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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the quarterly period ended June 30, 2000
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission File Number 0-30739
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INSMED INCORPORATED
(Exact name of registrant as specified in its charter)
Virginia 54-1972729
(State or other Jurisdiction of (I.R.S. employer
Incorporation or Organization) identification no.)
800 East Leigh Street (804) 828-6893
Richmond, Virginia 23219 (Registrant's telephone number
(Address of principal executive offices) including area code)
(zip code)
N/A
(former name)
Indicate by check X mark whether the Registrant 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),
Yes: X No __
--
Indicate by check X mark whether the Registrant has been subject to such filing
requirements for the past 90 days:
Yes: __ No X
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As of July 31, 2000, the latest practicable date, there were 27,070,418 shares
(restated for reverse stock split on 7/28/00) of Insmed Incorporated's common
stock outstanding.
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INSMED INCORPORATED
INDEX
REPORT: FORM 10-Q
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
ITEM 1 - Financial Statements and Notes................................... 1
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 7
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk....... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 10
Item 2. Changes in Securities and Use of Proceeds........................ 10
Item 3. Defaults Upon Senior Securities.................................. 10
Item 4. Submission of Matters to Vote of Security Holders................ 10
Item 5. Other Information................................................ 10
Item 6. Exhibits and Reports on Form 8-K................................. 10
SIGNATURE.................................................................. 12
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS AND NOTES
INSMED INCORPORATED
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 35,139 $ 317
Marketable securities 2,436 4,318
Other current assets 496 43
-------- --------
Total current assets 38,071 4,678
Property and equipment, net 680 242
Goodwill, net 12,656 -
Other assets 100 376
-------- --------
Total assets $ 51,507 $ 5,296
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Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,350 $ 723
Payroll liabilities 343 111
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Total current liabilities 3,693 834
Stockholders' equity:
Series A Convertible Participating Preferred Stock - 61
Series B Convertible Preferred Stock - 36
Common stock 270 39
Additional capital 137,148 27,181
Notes receivable from stock sales - (64)
Accumulated deficit (89,595) (22,780)
Accumulated other comprehensive loss (9) (11)
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Net stockholders' equity 47,814 4,462
-------- --------
Total liabilities and stockholders' equity $ 51,507 $ 5,296
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</TABLE>
See accompanying notes.
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INSMED incorporated
Condensed Consolidated Statements of Operations
(in thousands, except per share data--unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ --------------------------
2000 1999 2000 1999
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues $ - $ 236 $ 90 $ 403
Operating expenses
Research and development 4,248 1,333 6,689 2,700
General and administrative 1,745 579 2,425 957
Purchased research and development 54,433 - 54,433 -
Non-cash stock compensation (4,825) - 3,564 -
-------- ------- -------- -------
Total operating expenses 55,601 1,912 67,111 3,657
-------- ------- -------- -------
Operating loss (55,601) (1,676) (67,021) (3,254)
Interest income 87 119 206 210
-------- ------- -------- -------
Net loss $(55,514) $(1,557) $(66,815) $(3,044)
======== ======= ======== =======
Basic and diluted net loss per share $ (4.77) $ (0.50) $ (8.85) $ (0.97)
======== ======= ======== =======
Shares used in computing basic
and diluted net loss per share 11,629 3,142 7,550 3,140
======== ======= ======== =======
</TABLE>
See accompanying notes.
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INSMED INCORPORATED
Condensed Consolidated Statements of Cash Flows
(in thousands - unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
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2000 1999
--------- --------
<S> <C> <C>
Operating activities
Net loss $(66,815) $(3,044)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 115 38
Loss on sale of marketable securities 7 -
Issuance of stock for services 541 -
Interest accrued on notes receivable from stock sales (2) (1)
Non-cash stock compensation 3,564 -
Purchased research and development 54,433 -
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (420) (69)
Other assets (100) -
Accounts payable 1,342 123
Payroll liabilities 232 -
-------- -------
Cash used in operating activities (7,103) (2,953)
Investing activities
Purchases of marketable securities (496) -
Proceeds from marketable securities matured and sold 2,373 -
Purchases of property & equipment (107) (18)
Acquisition of Celtrix Pharmaceuticals, Inc. 3,613 -
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Cash provided by (used in) investing activities 5,383 (18)
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Financing activities
Proceeds from issuance of common stock 36,476 1
Repayment of notes receivable from stock sale 66 -
-------- -------
Cash provided by financing activities 36,542 1
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Increase (decrease) in cash and cash equivalents 34,822 (2,970)
Cash and cash equivalents at beginning of period 317 11,677
-------- -------
Cash and cash equivalents at end of period $ 35,139 $ 8,707
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</TABLE>
See accompanying notes.
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Insmed Incorporated
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
applicable Securities and Exchange Commission regulations for interim financial
information. These financial statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. It is presumed that users of this interim financial
information have read or have access to the audited financial statements for the
preceding fiscal year contained in the Company's Joint Proxy
Statement/Prospectus filed with the Securities and Exchange Commission and
mailed to stockholders on May 4, 2000. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for fair presentation have been included. Operating results for the interim
periods presented are not necessarily indicative of the results that may be
expected for the full year.
From the Company's inception in 1988 until 1999, the company was a
development stage enterprise devoted primarily to raising capital, recruiting
personnel, identifying and acquiring drugs for further research and development,
and conducting preclinical and clinical development of its product candidate.
During 2000, the company recruited key management positions, completed its
acquisition of Celtrix Pharmaceuticals, Inc., completed a $34.5 million equity
financing, closed a license agreement with Taisho Pharmaceutical, Co., Ltd and
accordingly, is no longer considered a development stage enterprise for
accounting purposes.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Acquisition of Celtrix Pharmaceuticals
In November 1999, Insmed Pharmaceuticals, Inc. ("Insmed Pharmaceuticals")
entered into an agreement to acquire Celtrix Pharmaceuticals, Inc. ("Celtrix").
The transaction closed on May 31, 2000. At closing:
. Celtrix and Insmed Pharmaceuticals became wholly-owned subsidiaries of
the Company.
. Each common share of Celtrix was exchanged for one share of the
Company's common stock.
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. The liquidation preference per share ($1,000 per share) plus accrued but
unpaid dividends of Celtrix Series A Preferred Stock was convertible
into Celtrix common stock at a price per share of $2.006. The holders of
Celtrix Series A Preferred Stock received shares of the Company's common
stock on an as-converted basis.
. Each preferred and common share of Insmed Pharmaceuticals was exchanged
for three and one-half shares of the Company's common stock.
. All options and warrants outstanding at the time of the transaction
converted into options and warrants of the Company.
Insmed Pharmaceuticals' management and board of directors became the management
and board of directors of the Company.
The purchase method of accounting was used to account for the transaction.
Aggregate consideration of $71.7 million, which includes $2.1 million in
transaction costs incurred by the Company, was allocated to cash ($5.4 million),
equipment and other assets ($427,000), accounts payable ($1.2 million), in
process research and development ($54.4 million), and goodwill ($12.7 million).
Goodwill is being amortized on a straight-line basis over twenty years.
The purchase price allocation is preliminary and will be finalized upon the
completion of the valuation of acquired in process research and development.
The results of operations for Celtrix for the month of June 2000 are included in
the accompanying condensed consolidated statement of operations of the Company.
Pro forma condensed consolidated statements of operations for the six
months ended June 30, 2000 and 1999 are included below. These statements give
effect to the acquisition of Celtrix by Insmed Pharmaceuticals and related
transactions as if such transactions had occurred on January 1, 1999. These
statements include the results of operations for Insmed Incorporated and Celtrix
for the periods presented.
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
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2000 1999
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<S> <C> <C>
Total revenues $ 218 $ 484
Operating expenses:
Research and development 7,228 11,281
General and administrative 5,307 1,994
Purchased research and development 54,433 -
Non-cash stock compensation 3,564 -
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Total operating expenses 70,532 13,275
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Operating loss (70,314) (12,791)
Amortization of goodwill (318) (318)
Interest income 293 246
Proceeds from settlement agreement - 600
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Net loss (70,339) $ 12,263
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Net loss per share - basic and diluted $ (2.60) $ (0.51)
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Shares used in computing basic and
Diluted net loss per share 27,039 24,235
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</TABLE>
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3. Issuance of Equity
On May 31, 2000 Insmed Pharmaceuticals sold 4,928,593 shares of its common
stock and warrants to purchase 1,725,336 shares of common stock of Insmed
Incorporated for $34.5 million. The warrants are exercisable for five years at a
price of $9.00.
4. Corporate Collaboration
On July 10, 2000, the Company signed a definitive agreement with Taisho
Pharmaceutical Co., Ltd. ("Taisho") for the development and commercialization in
Japan and other Asian countries of the Company's lead compound, INS-1, for the
treatment of Type 2 diabetes and Polycystic Ovary Syndrome. The collaboration
includes license fees and payment of certain development and regulatory
milestones. Taisho will fund 20% of the development costs of INS-1 in the United
States and the Company will receive royalties on product sales in Japan and
other Asian Countries.
5. Reverse Stock Split
On July 28, 2000, our shareholders approved a one for four reverse stock
split. Such split was effective at the close of business on July 28, 2000, and
shares of Company common stock began trading on the post split basis at the
opening of the Nasdaq on July 31, 2000. Stockholders' equity has been restated
to give retroactive recognition to the reverse stock split. In addition, all
references in the financial statements to number of shares and per share amounts
have been restated.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto included in Part I - Item 1
of this Quarterly Report and the financial statements and notes thereto in the
joint proxy statement/ prospectus dated May 4, 2000.
Overview
Insmed Incorporated is a biopharmaceutical company developing drugs to
treat endocrine and metabolic diseases and disorders. We have two lead drug
candidates - INS-1 and SomatoKine(R). We are actively developing these drugs to
treat diabetes, Polycystic Ovary Syndrome (commonly known as PCOS) and recovery
from osteoporotic hip fracture.
Results of Operations
For the three and six month periods ended June 30, 2000, we recorded a net
loss of $55.5 million and $66.8 million, respectively. The largest component of
the net loss relates to a one-time, non-cash charge of $54.4 million to write-
off purchased research and development resulting from the acquisition of
Celtrix.
In the first quarter of 2000, the Company recognized an $8.4 million non-
cash charge for stock compensation. Approximately $4.8 million of this charge
was reversed in the second quarter of 2000. The major component of these non-
cash charges relate to stock options exercised with a non-recourse note.
Generally accepted accounting principles require that compensation be recognized
in the financial statements based on the difference between the current market
price of the underlying stock and the market price utilized in the previous
reporting period. We used the sale of stock to Taisho on March 28, 2000, to
determine the amount of the charge in the first quarter (as the Company's common
stock was not publicly traded and thus had no readily available market price at
the time). The quoted market price of $13.00 per share on June 30, 2000, was
utilized to determine the amount of the credit in the second quarter. The non-
recourse note to which the majority of the charge relates was repaid on June 30,
2000.
Revenues for the current and prior periods relate to grants under the Small
Business Innovation Research Program (SBIR).
Research and development expenses increased 219% to $4.2 million and 148%
to $6.7 million for the three- and six-month periods ended June 30, 2000
respectively over the same periods in the prior year. The increases resulted
primarily from a higher level of clinical trial expenses, contract
manufacturing, and salaries. Expenses related to clinical site trial grants,
contract research organizations and other clinical trial expenses increased 470%
over the three months ended June 30, 1999 and 267% over the six months ended
June 30, 1999. Expenditures to manufacture INS-1 clinical trial material have
more than tripled over the prior three- and six
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month periods ended June 30, 1999 and, since June 1999, we have hired eight
people, the majority of which are involved in clinical development.
General and administrative expenses increased 201% from $579,000 to $1.7
million and increased 153% from $957,000 to $2.4 million for the three and six
month periods ended June 30, 2000, respectively. Salaries and benefits account
for the majority of the increase. We have increased our general and
administrative staff to prepare for public status and to manage our growing
portfolio of intellectual property. Legal fees were also incurred to finalize
the license agreement with Taisho and other corporate matters, and we incurred
fees to develop our new web site and other investor materials.
As of June 30, 2000, cash and cash equivalents increased $34.8 million from
December 31, 1999. The issuance of equity securities produced net proceeds of
$36.5 million and the acquisition of Celtrix provided an additional $5.4 million
of cash. In addition, approximately $12.7 million of goodwill was recorded as a
result of the Celtrix acquisition. Current liabilities increased from $834,000
at December 31, 1999 to $3.7 million at June 30, 2000. The increase was caused
primarily by clinical trial costs, professional services related to the purchase
of Celtrix, and INS-1 clinical trial material. Stockholders' equity increased
$43.4 million as a result of the acquisition of Celtrix, the issuance of equity
securities and option exercises. The accumulated deficit increased primarily
because of the $54.4 million non-cash charge for the purchased research and
development acquired from Celtrix.
Liquidity and Capital Resources
In March 2000, when we signed a letter of intent with Taisho to develop and
commercialize INS-1 in Japan and other Asian countries, we sold 93,413 shares of
common stock to Taisho. In addition, in May 2000 we sold 4,928,593 shares of
common stock and warrants to purchase an additional 1,725,336 shares of common
stock for an aggregate consideration of $34.5 million. The warrants are
exercisable for five years at a price of $9.00.
Our business strategy contemplates selling additional equity and entering
into agreements with corporate partners to fund research and development, and
provide milestone payments, license fees and equity investments to fund
operations. We will need to raise substantial additional funds to continue
development and commercialization of our products. There can be no assurance
that adequate funds will be available when we need them, or on favorable terms.
If at any time we are unable to obtain sufficient additional funds, we will be
required to delay, restrict or eliminate some or all of our research or
development programs, dispose of assets or technology, or cease operations.
At June 30, 2000, our cash and investments were approximately $37.6 million
and were invested in money market instruments and investment grade corporate
debt.
Forward Looking Statements
Statements included within this Management's Discussion and Analysis of
Financial Condition and Results of Operations, which are not historical in
nature, may constitute forward-looking statements for purposes of the safe
harbor provided by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include all statements regarding expected financial
position, results of operations, cash flows, dividends, financing plans,
business
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strategies, operating efficiencies or synergies, budgets, capital and other
expenditures, competitive positions, growth opportunities for existing or
proposed products or services, plans and objectives of management, demand for
new pharmaceutical products, market trends in the pharmaceutical business,
inflation and various economic and business trends. Such forward-looking
statements are subject to numerous risks and uncertainties, including risks that
product candidates may fail in the clinic or may not be successfully marketed,
the Company may lack financial resources to complete development of product
candidates, competing products may be more successful, demand for new
pharmaceutical products may decrease, the biopharmaceutical industry may
experience negative market trends and other risks detailed from time to time in
the Registrant's filings with the Securities and Exchange Commission. As a
result of these and other risks and uncertainties, actual results may differ
materially from those described in the discussion above.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Insmed Incorporated invests its excess cash in investment grade, interest-
bearing securities. At June 30, 2000, the Company had $2.4 million invested in
fixed rate securities. These investments in fixed rate securities are subject to
interest rate and credit risk. The Company's policy of investing in highly rated
securities whose maturities at June 30, 2000, are all less than one year
minimizes the risk associated with its investment in fixed rate securities.
While a hypothetical decrease in market interest rates by 10 percent from the
June 30, 2000, levels would cause a decrease in interest income, it would not
result in a loss of the principal. Additionally, the decrease in interest income
would not be material.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
At a special meeting held on May 30, 2000, the shareholders of Insmed
Pharmaceuticals, Inc. approved the Amended and Restated Agreement and Plan of
Reorganization, including the related plan of exchange, dated as of February 9,
2000, by and among Insmed Pharmaceuticals, Inc., Celtrix Pharmaceuticals, Inc.
and Insmed Incorporated. The results of the vote were as follows:
<TABLE>
<CAPTION>
Total Shares Shares Voted
Class of Shares (as of record date) For Against Abstain
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<S> <C> <C> <C> <C>
Series A Preferred Stock 6,144,599 4,974,633 0 0
Series B Preferred Stock 3,581,761 3,011,561 0 0
Common Stock 4,241,442 3,721,895 3,999 464
</TABLE>
ITEM 5. OTHER INFORMATION
The registrant's stock became registered under the Securities Exchange Act
of 1934 on June 1, 2000. On August 8, 2000 our common stock moved from being
listed on The Nasdaq SmallCap Market to being listed on the Nasdaq National
Market. Our symbol is "INSMD" through Friday, August 25, 2000. On Monday, August
28, 2000, the symbol will revert back to "INSM."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
1. Current Report on Form 8-K, dated May 31, 2000, filed under Item
5 with the Securities and Exchange Commission (the "Commission") on
June 1, 2000, attaching a press release issued by Insmed
Pharmaceuticals regarding, among
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other matters, completion of the reorganizations of Insmed
Pharmaceuticals and Celtrix into wholly owned subsidiaries of the
Company.
2. Current Report on Form 8-K, dated May 31, 2000, filed with the
Commission on June 15, 2000, reporting, under Item 2, the acquisition
by the Company of Celtrix.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSMED INCORPORATED
(Registrant)
Date: August 14, 2000 By: /s/ Michael D. Baer
_______________________________
Michael D. Baer
Chief Financial Officer
(Principal Accounting and Financial
Officer and Duly Authorized Officer)
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