcement
or our competitors’ announcements of new
products,
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government
regulation, reimbursement changes and governmental investigation or audits
related to us or to our products,
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developments
related to our patents or other proprietary rights or those of our
competitors;
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changes
in the position of securities analysts with respect to our stock;
and
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operating
results below the expectations of public market analysts and
investors.
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In
addition, the stock market has from time to time experienced extreme price and
volume fluctuations, which have particularly affected the market prices for
emerging biotechnology and biopharmaceutical companies, and which have often
been unrelated to their operating performance. These broad market
fluctuations may adversely affect the market price of our common
stock.
In the
past, when the market price of a stock has been volatile, holders of that stock
have often instituted securities class action litigation against the company
that issued the stock. If any of our shareholders brought a lawsuit
against us, we could incur substantial costs defending the
lawsuit. The lawsuit could also divert the time and attention of our
management.
Future
sales by existing shareholders may lower the price of our common stock, which
could result in losses to our shareholders. Future sales of
substantial amounts of common stock in the public market, or the possibility of
such sales occurring, could adversely affect prevailing market prices for our
common stock or our future ability to raise capital through an offering of
equity securities. Substantially all of our common stock is freely tradable in
the public market without restriction under the Securities Act, unless these
shares are held by “affiliates” of our company, as that term is defined in Rule
144 under the Securities Act.
Historically
we have never paid dividends on our common stock and we currently intend to
retain our future earnings, if any, to fund the development and growth of our
businesses and, therefore, we do not anticipate paying any cash dividends from
earnings in the foreseeable future. We are currently reviewing
options for the use of the proceeds from the sale of our FOB assets to Merck.
One of these options may include a special dividend to common
shareholders.
Certain
provisions of Virginia law, our articles of incorporation and our amended and
restated bylaws, and our Rights Plan make a hostile takeover by a third party
difficult.
Certain
provisions of Virginia law and our articles of incorporation and amended and
restated bylaws could hamper a third party’s acquisition of, or discourage a
third party from attempting to acquire control of us. The conditions could also
limit the price that certain investors might be willing to pay in the future for
shares of our common stock. These provisions include:
|
·
|
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.
|
In
addition, in May 2001, our board of directors approved the adoption of a Rights
Plan under which shareholders received rights to purchase new shares of
preferred stock if a person or group acquires 15% or more of our common stock.
These provisions are intended to discourage acquisitions of 15% or more of our
common stock without negotiations with the board. The rights trade with our
common stock, unless and until they are separated upon the occurrence of certain
future events. Our board of directors may redeem the rights at a price of $0.01
per right prior to the time a person acquires 15% or more of our common
stock.
|
ITEM
2.
|
PROPERTIES
|
Our
headquarters are located in Richmond, Virginia, where we occupy approximately
18,000 square feet of space for corporate and development activities under a
lease expiring in October 2016. Our lease contains annual rent escalations of
3%. Our annual cash cost for the Virginia space including utilities
and services in fiscal 2008 were approximately $0.4 million.
On
March 31, 2009 in connection with the sale of our FOB assets, we assigned
the lease for our process development and manufacturing facility located in
Boulder, Colorado, where we occupied approximately 25,000 square feet dedicated
to cGMP production of commercial and clinical drug and quality control and
26,000 square feet of space in two adjacent facilities for additional laboratory
and research and development operations, administrative functions, and cGMP
warehouse and dispensing operations. Our annual cash cost for this
facility including utilities and services in fiscal 2008 was approximately $1.2
million under two operating leases that contained annual escalation of
3-5%.
We
believe that our existing facilities are adequate for our current needs and that
suitable additional or alternate space will be available on commercially
reasonable terms when our leases expire or when we need additional
space.
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
On
December 6, 2006, a jury in the U.S. District Court for the Northern District of
California found that we infringed patents held by Tercica and Genentech and
awarded damages of $7.5 million as an upfront payment and a royalty of 15% on
sales of IPLEX™ below $100 million and 20% for sales of IPLEX™ above $100
million.
On March
5, 2007, we reached a settlement agreement ending all litigation with Tercica
and Genentech. Pursuant to the agreement, we agreed to cease sales
and marketing of IPLEX™ for the treatment of short stature disorders in the
United States and agreed to withdraw our European Marketing Authorization
Application for IPLEX™ for treatment of short stature disorders. We
continue to provide IPLEX™ to named patients with ALS in Italy under our
Expanded Access Program. On November 8, 2008, Genentech and
Ipsen/Tercica signed a letter of intent whereby they have consented to amend the
agreement between Genentech, Tercica, Inc. and Insmed Incorporated to permit us
to supply IPLEX™ in connection with named-patient ALS programs worldwide on a
royalty-free basis effective October 1, 2008. We previously paid a 4%
royalty under our agreement for all cost-recovery that we receive under the
Expanded Access Program. The agreement also gives us the right,
through a worldwide development partnership with Tercica and Genentech, to
market IPLEX™ for conditions not related to short stature. These
indications include severe insulin resistance, MMD and HARS, among
others. The development partnership includes provisions that give us
a 50% share of profits and reimbursement for 50% of development costs if either
Tercica or Genentech exercises opt-in rights for marketing of IPLEX™ in any of
these new indications that we develop. In addition, as part of the
settlement agreement, Tercica and Genentech waived the damages awarded by the
jury in the patent infringement suit from the U.S. District Court for the
Northern District of California.
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
PART
II
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
REPURCHASES OF EQUITY SECURITIES
|
Our common stock began trading on The
Nasdaq SmallCap Market on June 1, 2000 and moved to the Nasdaq Global Market
(formerly the Nasdaq National Market) on August 8, 2000. On February
29, 2008 our common stock was transferred from the Nasdaq Global Market to the
Nasdaq Capital Market as a result of a decision by the Panel in response to our
appeal of the Staff Determination.
Our
trading symbol is “INSM.” The following table lists, for the periods
indicated, the high and low sale prices per share for our common stock as
reported on the Nasdaq Capital Market for both fiscal 2008 and fiscal
2007:
|
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 | ||||||
On
February 27, 2009, the last reported sale price for our common stock on the
Nasdaq Capital Market was $0.92 per share. As of February 27, 2009,
there were approximately 569 holders of record of our common stock.
We have
never declared or paid dividends on our common stock. We anticipate
that we will retain all earnings, if any, to support operations and to finance
the growth and development of our business. Therefore, we do not
expect to pay cash dividends from earnings in the foreseeable
future. Any future determination as to the payment of dividends will
be at the sole discretion of our board of directors and will depend on our
financial condition, results of operations, capital requirements and other
factors our board of directors deems relevant. We are currently
reviewing options for the use of the proceeds from the sale of our FOB assets to
Merck. One of these options may include a special dividend to common
shareholders.
Information
about our equity incentive plans can be found in Note 3 of our consolidated
financial statements contained within this Form 10-K and in the section “Equity
Compensation Plan Information” of our definitive Proxy Statement for our 2009
annual meeting of stockholders as filed with the Securities and Exchange
Commission and is herein incorporated by reference.
PERFORMANCE
GRAPH
|
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
In the
table below, we present historical financial data for the past five years of our
operations. We have prepared this information using consolidated
financial statements for each of the five years ended December 31,
2008. The financial statements for each of the five fiscal years
ended December 31, 2008, have been audited by Ernst & Young LLP, our
independent registered public accounting firm. Ernst & Young
LLP’s report on the consolidated financial statements for the year ended
December 31, 2008 appears elsewhere herein.
When you
read this selected historical financial data, it is important that you also read
the historical financial statements and related notes in our annual and
quarterly reports filed with the Securities and Exchange Commission, as well as
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
|
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
following discussion also should be read in conjunction with the Consolidated
Financial Statements and notes thereto.
Overview
We are a
development stage company with expertise in protein drug
development. Our corporate office is located in Richmond,
Virginia.
On
February 12, 2009, we announced that we had entered into a definitive agreement
with Merck & Co., Inc. (“Merck”) whereby Merck, through an affiliate, would
purchase all assets related to our follow-on biologics platform. On
March 31, 2009, we completed the sale of these assets for an aggregate
purchase price of $130 million. After fees, taxes and other costs
related to the transaction, we expect net proceeds of approximately $123 million
as a result of this transaction.
As part
of this transaction, Merck assumed the lease of our Boulder, Colorado-based
manufacturing facility and acquired ownership of all the equipment in the
building. In addition, upon closing of the transaction, Merck offered
positions to employees of the Boulder facility. We retain our
Richmond, VA corporate office, which houses our Clinical, Regulatory, Finance,
and Administrative functions, in support of the continuing IPLEX™
program.
Until the
sale of our follow-on biologics platform, we pursued a dual path strategy
involving entry into the follow-on biologics arena (also known as biosimilars,
biogenerics and biologics) and advancing our proprietary protein platform into
niche markets with unmet needs. As a result of the sale of our
follow-on biologics assets, we will primarily focus on our proprietary protein
platform and our product, the FDA-approved IPLEX™, which is in various stages of
development for a number of serious medical conditions. Based on a comprehensive
market analysis, our current resource allocation strategy for IPLEX™ is focused
primarily on Myotonic Muscular Dystrophy (“MMD”) followed by Amyotrophic Lateral
Sclerosis (“ALS”), also known as Lou Gehrig’s disease. Other areas where IPLEX™
has also shown potential include Retinopathy of Prematurity
(“ROP”).
We plan
to use the net proceeds from the sale of our follow-on biologics platform to
continue to support the development of IPLEX™ and our proprietary
protein platform and we are evaluating other options for use of these proceeds
including product licensing, acquisitions of complimentary businesses or
technologies, mergers, share repurchase and the distribution of a portion of the
proceeds to shareholders.
We have
not been profitable and have accumulated deficits of approximately $346 million
through December 31, 2008. While we expect that, following the sale of our FOB
assets to Merck, for the balance of 2009 we will operate on a cash neutral basis
as a result of anticipated revenues on our Expanded Access Program and interest
on the net proceeds of the sale of our FOB assets offsetting our ongoing base
costs, we expect to incur significant additional losses for at least the next
several years until such time as sufficient commercial revenues are generated to
offset expenses. Moving forward our major source of income is expected to be the
cost recovery charges for our Expanded Access Program and our major expenses
will be related to research and development. In general, our
expenditures may increase as development of our product candidates
progresses. However, there will be fluctuations from period to period
caused by differences in project costs incurred at each stage of
development.
Research
and Development Activities
Since we
began operations in late 1999, we have devoted substantially all of our
resources to the research and development of a number of product candidates for
metabolic and endocrine diseases. Until the sale of our FOB assets on
March 31, 2009, our research and development efforts were principally
focused on pursuing a dual path strategy involving entry into the follow-on
biologics arena (also known as biosimilars, biogenerics and biologics) and
advancing our proprietary protein platform into niche markets with unmet
needs. Our focus is now principally on our proprietary protein
platform. Our lead proprietary protein product, the FDA-approved IPLEX™, is
being studied as a treatment for several serious medical conditions including
MMD and ALS. We conduct very little of our own preclinical laboratory
research. We have outsourced several Phase II clinical studies with
IPLEX™ and our other anti-cancer product candidates, INSM-18 and rhIGFBP-3, and
plan on conducting additional clinical studies in the future.
All of
our research and development expenditures, whether conducted by our own staff or
by external scientists on our behalf and at our expense, are recorded as
expenses as incurred and amounted to approximately $188 million for the period
since inception, in November 1999, through December 31, 2008, and $21.1 million,
$19.2 million and $21.0 million, for the years ended December 31, 2006, 2007 and
2008, respectively. Research and development expenses consist
primarily of salaries and related expenses, costs to develop and manufacture
products and amounts paid to contract research organizations, hospitals and
laboratories for the provision of services and materials for drug development
and clinical trials.
All of
our research and development expenditures related to our proprietary protein
platform are interrelated as they are all associated with drugs that modulate
IGF-I activity in the human body. A significant finding in any one
drug for a particular indication may provide benefits to our efforts across all
of these products. All of these products also share a substantial
amount of our common fixed costs such as salaries, facility costs, utilities and
maintenance. Given the small portion of research and development
expenses that are related to products other than IPLEX™ we have determined that
very limited benefits would be obtained from implementing cost tracking systems
that would be necessary to allow for cost information on a product-by-product
basis.
External
clinical research of IPLEX™ in the MMD indication together with the development
cost of the proposed IPLEX™ trial for ALS patients in the US are expected to
represent our main research and development focus for 2009.
Our
clinical trials with our product candidates are subject to numerous risks and
uncertainties that are outside of our control, including the possibility that
necessary regulatory approvals may not be obtained. For example, the
duration and the cost of clinical trials may vary significantly over the life of
a project as a result of differences arising during the clinical trial protocol,
including, among others, the following:
|
·
|
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.
|
Our
clinical trials may also be subject to delays or rejections based on our
inability to enroll patients at the rate that we expect or our inability to
produce clinical trial material in sufficient quantities and of sufficient
quality to meet the schedule for our planned clinical trials.
Moreover,
all of our product candidates and particularly those that are in the preclinical
or early clinical trial stage must overcome significant regulatory,
technological, manufacturing and marketing challenges before they can be
successfully commercialized. Some of these product candidates may
never reach the clinical trial stage of research and development. As
preclinical studies and clinical trials progress, we may determine that
collaborative relationships will be necessary to help us further develop or to
commercialize our product candidates, but such relationships may be difficult or
impossible to arrange. Our projects or intended projects may also be
subject to change from time to time as we evaluate our research and development
priorities and available resources.
Any
significant delays that occur or additional expenses that we incur may have a
material adverse affect on our financial position and require us to raise
additional capital sooner or in larger amounts than is presently expected. In
addition, as a result of the risks and uncertainties related to the development
and approval of our product candidates and the additional uncertainties related
to our ability to market and sell these products once approved for commercial
sale, we are unable to provide a meaningful prediction regarding the period in
which material net cash inflows from any of these projects is expected to become
available.
Results
of Operations
Fiscal 2008 compared to Fiscal
2007
Revenues
for the full-year 2008 totaled $11.7 million, up from $7.6 million in the
corresponding period of 2007. This increase was primarily due to a
$5.1 million improvement in cost recovery from the EAP to treat patients with
ALS in Italy.
The net
loss for the 12 months ended December 31, 2008 was $15.7 million or $0.13 per
share, compared to $20.0 million or $0.17 per share for the 12 months ended
December 31, 2007. R&D Expenses increased to $21.0 million from
$19.2 million, reflecting the higher activity as our clinical trials in the FOB
and IPLEX™ areas advanced. SG&A Expenses fell to $5.1 million
from $8.2 million, due to the elimination of litigation expenses following the
March 2007 settlement and the removal of commercial expenses associated with our
business restructuring plan.
Interest
income for the full-year 2008 was $0.5 million, compared to $1.2 million for the
full-year 2007. This decrease was mainly due to lower interest rates
and a lower average cash balance for the full-year 2008 as compared to the
full-year 2007. Interest expense for the 12 months ended December 31,
2008 was $1.3 million, compared to $682,000 for the corresponding period of
2007. This higher interest expense was due to an increase in the debt discount
amortization resulting from the quarterly payment of our 2005 convertible notes,
which began in March 2008.
As of
December 31, 2008, we had total cash, cash equivalents and short-term
investments on hand of $2.4 million, compared to $16.5 million on hand as of
December 31, 2007. The $14.1 million decrease in cash, cash
equivalents and short-term investments mainly reflected the use of $12.0 million
for operating activities and $2.2 million for principal and interest repayments
of our 2005 convertible notes, which began on March 1, 2008.
Fiscal
2007 compared to Fiscal 2006
Revenues
for the full-year 2007 totaled $7.6 million, up from $1.0 million in the
corresponding period of 2006. This increase was due to improvements in the
cost recovery from our EAP and the receipt of licensing income from our
agreement with NAPO Pharmaceuticals Inc., (“NAPO”), combined with increased
sales of IPLEX™ during the first quarter of 2007.
The net
loss for the 12 months ended December 31, 2007 was $20.0 million or $0.17 per
share, compared to $56.1 million or $0.59 per share for the 12 months ended
December 31, 2006. R&D Expenses dropped to $19.2 million from $21.1
million, reflecting lower litigation expenses which were included in R&D
Expenses during the first quarter of 2006, and reduced commercial manufacturing
activity in 2007. SG&A Expenses fell to $8.2 million from $25.7
million, due to a combination of reduced litigation expenses, which were
included in SG&A Expenses for the final three quarters of 2006, and the
elimination of commercial expenses in 2007.
Interest
income for the full-year 2007 was $1.2 million, compared to $1.9 million for the
full-year 2006. This decrease was mainly due to lower interest rates and a
lower average cash balance for the full-year 2007 as compared to the full-year
2006. Interest expense for the 12 months ended December 31, 2007 was
$682,000, compared to $3.7 million for corresponding period of 2006. This
decrease in interest expense resulted from lower amortization of the debt
discount associated with our March 2005 financing, as a significant acceleration
of the discount took place in 2006 due to the conversion of notes into shares of
our common stock.
As of
December 31, 2007, we had total cash, cash equivalents and short-term
investments on hand of $16.5 million, compared to $24.1 million on hand as of
December 31, 2006. The $7.6 million decrease in cash, cash
equivalents and short-term investments mainly reflected the use of $25.3 million
for operating activities and a $500,000 investment in NAPO, which was partially
offset by net proceeds of $17.0 million from an offering of our common stock and
warrants to purchase our common stock and $1.0 million from the reduction of an
outstanding letter of credit.
Accounts
payable and accrued project costs and other decreased $6.9 million, from $8.3
million in fiscal 2006 to $1.4 million in fiscal 2007 as a result of decreased
litigation activity. Stockholders’ equity decreased $2.4 million,
from $13.9 million in fiscal 2006 to $11.5 million in fiscal 2007. In
our common stock financing in May 2007, we received net proceeds of $17.0
million, but this was offset by our net loss of $20.0 million for fiscal
2007. Our accumulated deficit at December 31, 2007, increased to
approximately $330.8 million from $310.8 million at December 31, 2006 due to our
fiscal 2007 net loss of $20.0 million.
Liquidity
and Capital Resources
There is
considerable time and cost associated with developing a potential drug or
pharmaceutical product to the point where FDA approval for sales is
received. In our financial management, we seek to raise the funds
necessary for such development primarily through the issuance of equity
securities in private placement transactions. However, it is our
intention to pursue additional financing options, including entering into
agreements with corporate partners in order to provide milestone payments,
license fees and equity investments.
We have
funded our operations to date through public and private placements of debt and
equity securities and the proceeds from the recently announced sale of our FOB
manufacturing facility to Merck. We plan to continue incurring losses
as we expand our research and development and do not expect material revenues
for at least the next several years. At December 31, 2008, our cash
and short-term investments were approximately $2.4 million, and were invested in
money market instruments and municipal bonds. This is a decrease of
$14.1 million from fiscal 2007, as a result of our cash use during the
year.
Expenditures
in fiscal 2008 were principally related to research and development, clinical
trial activity, manufacturing activity and administrative activity at our sites
in Boulder, Colorado, and Richmond, Virginia. Planned expenditures in
2009 include the funding of our ongoing research and development activity, such
as clinical trial costs, and general and administrative support
costs.
On
March 31, 2009, we completed the sale of our FOB assets for an aggregate
purchase price of $130 million. After fees, taxes and other costs
related to the transaction, we expect net proceeds of approximately $123 million
as a result of this transaction. We believe these net proceeds will provide
sufficient liquidity for us to continue as a going concern.
Even
though we currently have sufficient funds to meet our financial needs for the
upcoming year, our business strategy also contemplates raising additional
capital through debt or equity sales. In the future, we may require
additional funds for the continued development of our potential product
candidates or to pursue acquisition of complementary businesses or
technologies. 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.
We also
plan to enter into agreements with corporate partners in order to fund
operations through milestone payments, license fees and equity
investments.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet
arrangements that have or are reasonably likely to have a current or future
effect on our financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that we believe is material
to investors.
Contractual
Obligations
We are obligated to make future
payments under various contracts as set forth below:
|
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 | |||||||||||
(1)
Long-term debt obligations reflect the future interest and principal payments of
the Company’s convertible notes outstanding as of December 31,
2008. We began repaying these notes in quarterly installments,
beginning on March 1, 2008. We will continue to make payments on the
notes through 2010 unless they are converted to common shares at an earlier
date.
Critical
Accounting Policies
Preparation
of financial statements in accordance with generally accepted accounting
principles in the United States requires us to make estimates and assumptions
affecting the reported amounts of assets, liabilities, revenues and expenses and
the disclosures of contingent assets and liabilities. We use our
historical experience and other relevant factors when developing our estimates
and assumptions. We continually evaluate these estimates and
assumptions. The accounting policies discussed below are those we
consider critical to an understanding of our consolidated financial statements
because their application places the most significant demands on our
judgment. Actual results could differ from our
estimates. For additional accounting policies, see Note 1 to our
Consolidated Financial Statements – “Description of the Business and Summary of
Significant Accounting Policies.”
Research
and Development
Research
and development costs are expensed as incurred. Research and
development expenses consist primarily of salaries and related expenses, cost to
develop and manufacture products, patent protection costs and amounts paid to
contract research organizations, hospitals and laboratories for the provision of
services and materials for drug development and clinical trials. We
do not have separate accounting policies for internal or external research and
development and we do not conduct any research and development for
others. Our expenses related to clinical trials are based on
estimates of the services received and efforts expended pursuant to contracts
with third-party organizations that conduct and manage clinical trials on our
behalf. These contracts set forth the scope of work to be completed
at a fixed fee or amount per patient enrolled. Payments under these
contracts depend on performance criteria such as the successful enrollment of
patients or the completion of clinical trial milestones. Expenses are
accrued based on contracted amounts applied to the level of patient enrollment
and to activity according to the clinical trial protocol.
Litigation
costs as they relate to our patents are recorded as research and development
expenditures. However, from May through December 2006, the
Company shifted from research and development operations to commercial
operations, and litigation costs were recorded as a selling, general and
administrative activity during this time.
Revenue
Recognition
We record
revenue from product sales when the goods are delivered and title passes to the
customer. At the time of sale, estimates for sales deductions,
including rebates to government agencies, are recorded. These
provisions are provided for in the same period the related product sales are
recorded. Following our settlement agreement with Tercica and Genentech on March
5, 2007, we ceased to supply IPLEX™ to patients and discontinued sales of IPLEX™
as of March 7, 2007. Revenue from our Expanded Access Program in
Italy is recognized when the drugs have been provided to program patients and
collectability is assured. Royalties that were paid to Tercica and
Genentech are netted against Expanded Access Program revenue. License
income is recognized as revenue when the milestones are achieved and payments
are due. Grant revenue is recognized once payment has been
received.
Stock-Based
Compensation
We
adopted the fair-value-based method of accounting for share-based payments
effective January 1, 2006, using the “modified prospective transition
method” described in SFAS No. 148, Accounting for Stock-Based
Compensation – Transition and Disclosure. Currently, we use
the Black-Scholes-Merton formula to estimate the value of stock options granted
to employees and expect to continue to use this option valuation
model. Under that transition method, compensation cost recognized
during the year included: (a) compensation cost for all share-based
payments granted prior to, but not yet vested as of January 1, 2006, based
on the grant date fair value estimated in accordance with the original
provisions of SFAS 123, Share
Based Payments, and
(b) compensation cost for all share-based payments granted subsequent to
January 1, 2006, based on the grant date fair valued estimated in
accordance with the provisions of SFAS 123R, Share-Based
Payments.
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
We invest
excess cash in investment grade, interest-bearing securities and, at December
31, 2008, had $2.4 million invested in money market instruments and municipal
bonds. Such investments are subject to interest rate and credit
risk. Our policy of investing in highly rated securities whose
liquidities at December 31, 2008, are all less than six months minimizes such
risks. In addition, while a hypothetical one percent per annum
decrease in market interest rates would have reduced our interest income for
fiscal 2008, it would not have resulted in a loss of the principal and the
decline in interest income would have been immaterial. Our purpose in
making these investments is to generate investment income.
We
currently do not transact any significant portion of our business in functional
currencies other than the U.S. dollar. To the extent that we continue
to transact our business using the U.S. dollar as our functional currency, we do
not believe that the fluctuations in foreign currency exchange rates will have a
material adverse effect on our results of operations.
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The
information required by Item 8 is set forth on pages 42 – 60.
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
ITEM
9A. CONTROLS AND
PROCEDURES
Disclosure
Controls and Procedures
Based
on their evaluation, as of December 31, 2008, our Chief Executive Officer
(Principal Executive Officer) and Chief Financial Officer (Principal Financial
Officer) have concluded that our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended) are effective at the reasonable assurance level.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934, as amended). Our
internal control over financial reporting was designed to provide reasonable
assurance to our management and board of directors regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles.
Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2008 based on the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control — Integrated
Framework. Management’s assessment included an evaluation of
the design of our internal control over financial reporting and testing of the
operational effectiveness of our internal control over financial
reporting. Based on this assessment, our management concluded that,
as of December 31, 2008, our internal control over financial reporting was
effective.
Ernst
& Young LLP, our independent registered public accounting firm, has issued
an audit report on the effectiveness of our internal control over financial
reporting. The report of Ernst & Young LLP is contained in
Item 8 of this Annual Report on Form 10-K.
There
have been no changes in our internal control over financial reporting that
occurred during the year that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
ITEM
9B. OTHER INFORMATION
None.
PART
III
The
information required by Items 10, 11, 12, 13 and 14 of Form 10-K is incorporated
by reference from the discussion responsive thereto under the captions “Election
of Directors” and “Designation of Auditors” in our definitive proxy statement
for our 2009 annual meeting of stockholders as filed with the Securities and
Exchange Commission.
PART
IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents
filed as part of this report.
|
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.
|
None
required.
|
3.
|
EXHIBITS.
|
The
exhibits that are required to be filed or incorporated by reference herein are
listed in the Exhibit Index. Exhibits 10.1, 10.2, 10.14, 10.16,
10.17, 10.19, 10.20, 10.21 and 10.22 constitute management contracts or
compensatory plans or arrangements required to be filed as exhibits
hereto.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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 in the City of Richmond, Commonwealth
of Virginia, on the 31st day of
March, 2009.
Insmed
Incorporated
a
Virginia corporation
(Registrant)
By: /s/ GEOFFREY
ALLAN
Geoffrey
Allan, Ph.D.
Chairman
of the Board, President and Chief
Executive
Officer (Principal Executive Officer)
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated on the 31st day of
March, 2009.
|
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
|
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders of Insmed Incorporated
We have
audited the accompanying consolidated balance sheets of Insmed Incorporated as
of December 31, 2008 and 2007, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the three
years in the period ended December 31, 2008. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Insmed Incorporated at
December 31, 2008 and 2007, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2008, in conformity with U.S. generally accepted accounting
principles.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Insmed Incorporated’s internal control over
financial reporting as of December 31, 2008, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 31, 2009
expressed an unqualified opinion thereon.
/s/ Ernst & Young
LLP
Richmond,
Virginia
March 31,
2009
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders of Insmed Incorporated
We have
audited Insmed Incorporated’s internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Insmed Incorporated’s management is responsible
for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting
included in Management’s Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the company’s internal control
over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, Insmed Incorporated maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on the
COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Insmed
Incorporated as of December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders’ equity (deficit) and cash flows for each
of the three years in the period ended December 31, 2008 and our report dated
March 31, 2009 expressed an unqualified opinion thereon.
/s/ Ernst
& Young LLP
Richmond,
Virginia
March 31,
2009
INSMED
INCORPORATED
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except per share data)
|
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 | ||||
See
accompanying notes.
INSMED
INCORPORATED
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share data)
|
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 | |||||||||
See
accompanying notes.
INSMED
INCORPORATED
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
YEARS
ENDED DECEMBER 31, 2008, 2007, AND 2006
(in
thousands, except share amounts)
|
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 | ) | ||||||||
See
accompanying notes.
INSMED
INCORPORATED
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
Twelve
Months Ended
|
||||||||||||
|
December
31,
|
||||||||||||
|
2008
|
2007
|
2006
|
||||||||||
|
Operating
activities
|
||||||||||||
|
Net
loss
|
$ | (15,667 | ) | $ | (19,962 | ) | $ | (56,139 | ) | |||
|
Adjustments
to reconcile net loss to net cash
|
||||||||||||
|
used
in operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
1,043 | 406 | 3,369 | |||||||||
|
Stock
based compensation expense
|
850 | 521 | 885 | |||||||||
|
Stock
and stock options issued for services
|
143 | 38 | 79 | |||||||||
|
Realized
loss on investments
|
500 | - | - | |||||||||
|
Impairment
of property, plant & equipment
|
- | - | 5,020 | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
128 | (9 | ) | (241 | ) | |||||||
|
Inventory
|
- | 576 | (576 | ) | ||||||||
|
Other
assets
|
170 | (157 | ) | (4 | ) | |||||||
|
Accounts
payable
|
373 | (6,282 | ) | 6,219 | ||||||||
|
Accrued
project costs & other
|
433 | (612 | ) | (875 | ) | |||||||
|
Payroll
liabilities
|
(178 | ) | (671 | ) | (272 | ) | ||||||
|
Deferred
rent
|
53 | 61 | (232 | ) | ||||||||
|
Deferred
income
|
57 | 245 | - | |||||||||
|
Restricted
stock unit liability
|
113 | - | - | |||||||||
|
Asset
retirement obligation
|
- | 591 | 592 | |||||||||
|
Interest
payable
|
(10 | ) | - | (29 | ) | |||||||
|
Net
cash used in operating activities
|
(11,992 | ) | (25,255 | ) | (42,204 | ) | ||||||
|
Investing
activities
|
||||||||||||
|
Decreases
in short-term investments
|
12,673 | 9,066 | (12,191 | ) | ||||||||
|
Purchases
of investments
|
- | (500 | ) | - | ||||||||
|
Purchases
of property, plant and equipment
|
- | - | (5,020 | ) | ||||||||
|
Net
cash provided by (used in) investing activities
|
12,673 | 8,566 | (17,211 | ) | ||||||||
|
Financing
activities
|
||||||||||||
|
Proceeds
from issuance of common stock
|
||||||||||||
|
Public
Offering
|
- | 18,230 | 43,240 | |||||||||
|
Issuance
costs
|
- | (1,266 | ) | (421 | ) | |||||||
|
Warrants
converted into shares
|
- | - | 9,069 | |||||||||
|
Other
|
121 | 138 | 325 | |||||||||
|
Total
proceeds from issuance of common stock
|
121 | 17,102 | 52,213 | |||||||||
|
Repayment
of convertible notes
|
(2,211 | ) | - | - | ||||||||
|
Other
|
- | 1,020 | 288 | |||||||||
|
Net
cash (used in) provided by financing activities
|
(2,090 | ) | 18,122 | 52,501 | ||||||||
|
(Decrease)
Increase in cash and cash equivalents
|
(1,409 | ) | 1,433 | (6,914 | ) | |||||||
|
Cash
and cash equivalents at beginning of period
|
3,554 | 2,121 | 9,035 | |||||||||
|
Cash
and cash equivalents at end of period
|
$ | 2,145 | $ | 3,554 | $ | 2,121 | ||||||
|
Supplemental
information
|
||||||||||||
|
Cash
paid for interest
|
$ | 234 | $ | 279 | $ | 319 | ||||||
See
accompanying notes.
INSMED
INCORPORATED
NOTES
TO
CONSOLIDATED
FINANCIAL STATEMENTS
1. Description
of the Business and Summary of Significant Accounting Policies
On
February 12, 2009 we announced that we had entered into a definitive agreement
with Merck & Co., Inc. (“Merck”) whereby Merck, through an affiliate, would
purchase all assets related to our follow-on biologics platform. On
March 31, 2009, we completed the sale of these assets for an aggregate
purchase price of $130 million. After fees, taxes and other costs related to the
transaction, we expect net proceeds of approximately $123 million as a result of
this transaction. We did not incur any severance expenses as a result
of the transfer of assets and employees to Merck.
As part
of this transaction, Merck assumed the lease of our Boulder, Colorado-based
manufacturing facility and acquired ownership of all the equipment in the
building. In addition, upon closing of the transaction, Merck offered
positions to employees of the Boulder facility. We retain our
Richmond, VA corporate office, which houses our Clinical, Regulatory, Finance,
and Administrative functions, in support of the continuing IPLEX™ program. The
transfer of the Boulder facility to Merck takes away our internal IPLEX™
production capability. We believe however, that we have sufficient inventory of
IPLEX™ to support our ongoing ALS EAP in Italy through 2010 together with the
IPLEX™ requirement for the clinical trial currently being planned with the FDA
for ALS patients in the US. Any requirements for IPLEX™ beyond 2010 or any
significant increase in demand beyond our current commitments either in the MMD
or ALS fields will require that we identify a Contract Manufacturing
Organization (‘CMO”) to produce the necessary IPLEX™ to meet the demand. We
estimate that the tech transfer of our IPLEX™ production process could take 12
to 18 months once a CMO has been identified.
Until the
sale of our follow-on biologics platform, we pursued a dual path strategy
involving entry into the follow-on biologics arena (also known as biosimilars,
biogenerics and biologics) and advancing our proprietary protein platform into
niche markets with unmet needs. Following the sale of our follow-on
biologics assets, we plan to continue to support our proprietary protein
platform and our product, the FDA-approved IPLEX™, which is in various stages of
development for a number of serious medical conditions including Myotonic
Muscular Dystrophy (“MMD”), Amyotrophic Lateral Sclerosis (“ALS”), also known as
Lou Gehrig’s disease and Retinopathy of Prematurity (“ROP”).
We
have also engaged the services of RBC to act as financial advisor in evaluating
other options for use of these proceeds which could include acquisitions of
complimentary businesses or technologies, product licensing, mergers, share
repurchase and the distribution of a portion of the proceeds to
shareholders.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Insmed Therapeutic Proteins, Insmed Pharmaceuticals,
Incorporated and Celtrix Pharmaceuticals, Incorporated (“Celtrix”). All
significant intercompany balances and transactions have been eliminated in
consolidation.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States (“GAAP”) requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.
Cash,
Cash Equivalents and Short-Term Investments
The
Company considers investments with maturities of three months or less when
purchased to be cash equivalents. Short-term investments are available for sale
and consist primarily of short-term municipal bonds. These securities
are carried at market, which approximates cost and are classified as Level 1 as
defined in the Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements fair
value hierarchy. The cost of the specific security sold is used to compute the
gain or loss on the sale of marketable securities. The table below
details the breakdown of our cash and cash equivalents and our short-term
investments:
|
December
31,
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
Cash
and Cash Equivalents
|
$ | 2,145 | $ | 3,554 | ||||
|
Short-Term
Investments
|
252 | 12,925 | ||||||
|
Total
Cash and Cash Equivalents and Short-Term Investments
|
$ | 2,397 | $ | 16,479 | ||||
On
April 14, 2004, we announced that we had acquired a lease to operate a
recombinant protein manufacturing facility located in Boulder, Colorado. We
intended to use the facility for the commercial manufacture of our FDA approved
product, IPLEX™. On June 20, 2007, we notified our landlord that we wish to
renew our lease. In November 2007 we provided a new Letter of Credit
(“LOC”) to the landlord of the manufacturing facility in the amount of $2.1
million to cover facility restoration expenses upon termination of the lease.
This LOC is supported by a certificate of deposit which is classified as
restricted cash on the balance sheet. The accrued restoration
expenses as of December 31, 2008 were $2.2 million and is recorded in asset
retirement obligation on the balance sheet. Accretion expense for the years
ended December 31, 2008, 2007 and 2006 totaled zero, $0.6 million and
$0.6 million, respectively.
Fair
Value of Financial Instruments
We
consider the recorded cost of our financial assets and liabilities, which
consist primarily of cash, cash equivalents and short-term investments, to
approximate the fair value of the respective assets and liabilities at December
31, 2008 and 2007 due to the short-term maturities of these instruments. We have
adopted Financial Accounting Statement 157, Fair Value Measurements for
our financial assets and liabilities. We also hold an investment in
NAPO Pharmaceuticals, Inc. (“NAPO”), which was previously classified as an
“available-for-sale” security but was considered other than temporary impaired
as NAPO was de-listed from the London Stock Exchange in 2008. This
amount is reported as a loss on investments on our consolidated statement of
operations. The carrying value of the convertible debt is $2.1
million which approximates fair value. This is calculated using the intrinsic
value of the conversion feature.
Stock-Based
Compensation
In
December 2004, the Financial Accounting Standards Board (FASB) issued Statement
123(R), Share-Based
Payment, a revision of SFAS No. 123, Accounting for Stock-Based
Compensation, which superseded APB Opinion No. 25, Accounting for Stock Issued to
Employees. Statement 123(R) addresses the accounting for share-based
payment transactions in which a company receives employee services in exchange
for equity instruments of the company or liabilities that are based on the fair
value of the company’s equity instruments or that may be settled by the issuance
of such equity instruments. This statement requires that share-based
transactions be accounted for using a fair-value-based method to recognize
non-cash compensation expense; this expense is recognized ratably over the
requisite service period, which generally equals the vesting period of options,
and is adjusted for expected forfeitures.
Revenue
Recognition
We record
revenue from product sales when the goods are delivered and title passes to the
customer. At the time of sale, estimates for sales deductions,
including rebates to government agencies, are recorded. These
provisions are provided for in the same period the related product sales are
recorded. Following our settlement agreement with Tercica and Genentech on March
5, 2007, we ceased to supply IPLEX™ to patients and discontinued sales of IPLEX™
as of March 7, 2007. Revenue from our Expanded Access Program in
Italy is recognized when the drugs have been provided to program patients and
collectability is assured. Royalties that were paid to Tercica and
Genentech are netted against Expanded Access Program revenue. License
income is recognized as revenue when the milestones are achieved and payments
are due. Grant revenue is recognized once payment has been
received. Shipping and handling costs charged to customers are
included in revenue and totaled $0.4 million for 2008 and $0.3 million for
2007.
Research
and Development
Research
and development costs are expensed as incurred. Research and development
expenses consist primarily of salaries and related expenses, cost to develop and
manufacture drug candidates, patent protection costs, amounts paid to contract
research organizations, hospitals and laboratories for the provision of services
and materials for drug development and clinical trials. We do not have separate
accounting policies for internal or external research and development and we do
not conduct any research and development for others. Our expenses related to
clinical trials are based on estimates of the services received and efforts
expended pursuant to contracts with third party organizations that conduct and
manage clinical trials on our behalf. These contracts set forth the scope of
work to be completed at a fixed fee or amount per patient enrolled. Payments
under these contracts depend on performance criteria such as the successful
enrollment of patients or the completion of clinical trial milestones. Expenses
are accrued based on contracted amounts applied to the level of patient
enrollment and to activity according to the clinical trial
protocol.
Litigation
costs as it relates to our patents are recorded as research and development
expenditures. However, from May through December 2006, the
Company shifted from research and development operations to commercial
operations, and litigation costs were recorded as a selling, general and
administrative activity during this time.
Income
Taxes
Income
taxes are accounted for in accordance with FAS 109, Accounting for Income
Taxes. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Valuation
allowances are recorded if it is more likely than not that some portion of the
deferred tax asset will not be realized. In evaluating the need for a valuation
allowance, we take into account various factors, including the expected level of
future taxable income and available tax planning strategies. If actual results
differ from the assumptions made in the evaluation of our valuation allowance,
we record a change in valuation allowance through income tax expense in the
period such determination is made.
In June
2006, FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”). This Interpretation clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with FASB 109. FIN 48 clarifies the accounting for income taxes by
prescribing the minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. It also provides guidance
on disclosure requirements, measurement and classification provisions, and
transition requirements. We implemented FIN 48 on January 1, 2007 and due
to the accumulated loss position of the Company, such implementation did not
have a material impact on our consolidated financial statements.
Net
Loss Per Share
Basic net
loss per share is computed based upon the weighted average number of common
shares outstanding during the year. The Company’s diluted net loss
per share is the same as its basic net loss per share because all stock options,
warrants, and other potentially dilutive securities are antidilutive and,
therefore, excluded from the calculation of diluted net loss per
share.
Segment
Information
The
Company currently operates in one business segment, which is the development and
commercialization of pharmaceutical products for the treatment of metabolic and
endocrine diseases. The Company is managed and operated as one
business. A single management team that reports to the Chief
Executive Officer comprehensively manages the entire business. The
Company does not operate separate lines of business with respect to its products
or product candidates. Accordingly, the Company does not have
separately reportable segments as defined by FASB Statement No. 131, Disclosure about Segments of an
Enterprise and Related Information.
Recent
Accounting Pronouncements
In
December 2007, FASB ratified Emerging Issue Task Force (“EITF”) Issue No. 07-1,
Collaborative Arrangements. The consensus requires participants in a
collaborative arrangement to present the results of activities for which they
act as the principal on a gross basis and to report any payments received from
(made to) other collaborators based on other applicable GAAP or, in the absence
of other applicable GAAP, based on analogy to authoritative literature or a
reasonable, rational and consistently applied accounting policy election. The
consensus also requires significant disclosures related to collaborative
arrangements. This Issue shall be effective for us beginning after January 1,
2009. We are evaluating the effect the adoption of EITF No. 07-1 will
have on our financial statements.
In June
2008, FASB ratified EITF Issue No. 08-4, Transition Guidance for Conforming
Changes to Issue No. 98-5 (“EITF No. 08-4”). Per EITF No. 08-4, conforming
changes made to EITF Issue No. 98-5, Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,
that result from EITF Issue No. 00-27, Application of Issue No. 98-5 to Certain
Convertible Instruments, and SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity, shall be
effective for us beginning after January 1, 2009. We are evaluating
the effect the adoption of EITF No. 08-4 will have on our financial
statements.
In May
2008, FASB issued FSP Accounting Principles Board No. 14−1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) (“FSP APB 14−1”). FSP APB 14−1
requires the issuer of certain convertible debt instruments that may be settled
in cash (or other assets) on conversion (including partial cash settlement) to
separately account for the liability and equity components of the instrument in
a manner that reflects the issuer's non−convertible debt borrowing rate when
interest cost is recognized in subsequent periods. FSP APB 14−1 is
effective for us beginning after January 1, 2009. We are evaluating
the effect the adoption of FSP APB 14−1 will have on our financial
statements.
2. Risks
and Uncertainties
For the
period from inception to December 31, 2008, the Company has incurred recurring
operating losses and has accumulated a deficit of $346 million. During 2008, the
Company incurred an operating loss of $15.7 million and net cash used in
operations of $12 million. The Company's ability to continue as a
going concern is dependent upon its ability to take advantage of raising capital
through securities offerings, debt financing, and partnerships and use these
sources of capital to fund operations. On March 31, 2009 we sold our
follow-on biologics assets and manufacturing facility to Merck for $130
million. Please see footnote 12 for detailed information concerning
the net proceeds from this sale.
3. Debt
and Stockholders’ Equity
Common
Stock & Convertible Debt
On
May 7, 2007, Insmed entered into definitive subscription agreements with
certain investors relating to the sale of an aggregate of 20,255,367 units, each
unit consisting of one (1) share of Common Stock and one Warrant to
purchase 0.1 shares of Common Stock at an exercise price of $1.10 per share, for
a purchase price of $0.90 per unit. Net proceeds from the offering
were $17.0 million. The offering was made pursuant to the Company’s
effective shelf registration statement on Form S-3 (Registration
No. 333-131535).
On
March 15, 2006, Insmed entered into an underwriting agreement (the
“Underwriting Agreement”) with Lazard Capital Markets LLC, as representative of
the underwriters (together, the “Underwriters”), relating to the public
offering, issuance and sale of 23,000,000 shares of the Company’s common stock,
$0.01 par value per share. The price to the public was $2.00 per share, and the
Underwriters purchased the shares from the Company pursuant to the Underwriting
Agreement at a price of $1.88 per share. Proceeds from the offering were $42.8
million, net of $0.4 million in offering costs. The offering was made
pursuant to the Company’s effective shelf registration statement on Form S-3
(Registration No. 333-131535).
On
March 15, 2005, we entered into several purchase agreements with a group of
institutional investors, pursuant to which we issued and sold to such investors
certain 5.5% convertible notes in the aggregate principal amount of $35,000,000,
which convert into a certain number of shares of our common stock (the “2005
Notes”) as well as warrants to purchase, in the aggregate, approximately
14,864,883 shares of our common stock, at an exercise price of $1.36 per share
(the “2005 Warrants”).
As of
June 1, 2005, the holders of the 2005 Notes began to receive interest
payments at a rate of 5.5% per annum, and such interest payments are
payable quarterly until March 1, 2010. As of March 1, 2008, the 2005 Notes
matured and beginning on March 1, 2008, the holders of the 2005 Notes were
entitled to receive nine quarterly installments of $552,778 in the aggregate
each quarter. Any outstanding 2005 Notes must be repaid in cash or
converted into shares of our common stock (at the option of the holder) by
March 1, 2010. Subject to the terms of the 2005 Note purchase agreements,
the holders of the 2005 Notes may convert such notes into shares of our common
stock at a conversion price of $1.295 per share (as adjusted
in accordance with certain adjustments for stock splits, dividends and the like)
at any time prior to the close of business on March 1, 2010. Between April
1, 2005 and December 31, 2008, we received notices from certain holders of the
2005 Notes electing to voluntarily convert approximately $30,025,000 principal
amount of such notes into approximately 23,185,328 shares of our common stock at
the conversion rate of one share of common stock for each $1.295 in principal
amount of the 2005 Notes. Following such conversions and principal
repayment as of December 31, 2008, $2,763,889 principal amount of the 2005 Notes
remained outstanding. The holders of the 2005 Notes could elect to
convert such principal into an aggregate of approximately 2.1 million shares of
our common stock. The holders of the 2005 Notes have the right to
require us to repurchase such notes with cash payments upon the occurrence of
specified “events of default” and “repurchase events” described in the 2005
Notes. The 2005 Warrants were initially exercisable in the aggregate for
14,864,883 shares of common stock at an exercise price of $1.36 per share. In
connection with our May 2007 public stock offering, the exercise price of the
2005 Warrants was reduced to $1.21 per share and the 2005 Warrants are currently
exercisable into the aggregate of 6,021,692 shares of common stock. The 2005
Warrants will expire on March 15, 2010.
|
Payments
Due by Years
|
||||||||||||
|
Total
|
2009
|
2010
|
||||||||||
|
Long
term debt
|
$ | 2,764 | $ | 2,211 | $ | 553 | ||||||
In
connection with the issuance of the 2005 Notes and 2005 Warrants, we entered
into registration rights agreements with the purchasers thereof pursuant to
which we agreed to file a registration statement under the Securities Act of
1933, as amended, registering for resale the shares of our common stock issuable
upon the conversion of the 2005 Notes or exercise of the 2005
Warrants.
Periodically,
the Company has issued shares of common stock in exchange for services provided
by shareholders and others. These issuances have been recorded at their
estimated fair value at the time of the respective transactions and
corresponding amounts have been reflected as expense in the accompanying
consolidated statements of operations.
Stock
Warrants and Options
The
following table summarizes the activity of the Company’s warrants:
|
Warrants
for Shares of Common Stock
|
Weighted-Average
Exercise Price
|
|||||||
|
Outstanding
at January 1, 2008
|
11,910,975 | $ | 1.66 | |||||
|
Expired
|
(960,713 | ) | $ | 4.10 | ||||
|
Outstanding
at December 31, 2008
|
10,950,262 | $ | 1.32 | |||||
As of
December 31, 2008, we had two equity compensation plans under which we were
granting stock options and shares of non-vested stock. We are currently granting
stock-based awards from our Amended and Restated 2000 Stock Incentive Plan (the
“2000 Plan”) and our Amended and Restated 2000 Employee Stock Purchase Plan (the
“2000 ESPP”). Both the 2000 Plan and the 2000 ESPP are administered by the
Compensation Committee of the Board of Directors and the Board of Directors (the
“Board”).
The 2000
Plan was originally adopted by the Board and approved by our shareholders in
2000. Its original ten-year term was extended to March 15, 2015 when the
plan was last amended. Under the terms of the 2000 Plan, we are authorized to
grant a variety of incentive awards based on our common stock, including stock
options (both incentive options and non-qualified options), performance shares
and other stock awards. The 2000 Plan currently provides for the issuance of a
maximum of 9,250,000 (adjusted for stock splits) shares of common stock. These
shares are reserved for awards to all participants in the 2000 Plan, including
non-employee directors.
The 2000
ESPP was adopted by the Board on April 5, 2000 and approved by our
shareholders on the same date. It was amended by the Board to increase the
number of shares available for issuance, and such amendment was approved by our
shareholders on May 11, 2005. The 2000 ESPP was subsequently amended and
restated by action of the Board on October 4, 2006 and the amendment and
restatement was approved by our shareholders on December 14, 2006. Under
the terms of the 2000 ESPP, eligible employees have the opportunity to purchase
our common stock through stock options granted to them. An option gives its
holder the right to purchase shares of our common stock, up to a maximum value
of $25,000 per year. The 2000 ESPP provides for the issuance of a maximum of
1,500,000 shares of our common stock to participating employees.
The
Company issues stock options to attract and retain executive officers, key
employees, non-employee directors and other non-employee advisors and service
providers. The maximum number of shares issuable under the Company’s
stock plan is 9,250,000. There were 986,561 awards issuable at
December 31, 2008. Options may be granted at the discretion of the
board of directors, compensation committee or a delegate. There were
no exercises of stock options during 2008. The weighted-average fair
value of options granted during 2008, 2007, and 2006 was $0.84, $0.77, and
$1.25, respectively. A summary of stock option activity is as
follows:
|
Description
|
2008
|
Average
Exercise Price
|
Average
Remaining Contractual Life in Years
|
Aggregate
Intrinsic Value
|
||||||||||||
|
Options
outstanding at January 1, 2008
|
5,238,249 | $ | 2.31 | |||||||||||||
|
Granted
|
229,000 | 0.84 | ||||||||||||||
|
Exercised
|
- | - | ||||||||||||||
|
Cancelled
|
(1,185,000 | ) | 2.78 | |||||||||||||
|
Options
outstanding at December 31, 2008
|
4,282,249 | 2.10 | 3.22 | - | ||||||||||||
|
Exercisable
at December 31, 2008
|
3,392,338 | $ | 2.31 | 2.79 | - | |||||||||||
A summary
of the status of nonvested shares during the year ended December 31, 2008 is
presented below:
|
2008
|
||||
|
Nonvested
at January 1, 2008
|
1,439,281 | |||
|
Granted
|
229,000 | |||
|
Exercised
|
- | |||
|
Cancelled
|
(778,370 | ) | ||
|
Nonvested
at December 31, 2008
|
889,911 | |||
The
Company valued stock options granted in 2006, 2007 and 2008 using a
Black-Scholes-Merton valuation model which necessitates the development of
certain key assumptions. The volatility factor was estimated based on
the Company’s historical volatility. The Company also used historical
data to derive the option’s expected life and employee forfeiture rates within
the valuation model. The risk-free interest rate is based on the U.S.
Treasury yield curve in effect at the date of grant. The dividend
yield is predicated on the current annualized dividend payment. The
weighted-average grant-date fair value of stock options awarded was estimated on
the date of grant using the following assumptions: risk-free interest rate of
2.42% in 2008, 4.65% in 2007 and 4.3% in 2006, no dividends, volatility of 107%
in 2008, 91% in 2007 and 113% in 2006, an expected life of 4.07 years in 2008,
3.47 years in 2007 and 2.59 years in 2006 and a forfeiture rate of 33% in 2008,
32% in 2007 and 28% in 2006.
The
following table summarizes awards outstanding at December 31, 2008:
|
Number of Securities to
Be Issued upon Exercise of Outstanding Options, Warrants
and Rights
|
Weighted Average
Exercise Price of Outstanding Options, Warrants and
Rights
|
Number of Securities
Remaining Available for Future Issuance Under Equity
Compensation Plans
|
||||||||||
|
Equity
Compensation Plans Approved by Shareholders:
|
||||||||||||
|
Amended
and Restated 2000 Stock Incentive Plan
|
7,437,783 | $ | 1.21 | 986,561 | ||||||||
|
Amended
and Restated 2000 Employee Stock Purchase Plan
|
— | — | 365,380 | |||||||||
|
Total:
|
7,437,783 | $ | 1.21 | 1,351,941 | ||||||||
Restricted
Stock and Restricted Stock Units
In May
2008, under the 2000 Plan, we granted Restricted Stock (“RS”) and Restricted
Stock Units (“RSUs”) to eligible employees, including our executives. Each RS
and RSU represents a right to receive one share of our common stock upon the
completion of a specific period of continued service or our achievement of
certain performance metrics. Shares of RS are valued at the market price of our
common stock on the date of grant and RSUs are valued based on the market price
on the date of settlement. RSUs are classified as liabilities, as they are
settled with a cash payment for each unit vested, equal to the fair market value
of our common stock on the vesting date. We recognize noncash compensation
expense for the fair values of these RS and RSUs on a straight-line basis over
the requisite service period of these awards, which is generally four
years. Below is a table of RS and RSU grants for the twelve months
ended December 31, 2008, all of which are non-vested.
|
Number of Shares
|
||||
|
Restricted
Stock
|
3,155,534 | |||
|
Restricted
Stock Units
|
1,846,605 | |||
The
weighted-average grant date fair value of RS and RSUs granted during the twelve
months ended December 31, 2008 was $0.60. As of December 31, 2008, unrecognized
stock-based compensation expense related to unvested RS and RSUs of $1.6 million
is expected to be recognized over a weighted-average period of four years.
Stock-based compensation expense related to RS and RSUs was approximately
$360,000 for the twelve months ended December 31, 2008.
A total
of 22,734,306 shares of common stock were reserved at December 31, 2008 in
connection with restricted stock, stock options, stock warrants, and the
employee stock purchase plan.
The
Company recognized non-cash share-based compensation expense of approximately
$1.0 million for 2008, $0.5 million for 2007 and $0.9 million for 2006. This
expense was included on the “Selling, general and administrative” and “Research
and development” lines of the consolidated statement of operations. As of
December 31, 2008, there was $2.0 million of total unrecognized
compensation cost related to stock awards expected to be recognized over the
remaining vesting period of those awards.
4. Income
Taxes
The
Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes and Interpretation of FASB Statement No. 109 (“FIN 48”), as of
January 1, 2007. Due to the accumulated loss position of the Company, the
adoption had no material impact on the Company’s consolidated financial
statements. As of the date of adoption and as of December 31, 2007 and
2008, the Company has recorded no reserves for unrecognized income tax benefits.
The Company is subject to U.S. federal and state income taxes. The statute of
limitations for tax audit is generally open for the years 2000 and later.
However, the Company is a development-stage pharmaceutical company which has
incurred net operating losses since inception. Such loss carryforwards would be
subject to audit in any tax year in which those losses are carried and applied,
notwithstanding the year of origin. The Company’s policy is to recognize
interest accrued related to unrecognized tax benefits and penalties in income
tax expense. The Company has recorded no such expense. The Company does not
anticipate any material changes in the amount of unrecognized tax positions over
the next twelve months.
The
deferred tax assets of approximately $119 million and $122 million at December
31, 2008 and 2007, respectively, arise primarily due to net operating loss
carryforwards for income tax purposes. Due to the Company’s
anticipated future losses, these amounts have been entirely offset by a
valuation allowance.
At
December 31, 2008 and 2007, the Company had net operating loss carryforwards for
income tax purposes of approximately $288 million and $306 million,
respectively, expiring in various years beginning in
2009. Utilization of these carryforwards will be significantly
limited due to changes in the ownership of the Company’s common
stock. The Company has never been audited by the Internal Revenue
Service.
Deferred
tax assets (liabilities) consist of the following at
December 31:
|
2008
|
2007
|
|||||||
|
Deferred
tax assets
|
(in
thousands)
|
|||||||
|
General
Business Credits
|
$ | 2,130 | $ | 3,198 | ||||
|
Other
|
7,780 | 6,178 | ||||||
|
NOL
Carryforwards
|
109,461 | 112,817 | ||||||
|
Total
deferred tax assets
|
119,371 | 122,193 | ||||||
|
Deferred
tax liabilities
|
||||||||
|
Other
|
- | - | ||||||
|
Total
deferred tax liabilities
|
- | - | ||||||
|
Tax
deferred asset/(liability)
|
119,371 | 122,193 | ||||||
|
Valuation
allowance
|
(119,371 | ) | (122,193 | ) | ||||
|
Net
deferred tax asset/(liability)
|
$ | - | $ | - | ||||
The
differences between the U.S. federal statutory tax rate and the Company’s
effective tax rate are as follows:
|
2008
|
2007
|
2006
|
||||||||||
|
Statutory
federal tax rate
|
34 | % | 34 | % | 34 | % | ||||||
|
Permanent
items
|
-2 | % | -1 | % | -3 | % | ||||||
|
State
income taxes net of federal benefit
|
4 | % | 4 | % | 4 | % | ||||||
|
Research
and development credit
|
-7 | % | -3 | % | -1 | % | ||||||
|
Expired
net operating loss carryforwards
|
-46 | % | -39 | % | -15 | % | ||||||
|
Change
in valuation allowance
|
17 | % | 5 | % | -19 | % | ||||||
|
Total
Expense
|
0 | % | 0 | % | 0 | % | ||||||
5. Leases
The
Company leases office space in Richmond, Virginia under an operating lease
agreement expiring in October 2016. The lease provides for monthly
rent of approximately $30,800 with a 3% escalation per year. The Company also
leases a manufacturing facility and warehouse in Boulder, Colorado under an
operating lease agreement expiring in February 2013. The lease provides for
monthly rent of approximately $30,000 with a 3% escalation per
year. Lease expense is recognized on a straight-line
basis. The Company also leases a vehicle and office equipment. Future
minimum payments on all these leases at December 31, 2008 is presented in the
table below. Rent expense for all operating leases approximated
$1,081,000 in 2008, $1,094,000 in 2007, and $1,427,000 in 2006.
|
Payments
Due by Years
|
||||||||||||||||||||||||
|
2014
|
||||||||||||||||||||||||
|
Total
|
2009
|
2010
|
2011
|
2013
|
&
Beyond
|
|||||||||||||||||||
|
Operating
lease obligations
|
$ | 8,077 | $ | 1,025 | $ | 1,022 | $ | 814 | $ | 836 | $ | 4,380 | ||||||||||||
6. Employee
Benefit Plans
In 2000,
the Company adopted a stock purchase plan whereby eligible employees may
purchase common stock. Purchases may be made through payroll deductions subject
to annual limitations. The purchase price per share under the plan is the lesser
of 85% of the fair market value of a share of common stock at the beginning of
each offering period or 85% of the fair market value on the date the purchase is
made. As of December 31, 2008 there were 1,500,000 shares authorized for
issuance under the plan and 1,134,620 had been issued.
The
Company also maintains a tax-qualified employee savings and retirement plan (the
“401(k) plan”) for eligible employees. Participating employees may defer up to
the lesser of 25% of W-2 compensation or the maximum amount permitted by the
Internal Revenue Code, as amended. The 401(k) plan permits the Company to make
matching contributions on behalf of all participants who have elected to make
deferrals. To date, the Company has not made any contributions to the
plan.
7. Restructuring
Plan
On
February 21, 2007, our Board committed to a business restructuring plan
following our announcement of the Settlement Agreement with Tercica, Inc. and
Genentech, Inc., which laid out the terms for settlement of all of the
outstanding litigation between the parties and includes our agreement to
withdraw IPLEX™ from the short stature market. The restructuring eliminated our
commercial department and downsized our manufacturing facility located in
Boulder, Colorado, resulting in an immediate reduction of approximately 34% of
our previous workforce of 150. Employees who were affected by the restructuring
were provided with severance payments.
As a
result of the restructuring plan, we incurred a restructuring charge in March
2007 of approximately $1.7 million for severance payments. The $1.7 million
represented the total amount of restructuring charges that were incurred. These
charges were recorded as research and development expenses and selling, general
and administrative expenses in the income statement and the remaining payouts of
$5,000 were classified as payroll liabilities on the consolidated balance sheet
as of December 31, 2007.
8. Asset
Impairment
In
accordance with FAS 144, Accounting for the Impairment or
Disposal of Long-Lived, (FAS 144) assets are reviewed for impairment
losses whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Following the Settlement, License and
Development agreement with Tercica, Inc. and Genentech Inc. on March 5, 2007,
Insmed entered into a Consent Judgment and Permanent Injunction whereby Insmed
ceased supplying IPLEX™ to patients with Primary IGF-D and other short stature
indications.
In
accordance with the provisions of FAS 144, the Company recorded an asset
impairment of approximately $5.0 million in December 2006, related to fixed
assets previously capitalized to support the production of IPLEX™. In
addition to the asset impairment noted above, the Company considered the
realizability of IPLEX™ inventory in accordance with applicable
guidance. We also recorded an inventory write-down of approximately
$2.1 million in December 2006, to adjust inventory to its net realizable
value.
9. License
and Collaborative Agreements
Muscular
Dystrophy Association
On
December 12, 2007, we announced that we were awarded a grant of $2.1
million from the Muscular Dystrophy Association for our Phase III enabling
clinical trial of IPLEX™ in the Myotonic Muscular Dystrophy
indication.
Pharmacia
In August
2002, we entered into an agreement with Pharmacia that grants us an exclusive
license to Pharmacia’s portfolio of regulatory filings pertaining to rhIGF-I. In
consideration for the exclusive license we have agreed to make therapy available
to the 17 Growth Hormone Insensitivity Syndrome subjects that were previously
being treated with rhIGF-I supplied by Pharmacia.
NAPO
On
January 5, 2007, we entered into an agreement with NAPO Pharmaceuticals, whereby
NAPO will license from us the technology surrounding INSM-18 also know as
Masoprocal. The license gives NAPO the right to develop, manufacture and
commercialize Masoprocal products for any indications relating specifically to
diabetes, cardiac disease, vascular disease, metabolic disease and Syndrome X.
The agreement calls for payments from NAPO to us upon the delivery of certain
milestones. During 2007 we received $1.5 million in milestone
payments.
10. Quarterly
Financial Data (Unaudited)
|
Fiscal
Quarter
|
||||||||||||||||||||||||||||||||
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||||||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||||||||||
|
Revenues
|
$ | 2,342 | $ | 1,660 | $ | 2,676 | $ | 2,275 | $ | 4,020 | $ | 1,511 | $ | 2,661 | $ | 2,135 | ||||||||||||||||
|
Operating
Loss
|
(4,798 | ) | (10,403 | ) | (4,435 | ) | (2,569 | ) | (1,886 | ) | (4,123 | ) | (3,292 | ) | (3,344 | ) | ||||||||||||||||
|
Net
Loss
|
(4,873 | ) | (10,253 | ) | (4,667 | ) | (2,500 | ) | (2,163 | ) | (3,912 | ) | (3,964 | ) | (3,297 | ) | ||||||||||||||||
|
Net
Loss Per Share (Basic and Diluted)
|
$ | (0.04 | ) | $ | (0.10 | ) | $ | (0.04 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.03 | ) | ||||||||
11. Legal
Proceedings
In fiscal
2006, our patent infringement litigation with Tercica and Genentech continued in
both the United States District Court for the Northern District of California
and in the United Kingdom at the High Court of Justice, Chancery Division,
Patents Court. In addition, in June 2006, Tercica filed an unfair
competition suit against us in the United States District Court of the Eastern
District of Virginia, claiming that we disseminated misleading statements to the
market in connection with our marketing of IPLEX™.
On
December 6, 2006, a jury in the United States District Court for the Northern
District of California found that we infringed patents held by Tercica and
Genentech and awarded damages of $7.5 million as an upfront payment and a
royalty of 15% on sales of IPLEX™ below $100 million and 20% for sales of IPLEX™
above $100 million.
On March
5, 2007, we reached a settlement agreement ending all litigation with Tercica
and Genentech. Pursuant to the agreement, we agreed to cease sales
and marketing of IPLEX™ for the treatment of short stature disorders in the
United States and agreed to withdraw our European Marketing Authorization
Application for IPLEX™ for treatment of short stature disorders. We
continue to provide IPLEX™ to named patients with ALS in Italy under our
Expanded Access Program. On November 8, 2008, Genentech and
Ipsen/Tercica signed a letter of intent whereby they have consented to amend the
agreement between Genentech, Tercica, Inc. and Insmed Incorporated to permit us
to supply IPLEX™ in connection with named-patient ALS programs worldwide on a
royalty-free basis effective October 1, 2008. We previously paid a 4%
royalty under our agreement for all cost-recovery that we receive under the
Expanded Access Program. The agreement also gives us the right,
through a worldwide development partnership with Tercica and Genentech, to
market IPLEX™ for conditions not related to short stature. These
indications include severe insulin resistance, MMD and HARS, among
others. The development partnership includes provisions that give us
a 50% share of profits and reimbursement for 50% of development costs if either
Tercica or Genentech exercises opt-in rights for marketing of IPLEX™ in any of
these new indications that we develop. In addition, as part of the
settlement agreement, Tercica and Genentech waived the damages awarded by the
jury in the patent infringement suit from the U.S. District Court for the
Northern District of California.
12. Subsequent
Event
On
February 12, 2009 we announced that we had entered into a definitive agreement
with Merck & Co., Inc. (“Merck”) whereby Merck, through an affiliate, would
purchase all assets related to our follow-on biologics platform. On
March 31, 2009, we completed the sale of these assets for an aggregate
purchase price of $130 million. After fees, taxes and other costs related to the
transaction, we expect net proceeds of approximately $123 million as a result of
this transaction. We did not incur any severance expenses as a result
of the transfer of assets and employees to Merck.
As part
of this transaction, Merck assumed the lease of our Boulder, Colorado-based
manufacturing facility and acquired ownership of all the equipment in the
building. In addition, upon closing of the transaction, Merck offered
positions to employees of the Boulder facility. We retain our
Richmond, VA corporate office, which houses our Clinical, Regulatory, Finance,
and Administrative functions, in support of the continuing IPLEX™ program. The
transfer of the Boulder facility to Merck takes away our internal IPLEX™
production capability. We believe however, that we have sufficient inventory of
IPLEX™ to support our ongoing ALS EAP in Italy through 2010 together with the
IPLEX™ requirement for the clinical trial currently being planned with the FDA
for ALS patients in the US. Any requirements for IPLEX™ beyond 2010 or any
significant increase in demand beyond our current commitments either in the MMD
or ALS fields will require that we identify a Contract Manufacturing
Organization (“CMO”) to produce the necessary IPLEX™ to meet the demand. We
estimate that the tech transfer of our IPLEX™ production process could take 12
to 18 months once a CMO has been identified.
We
have also engaged the services of RBC to act as financial advisor in evaluating
other options for use of these proceeds which could include acquisitions of
complimentary businesses or technologies, product licensing, mergers, share
repurchase and the distribution of a portion of the proceeds to
shareholders.
EXHIBIT
INDEX
|
Exhibit
Number
|
|
Exhibit
Title
|
|
2.1
|
Asset
Purchase Agreement, dated February 12, 2009, between Protin Transaction
LLC (a wholly owned subsidiary of Merck & Co. Inc.) Insmed
Incorporated and Merck & Co., Inc. (previously filed as Exhibit 10.1
to Insmed Incorporated’s Current Report on Form 8-K on February 13, 2009
and incorporated herein by reference).
|
|
|
3.1
|
Articles
of Incorporation of Insmed Incorporated, as amended (previously filed as
Annex H to the Joint Proxy Statement/Prospectus contained in Part I of
Insmed Incorporated’s Registration Statement on Form S-4 (Registration No.
333-30098) and incorporated herein by reference).
|
|
|
3.2
|
|
Amended
and Restated Bylaws of Insmed Incorporated (previously filed as Annex I to
the Joint Proxy Statement/Prospectus contained in Part I of Insmed
Incorporated’s Registration Statement on Form S-4 (Registration No.
333-30098) and incorporated herein by reference).
|
|
3.3
|
|
Form
of Articles of Amendment to Insmed Incorporated’s Articles of
Incorporation, as amended, creating a new series of Preferred Stock
designated as Series A Junior Participating Preferred Stock (previously
filed as Exhibit A to the Rights Agreement, dated as of May 16, 2001,
between Insmed Incorporated and First Union National Bank, as Rights
Agent, filed as Exhibit 4.4 to Insmed Incorporated’s Registration
Statement on Form 8-A filed with the Securities and Exchange Commission on
May, 17, 2001 and incorporated herein by reference).
|
|
3.4
|
|
Articles
of Amendment to Insmed Incorporated’s Articles of Incorporation, as
amended, for Reverse Split (previously filed as Exhibit 3.4 to Insmed
Incorporated’s Annual Report on Form 10-K for the year ended
December 31, 2002 and incorporated herein by
reference).
|
|
4.1
|
|
Description
of Capital Stock (contained in the Articles of Incorporation filed as
Exhibit 3.1).
|
|
4.2
|
|
Specimen
stock certificate representing common stock, $.01 par value per share, of
the Registrant (previously filed as Exhibit 4.2 to Insmed Incorporated’s
Registration Statement on Form S-4 (Registration No. 333-30098) and
incorporated herein by reference).
|
|
4.3
|
|
Article
VI of the Articles of Incorporation of Insmed Incorporated (previously
filed as Exhibit 4.1 to Insmed Incorporated’s Registration Statement on
Form S-4 (Registration No. 333-30098) and incorporated herein by
reference).
|
|
4.4
|
|
Rights
Agreement, dated as of May 16, 2001, between Insmed Incorporated and
First Union National Bank, as Rights Agent (which includes as (i) Exhibit
A the form of Articles of Amendment to Insmed Incorporated’s Articles of
Incorporation, as amended, (ii) Exhibit B the form of Rights Certificate,
and (iii) Exhibit C the Summary of the Rights to Purchase Preferred Stock)
(previously filed as Exhibit 4.4 to Insmed Incorporated’s Registration
Statement on Form 8-A filed with the Securities and Exchange Commission on
May 17, 2001 and incorporated herein by
reference).
|
|
4.5
|
|
Form
of Rights Certificate (previously filed as Exhibit B to the Rights
Agreement, dated as of May 16, 2001, between Insmed Incorporated and
First Union National Bank, as Rights Agent, filed as Exhibit 4.4 to Insmed
Incorporated’s Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on May 17, 2001 and incorporated
herein by reference).
|
|
4.6
|
|
Form
of Stock and Warrant Purchase Agreement by and between Insmed Incorporated
and each of the investors in the July 2003 private placement of common
stock and warrants to purchase common stock (previously filed as
Exhibit 4.6 to Insmed Incorporated’s Registration Statement on Form
S-3 (Registration No. 333-107308) on July 24, 2003 and
incorporated herein by reference).
|
|
4.7
|
|
Form
of Warrant issued by Insmed Incorporated to each of the investors in July
2003 private placement of common stock and warrants to purchase common
stock (previously filed as Exhibit 4.7 to Insmed Incorporated’s
Registration Statement on Form S-3 (Registration No. 333-107308) on
July 24, 2003 and incorporated herein by
reference).
|
|
4.8
|
|
Form
of Stock and Warrant Purchase Agreement by and between Insmed Incorporated
and each of the investors in the November 2004 private placement of common
stock and warrants to purchase common stock (previously filed as Exhibit
10.1 to Insmed Incorporated’s Current Report on Form 8-K on
November 10, 2004 and incorporated herein by
reference).
|
|
4.9
|
|
Form
of Warrant issued by Insmed Incorporated to each of the investors in
November 2004 private placement of common stock and warrants to purchase
common stock (previously filed as Exhibit B to the Form of Stock and
Warrant Purchase Agreement by and between Insmed Incorporated and each of
the investors previously filed as Exhibit 10.1 to Insmed Incorporated’s
Current Report on Form 8-K on November 10, 2004 and incorporated
herein by reference).
|
|
4.10
|
|
Form
of Purchase Agreement dated March 15, 2005 between Insmed
Incorporated and each of the investors in the March 2005 private placement
of notes and warrants to purchase common stock (previously filed as
Exhibit 4.1 to Insmed Incorporated’s Current Report on Form 8-K on
March 16, 2005 and incorporated herein by
reference).
|
|
4.11
|
|
Form
of 5.5% Note Due 2008-2010 dated March 15, 2005 between Insmed
Incorporated and each of the investors in the March 2005 private placement
of notes and warrants to purchase common stock (previously filed as
Exhibit 4.2 to Insmed Incorporated’s Current Report on Form 8-K on
March 16, 2005 and incorporated herein by
reference).
|
|
4.12
|
|
Form
of Warrant dated March 15, 2005 between Insmed Incorporated and each
of the investors in the March 2005 private placement of notes and warrants
to purchase common stock (previously filed as Exhibit 4.3 to Insmed
Incorporated’s Current Report on Form 8-K on March 16, 2005 and
incorporated herein by reference).
|
|
4.13
|
|
Form
of Registration Rights Agreement dated March 15, 2005 between Insmed
Incorporated and each of the investors in the March 2005 private placement
of notes and warrants to purchase common stock (previously filed as
Exhibit 4.4 to Insmed Incorporated’s Current Report on Form 8-K on
March 16, 2005 and incorporated herein by
reference).
|
|
4.14
|
|
Amendment
No. 1 to Rights Agreement dated March 15, 2005 between Insmed
Incorporated and Wachovia Bank, N.A. (f/k/a First Union National Bank)
(previously filed as Exhibit 4.5 to Insmed Incorporated’s Current Report
on Form 8-K on March 16, 2005 and incorporated herein by
reference).
|
|
4.15
|
Form
of Warrant dated May 4, 2008 between Insmed Incorporated and each of the
investors in the May 2008 private placement of common stock and warrants
to purchase common stock (previously filed as Exhibit 4.1 to Insmed’s
Current Report on Form 8-K on May 4, 2008 and incorporated herein by
reference).
|
|
|
10.1
|
|
Insmed
Incorporated 2000 Stock Purchase Plan (previously filed as Exhibit 10.1 to
Insmed Incorporated’s Registration Statement on Form S-4 (Registration No.
333-30098) and incorporated herein by reference).
|
|
10.2
|
|
Insmed
Incorporated 2000 Stock Incentive Plan (previously filed as Exhibit 10.2
to Insmed Incorporated’s Registration Statement on Form S-4 (Registration
No. 333-30098) and incorporated herein by reference).
|
|
10.3
|
|
Amended
and Restated License Agreement between Insmed Pharmaceuticals, Inc. and
the University of Virginia Patent Foundation (previously filed as Exhibit
10.3 to Insmed Incorporated’s Registration Statement on Form S-4
(Registration No. 333-30098) and incorporated herein by
reference).
|
|
10.4+
|
|
Subscription,
Joint Development and Operating Agreement by and among Celtrix
Pharmaceuticals, Inc., Élan Corporation, plc, Élan International Services,
Ltd., and Celtrix Newco Ltd. dated as of April 21, 1999 (previously
filed as Exhibit 10.8 to Insmed Incorporated’s Registration Statement on
Form S-4 (Registration No. 333-30098) and incorporated herein by
reference).
|
|
10.5+
|
|
License
Agreement by and between Celtrix Newco Ltd. and Celtrix Pharmaceuticals,
Inc. dated as of April 21, 1999 (previously filed as Exhibit 10.9 to
Insmed Incorporated’s Registration Statement on Form S-4 (Registration No.
333-30098) and incorporated herein by reference).
|
|
10.6+
|
|
License
Agreement by and between Celtrix Newco Ltd. and Élan Pharmaceutical
Technologies, a division of Élan Corporation, plc, dated as of
April 21, 1999 (previously filed as Exhibit 10.10 to Insmed
Incorporated’s Registration Statement on Form S-4 (Registration No.
333-30098) and incorporated herein by
reference).
|
|
10.7
|
|
License
Agreement, dated as of April 1, 1993, between Genentech, Inc. and
Celtrix Pharmaceuticals, Inc. (previously filed as Exhibit 10.11 to Insmed
Incorporated’s Registration Statement on Form S-4 (Registration No.
333-30098) and incorporated herein by reference).
|
|
10.8
|
Purchase
Agreement among Insmed, Inc., Insmed Pharmaceuticals, Inc. and certain
investors named therein dated January 13, 2000 (previously filed as
Exhibit 10.12 to Insmed Incorporated’s Registration Statement on Form S-4
(Registration No. 333-30098) and incorporated herein be
reference).
|
|
|
10.9
|
Form
of Warrant of Insmed to be issued pursuant to Purchase Agreement among
Insmed Incorporated, Insmed Pharmaceuticals, Inc. and certain investors
dated January 13, 2000 (previously filed as Exhibit 10.13 to Insmed
Incorporated’s Registration Statement on Form S-4 (Registration No.
333-30098) and incorporated herein by reference).
|
|
|
10.10
|
Form
of Registration Rights Agreement among Insmed Incorporated, Insmed
Pharmaceuticals, Inc. and certain investors party to the Purchase
Agreement among Insmed Incorporated, Insmed Pharmaceuticals, Inc. and
certain investors dated January 13, 2000 (previously filed as Exhibit
10.14 to Insmed Incorporated’s Registration Statement on From S-4
(Registration No. 333-30098) and incorporated herein by
reference).
|
|
|
10.11
|
Sublease,
dated March 30, 2001, between Rhodia Inc. and Insmed Incorporated
(previously filed as Exhibit 10.15 to Insmed Incorporated’s Quarterly
Report on form 10-Q for the quarter ended March 31, 2001 and incorporated
herein by reference.
|
|
|
10.12
|
Consent
to Sublease, dated as of April 12, 2001, among A & W Virginia
Corporation, as Landlord, Rhodia Inc., as Tenant, and Insmed Incorporated,
as Subtenant (previously filed as Exhibit 10.16 to Insmed Incorporated’s
Quarterly Report on form 10-Q for the quarter ended March 31, 2001 and
incorporated herein by reference).
|
|
|
10.13+
|
License
and Supply Agreement, dated as of August 28, 2003, between Insmed
Incorporated and Pharmacia AB (previously filed as Exhibit 10.16 to Insmed
Incorporated’s Annual Report of form 10-K for the year ended December 31,
2003 and incorporated herein by reference).
|
|
|
10.14
|
Agreement,
dated as of March 3, 2004, between Insmed Incorporated and Geoffrey Allan,
Ph.D. (previously filed as Exhibit 10.17 to the Insmed Incorporated’s
Annual Report on form 10-K for the year ended December 31, 2003 and
incorporated herein by reference).
|
|
|
10.15*
|
License
Agreement, dated as of January 19, 2004, between Insmed Incorporated and
Fujisawa Pharmaceutical Co., Ltd. (previously filed as Exhibit 10.18 to
the Insmed Incorporated’s Annual Report on Form 10-K for the year ended
December 31, 2003 and incorporated herein by
reference).
|
|
|
10.16
|
Form
of Change of Control Agreement entered into between Insmed Incorporated
and certain of its executive officers (previously filed as Exhibit 10.19
to Insmed Incorporated’s Annual Report on form 10-K for the year ended
December 31, 2004 and incorporated herein by
reference).
|
|
|
10.17
|
Form
of Executive Stock Option Grant (previously filed as Exhibit 10.1 to
Insmed Incorporated’s Annual Report on From 10-K for the year ended
December 31, 2004 and incorporated herein by
reference).
|
|
|
10.18
|
Lease
between 2545 Central, LLC and Insmed Incorporated made December 14, 2005
(previously filed as Exhibit 10.18 on Insmed’s Annual Report on Form 10-K
for the year ended December 31, 2005 and incorporated herein by
reference).
|
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10.19
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First
Amendment dated February 6, 2009 to original December 14, 2005 Lease for
5797 Central Avenue, Boulder Co. (previously filed as Exhibit 10.2 to
Insmed’s Current Report on Form 8-K on February 13, 2009 and
incorporated herein by reference).
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10.20
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Change
in Control Agreement entered into between Insmed Incorporated and Geoffrey
Allan, Ph.D. (previously filed as Exhibit 10.19 to Insmed Incorporated’s
Annual Report on Form 10-K for the year ended December 31, 2006 and
incorporated herein by reference).
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10.21
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Change
in Control Agreement entered into between Insmed Incorporated and Ronald
Gunn (previously filed as Exhibit 10.20 to Insmed Incorporated’s Annual
Report on Form 10-K for the year ended December 31, 2006 and incorporated
herein by reference).
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10.22
|
Form
of Change in Control Agreement entered into between Insmed Incorporated
and Kevin Tully and Doug Farrar (previously filed as Exhibit 10.21 to
Insmed Incorporated’s Annual Report on Form 10-K for the year ended
December 31, 2006 and incorporated herein by
reference).
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10.23
|
Amended
and Restated 2000 Employee Stock Purchase Plan (previously filed as
Exhibit 10.22 to Insmed Incorporated’s Annual Report on Form 10-K for the
year ended December 31, 2006 and incorporated herein by
reference).
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10.24
|
Form
of Subscription Agreement entered into between Insmed Incorporated and
each of the investors the May 2007 private placement of common stock and
warrants to purchase common stock (previously filed as Exhibit 4.1 to
Insmed’s Current Report on Form 8-K on May 4, 2007 and incorporated herein
by reference).
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*10.25
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Settlement,
license and development agreement, dated March 6, 2007, between Insmed
Incorporated, Insmed Therapeutic Proteins, Inc., Celtrix Pharmaceuticals,
Tercica Inc., and Genentech, Inc. (previously filed as Exhibit 10.1 to
Insmed’s Quarterly Report on 10-Q on May 10, 2007.
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21.1
|
Subsidiaries
of Insmed Incorporated
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23.1
|
Consent
of Ernst & Young LLP.
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31.1
|
Certification
of Geoffrey Allan, Ph.D., chairman of the Board and Chief Executive
Officer of Insmed Incorporated, pursuant to Rules 13a-14(a) and 15d-14(a)
promulgated under the Securities Exchange Act of 1932, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2003.
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31.2
|
Certification
of Kevin P. Tully, Executive vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) of Insmed Incorporated,
pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2003.
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32.1
|
Certification
of Geoffrey Allan, Ph. D., Chairman of the Board and Chief Executive
Officer (Principal Financial Officer) of Insmed Incorporated, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2003.
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32.2
|
Certification
of Kevin P. Tully, Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) of Insmed Incorporated,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2003.
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+
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The
Securities and Exchange Commission has granted confidential treatment with
respect to certain information in these exhibits. The
confidential portions of these exhibits have been omitted and filed
separately with the Securities and Exchange
Commission.
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*
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Confidential
treatment has been requested for certain portions of this
exhibit. The confidential portions of this exhibit have been
omitted and filed separately with the Securities and Exchange
Commission.
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